Situation: The CEO of a service company continually finds the company short of cash. They have just hired a new accountant, but it will take time for this individual to understand the financial situation and to generate recommendations to improve cash flow. How do you keep a company afloat short-term?
Advice from the CEOs:
Point #1: This isn’t just a question of controlling costs; the company needs to build the infrastructure to succeed.
If there isn’t someone on the team in a position of authority, who the CEO can trust completely, hire this person. The CEO can’t control all risks.
While the company has shrunk over the last two years, it is still a substantial company and needs professional management. To grow effectively, professionals are required in key leadership positions. If necessary, hire experienced outside talent
Look for teachable moments as challenges arrive. The CEO, instead of solving a problem, should work with employees and mentor them through discovering and implementing solutions.
How to communicate this to current staff?
Put the story together. Be able to make a clear statement to them, including the current situation and future possibilities for which the company must prepare.
Generate charts and metrics to support key points.
Use senior staff as the mouthpieces to present the story to the rest of the organization. Once they are onboard, have them help craft the message. Don’t underestimate the CEO’s authority. This is business, not a popularity contest.
Let others make mistakes – it is part of the learning process – no matter how critical the situation.
Point #2 – Return to the company’s roots.
The faster everyone accepts that a focused approach is the only way to survive, the faster the company will turn around. Reestablishing company presence in key markets with a new model that speaks to their desires makes a lot of sense.
Be very clear as to what flat-rate service pricing covers. Include this in the signed customer agreement. Don’t allow costs to creep up or it will kill the profitability of flat rate jobs.
Create an infrastructure nimble enough to adapt as market conditions change. Identify what really works and focus on this.
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.
the grim reality. In volatile markets, forecasts are meaningless. Instead of
fretting over forecast accuracy, focus on increasing billable rates and
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
it possible to build a sustainable revenue source to resolve profit lumpiness? There
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.
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
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
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.
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.
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
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
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
from the CEOs:
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?
the skill sets needed and focus hiring efforts on those that can’t be filled by
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
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.
that as priorities shift, vacuums will develop. Identify what will be missing. For
job descriptions for the roles.
the leader’s roles with flexible teams instead of individuals.
financial resources to fund the transition as incentives for individuals to take
on new work and responsibilities.
at profit-sharing models. Use profit sharing to facilitate the shift in priorities
by adjusting payout incentives.
the risks within the plan. Think through these thoroughly and develop
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
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;
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.
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.
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.
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.
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.
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?