Tag Archives: Price

How Do You Deal with Cut-throat Competition? Seven Thoughts

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.

What’s the Next Version of Our Business Solution? Four Ideas

Situation: A company that provides personnel services wants to adjust their business model to make it more appealing to employers. They are unique in that they focus on social issues, rather than purely on business services. From the perspective of a hiring Manager, what would you want to see? What’s the next version of our business solution?

Advice from the CEOs:

  • The idea of a social issues-based brand is unique. To some employers this may have appeal.
  • Your obvious differentiator is the tie between existing communities and social networking. Emphasize this.
  • As an employer, the focus is on finding quality employees for the right price. This will always take precedence over other factors for most businesses. In fact, over-emphasis on social issue-based hiring could subject an employer to discrimination issues. It also will not appeal to everyone. How can you address quality employee for the right price through your service? Here are some things to consider:
    • The employers’ challenge is finding good candidates. How do you solve this problem?
    • Employers have specific needs to fill. Help them by identifying and screening candidates so that it makes their job easier.
    • The question for the employer is whether your helper audience can crowd source the screening function. Screening is the challenge of the employer. Solve this and I as an employer want to talk to you!
    • Within your model, instead of asking for monetary contributions from your helper audience ask them to donate time to screen candidates. Not being a recruiter is a plus.
  • Pitch your new ideas to your company insiders – see what they say.

Do you Merge, Sell or Keep the Company? Nine Factors

Situation: A company has been approached by an international firm with an existing West Coast presence that is interested in expanding its US operations. A Letter of Intent is in place but will expire in weeks. The LOI is of interest because the company has cash flow challenges. The CEO seeks advice on whether and how to proceed with a sale or merger, or whether to continue as an independent entity. Do you merge, sell or keep the company?

Advice from the CEOs:

  • This is a personal decision. Do you want to be your own boss or to become an employee? It really is a question of what you want.
  • If you are burned out, there are advantages to having a boss, at least in the short term. However, 2 to 3 years out you may tire of this.
  • While cash may be tight, you can address this with other measures.
    • Can you save money by reducing office staff (hours or people) short-term until your cash flow improves?
    • Talk to private investors – offer up to 9% interest on a note. The company is a going concern and therefore likely to be able to pay off the note. You may be able to negotiate a note at a favorable rate.
    • Negotiate a 5 year note, with interest only payments for the first 3 years; sweeten the deal with an offer that if you get new business worth $X during the period of the note, you pay them Y% of upside.
    • You have revenue-producing business and receivables. Factor your receivables to raise the cash that you need. Adjust your prices to cover the cost of the factoring discount.
    • If you have the margins, or can increase prices to produce the margin, offer discounts for early payment of accounts receivable.
  • If you decide to sell, avoid a contract that takes away your flexibility to maximize your future payouts.
  • Can you be confident that the buying firm will survive until your payouts are completed?

How Do You Set Up Co-Development Partnerships? Five Thoughts

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.

How Do You Evaluate Distribution Alternatives? Four Thoughts

Situation: A software company is evaluating its distribution network. Historically they have worked with resellers who aggregate software services into packages for larger customers. Recently they were approached by a reputable distributor seeking a master distribution agreement with favorable payment terms. Is this an option that they should pursue? How do you evaluate distribution alternatives?

Advice from the CEOs:

  • There are at least three objectives to consider: market coverage, margin to the producer, and market risk.
  • For market coverage, evaluate the alternatives in terms of their ability and commitment not only to serve your current market but to expand into adjacent markets.
  • Regarding price and margin, there are two alternatives:
    • Decide what price you want, and don’t worry about the reseller or distributor’s final price to the customer, or
    • Establish a floor price for your product and ask for a percentage commission on sales.
    • Run models on each and decide which will provide the best return on sales.
  • Market risk is more complex. These are different approaches to the market.
    • In evaluating the reseller option, insist on terms in reseller agreements that the reseller disclose the terms of their sales.
    • Sharing of customer databases is another factor. Siemens, for example, considers their customer database as IP and only releases portions of their customer database selectively to resellers.
    • A master distribution agreement has different risks. It puts all of your eggs in one basket. If the distributor adjusts focus away from your software during the term of the agreement your sales and revenue will suffer.
  • Are there conditions where a master distribution agreement may make sense?
    • If the distributor is willing to sign a multi-year agreement with sales guarantees at favorable pricing this mitigates the risk.
    • The central issue is risk and guarantees. If you see the option as a low risk – high return proposition, it may be worth considering.

How Do You Respond to Delivery Delay Requests? Four Points

Situation: A company negotiated a contract with a customer giving them a significant price break in exchange for a large committed order with extended delivery. The customer has now come back and requests additional time for delivery and payment on the order. The company has already procured extra material to produce the large order. How do you respond to requests for delivery delays?

Advice from the CEOs:

  • Response will depend on the company’s history with customer. In the case of a long term customer who pays bills it is best to work with them. Explore solutions to meet them half-way.
    • Ask for a new commitment to take delivery by a date certain. Request consideration in return. For example, request partial payment up-front to help cover the cost of managing the delivery delay.
    • Keep the conversation going. Don’t get to point where you alienate a good customer.
  • If the customer is newer with less history but good potential for future growth, also respond flexibly but ask for additional consideration in good faith to cover your additional costs. As in the case above, request partial upfront payment to cover carrying costs – maybe a larger payment than for an established customer.
  • If the customer has been difficult in the past, or has been late with payments then the situation is different. There is no assurance that the customer isn’t just gaming the situation. Because the company has already committed resources to deliver the large order, demand an adjustment on price and terms in exchange for the delivery delay.
  • Whatever the history and situation, it is important to emphasize that you want to work with the customer.

How Do You Introduce a Product to New Customers? 7 Thoughts

Situation: A company produces a high performance product which is priced modestly higher than competing products. They are finding customers resistant to cost increases, even when they acknowledge the advantages of the higher cost product. The company needs to develop a new way to position their product. How do you introduce a product to new customers?

Advice from the CEOs:

  • Don’t compete directly with existing technology. Position yourself distinctly, as a new solution to address unmet needs.
  • Sell your solution “for those times when you need to save time.” Once they start to use your product, they will find it simpler and easier to use than the old product and will convert themselves to your product.
  • Use the pitch: Book an extra client today because this will save you this much time. This plays to customers’ incremental revenue opportunities to justify the cost.
  • At conventions, conduct contests among attendees – try our product versus your old product. Those who can use it fastest, or below a set time have their business card placed in a jar for an iPad drawing several times a day.
  • Sell a lower priced “starter” kit – or provide a free sample with easy to follow directions. Once the customer is sold on the product’s advantages they will be less resistant to the modest cost increase.
  • Conduct seminars:
    • Local gatherings
    • Regional meetings
    • Larger companies
  • Focus on specialty functions within larger target clients – the functions that will benefit the most from your product’s advantages.

How Do You Communicate a Company Sale? Six Guidelines

Situation: A closely-held, non-public company is in negotiation for a possible sale. The CEO seeks guidance on when and how to communicate this to employees. What event would demand communication? The CEO is concerned that if the sale falls through this may significantly damage employee morale. How do you communicate a company sale?

Advice from the CEOs:

  • The trigger point for any employee communication will be due diligence. At this point, you may have a serious buyer.
    • Going into due diligence, limit updates to those who will be involved in the process.
    • Most acquisitions do not go through, so a broader communication risks disrupting the company – unless you are very confident that the sale will proceed.
    • Prior to due diligence, there is no benefit to communicating any possible sale to employees.
  • What message do you deliver to those who will be involved in due diligence?
    • We are entering a due diligence. This is an exercise that we’re doing for our own education so that we understand the value of the company. This is just a drill.
  • Keep your eye on the business and don’t be distracted by the offer.
  • Have a good idea of an acceptable sale price.
    • For a company with intellectual property or significant assets, three to five times EBITDA is a good starting point – unless the sale is a strategic buy to the buyer.
  • A possible deal is often spoiled by terms and conditions that the buyer attaches to the deal.
  • One buyer (at any one time) is the same as no buyer. When owners get serious about selling the company they will need a broker to develop multiple buyers, to advise them through the sale process and to defend their interests.

How Do You Balance Two Businesses? Four Thoughts

Situation: A company provides both contract staff and consulting services. They have a large client for whom they provide staff, but not consulting. The client routinely requests discounted rates on contract staff from the company. The CEO believes that the client requests lower rates because they, in turn, offers consulting to their customers, using the company’s staff, and want to offer these services at a competitive rate. How can the CEO better respond to the next requests for discounted rates? In addition, is there a way for the company to market their consulting services directly to the large client’s customers? How do you balance two businesses?

Advice from the CEOs:

  • Don’t avoid the conversation on your rates. Make sure that your client knows that they are getting top quality services and that this is reflected in your rates.
    • Make the issue a price / quality trade-off. If cutting costs is important to the client, offer lower quality options at a lower price and let the client decide what will fill their needs. This positions you as flexible and willing to work with the client, without losing margin.
    • Offer modest discounts for incremental business, but not current business.
  • Tell the client sooner, rather than later, that your prices are as low as you can make them. Don’t wait until you are in pain.
  • How can you promote your own business to end customers via the staff that you provide for this client?
    • Give them business cards to give out that reflect your business, not your client’s.
    • Provide them with wear nicely embroidered “Company” shirts to wear at work.
  • Be aware that your desire to approach the client’s customers directly with your services will be a threat to your client and may result in them firing you as a provider of contract staff.

How Do You Merge Two Firms Under One Umbrella? Five Points

Situation: A company has been approached by a customer with a proposal that the two companies combine. The customer believes that the combined companies will represent a greater market presence than either presents alone. This may make it easier for the combined entity to gain business from larger customers. How do you merge two firms under one umbrella?

Advice from the CEOs:

  • For a company to merge with a customer is a tricky process, assuming that the company has more than one customer. The merger places the company in competition with its other customers who may respond by seeking alternate providers. If this happens it will create a short term hit to revenue. This possibility has to be modeled into merger financial forecasts.
  • Different companies have different cultures. This fact is often ignored in merger discussions because culture is difficult to quantify or measure objectively. However if you ask those who have been through mergers, culture conflict between merging entities is most often the reason for their failure.
  • It may make more sense for the company to focus on ongoing sales to the customer than to entertain a combination that would result in the current owners losing control. In declining the proposal, it is important to emphasize your interest in maintaining a healthy ongoing relationship with the customer.
  • If the customer offers terms that are appealing, an alternative to a merger is a limited scope joint venture as a trial project to test the viability of collaboration.
  • Establish with your co-owners a price at which you are willing to give up control. This will help you to refuse offers that are below this price.