Situation: A company is purchasing another company to expand its product offering. The CEO is concerned that the employees need to stay focused through the closing date. He is also concerned about retaining key employees both of his company and the company that he is buying. How do you prepare for an acquisition?
Advice from the CEOs:
Until the deal closes, don’t change anything about your current direction.
As you negotiate and move to close, be mindful of competitive bids.
This will help to keep the deal in place.
It may also open the option to put together the deal and then seek competitive bids to fund the deal through private equity groups.
Get three second opinions – learn what could go wrong with this deal so that you can plan and anticipate.
To assure that you retain key staff take the following steps:
Hire consultants: HR, financial, see what they recommend.
Offer key employers favorably priced options for a combined minority position in the company. This offers them an upside and will be an effective retention package.
What else can be done to retain key employees.
Let them know how this acquisition will position the company as the Dream Team company in your space.
Explain how this acquisition gets the company closer to a true exit strategy which will be financially beneficial to them.
If you can assure key employees that they will not experience any change in their job, title, responsibilities or compensation, retention may not be an issue.
Situation: A company serves a market with a lot of new small entrants. Clients purchase from these other companies as well as the CEO’s company. They are continuing to call and network with their client base to retain clients and build new customers. What else should they be doing? How do you deal with cut-throat competition?
Advice from the CEOs:
Make a list of those clients who are no longer purchasing from you or referring new clients. Go talk to them. Ask why they are no longer purchasing from you or referring new clients. This may open new options. You may find something new or unexpected that you can offer.
Work with an outside service to follow up with on clients lost and won. The key question for them to ask clients is why. Learn from the responses what is most important about the clients’ purchase and referral decisions.
Consider a new service. A health/happiness outcome would be a nice value-add: a quarterly report back to referral sources on how happy the clients that they referred are. The last question on the survey should be – Would you work with our firm again? Why or why not?
Consider using an outside source to gather the data for these surveys. To get more valuable responses, don’t just ask about your company, but also several of your top competitors; this will produce a richer set of responses.
There are two ways to compete: either you are low cost or have established a unique value proposition. Whatever this is, sustainability of your critical point of differentiation is essential.
Health care legislation is now in flux. Whatever the outcome, it will have an impact on your market. Become an expert resource on the implications of various outcomes.
Look at social media resources – feed valuable information to your audience via blog.
Situation: A company finds that new opportunities are coming in more slowly than they had planned. They have work now, but no confidence that this will continue long term. This is frustrating because they are in the middle of a transition in their business model. How do you create clarity about the future?
Advice from the CEOs:
There is a lot of uncertainty in the business world. Low oil prices are depressing investment in the energy sector. Global political and economic uncertainty are not conducive to bold expansion plans. This uncertainty may last for some time. Companies have to adapt.
A mapping solution is a used by some companies use to create clarity between alternatives:
Start with box representing where you are now.
Draw boxes representing each of the alternatives that you are considering.
Map the paths that will get from where you are now to each alternative. Draw them out, including what you have to accomplish and what resources you have or must acquire to get to each.
Do a SWOT analysis (strengths, weaknesses, opportunities, threats) for each alternative.
This will help you to think through each of the options and identify the benefits and pitfalls of each.
This is a great exercise to do with your management team, as others will add their own perspective and insights.
Tools: use Post-it notes – either easel pads or larger (5” x 8”) Post-it notes. Put these on the wall, and start sketching out your ideas with boxes and paths. Revisit the charts for at least a few minutes a day for the next 3-5 days. You will be amazed at both the number of new options you generate and how the obvious options rise to the top.
This is much easier and more productive than it may sound. Don’t fear the process.
Situation: A CEO asks: How do you help people appreciate the difference between where they want to be verses where you need them to be? How do you help them understand the realities of career and financial potential that have been set for your company? What do you do to help your employees understand what has to happen before they get to the next step? How do you set appropriate expectations?
Advice from the CEOs:
The current labor market has yielded a different employment environment compared with 20 years ago. Many new hires are either:
Young – without long term expectations or perspective;
Possess an entitlement mentality;
More seasoned and possibly looking toward retirement; or
Have personality challenges.
This is just current reality and will last until the next contraction.
If you have a clear policy on compensation and promotion you are way ahead of the game because you can communicate this clearly at onset of employment. If you don’t have this, create it and make sure that it is communicated consistently to new employees and during all employee reviews.
Once you have established and communicated a clear policy on compensation and promotion the question becomes, on an individual basis, whether an employee “gets it” or not. If they don’t, perhaps your company is not for them.
Is there value to stock options as a bonus?
If you are a public company, they have value because stock options are tradable within legal guidelines.
If you are a private company it’s a different matter. Other than as an emotional boost, without a liquidity event the stock has no value except for possible periodic distributions against shares held.
Situation: Two key managers of a company are too busy with day-to-day activities to focus their planned 40% of time on growth. The company has hired personnel to relieve some pressure on them, and a new ASP (Application Service Provider) is improving customer out-reach. How can the CEO take pressure off these managers so that they have time to grow the business? How do you focus managers on growth?
Advice from the CEOs:
Small companies grow through their early stages with everyone wearing many hats and doing everything. The company is now larger than this and it has to stop. Managers need to focus their responsibilities where you need them to focus and stop doing less important tasks.
Have you gone over key responsibilities and expectations for the two managers? Do they have clear objectives and deliverables? If not, focus on this.
Brainstorm with them how they could free-up time to focus on growth.
Do this in a meeting. Your plan is 10% growth. Ask for their ideas on how to grow the business, and develop a plan to put their ideas into action. What help or resources do they need to meet this plan?
Three heads better than one to ask core questions – let them come up with the answers.
Design processes to address needs and responsibilities.
Rank implementation of options in terms of impact to the company and financial results.
Given the ranking, implement programs sequentially – most relevant and easiest first.
Taking orders by phone is clerical. This should not be a manager’s prime focus.
Have a clerical person answer the phone, and train them over time.
Limit the manager’s direct involvement in phone orders to critical situations.
Situation: A company collaborates with a large client to provide services to their mutual market. The company wants to offer similar services to secondary markets not currently of interest to the client. The challenge is that the client is very conservative; their current priorities are forcing long delays responding to the company’s requests, and the primary contacts within the client will not take any risks arguing the company’s case to their upper management. How can the company approach this situation to create a win-win situation with this client?
Advice from the CEOs:
Since the services provided combine the capabilities of the two companies, it is necessary to develop a strong case to show how the proposed extension of services will benefit the client. Without their agreement the service offering is compromised.
One option is to offer a no-risk revenue share or royalty arrangement to the client in exchange for their agreement to allow you to build the secondary markets.
A second option is to offer to sell a minority share of your company to the client in exchange for your ability to develop the secondary markets. The deal could include an option to make a larger investment in your company if your strategy plays out profitably.
A third option is to raise money and purchase rights to the client’s capabilities outright. It is worth exploring whether the client would be open to this.
Find an informal setting to ask the client’s CEO for advice on how you should proceed. Have your ducks in line to offer options if the CEO responds positively.
Situation: An SMB CEO has sold his business and seeks a new opportunity. Options range from a mid-level position in a large company to various options in existing or start-up smaller companies. How do you evaluate your career choices?
Advice from the CEOs:
The most important factors are to determine what you want to do and what will make you, and your family, happy. Start with a Pro/Con analysis of each type of opportunity compared with your short and long-term desires. Which among the following choices are more important?
o Financial stability and some level of job security vs. higher risk and potential reward with lower security.
o Desire to be a player or to be the person in charge vs. being happy with a staff position.
o Ability to create your own path or willingness to adapt to the priorities of others.
Given these choices, here is what you may find:
o In a large or established company the most likely opportunity will be a staff position. The trade-off is stability for authority, but be aware that large company organizational politics may be severe.
o In a small existing company it is possible to be a player in a key position. The trade-off is lower stability and viability for more authority.
o In a new company there is the chance to be the CEO, bringing business experience to a group with technology expertise. The trade-off is high risk, long hours and low stability for a high level of authority.
Other factors to consider are how critical your personal situation is and the depth of your resources. If you have time and flexibility, take the time to find a situation that best meets your needs.
Situation: A company is a C Corp with several owners. As it is the end of the year, there is an active debate on owners’ compensation. The CEO has looked at a number of options, but would like the advice of others in a similar situation before making a decision. What do you see as the pros and cons of various options for end of year owners’ compensation?
Advice from the CEOs:
In one company, profits are split among owners according to stock ownership. This is similar to a public corporation where dividends accrue according to stock ownership. The pro is that it is equitable; the con is that smaller owners who may have made significant contributions during the year don’t necessarily receive the recognition that they may believe they deserve.
Another CEO varies owners’ compensation according to company performance. In good years, there is the option to be generous through enhanced bonuses, etc. In slim years it is more important to conserve cash, and quite frankly company performance didn’t justify significant bonuses. The pro is that this offers the CEO more flexibility than the first option to recognize significant contributions; the con is that the recognition of some may seem arbitrary to others.
In response to the latter observation, a third CEO sees this as acting like a good father – sometimes you just have to declare your prerogative if employees squabble about your decisions or push too hard for unreasonable requests.
The CEO who originally asked the question followed with an additional question – how do you present your compensation decisions to owners or staff who may think that they deserve more than their stock position or company performance over the year allows?
This is a facts of life situation – once the final determination is made it is not negotiable.
Situation: A company’s founders will be fully vested in their options by the end of the year. Also, the option pool for founders and employees has been exhausted. The CEO has spoken with the Board Chair and Compensation Committee about this in terms of fairness and incentives for future work to both founders and employees, while making it clear that the Founders are not unhappy. The Chair listened sympathetically and promised to get back to the CEO. Is there anything more that the CEO should do to negotiate new shares for founders and employees?
Advice from the CEOs:
Seek a letter of understanding from the Board that the founders and employees will have access to future stock incentives, and a timeline as to when this might occur – either in the near future or at the next financing round.
Wait a few weeks and have an informal follow-up conversation with the Chair about his current thinking. Ask whether he would like any further supporting information on the issue.
So far, your approach has been non-threatening. Keep it this way.
Maintain focus on fairness and your tone supportive of the best interests of the company.
Interview with Norman Boone, CEO, Mosaic Financial Partners
Situation: Many entrepreneurs who started companies in financial services and other industries are now 55+. They may be ready to move on, but not necessarily ready to move out. What questions should they be asking as they plan their exit strategies?
Advice from Norman Boone:
The most critical question is what you want to do with the rest of your life. Most people don’t give this enough thought. It all starts with what is most important to you.
Start with a self-inventory assessment – what are your resources, options, and what do you want to do or accomplish?
Discuss with your significant other or partner what will work for both of you.
Answering these questions helps to lay out the alternatives. Now, thinking about your company, what is important to you? Is it legacy, the future of your employees and business partners, the future of your clients? Does your business continue, or to you see a sunset?
If your business will continue, do you see an internal succession, or sale or merger of the company? If internal succession, here are the issues.
Who will be the new leadership? Do you have good candidates on staff, or do you need to hire someone who will take over?
Be careful not to expect your successor to be a mini-you. They need to be able to bring their own talents and perspectives to the leadership role, not try to duplicate you.
Do you need to beef up the training of current staff to increase their managerial capacities?
Is an employee buy-out an option? There is a variety of choices to investigate.
What will be your role during and after the transition? Will you accept that new leadership may take the company in new directions?
To be most effective, this needs to be a 5 or 10 year process. Ideally you will have two to four successor candidates to evaluate.
Do you sell to the highest bidder? Many of the questions here are like those above.
Will you sell to the highest bidder, or to the bidder who seems the best fit for your stakeholders and clients?
How much voice, if any, will you offer your employees and / or clients in the selection process?
What due diligence will you do on potential buyers?
Do you merge with a similar company?
If you can find a compatible merger partner the combination may be the best of two worlds.
What is the culture? If different, what will be the impact?
A merger of like companies may assume that the other party has a commitment to ongoing operation: but this is not guaranteed.
What will your role be, and what is the transition plan? How will you involve your key people in the transition?
The other option is to sunset the company. Here you must have enough in savings so that you can forgo future income from the business.
What about the other stakeholders and clients who’ve invested their careers and business in you?
Try to time your exit with the expiration of leases and other obligations to minimize exit cost.
How will you assist the transition of stakeholders and clients to new opportunities and providers?