Situation: A component company is struggling to set financial goals. Its sales are dependent upon purchases by large customers whose orders are influenced by the economy and demand for their products. How do you set goals in a volatile economy?
Advice from the CEOs:
What are the principal drivers that define the market? Have they changed? If so, how? Focusing on principal drivers creates more clarity in a volatile economy.
Rather than looking at the company as a producer of components, focus on the critical value add that the company’s products provide to customers. By focusing beyond the product, strive to become a key partner to customers. This can allow you to develop retainer contracts with key customers rather than working solely on a project basis.
The Holy Grail is predictable recurring revenue, for example on a service contract basis. The establishment of retainer contracts can help the company move in this direction.
The company’s customers have increasingly placed rush orders because they have been hesitant to commit to steady production. This, in turn, increases the costs to the company because they are being asked to alter their production schedule to accommodate rush orders. It’s fair to publicize and charge expedite fees for rush orders, just as delivery companies increase their charges for expedited delivery. Expedite fees will cover the cost of altering production schedules and can also add cushion to company profits.
A portion of the company’s business is supplying consumable parts that the OEM marks up and distributes to end users for their equipment.
As an alternative look at parts manufacturing/sourcing, storage and distribution direct to the customer as a separate business opportunity and take this over from the OEM – it may be a nit to the OEM that they would be willing to give up for a reliable service alternative.
Situation: A company has built a strong prototype line capable of handling projected volume for the near-term as they scale up production. Their long-term plan is a fabless model through manufacturing partners. They have solid IP counsel and protection. What are the most critical elements of scale-up? How do you generate scalable manufacturing?
Advice from the CEOs:
The answer will depend on the product strategy, if the near-term focus is on quick tactical wins.
The most critical elements of the scale-up will be:
The planned speed of the scale-up. A tactical approach, which will make limited demands on production near-term supports a prudent scale-up plan.
Having the right business development talent to generate quick wins with smaller volume opportunities to feed the scale-up.
When you are ready for larger volume – and your scale-up capacity can support this – hire an experienced sales professional who is known in the industry and who can bring you some relatively quick higher volume contracts.
Que near-term contracts according to the sales cycle.
Design cycle – build awareness of your capacity among significant market players and focus on quick turn-around to respond to their demand.
Qualification cycle will be longer, perhaps 6 months. As your brand awareness builds push for qualification orders which will be larger, but still within near-term capacity.
Focus business development efforts on building strong awareness across your target companies. Some companies tend to limit early knowledge of vendor capabilities between their divisions until they have confidence in the vendor’s ability to deliver. Optimize customer awareness by:
Cultivating business partners who can facilitate a high-level approach within your target customer companies.
Start creating a small forum of industry savvy individuals who can become your champions. Leverage this forum to spread your message and bring you opportunities.
Situation: A company is interested in partnering with a larger company to market a suite of services. They have identified two good candidates. They haven’t worked with partners in the past and are curious about how other companies work with marketing partners. How do you evaluate marketing partners?
Advice from the CEOs:
The danger of working with a single marketing partner is that all of your eggs are in one basket. Your success in this relationship will depend upon the success of the marketing partner. This, in turn, will depend on the amount of attention that they pay to marketing your services, and on how actively their sales department sells your services. The danger to you is loss of control over the marketing and sales process.
Another company had a similar situation several years ago. At that time, the advice of the CEOs was to not select an exclusive partner, but instead to work with two different marketing partners, even though they are competitors. The company followed this advice, and it has worked like a charm.
Start with a position that you want a non-exclusive relationship. If a potential partner insists on exclusivity then ask for fixed guarantees of business and fixed minimums.
Other companies around the table work in partnership with competing companies all of the time. All of the partners value the services that these companies provide, and the relationships are harmonious.
If a possible partner insists on an exclusive relationship, another alternative is to split territories and supplement your agreements with most favored nation clauses.
Going back to the original question, provided that the terms offered by the marketing partner/partners are favorable, you won’t really know how they will perform until you establish a relationship and monitor it over time. Exit clauses and conditions will be an important part of any marketing agreement.
Situation: A company has clients who are interested in projects for which the company’s partners already have partial designs. There is an opportunity to leverage these partial designs into development of full solutions for their clients. How should the company approach this in a way that satisfies their customers and is fair to their partners? How do you set up co-development partnerships?
Advice from the CEOs:
Given this opportunity it is no longer important who performed what part of the development. As long as your partners have quoted you what they believe to be a fair price for their development pieces, you are free to accept their price, complete development to your clients’ specifications, and sell the full solution to the client at market prices.
What you bring to the table is the opportunity to rapidly monetize the technology. This is something that your partners can’t do, so by filling this role you are acting in the interest of all parties.
What you charge for your work and the full solution depends on the potential value to the client. Time is money, and delivery now is worth a premium price to a client who needs your solution and wants to release their product as soon as possible.
This strategy is particularly applicable to early stage companies who need to release their initial products and start generating revenue.
Take a note from Bill Gates – sell the product for a good price and then buy or acquire the supply.
Situation: A company’s major customers are expanding their manufacturing in China. They want the company to be able to service their Chinese locations. If you don’t already have a presence in China, what are the best ways to create a presence in China? In addition, how do you get the cash produced by these operations out of China?
Advice from the CEOs:
Increasingly, multinational businesses with operations in China seek vendors who can seamlessly handle all of their domestic and international needs. In China, the objective is to be able to translate service output into English so that US managers can monitor the output and assure that Chinese operations are meeting the same or similar basic standards as their domestic and other foreign operations. If your company can’t do this large contracts are at risk.
Look for local partners, including partners located in Hong Kong or Japan who can deliver service in China to your standards. You want partners who you can risk-manage.
It is interesting to look at the Japanese approach to China. Japanese concerns known to CEOs around the table only transfer highly developed, late stage manufacturing projects to China.
As you look at partners who have capabilities in China there are a number of qualities that you want to investigate:
Competence and honesty.
Loyalty – a partner who will stick with your company and not just take the new knowledge and start to compete with you.
Absence of graft and record of compliance with the Foreign Corrupt Practices regulations.
If you work with Chinese partners, work with two of them. Do not give them exclusive agreements, and do not tell them about one-another. This is critical to protecting any IP that you will be using in China.
We’ve learned over the past year that taking cash from your Chinese operations out of China is difficult. The Chinese government imposes heavy fees and levies on companies exporting earned capital because they want this capital to remain in China. Given this, you must ask yourself whether this is important to you.
Situation: A company has a long-standing relationship with key partner which has become strained for the last 9 months due to a combination of conditions. The partner’s Board recently terminated their CEO and their management is now in flux. Is there an opportunity to reestablish the old relationship by approaching the partner’s Board and how would you go about reestablishing this key partner relationship?
Advice from the CEOs:
At this point, the Board of the partner is likely focused on selecting a successor to the CEO, and dealing with internal matters in the interim. It may not be timely to approach them now, as they may dismiss your entreaty as a distraction.
If this tactic is to work, you will need a champion within the partner to promote reestablishment of the relationship. Try to identify such a person and approach them individually instead of approaching the full Board. The champion may be a Board member or someone with whom the Board has a strong relationship. This carries less risk than approaching the full Board. If the champion is not receptive, your likelihood of success with the full Board is slim.
Is there a past President or senior executive of the partner company with whom you have very good relations? An individual like this can act as a quasi-third party to help you to reestablish relationships with the Board or key management of the partner company.
Because of the risk involved, it may be best to do this quietly through a party whom the potential champion will respect and listen to, and take the lead from the champion if this individual is supportive of your cause.
Situation: A company has a long relationship with its initial client, which provides the company with key intellectual property. This client handles all marketing, sales and distribution for the company’s principal products, but only accesses 20% of the market. The client is concerned about having its image associated with expansion into markets that the company wishes to pursue. How do you structure a deal that enables you to access the broader market without offending the client?
Advice from the CEOs:
The issues for the client are public relations and liability. They don’t want to be associated with certain segments of the larger market as it may compromise customer perceptions of their core business. Further, they want to be indemnified should they face damages from your forays into the larger market. It is important that you address their concerns.
Sit down with the key client. Pose a problem that will generate the solution that you seek and let them solve it on their own. Then seek an agreement with the client on carve-outs within the larger target market with which they are agreeable.
Build an external company with different branding to approach the larger market, without jeopardizing the relationship with the key client. If ownership and management of the two entities are the same be aware that this is a thin veil.
You may increase opportunity for success if you build your own successor product – one tailored for the larger market – while your key client is paying you for current business. Once the product is built, ask the client whether they want to be involved and if so, on what terms. This enhances your bargaining position and reduces your downside risk.
Expand your offering, where current products are part of a larger offering. You have two alternatives: go there anyway, or go there with the client. If the client decides that they don’t like what’s happening and opens the market this could be ideal for you.
Situation: While funding from banks and institutional sources has been challenging in recent years, growing companies need to fund their growth. How have you funded your company’s growth?
Advice from Hannah Kain:
We focus on frugality and prevent wWhile funding from banks and institutional sources has been challenging in recent years, growing companies need to fund their growth. How have you funded your company’s growthasteful spending. However we invest in tools that enable staff to purchase wisely and stay ahead of customer demands. We also collaborate with vendors to manage costs.
As a result, the last two years have not forced us to change how we fund growth. We are getting large contracts and work globally to solve customers’ logistics challenges. Our challenge has been moving from centralized distribution to strategically placed centers around the globe, increasing inventory costs and cash needs.
Where we have changed is in how we negotiate terms and credit with our customers. We manage vendor accounts payable to maximize cash flow while treating them as business partners. This requires close vendor communications to assure that everyone’s needs are met.
We have been cautious with our banks and seldom dip into credit lines. Managing vendor payments has been more effective.
Essential to vendor communications are open sharing of information and goal setting. We work to create a team atmosphere. This is similar to what we do in our offices. In our experience, instilling the right culture is far more powerful than financial incentives.
We share information through all-hands company meetings and regular updates so that everyone gets the full picture.
We also share information with our vendors so that each side is aware of the other’s needs.
We create an annual one-page business plan for the company, and parallel plans down to the supervisor level. Performance against plans is updated regularly to assure that we remain on top of situations.
We focus training on new tools. Our staff gets technology they need to be successful.
We generously provide technology to our employees, provided that they give a logical business rationale. This includes home computers, iPhones or Applets to help them do their jobs.
Similarly, when a vendor or customer asks for a service improvement or a new service with a good business rationale, we invest to support this.
These methods have allowed us to finance most of our growth internally.
Interview with Jim Kaskade, Global Executive (most recently SVP and General Manger, SIOS Technologies, Inc.)
Situation: Cloud computing as a concept dates back to the 1960s. “Cloud” became a more prominent concept in 1990s as a metaphor for service delivery over the Internet. The technology that makes it a practical reality has advanced significantly. Broad business adoption, however, has varied depending on the deployment architectures used. What are some of the barriers to enterprises “crossing the chasm” and embracing moving to the cloud?
Definitions: There are three cloud deployment architectures or market segments when defining the opportunities and barriers to entry:
Software as a Service – SaaS – represented by distinct B2B applications like Salesforce.com and Google Apps, and B2C applications like Apple’s iCloud.
Platform as a Service – PaaS – represented by application platforms targeted at application developers and including Microsoft Azure and Amazon Beanstalk.
Infrastructure as a Service – IaaS – represented by on-demand access to low-level IT infrastructure such as virtualized computer, storage, and networking infrastructure.
The elephant in the room is that, relative to global IT spend, use of public cloud is in its infancy.
Adoption of the cloud varies by business size and IT structure.
Start-ups – particularly technology start-ups – use all three segments. The rationale is simple. It is easier and conserves capital to use all three delivery segments as an expense rather than invest in IT infrastructure. Another benefit is time to market.
Mid-sized companies – up to hundreds of employees – have more challenges.
They start with SaaS applications to get their feet wet. Primary concerns are availability and security. If they have good, dependable Internet access, barriers to entry can be low.
Using a PaaS is also attractive but begins to compete with internal, existing platforms. Mid-sized companies typically have their own IT and developers who may prefer an internal platform. The company’s choices are also limited to a PaaS system that is similar to current development platforms.
The barrier to IaaS adoption is the IT staff itself. If the IT staff is savvy, they can maintain and run their internal data center less expensively than IaaS services. The question comes down to whether building and maintaining a “crazy smart” IT group is core to the company’s business model.
Enterprise companies – Fortune 100s or even 1,000s – have far greater challenges.
Their current IT model already has moved to a mix of 30% in-house and 70% outsourced with partners like CSC and Accenture.
Most Enterprise CIOs begin their use of “cloud” with a migration to SaaS. The barriers to PaaS are that their systems are tailored to customer-specific applications and internal infrastructure, limiting PaaS use to small, non-critical applications which require quick, global deployment.
The barriers to using IaaS services are similar to PaaS, where CIOs struggle with tradeoffs between agility and issues of cost, security, and availability.
The Achilles’ heel of these companies is that 80% of their IT spend is just keeping the lights on.
The implications of all this are that the cloud is ideally for small to medium companies, some of which will become large enterprises. If you can succeed with a migration of legacy applications to cloud-based services you will become more nimble in responding to customer’s needs – the biggest upside to cloud services in general.
Situation: A rapidly growing company is expanding both in its primary market and into new verticals. A number of companies are interested in strategic partnerships. How do you select the right partner in the right space?
At the end of the day it’s about a connection with the partner which extends across both organizations.
Look for cultural synergy with the other company. Do your and their managers and employees “click” or are they oil and water? This is a gut assessment.
Is the quality of people in both companies complimentary? Is there similar drive for quality and attention to detail?
Will technical integration be smooth? Are systems complimentary? At a minimum are there the right skills on both sides so that this won’t hinder the project.
Are sales and marketing approaches compatible? Will teams be able to work together? What about other departments?
You need to have strategic commitment across both organizations.
Partnerships don’t work if there is only alignment at the top. Executives can’t shove a new opportunity down the throats of those who report to them. There must be excitement about the opportunity across both sides of the partnership.
There must be complimentary competencies, capabilities and commitment.
Is there a clear understanding of the goals and objectives succeed?
Reward structures and incentives must be aligned down through the two parties. Conflicts will lead to struggles.
There must be a strategic alignment between the two organizations so that both see the partnership as complementing their broader strategic plans.
There must be a fundamental strategic win-win. The venture must be seen by each party as core to their business, plans and results. If this isn’t present, the collaboration can be drowned when a better opportunity that comes along.
Look for some gauge that the partnership is as important to the other party as it is to you. What other partners do they have? Is the size of the opportunity enough so that you are assured of their ongoing attention?