Situation: A company that manufactures and sells components to a large corporation has a dilemma. This customer is throwing more business their way, under favorable terms. At the same time, the company wants to diversify to reduce exposure to a single large client. The challenge is that alternate opportunities are not as profitable as those from this customer. As the CEO puts it, should they use limited resources to chase copper when gold is readily available? Do you diversify or optimize current opportunities?
Advice from the CEOs:
It is always dangerous to have all your eggs in one basket. Dedicate resources to develop alternative business opportunities, knowing that at first the new opportunities will not be as appealing as current opportunities with this large client.
Think back – has business from the large customer always been this profitable? In developing new business opportunities, one often must pay dues to develop opportunities for future profits.
Invest in business development to find new business opportunities outside of this large customer. Do this sooner rather than later. One never knows when a large customer will change strategic direction.
What are the company’s options and choices?
Stay the current course and accept the risks of this strategy or diversify.
Put some resources into studying options to diversify. If there is no gold out there, then maximize the cash from the current situation and invest it in something that will provide a satisfactory long-term return. If the large customer closes the door, then just shut down.
How could the company diversify? Geographically? Additional products to other customers? Put together a diversification plan and test it for feasibility.
Make sure that company’s and owner’s priorities are clear and not in conflict with each other.
What is the optimal size of the company?
How many customers are needed to support optimal company size and how much diversification is required for this?
What is the owner’s exit strategy and timeline?
If the objective is to stay small and exit in one or two years, why chase diversification? Think about what would be appealing to a potential acquirer. Perhaps it is just access to this large customer.
Situation: A CEO is evaluating a horizontal market development opportunity to markets related to their current market. There may be branding implications. The new opportunity focused on a different sector and can add business unrelated to current customers. However, the new opportunity will stretch current resources and potentially impact current business and service delivery. How do you expand into new markets?
Advice from the CEOs:
Because the new opportunity utilizes known capabilities the company should be able to segue into the new market relatively easily.
Because the company is already familiar with security and other issues relevant to the new market, compliance should present no challenge.
Consider the impact on company time and resources. Building any new business will challenge current priorities and will require a careful balancing of efforts to assure that both current and new customers’ needs are being met.
Build workload and service schedules for both existing customers and the effort that it will take to develop the new opportunity including the time needed to create and build new customer relationships. Take your best estimate of resource utilization for the new effort and double it, then ask whether your current staff and capacity can handle both markets. If the answer is positive, then you can be more comfortable with the decision to expand into new markets.
As you evaluate the new market opportunity, look at both anticipated and unanticipated but predictable challenges that customers may face over the next five years.
For example, is there misalignment between future challenges likely to be faced and the current expertise and skill sets of managers who will be tasked with addressing these challenges? If so, tailor the sales pitch for new capacities to address these challenges.
Are there existing mismatches between products and services currently offered in the new markets, and do proposed solutions help to address these mismatches? If so, there may be significant opportunities in addressing these mismatches across multiple customers within the affected markets.
Situation: A CEO’s “Number 2” is returning from maternity leave. He sees a role for her helping him grow the business and wants to give her an incentive for taking on that role. What is an appropriate incentive? What incentives do you offer your #2?
Advice from the CEOs:
Remember, first, that your #2 is a person with a new baby. Remember what it was like when you and your wife had your first child. How did your priorities change? How did your wife’s priorities change?
Never make her choose between child and job – you will lose. Offer her lots of flexibility. For example, allow her flexibility in hours to accommodate the needs of her child. This will mean a lot to her.
Find out what is important to her – what does she see as her role and goals. Be sensitive to the possibility that the birth of her first baby may have changed her priorities.
Here’s the message: “You’re valuable and I want you on my team. I appreciate your responsibilities with a newborn. How can we make this work for both of us?” Build a role around this – not an incentive program.
Many Silicon Valley and other urban families need two incomes. Work out something that works for her.
Have a Plan B in case it turns out that her priorities no longer align with yours.
Situation: A CEO is involved in a number of outside Boards and organizations, both because this involvement helps the company, and for personal reasons. Recent changes in family demands are now prompting reconsideration of this level of involvement. How do you prioritize demands on your time?
Advice from the CEOs:
List all of your priorities – both business and personal – and the amount of time that they require on a weekly or monthly basis. For non-family activities, rate each in terms of importance both to your organization, and to your heart.
Decide how many outside Boards or organizations you are willing to participate in and how many hours of the week or month you are willing to allocate to this.
Reduce your involvement in outside boards and organizations so that you get the time commitment down to what you are willing to allocate. Thereafter, to maintain control of your time. If you add a new commitment, drop an existing commitment.
Where you have commitments that are important to the company, but lower priority in terms of your own passion, delegate representation to good people within your company. This both maintains company presence and enhances their professional growth.
Where you want to terminate involvement let the organization know of your plans in advance, and negotiate a phase out schedule and timeline. They will appreciate your working with them.
Consider putting someone between you and your calendar to communicate with those making new requests for your time. This person can say no more easily than you can.
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?
Interview with Doug Merritt, President & CEO, Baynote
Situation: A company has a proven technology and satisfied customers. To achieve their goals, they need delivery on sales and service to ramp revenue. At the same time, new opportunities arise daily. How do you keep the team focused on execution and delivery?
Advice from Doug Merritt:
The first thing to focus on is focus itself. Most of us don’t suffer from lack of opportunities, but from an inability to make hard choices and diligently pursue the few critical or high pay-off options. To tell the difference between gold nuggets and distracting bright shiny objects, you must have a clear strategy and priorities on customers and channels you want to develop. It is critical to choose the right opportunities that will optimize achievement of the strategic plan and to say not to those that don’t. This must be constantly reaffirmed through a simple set of metrics around your optimal customer set, revenue ramp, and quality of services delivered.
The second thing is attracting the right talent. A small and rapidly growing company has little time and resources to effectively train fresh talent. If scale is the issue, it’s important to identify and attract experienced individuals – those who have proven their ability to deliver and who bring along a high quality, proven, loyal following. Top talent that can open the purse strings of your target customers. This means hiring rock stars who do this better than you can! The challenge for the CEO is remembering that success almost always comes from hiring people who can do their jobs much better than you ever could. The CEO’s unique talent isn’t being the smartest person in the room – it’s your ability to build and guide an organization that will achieve more than you can alone.
Third is to keep the team focused on the most important priorities. The CEO needs to generate a crisp vision and to distribute information that maintains focus on that vision. Most “Type A” overachievers want to do lots of things well. The key is doing the right things well. You do this by measuring, and by creating transparency around the few key levers that drive the strategy. It helps your cause to say no to a visible and enticing “bright shiny object” that, in the past, the team would have reluctantly accepted. Finally, it also helps to create a few large and non-negotiable milestones that get the company to focus, as a unit, on achievement. Ultimately, the CEO needs to coach and guide their team to do the right things right.
Interview with G.K. Sally Solis-Cohen, President, CEO Intronet
Situation: An early stage company is simultaneously undergoing geographic expansion and broadening its network to include new audiences. This mandates finding the right people to run the new opportunities while staying focused on existing operations. How do you stay focused on core operations while building new opportunities?
Advice from Sally Solis-Cohen:
First and foremost, understand your own limitations. Know what you can do, what you can’t, and delegate what you can’t do. This means choosing the right people to whom you can delegate important initiatives. As a start-up you have few people to whom you can delegate. Make sure that they see the opportunity as you do and have the skill and personality sets to handle their responsibilities. The choices that you make in selecting your core team will be critical to your success.
Make sure that your team talks back to you – your need their perspective and feedback, especially when their perspective differs from your own. Listen openly to their ideas. At the same time listen to your customers; they will keep you focused on your business and marketing plans. Focus more on listening, thinking and doing than speaking.
Have a very clear set of priorities and a to-do list. Focus on your A priorities. Delegate the rest. When you’re growing it doesn’t double your work, it quadruples it with travel and extra distractions.
Stay focused on your core value proposition. Keep reminding yourself why you started the business. Observe the validation that you receive from your customers and users. Live your value proposition.
If you are talking to nay-sayers, you’re talking to the wrong people. Surround yourself with positive people who are heading in the same direction that you are and who can present alternate points of view in a positive tone.
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: A CEO has not taken a vacation for years due to focus on the company. He knows that he needs a vacation and wants to take one. However, he feels guilty taking time off. How do you take a guilt-free vacation?
Advice from the CEOs:
For your general health, you need to take time off to refresh and recharge!
Think of the vacation as your CEO Test – have you created a team that can perform in your absence?
You may be amazed at the initiative that some will take given the freedom to do so. As a corollary, initiative is accompanied by risk and your employees may make some bad choices. Be patient. Congratulate them for taking initiative and coach to improve choices.
Stay out of touch. Don’t call in daily and see what happens. If and when you do call in, don’t solve challenges that come up – let your people solve the challenges. Keep a few notes. On your return see where you need to adjust procedures to allow employees to make independent decisions.
More than one CEO has found that taking 3-4 week vacations each year has had very positive results. The company actually performs more efficiently and with more energy upon their return than it did when they left!
To ensure that you take a vacation, schedule it in advance. Let everyone know that you are going to take it and Just Do It!
If you can’t take the time to plan a vacation, have your spouse or a loved one plan the vacation.
If you need to feel in touch during your vacation, take your laptop. You may never even use it, but it will be there as a security blanket. Once you are on vacation, let family and personal priorities rightly take precedence over your need to stay in touch.
Situation: A company has an opportunity to form a marketing partnership with another firm. The primary potential benefit to the company from this partnership is gaining access to new customers. On the other hand, partnerships may bring complications. What is your experience with marketing partnerships, both positive and negative?
Advice from the CEOs:
Marketing partnerships can certainly work, provided that both parties see benefit to the relationship, and both are committed to make it work.
Be sure to clearly define boundaries with the partner.
If either company can perform a particular service, whose customers are who’s?
Is there alignment throughout the partner’s organization regarding the partnership? Or are their conflicting priorities within different branches of that organization? Test the waters ahead of time and assess how these will potentially impact the partnership.
There are potential pitfalls:
What is the in-house/outsource attitude of the partner? If there are strong voices for in-house production or service provision, these will not be supportive of the partnership.
Watch the quality of the partnership over time.
Successful partnerships are based as much on friendly cordial relations as on business priorities. Are your business cultures and ethics compatible?
Who is the champion for the partnership on the other side? What will happen if the champion leaves? Is there a back up champion?
Build an exit strategy into the partnership that will allow you to leave gracefully and mitigate financial or good will consequences if the partnership sours.