Tag Archives: Management

How Do You Create Predictable Costs and Profit? Seven Suggestions

Situation: A company finds that it’s costs and profitability vary greatly by season and during economic fluctuations. Some of this is due to hourly rate fluctuation and payroll costs. They also have excess capacity during slow periods. However, new projects arise quickly, and the company must be prepared. How do you create predictable costs and profit?

Advice from the CEOs:

  • Here’s the grim reality. In volatile markets, forecasts are meaningless. Instead of fretting over forecast accuracy, focus on increasing billable rates and managing expenses.
    • To generate additional revenue per project, add a flat percentage charge for project management on top of time and materials. This is often treated by clients like a sales tax or a gasoline cost adjustment and may not penalize contract negotiations.
  • Is it possible to build a sustainable revenue source to resolve profit lumpiness? There are options:
    • Application maintenance projects. After building a box add a provision for maintenance/upgrades as new capabilities and technologies are developed. This can cost-effectively extend the life of the box and long-term profitability of the product that the box supports, while gaining an annuity revenue stream.
    • Add a maintenance add-on service to leverage the company’s core competence on an ongoing basis. Provide technology upgrades through a maintenance subscription similar to software companies adding optional access to all new releases over the course of a year for a fixed subscription cost. The cost to the company for upgrade downloads is essentially nothing, but it gains an annual annuity revenue stream.
  • Investigate a help desk service to sell via subscription to small companies. Most clients use less than they anticipate; however, they prefer the security of a flat price subscription service.
  • What additional info can be gathered through sales to better drive sales forecasts metrics? Look at the past several years: is there any seasonality in a multi-year analysis. It may not occur every year, but if you there’s a pattern it may enable the company to proactively reduce costs where there’s a predictable dip in project demand.
  • Are sales people responsible for both maintaining client relationships and creating new business?  Most companies split these functions because maintenance is like farming while new business development is hunting – few sales people excel at both.
  • If, in development, the company develops IP, can this be used? When there’s down-time can capacity be leveraged to develop the company’s IP portfolio? Look at IP licensing opportunities. This provides an additional potential source of annuity revenue.
  • While it is important to figure out an annuity revenue stream, the principal lesson from the discussion is that most CEOs say that margins are better on fixed price projects than on time and materials. The key is to control to client requests for add-ins or adjustments and to include provision for these in contracts.

How Do You Reprioritize Your Time? Seven Suggestions

Situation: A company delivers specialized consulting services. The founder CEO is also a lead consultant. As the company has grown, the CEO has struggled to prioritize her time as she shifts from consultant to leader. How do you reprioritize your time?

Advice from the CEOs:

  • Look at the skill sets required to run the company and compare this with the skills of current staff. While the company has excellent consultants, do some of these people also have experience in business development or management?
    • Prioritize the skill sets needed and focus hiring efforts on those that can’t be filled by current employees.
  • If the CEO is also the chief rainmaker, then a top priority is hiring a manager/leader. The next level of development within the company will require a level of management.
  • Accept that the company can’t get an A+ grade on every project or detail. Learn to accept a B when this is enough. It will do.
  • Recognize that as priorities shift, vacuums will develop. Identify what will be missing. For those vacancies:
    • Write job descriptions for the roles.
    • Replace the leader’s roles with flexible teams instead of individuals.
  • Reapply financial resources to fund the transition as incentives for individuals to take on new work and responsibilities.
    • Look at profit-sharing models. Use profit sharing to facilitate the shift in priorities by adjusting payout incentives.
  • Anticipate the risks within the plan. Think through these thoroughly and develop contingencies.
  • As CEO, you will not be able to do everything that you do now. In your new role you won’t want to do everything you do now. Your view and responsibilities will change.

How Do You Identify Key Managers? Three Suggestions

Situation: A software service company wants to expand operations. Their business model is to build clone offices that operate like the home office in new markets, much like a franchise operation. The founder CEO is struggling to identify key managers who can manage remote offices. How do you identify key managers?

Advice from the CEOs:

  • The key managers must be individuals who are business savvy, not talented engineers. The key managers must understand:
    • Management – with a proven management record;
    • Basic accounting;
    • Recruiting and hiring;
    • How to manage an office;
    • A bonus will be experience in a similar field, but this experience does not substitute for the above four critical requirements.
  • Looking at current employees, is there the bandwidth within the current team to help bootstrap new remote offices?
    • For example, is there a key senior manager who can become Director of Franchise Operations? In this role, the DFO will serve as a resource to the individuals opening new offices.
    • As this individual’s focus switches, an important question will be who replaces this individual in their current role?
  • It will be beneficial if the individuals who are chosen to lead new offices have at least some experience in sales. This will help to quickly build new customer bases for the remote sites. However, a new site manager must have balanced experience. While sales will be part of the responsibility these individuals must also be able to build and oversee the other critical functions necessary to build viable remote sites.

How Do You Create Accountability? Four Suggestions

Situation: A CEO is concerned that there is insufficient fairness and accountability within her company. One manager is paid hourly and the CEO is thinking about shifting this person to salary plus bonus both to put them on par with other mangers and to create more accountability. How do you create accountability?

Advice from the CEOs:

  • What exactly are you trying to achieve? An operations manager is paid competitively at hourly rates, even compared to salaried employees. The issue is that this person has no responsibility for results as they relate to the P&L. Given this, the group consensus is that it is better to have this person on an incentive program that ties compensation to the performance results that you want.
  • One objective is that you want this employee to contribute more to planning, strategy or the company’s attempts to develop solutions to the challenges that they face. Have you spoken to the employee about your expectations? Does the employee realize that you want or value their input? Direct communication with the employee is important.
  • While the employee understands his responsibilities in the operations area, be sure that he is aware that he is also important to the profitability of the company, and managing operational expenses which are contributors to that profitability. Depending upon the individual’s background, he may need training about the links between expenses and the P&L.
  • Given these factors consider the following options:
    • Adjust the employee’s compensation by switching from hourly to salary. Make the base livable, but not comfortable, and tie the bonus (which will make the total compensation package comfortable) to the profitability of the business. This will have an immediate effect.
    • Clearly explain to the employee that you value his creativity and input. Give this person the freedom to contribute and make it clear that his contribution is expected. Early on encourage this and acknowledge contributions in meetings.
    • You may want to make this person a part owner of the business. This will have a long-term effect.

How Much Should Management Own Post-Financing? Five Points

Situation: A company anticipates closing a Round 3 financing this year. The CEO has an idea of the range of management team ownership that is likely at this round. He seeks advice from others with experience. What can the team do to assure that their ownership is at the upper end of the range? How much should management own post-financing?

Advice from the CEOs:

  • The numbers change depending upon both company valuation and the funding environment. Currently, Silicon Valley venture capital firms are becoming more cautious and risk averse. This is because many companies that have received financing over the last 2-3 years have underperformed. Many have yet to even produce and release a product. In this environment, the chances for maintaining a larger share of ownership for management are not as good as in headier times.
  • Seek two outside counsel to generate two independent opinions on a fair management option pool, and to assist in negotiations. These will likely be boutique firms.
  • Approach the situation as an executive option pool objective. Determine what needs to be in place to attract new executives, as well as to replace existing executives should they leave or be unable to serve.
  • When discussing this with your board and investors, phrase the challenge in win-win terms. The objective is to lock-in key personnel and assure that key positions will be filled to meet company objectives. This is the best way to assure future financial success.
  • Key members of the executive team may want to seek independent advice, apart from the company or executive team.

How Do You Recognize Employee Performance? Four Points

Situation: A company instituted employee awards two years ago. These include an annual President’s Award, at choice of the President, and a Peer Award which is awarded monthly by peers for outstanding achievement.  Recently, management recognized a team within the company with an award for a significant team contribution – a company-paid trip to Las Vegas. This caused resentment among some of the other employees.  How do you recognize employee performance?

Advice from the CEOs:

  • There are two benefits to employee awards – the award itself, and, more significantly, the employee being recognized among his or her peers. Transparency within any award system is important.
  • There does not appear to be anything wrong with the award to the team. However, it is important to communicate to the company that awards are proportional to the benefit that the employee or team has created for the company.
  • Since there has been a mixed response, a message to the company is appropriate. The best way to do this is a brief company meeting, with telephone access to those who are remote. Here are some key points to cover:
    • Make the theme of the meeting employee awards.
    • Recognize the team that received the Las Vegas award and use the meeting to update the company on your rewards policy. Detail the policy, how awards are recognized, and that rewards are commensurate with the level of benefit gained for the company.
    • Deliver the full message in a positive tone.
    • Schedule 1-on-1 telephone conferences with individual remote employees who are not able to participate in the meeting.
    • Optional – follow-up with an email detailing the awards policy.
  • The complaints that you heard meant that the company did the right thing. A little jealousy isn’t bad if it shows that the company will reward hard, productive work.

How Do You Move from Manager to Strategist? Four Suggestions

Situation: The CEO of a small-to-medium business wants to reduce day-to-day management activities and spend more time focusing on new opportunities. How do you shift focus from management to strategy and how do you identify the right person to take on the management role?

Advice from the CEOs:

  • As CEO your primary focus needs to be on the future more than the day-to-day. As a smaller company, the management role needs to be filled by an individual with broad multidisciplinary experience. To replace yourself, you need a Renaissance person – someone with industry knowledge and experience who buys into your business model.
  • As you evaluate candidates, look for attitude, not resume.
    • Analytical skills are critical – mental capacity.
    • These need to be complimented by guts – emotional intelligence.
  • Your current business is not the business that you and your co-founders started. It is a larger entity, more solid, and you need to bring in people who can take it to higher stages of growth. Finding the right person to fill your role is a long-term process.
    • Bring in 3 to 4 solid candidates as employees in important roles. Test them with challenges to see who can grow into the larger role of company manager.
    • Look for people who can grow your downstream businesses as candidates to manage the full business.
  • In the current market you have time on your side. While hiring is improving in some regions, there are still many more candidates out there than available jobs. This is unlikely to change soon.

Do Balanced Scorecards Aid Decision-Making? Three Factors

Situation: A company is investigating Balanced Scorecards as a management tool.  They want to get the perspective of others who have used Balanced Scorecards on how these are used and where they are effective and ineffective. Do Balanced Scorecards aid decision-making?

Advice from the CEOs:

  • To make good decisions in times of uncertainty one needs readily available up-to-date information on the key drivers of the business. Balanced Scorecards answer four important questions:
    • How does the customer view us? (Customer metrics)
    • At what must we excel? (Key Performance Indicators and Internal Business Processes)
    • How do we continue to improve and create value? (Learning/Growth & HR metrics)
    • How do we look to our investors? (Financial metrics)
  • To effectively use Balanced Scorecards employees must be empowered to make necessary changes, and there must be an effective system for prioritizing efforts – so that when a company has multiple opportunities they can decide what to do first, second, and so on.
  • Empowering people to make a necessary change
    • To improve project estimating systems, identify those who are best at estimating project timelines and costs. Have them develop a template of their process, focusing on how they complete projects on schedule. Implement this template across your estimating function.
    • To improve project on-time completion, shift the development focus to calendar and, if necessary, narrow specs to hit the deadlines.
    • To focus scope of work issues, decide test procedures up-front then work on deliverables that will determine whether requirements have been met. From this, develop project assumptions and budgets. Create a template that focuses on internal best practices and clones these for other projects.
  • Queuing Systems & Priorities
    • Define the vision of success. Then drill down to what’s most important. Look at impact of different options on the organization and performance. Finally, force this issue – if we can only do three projects what will they be?

Does It Still Make Sense to Off-Shore? Seven Suggestions

Situation: A company is investigating off-shoring to lower costs. Trends are confusing with some companies returning operations to local production and others continuing to offshore. In addition, options include partnering with an existing company with expertise, or developing off-shore resources themselves. Does it still make sense to off-shore?

Advice from the CEOs:

  • Instead of looking at broad trends, narrow your focus to what other companies in your industry or closely related industries are doing. You can get this from industry publications and trade associations, as well as from other companies with whom you have personal relationships. This will help to clarify trends that potentially impact you.
  • Consider whether there are complimentary objectives that will influence your decision. For example, do you want to expand your market presence abroad and would off-shoring operations help you accomplish this?
  • Look at other US locations – for example the Midwest. Midwestern moms working from home provide high quality customer service for Southwest Airlines. Part- or flex-timers may be less expensive than full-timers.
  • Make this move in steps. Consider breaking up your needs into distinct components and outsourcing each component from a different provider or vendor. This will help to preserve your “secret sauce” and corporate IP resources from those who might want to steal it if they saw the whole picture.
  • Good off-shore functions utilize as little management as possible. Distinct tasks are easier to off-shore than complex processes.
  • Look at scalability issues – based on your own past experience.
  • Tie the resources that you need to what is readily available in different geographies.

How Has Sales Evolved In The Last Four Years?

Interview with Michael Griego, CEO, MXL Partners

Situation: Sales technique is constantly evolving. Based on research completed by the Sales Executive Council, this evolution has accelerated since 2008. The implications for selecting, training and retaining top sales reps are significant. How has sales evolved in the last four years?

Advice from Michael Griego:

  • A 2009 study by the Sales Executive Council (SEC) – Replicating the New High Performer– studied 6,000 international sales representatives from 90 companies comparing top sales performers with core sales reps across 44 attributes.
    • The study found that Challenger sales reps represented the largest cohort (39%) of the most successful sales reps, followed by Lone Wolf (25%), Hard Worker (17%), Reaction Problem Solver (12%), and Relationship Builder (7%) sales reps.
    • The Challenger sales rep is best suited for a complex sales environment, while the Hard Worker is best for less complex enterprise sales or sales of off-the shelf products.
  • Identify the characteristics required for your sale. In addition, identify the mix of sales people currently on your team – from young, eager people just out of school to seasoned vets who can be realigned to current methodologies.
  • Selection should focus on the prior experience of the candidate. What have they have sold in the past? Ask for details of sales situations. How do they usually open a sales conversation? How did they adjust their sales pitch to different audiences? Were they hunters or farmers? Top talent reps can deftly go both ways.
  • Training involves reinforcing sales fundamentals plus the modern application of provocative consultative selling where salespeople provide true insight and challenge customers well beyond feature/function/benefit selling.
    • SEC study results indicate that if you are involved in a complex sale you need to identify the challenges, acknowledge what is happening in your client’s market and the challenges that they face, quantify the implications, and position potential solutions for exploration; all of this occurs BEFORE you start selling your specific solution.
  • Retaining the best sales reps fundamentally takes good sales management.
    • Pay special attention to top performers, while attending to all your reps and treating them fairly.
    • Challenge them to be better in areas that will enhance their success.
    • Recognition is a great motivator. Make them an internal mentoring resource for the rest of the team.
    • Identify your core (average) players and train them to act like your top players.
    • If you do these things they won’t be attracted to the shiny objects dangled by head hunters.

You can contact Michael Griego at mike@mxlpartners.com.