A company has a good accounting system, but the CEO is concerned that they are
not making the best use of metrics to drive the business. He senses a lack of
shared understanding of key metrics and goals. He senses the appearance of
financial disarray, despite his clear grasp of the business. Do you have
control of the numbers?
from the CEOs:
A good accounting system may be in place, but if it is not being used to drive the business and monitor the achievement of milestones then the company is not gaining the best advantage from it.
If there is a sense of financial disarray, this suggests that the company lacks financial metrics. Employees and managers may be doing their jobs, but without financial metrics it is difficult to tell how well they are doing their jobs.
Start with basic metrics:
Where are sales coming from?
What is the profitability of sales by customer segment and product line?
What is the company’s profitability?
What are the profitability trends of the company and key segments of the business?
Once a company is tracking these metrics, it is easier to focus managers and employees on products, product development, operations, sales and marketing issues that are most essential to the company’s success.
The company needs the equivalent of a CFO. This means a financial person, not an accountant. An individual who knows how to look at the numbers. A CFO will help the company to
See the strategic trends in the business,
Uncover the best opportunities for growth, and
Understand the greatest potential threats to growth of the business.
Situation: A software company is developing a new solution for their B2B market. The CEO has been in discussion with a potential partner to assist developing this solution. The question is whether this partner is the right partner. Is it smarter to complete development as a partnership, or on their own with the aid of subcontractors? How do you evaluate a potential partnership?
Advice from the CEOs:
Is the potential partner also a competitor? If so, is the partnership arrangement on or off the core focus of the company’s business. Is there potential for future development in the partnership, or is this just a one-shot opportunity?
What would a new partnership look like? Ask the following questions:
What is the long-term vision for the company?
Does the partnership fit this vision, and under what terms?
Is the potential partnership “sticky”? Will it bring in business that can be nurtured and developed under the company’s shingle?
Until answers to these questions become clear, soft pedal the partnership opportunity and plan for the company’s future.
Take advantage of situations that the partner presents as they benefit you, but do not let these become a distraction to the company’s focus unless the partner is open to working with you as a partner rather than as a source of bodies and skills.
Put a deadline and milestones on the partnership relationship. If they don’t pan out, walk.
Don’t burn bridges, if the partner takes off, then jump back in more strongly, but on terms that benefit the company’s strategy.
For the immediate future and until the situation becomes clear don’t let people become idle. Unless something develops quickly be ready to redeploy them.
An alternative is to stick with the company’s current customers and expertise. This involves investing resources and focusing R&D on solutions for these customers. If the market remains substantial and current customers are the largest players, this has the greatest potential for growing the company’s business.
Situation: An early stage company is wrestling with team dynamics and coordinating the achievement of critical milestones. The strategic picture seems to change on almost a daily basis. New employees who have big company experience want to see formal job descriptions and role definition. Older employees are jealous of the attention that newer, more highly qualified employees are receiving. Where should the CEO be focusing. How should she be handling these challenges? Should a start-up focus on team dynamics?
Advice from the CEOs:
At this point, the company is in start-up stage. The most critical issue isn’t team dynamics, it’s getting a product to market and demonstrating that you can sell it. If you don’t have a product, you don’t have a company.
Your top 4 areas of focus for the next 3-6 months should be:
Get the product out.
Close 3-4 good customers – preferably customers that you can reference.
Securing the funding – partnership or investor – that will get you to your next key milestones or to positive cash flow.
Build your organization and keep planning.
As an early stage company, distinct roles and job definitions make no sense. Your strategic picture is currently very dynamic. You need good people who can flexibly wear several hats and fill diverse roles.
If employees with big company backgrounds press you on job descriptions and role definitions, tell them that as a small company you must be quick on your feet, and that you need them to fill flexible roles. As you grow beyond 35 employees then roles will start to become more clarified. Ask for their patience.
If they continue to struggle with loose role definitions, then they aren’t the right people for an early stage company.
Employees who started with you early were great for the beginning. However, they may not be the best for you long-term. They may feel hurt as newer employees with deeper expertise and resumes start to replace them. In the interests of the company, the game is not longevity with the company; it’s about quality and putting the most competent people in the most critical roles.
If you are playing pick-up basketball, you play with whoever comes along.
If you decide to form a team and to compete, you need quality players. Some of your pick-up players won’t make the cut and need to go find another pick-up game.
Situation: A company recently changed their BHAG (Big Hairy Audacious Goal) to focus on premium customer acquisition, but as a small-to-medium sized company has a 3-year focus instead of the typical 10-20 year focus of a larger company. They want to make this a company-wide effort. How do you make the most of changing your BHAG?
Advice from the CEOs:
First, it is measurable and specific – grow to 10 times your premium current customer base in 3 years. Your marketplace is changing quickly, so a shorter-term BHAG makes sense. Call it your 10/3 Program or 10/3 Challenge.
Is it too shallow? No – this is something that people can rally around. It represents significant company growth.
What happens when you achieve the goal? Celebrate in a big way, and then set the next BHAG.
How do you create excitement? Every time you hit a milestone, bring in pizza, or conduct a special event. Celebrate.
Success = Change. What does that next milestone mean for the company and your capabilities? This isn’t just about new clients, but also includes scaling your delivery systems and customer service. Rally your non-sales staff around these important tasks.
Create milestones not just around sales numbers but also around timelines. Tie incentives to achievement of BHAG milestones.
Conduct a company meeting to announce the BHAG, and announce progress in future company meetings.
Progress against milestones.
Share pipeline data to maintain excitement.
Develop scale-up programs and share progress of non-sales departments as they ramp up services.
Think about building a competition around the goal. As long as this fits your culture it can add excitement to achieving both milestones and the BHAG itself.
Note: The term ‘Big Hairy Audacious Goal’ was proposed by James Collins and Jerry Porras in their 1994 book entitled Built to Last: Successful Habits of Visionary Companies.
Situation: Early stage companies often find it difficult to raise funds from traditional sources. An experienced CEO wants to help certain new companies of which she is aware in two ways – assisting them in receiving funding, and then helping to assure that they reach key milestones. What is the best way to profitably address this ambition? How do you fund a start-up?
Advice from the CEOs:
Build relationships with a few select sets of local investors – venture capitalists, angels, and private investors – with whom you have strong credibility. For a retainer or fee, agree to bring them a number of new pre-vetted companies in the next year, and post-finding, help the companies to succeed and hit milestones. From the companies that you bring to funders, ask for equity in return for securing funding and providing guidance.
Put yourself in the shoes of the person who will pay you – what do they want and how do you deliver this for them? Develop statistics from your past successes that highlight your capabilities. Don’t be shy about your accomplishments.
What are you passionate about? If the answer is development – linking technology entrepreneurs to strategic partners and then being an accountability partner to assure that milestones are met – this will be your focus and your pitch to both funders and tech companies.
Your value is linking the entrepreneur to the funding source and being an accountability partner.
Situation: A company wants to develop a better planning and execution process. Historically they have been poor at meeting goals and objectives. What are the most important factors that improve planning and execution in your company?
Advice from the CEOs:
Take the advice of Jack Stack in his book The Great Game of Business. When building a plan, do it as a company-wide exercise.
Make sure that all of your departments are involved, each has direct input into the development of its own goals, and each understands that they are fully accountable for the achievement of their own goals.
Also do this in open session, and assure that each department has the input of other departments whose activities are critical to the completion of each goal.
This assures that different departments are working in alignment and not against each other.
Finally, make the process interactive and add some fun so that everyone is engaged.
Milestones and meetings are critical. Each department develops quarterly goals to support the plan, and department heads meet bi-weekly to monitor progress and prevent conflicts. Revisit the plan on a quarterly or semi-annual basis to adapt as necessary.
Focus the plan on one-year performance – with quarterly objectives – but forecast financials and broad metrics out 3 years to assure that the 1-year plan supports long-term objectives.
Situation: A company missed production milestones and had to reduce top and line staff by 20% to keep salaries in line with expected revenue. An executive who was very angry about being let go has asked the CEO to meet him for lunch. How do you manage communications with employees post-riff?
Advice from the CEOs:
If you haven’t already, call a company meeting to explain the situation, as well as the rationale for the riff. The company has to manage itself financially in line with current and expected future revenue to assure that it can take care of employees. Explain the connection between production milestones, revenue, and the company’s ability to afford staff. Employees generally understand these connections and will accept this well.
When you have lunch with the executive, first listen to what he has to say.
Anger expressed in an exit interview is part of a natural emotional response to difficult news or change. Listen for signs of ongoing anger or progress toward acceptance of the situation.
If the individual threatens the company or tries to bargain the severance package, don’t negotiate.
However, if the individual is reasonable and asks for assistance in finding a next position – references, introductions, etc. – then offer to assist as you can.
Should the CEO make an attempt to follow-up with others who were riffed?
No. If they contact you, then respond in a similar fashion as you are to the VP, but otherwise don’t try to contact them.
In the Silicon Valley economy, people are familiar that employment situations change and know that as this happens they can be affected.
Situation: A company is bringing in new business, but used up its cash reserves to stay afloat during the downturn. As it increases payroll and orders for components to meet production deadlines, it struggles to meet cash flow needs while waiting for customer payments. How can you increase cash flow to fund growth?
Advice from the CEOs:
Your customers need your product to meet their own deadlines. Have you talked to them about your needs and seen what they can offer? Offering modest early pay discounts on amounts due may help to ease your cash flow challenges.
Among discounts offered by other businesses is, for example 2% if they pay in 10 days.
Another option is to offer 5% off if they pay for new orders in advance.
As you bring in new business or projects, negotiate early pay options in your contracts. For example, offer the option to prepay on milestones in exchange for discounts on the final payment.
Factoring receivables is an option, but can be expensive. On the other hand with investors looking for good returns, it makes sense to check out options that are available on the web.
There are now web services which combine small contributions from a large number of investors into funds which can help you to finance short-term cash needs. There are also options which may provide lines of credit which are easier to secure than bank lines.
Look at local redevelopment options or funds which are targeted at local businesses. For example, in the San Francisco Bay area there is a organization called Working Resources which provides low interest loans local businesses to meet cash flow needs.
Situation: The CEO of a small company finds that whether he gives broad direction to employees or very specific instruction he gets the same result: they don’t seem to understand what he wants. He feels that they don’t have a sense of buy-in or urgency. What are best practices for effective delegation to improve results?
Advice from the CEOs:
You recently fired an employee for inconsistent performance but didn’t tell your staff. When you return to the office this afternoon, get the employees together and tell why the individual was fired. Let them know that this is part of a broader pattern that you see within the company and that if you see other cases of individuals not following through on their assigned responsibilities you will have to take additional action. Unless your employees understand that nonperformance has consequences, there will be no change.
In your operations, set subassembly goals and intermediate milestones coupled. Create and post a set of charts in the operations room so that employees have a regular visual reminder of how they are doing. Bring these charts to employee meetings and discuss how the company is doing. If deadlines aren’t being met, ask for input on how to improve performance. Celebrate successes with recognition for individuals or groups who demonstrate the ability to meet objectives.
Hire an operations manager with experience working with teams the size of yours. You want an individual who excels at motivating and getting results from people, and who has supervisory versus managerial experience. Think platoon leader – a person who excels at effectively running small teams.
Situation: The Company has both an annual and a 5-year plan. These are discussed in both company meetings and in 1-on-1s with managers. The CEO fears that he’s starting to sound like a broken record. How do you maintain the focus to stick with your plan?
Advice from the CEOs:
Break the 1-year plan into quarterly objectives. Don’t just divide annual objectives by four. Vary objectives for each quarter so that the total sums to the annual plan.
Divide your broad plan into a series of milestones. Celebrate the achievement of each milestone. This helps to maintain momentum and keeps everyone engaged.
Establish metrics to assess your progress against the plan. These will enable you to evaluate progress against plan and the degree to which you are above or below plan. It will also help you to evaluate whether underperformance is a matter of externalities or a flaw in the plan itself. If there is a flaw, fix it as soon as you find it.
Evaluate your “worst case” scenario so that you know the implications. This enables you to compare current performance against “worst case.”
In his book “Good to Great,” Jim Collins found that an important difference between G2G and non-G2G companies was the ability of the G2G companies to maintain faith and to slowly build momentum regardless of the apparent obstacles faced. This allowed good companies to establish the momentum that eventually made them great. Non-G2G companies continually changed direction and never built sustainable momentum.
Key Words: Plan, Annual, Long-Term, Objectives, Milestones, Celebrate, Momentum, Engaged, Underperformance, Worst Case, Good to Great