Situation: A CEO wants to increase brand awareness for her company and its primary service. The objective is to increase the client base and drive revenue growth. They have identified their primary growth opportunity and differentiating advantage. What else should they do? How do you increase brand awareness?
Advice from the CEOs:
What is lacking is a clear vision, path, and marketing plan. These are prerequisites to deciding either the solution or hiring a high caliber individual to execute the plan.
What steps are involved?
Survey 20% of current clients. Ask “why did you choose us?”
Develop the tools to track and show clients service performance online.
Use these same tools to show company performance online.
Tune messaging to potential clients to highlight demonstrated service performance.
Play elite – as the company’s name and reputation grow, clients should aspire to being accepted as clients.
What is unique about the company’s ability to manage and extend the longevity of clients’ key assets?
How well prepared are potential clients to manage this on their own?
How does the company help potential clients to manage and extend the life of those assets?
Once there is a clear plan, fine-tune the internal focus of the company to align with the plan.
Increase involvement in communities where potential clients are found.
Host seminars and webinars on relevant topics.
Evening seminars in locations that potential customers congregate – existing clients attend and bring a friend.
Focus on referrals from existing clients – with a reward – a free consultation.
Look for non-competing service providers who can be good referral sources.
Make it easy for potential clients to switch. Use mass-marketing to spread the word with a multi-tiered approach to different segments of the target market.
Situation: A CEO’s company has built an admirable suite of products. The next step in company growth is to create a more structured marketing pipeline. They have experienced salespeople, but these people have come to the end of their rolodexes. A new approach is needed. How do you boost your sales and marketing?
Advice from the CEOs:
Create a profile of the ideal customer. This is the customer who can create the greatest leverage using the company’s suite of product. Aim for the top management of this customer.
Incentivize the sales reps to target high value accounts. To create targeting incentives, graduate the commission base.
Set initial commission based on the size of the customer.
Differentiate commission by product – pay the highest commission for highest gross profit products or the company’s highest priority products.
Salespeople need to be able to close sales by themselves.
Currently, salespeople are acting as lead generators and are counting on the CEO to close the sale.
Create a different set of expectations, including thresholds to limit the CEO’s direct involvement in the sales process – for example, limit CEO involvement to accounts with a revenue value over $500K.
Train the salespeople to communicate the value proposition for initial conversations as they qualify a new client. Create a set of resources to assist them along the way.
Is it a good idea to pay ongoing commissions forever?
Another CEO used to do this but has moved to X% for the first period/project and X/2% on follow-on-periods/projects. This keeps them hungry for new customers who will pay the higher commissions.
Don’t create a perpetual annuity – the way insurance brokers are paid. Reduce commissions on existing accounts so that they decline over time – keep salespeople focused on bringing in new accounts to maintain their income levels.
Decide on an acceptable level of total compensation for salespeople. Plan the commission structure to allow them to reach this level, but they have to keep selling to maintain this level. Keep them hungry.
Situation: A CEO wants to create new markets outside the US. They have investigated options and locations and are starting to plan. One question is how long it will take to start seeing results, so that they budget accordingly. How do you build international sales?
Advice from the CEOs:
Decision timelines internationally are longer than they are in the US. For example, in Europe timelines are easily twice as long. This means that new entrants must budget for a sustained effort.
It took another company three years to develop traction in Europe. They have an office in Germany, but most new sales are coming from Eastern Europe. After three years their European operation is now break-even.
International markets, especially in Europe, can be very conservative. Job security and maintaining cash flow are the focus.
Labor laws encourage companies to do things themselves rather than outsource. The result is that a new entrant will face competition from internal departments of potential prospects.
In European the emphasis is not growth, but on conservative steady operation. Growth tends to come from acquisition.
Sales pitches should be tweaked for international audiences. For example, highlight reduced need for additional personnel to manage the systems, fewer breakdowns and glitches, and the ability to count on seasoned outside expertise to quickly address complications.
Relationship selling is very important internationally. Sales and tech support are best provided, and in some cases required to be provided in the local language.
In Europe, Italy can be an important lever to sales with the right partner. Italian companies can be excellent at marketing and can jump-start European sales. This will be a very personal relationship.
Situation: The CEO of a service company is focused on growth, which is driven by new contracts. This, in turn is driven by new sales contacts per week. Sales staff are paid on commission. The CEO wants to assure that quarterly objectives are met to grow the company. How do you maintain focus on quarterly objectives?
Advice from the CEOs:
Track and publish progress against weekly, monthly, quarterly metric objectives and key drivers.
Post charts around the office to maintain staff focus on objectives.
Put up whiteboards that show individual metrics as well as daily “top 3” focus items.
Identify key market sectors where focus will pay off for the company.
It’s OK to take a generalist approach as the company develops a new market sector. This helps to learn the dynamics of that sector.
As sector market penetration grows, develop functional or sector specialties.
Identify and focus on the gaps to company success.
Monitor and generate incentives to increase sales activity. The more fun that is involved in this, the faster the company will close the gaps.
Focus marketing on developing more prospects. Brainstorm creative marketing approaches that will generate prospects. Create a competition to develop the best new ideas with incentives or prizes to celebrate the most successful ideas.
If additional resources are required, currently beyond the company’s budget, investigate adding commission-driven contract resources with strong incentives for identifying new prospects and landing new clients.
Situation: A CEO founded his company with a partner. The partner is no longer deeply involved but retains a voice in company strategy and finances. The CEO wants total control. It has become complex trying to run the company with an absent partner. How do you gain control of the company?
Advice from the CEOs:
Get a formal company valuation as soon as possible. The expense is paid by the company or split 50/50 between the CEO and founding partner.
This exercise will provide the information needed to run the company. It is a much more sophisticated exercise than simply valuing current company assets.
It will provide a good third-party valuation upon which the CEO and partner can negotiate a buyout of the partner’s interest or place a value on a silent partnership arrangement.
Once the company has a valuation, how is the conversation started?
First ask what the partner wants. His response will help frame the discussion.
It’s OK to let the partner know that the current arrangement is not working for you.
As silent partner, instead of a salary the partner just gets checks – monthly, quarterly or whatever – based on net profits (EBITDA – Earnings before interest, taxes, distributions and adjustments).
The CEO’s salary is included in the expenses of the business.
If it is too painful to initiate the discussion on your own, hire someone to help you.
Once the CEO has control of the company, create an organization chart, including the roles and responsibilities of the key positions in the organization.
First, decide what you do as CEO – or want to do.
For the other roles, either hire employees or consultants to help.
The E-Myth Revisited by Michael E. Gerber includes an example of how Thomas Watson did this as he founded IBM.
This process can have surprising results. Another CEO doubled the size of the company after buying out his founding partner’s position. The partner turned out to be one of the top inhibitors to growth.
Situation: The CEO of a software company has been presented with two opportunities by a large customer – international expansion to support their sales and creation of a data warehouse facility. The company has the option of pursuing either or both. The customer is not offering up-front cash to support either opportunity. Should they pursue either or both? How do you choose between opportunities?
Advice from the CEOs:
Keep pursuing both opportunities and establish a series of decision points which will yield either a Go or No-Go decision on each. The big question is to determine how either will support company growth.
The customer is interested in both opportunities so ask them for assistance such as: removing barriers, client referrals, or some form of cash or investment.
For either opportunity to succeed requires a high level of internal buy-in and support from the customer.
If the company can afford to be aggressive now, this is a great time to move.
Look carefully at the ROI on each opportunity under different scenarios.
Do background work with potential clients to validate each market opportunity.
Specifically to International Expansion
Buy-in from the customer’s head of international sales is essential – without this it will be difficult to establish a solid relationship with the international sales team. Lack of this support will be a No-Go sign.
Can the customer provide office space, access to their infrastructure, administrative support, assistance in gaining necessary licenses to do business, etc. during start-up?
Could this venture be undertaken through a joint venture with an established international company? This would save start-up costs and allow validation of the opportunity before risking the company’s investment.
Execution will require a large-scale effort – both time and money. Include both in the Go/No-Go calculation.
Specifically to the Data Warehouse Facility
A competitor’s right of first refusal on this business is a barrier. However, the opportunity may be viewed as too small for the competitor. Is it possible to buy rights from this competitor?
Ask the customer to transition their customers to your company and its product.
Situation: The CEO of a successful small software company is snowed under by day to day tasks. She wants to focus more of her time on business and infrastructure development. However, the company’s departments are not strong enough to run without her supervision. How do you free up more of your time?
Advice from the CEOs:
The first priority is to develop infrastructure that will allow the CEO to focus on strategic development.
To build this the company needs the right people to do the work.
Look at the daily task list and develop or hire new managers to oversee day-to-day non-strategic functions.
For example, offload payroll and back-end accounting to a bookkeeper.
Look at the gaps between where the company is now and where you, as CEO, want to be in terms of your time and responsibilities:
In addition to a bookkeeper, hire an experienced executive assistant – to keep you focused as CEO.
The company is growing rapidly. It is time to hire a human resources manager.
The company’s cash flow projection for the coming year indicates a substantial surplus.
Use this surplus to hire infrastructure.
In front of key clients, keep the impression that you are available to them; however, this is primarily for client relations. The CEO doesn’t have to do all the work demanded by clients.
Use the lawyer / rainmaker model. The rainmaker maintains key client relationships; however, the rainmaker has staff do 90% of the work.
The 7 States of Enterprise Growth Model indicates that the company is now in what’s called a Wind Tunnel. The critical activities in a Wind Tunnel are:
Letting go of methodologies that no longer work and acquiring new methods that do work, and
Situation: The CEO of a small technical company is in the process of handing off responsibilities to a new President who lives in another state. The CEO and President have known each other for a long time and have a strong relationship. The CEO will hand off several key responsibilities immediately, while retaining financial and HR because of the President’s location. How do you transition to new management?
Advice from the CEOs:
Most of the current hand-off plan concerns non-technical areas. The next logical area to delegate is Customer Support.
Establish a trigger process for new requests for support that keeps key parties informed and meets customer needs on a timely basis.
Think about bumping up Customer Support to a more proactive Customer Relations function. This is important during economic downturns when trade show attendance is low.
Next in line are Installation and Installation Planning, since the new President will already have Installation Support.
Think about Technical Support. This could be combined with Customer Support and makes sense because many customer support questions come through technical support.
Beef up the financial function to support future growth. Growth brings new complexities into the picture. Consider handing this off to a part time professional who can provide regular updates of the company’s financials. A professional can also look at the structure of the books and suggest changes that will provide more insight into company operations, opportunities for savings, and sources of funding to support planned growth.
A company is looking at options to fund growth. These include selling a stake
in the company, bank financing, organic growth. or partnering with another
company. There are trade-offs to each option. How do you fund business growth?
Advice from the CEOs:
There is a question that should be answered before talking about funding: what is the vision for the business?
Think about building the business that the founders want to run. What size company feels comfortable from an operational perspective? What does it look like?
Does the company have the right people and infrastructure to support planned growth? Are current direct reports capable of taking on additional projects and monitoring both current facilities and additional sites?
As the company grows, can the bottom line be increased as fast as the top line?
Commit the 5-year plan to paper. Before deciding how the company will grow, determine the vision, the growth rate to support that vision, the organization required, and the strategic plan to get there.
The funding decision is an investment decision. What’s the return for a multi-million-dollar investment? What incremental revenue and earnings will it produce?
Estimate how much revenue the investment will generate in 5 years. At the current gross margin, what is the incremental gross margin per year.
Given this estimate, what is the projected EBITDA? Does the annual EBITDA represent a reasonable rate of return on the investment?
The investment ROI must be known – both from the company’s perspective and for any lender or partner who invests in the planned expansion.
How high do the company’s relationships extend in key client companies? Do client upper management realize how critical the company is to them?
If the answer is not high enough, develop these relationships. This could open new funding opportunities.
For example, if the CEO knows the right people at a key customer, let them know that the company may want to build a facility near them. The customer may be interested in partnering with the company to finance the facility.
A multi-million-dollar joint venture plant investment is a modest investment to a large customer if it gains them a strategic advantage.
A company has been approached by a larger company that is interested in
purchasing it. The purchaser wants to fill a niche that they don’t currently serve,
but which is important to their growth. The CEO is concerned about what will happen
to employees following sale of the company. How do you respond to a purchase
from the CEOs:
Questions for Preliminary Stage Research:
What valuation is the tipping point for an attractive offer by the buyer?
Determine the nature of the purchaser’s interest in the company and how it fits into their broader strategic picture. If their plan will dramatically change the market the company’s current market value may go down later relative to doing a deal with them today.
If the acquirer has a history of buying other companies, look at who they’ve recently bought, what they paid, and what kind of impact they had on the staff and culture of the companies purchased.
Check out the purchaser’s P/E ratio. If it is in the range the company’s desired multiple on EBITDA, a good deal is possible.
Temper the company’s response and approach to get the most from this experience.
Currently, assumptions about the acquirer make the offer appear unappealing. Ask questions to validate or challenge these assumptions.
Be open-minded so that the purchaser reveals more about themselves and the market than they would if they sensed a lack of interest in an acquisition.
How does the company protect itself during the inquiry and due diligence process?
Keep staff numbers and individuals, and customer lists close to the chest.
Have an LOI and ask for a breakaway clause before sharing significant information.
Breakaway clause: if the two companies get into discussions and the potential acquirer decides to abandon the discussions, it will cost them $1M.
The potential acquirer may not agree to this, but it demonstrates that the company is serious both about the discussions and about preserving the confidentiality of its business information.
More Advanced Stage Questions and Research:
This looks like a strategic interest. If so:
Get assistance from an investment banker.
Look at what other alternatives may be available to the acquirer to assess the company’s potential value.
Any offer other than a high-multiple strategic valuation and offer should not be of interest to the company.
What restrictions will the acquirer put on the company?
For example, if there is an earn-out value, will they give the company the freedom to operate to maximize this value?
Be careful with employee communications and how employees are informed of an outside interest. This can be difficult during due diligence.
If the founder remains with the company post-sale this could help lock in the value of the exit and assure the employees’ future.
Make the most of this opportunity.
Are there ways that the company can become better and smarter working with the acquirer?
Is there a relationship short of acquisition than would benefit the company like a collaboration or partnership?
Can a relationship short of sale enhance the company’s market presence and help the company to achieve national status more quickly?