Situation: A CEO has had to shift half of the company’s employees to part-time due to reduced business. This has hampered new product development. The situation has been exacerbated by slow payments from customers. Where should you focus for the next year?
Advice from the CEOs:
The company has a lot going on. Validate the company’s market potential for products in development, and start gearing up the marketing program so that it will impact this and next year’s sales.
Get a feel for how many customers want the new products in development. Invest in some market research to validate this.
The bottom line is that product development only pays if the company can sell a lot more product! The team needs to know whether customers for the new products exist, in what numbers, where and who they are, and their most critical needs. Without this market intelligence, the company is in no position to tell whether there is a market, nor is the company prepared to address it.
Assume that there is a market, that it can be quantified. Once the company knows who and where the customers are and knows their most critical needs, the next step is to prepare to attack this market. This is not something that is done in 1-2 months, after the product is ready to sell. The company needs to be starting now if marketing is to be initiated in 6-8 months.
Past practice has been to split R&D costs with the customer. The company has the expertise, the customer the money – this is close enough to 50/50. There is no need to show them the numbers. R&D should not be funded through future sales but should be making money now.
One project has been taking so much attention that it is hobbling the company. The company is so focused on getting this “just right” for the customer that sales and market development have been neglected.
For the next 3 months, focus on completing this project, getting it out the door, and getting the company’s focus back on growth. A sense of urgency is needed!
Situation: A CEO is in conversation about combining with another company. One option is for the other company to absorb his company. What are the pros and cons of this option? Are there other options that will better serve both owners and employees? How do you improve a business model?
Advice from the CEOs:
The company has a great model today. The option under consideration looks like a double compromise – it alters both the company’s strengths and its fundamental business model.
The company’s strength is lean and mean – moving from a hourly/fee-based model with high utilization to a salary-based model, as the option on the table proposes, will change this. It also changes the dynamics of who will work for the company.
The magic of the current model is that it attracts top talent by offering them the best of two worlds: high individual billing rates with ready access to billable hours. Over the long term this has also made it very profitable.
Explore an alternative – how does the company transform its existing business model while retaining its strengths – lean, mean, low overhead – while transforming the model so that it builds “products,” perception, and recognition for the company?
A longer-term alternative is to look for a financial acquisition of the company. It has good net margins, good cash flow, and even spins out cash. This is valuable to a financial buyer.
What is the role of the CEO right now? Another CEO was asked “Do you have a job or a company? What happens if you leave? If the company dies, you have a job. But it may not be necessary to change much to become a company.”
Situation: A small company wants to reduce costs by consolidating accounting and operational communications between remote divisions, with home office coordination. Can you more effectively reduce costs by consolidating services or is it better to set up parallel but complimentary accounting and operational communications in each division?
Advice from the CEOs:
There are a number of things that need to be considered, including:
Whether the existing legacy system is off the shelf with modifications or was custom designed for your operation.
Does the current system meet your needs, and do operators understand it? Is operational understanding diffuse or can only one or two people operate it?
How similar are the divisions in terms of product, customers and operations?
Do divisions serve distinct, non-overlapping customers with different product lines?
Are there important operational differences, for example are some divisions union, and others non-union?
On an ongoing basis, except for accounting, do divisions function as complimentary or distinctly separate businesses?
How complex are the product and pricing offerings? Could you consider a simple solution like QuickBooks or are there are complexities to your business model and accounting that the off-the shelf or web-based systems can’t address?
How much historical data from your current system is needed to support ongoing and future operations?
The simplest solution may be to run your current system off of a server, with multiple nodes connected to the system – a direct connection at your home office, and point-to-point lines connecting your remote offices. This will solve both your data transfer and communications needs.
Hire a computer consultant to set this up and assist you in establishing a link. It will cost some money, but will save you time and money in the long-run.
If you decide to change your accounting system, do so at the end of your current fiscal year. Trying to change accounting systems in the midst of a fiscal year creates an accounting nightmare for a small business.