Situation: A CEO is reviewing options for introducing a new offering. The target customers are small companies or projects within larger companies. The offering includes both an initial product and follow-on services. Education or training will be a component of the offering. What is the best way to roll out a business opportunity?
Advice from the CEOs:
It is best to position the offering as a straightforward proposition at launch and develop proof of concept. This will provide experience and an income stream to fund more complex offerings based on the initial model.
It will also provide insight on how to sell the product and service in different markets – manufacturing, service, and software.
Leverage this experience to pursue more complex models.
Build a portfolio of case studies before pitching to paying companies.
Use companies with whom relationships already exist as the proving base. These will become references for new clients.
Develop data to show actual cost savings from the use of the product and services.
Establish a relationship with an existing company for which the offering is complimentary and cross-offer products and services on an ad hoc basis.
Trial the product and service with one of their clients in return for a royalty or share of the profit.
Ask that company to make the introduction.
Target start-ups – offer an initial package for a low price. Offer the product to start-ups for free and get them hooked as long-term customers.
What would be needed to roll the offering through growth equity firms or venture capitalists?
This will require some proof that the offering increases the ROI to growth equity and VC portfolio companies and funds.
Note that the portfolio companies of growth equity firms are larger and farther up the growth curve
In current economy the key message to prospects may be that the offering will help them to “right size” their company.
Take a closer look at the offering and determine whether it is configured appropriately for the current environment.
Situation: A small company has a parts supplier for product that they sell to their most important customer. That customer’s specs are “copy exact” on components for existing products; also, their new products are usually based on existing components. The supplier significantly raised prices on the parts supplied to the company. How you respond to a price increase from a supplier?
Advice from the CEOs:
This is an extremely sensitive situation. One solution is to not to rock the boat. The reality is that the company needs the parts, and it will take a lot of effort to replace them with parts from an alternate vendor. Just continue the relationship. Quit worrying about it and milk it for as long as it lasts.
Find out what caused the supplier to raise prices. The supplier needs to understand that to preserve the company’s margins they may have to raise prices to the final customer. This may threaten both the company’s and the supplier’s business with the customer.
Make sure that the supplier understands the company’s costs: office, salaries, equipment, maintenance, and local regulations that are unfriendly to business and difficult to deal with. Ask them to reconsider or reduce the price increase.
Assure that the supplier understands the value that the company provides and the importance of this collaboration to the business and profits and bottom lines of both companies. Leverage this value to get the price that the company needs.
Renegotiate the relationship to assure that supplier can’t go around go around the company and sell directly to the final customer.
Start building relationships with alternate suppliers.
Situation: A CEO has an option to purchase another company with whom they have a long and good relationship. A smooth transition will be important. The owner’s relationship with their customers is central to their success, as is his employees’ knowledge of their key accounts. How does the CEO assure that these relationships are retained? How do you construct a business acquisition?
Advice from the CEOs:
Based on the CEO’s responses to the Forum’s questions, the owner of the other company needs this deal more than the acquiring company needs him. This creates a strong bargaining position.
The owner of the business is the business and the key to a smooth transition post acquisition. Retaining his ongoing involvement – at least for a reasonable period – is essential to gaining maximum value from this acquisition.
The value of this business is its people: the owner’s relationships, and both the owner’s and his employees’ knowledge of their key accounts. His employees know the inner workings of their customers’ businesses. These are the relationships and the knowledge needed to assure that the acquisition is profitable post-close. Retention clauses and penalties must be part of the agreement.
If the owner wants 50% of the net income generated from his piece of the surviving company during a transition period, this is fair. However, the financial and operational details of the transition and his share of the income must be spelled out in the agreement and the agreement must assure that there is proper follow-through to qualify for the payments.
The income from the owner’s accounts must support his salary. However, even with this the owner will still cost the acquirer time and energy. Plan for this and budget for it in the agreement.
Situation: A CEO wants to create new markets outside the US. They have investigated options and locations and are starting to plan. One question is how long it will take to start seeing results, so that they budget accordingly. How do you build international sales?
Advice from the CEOs:
Decision timelines internationally are longer than they are in the US. For example, in Europe timelines are easily twice as long. This means that new entrants must budget for a sustained effort.
It took another company three years to develop traction in Europe. They have an office in Germany, but most new sales are coming from Eastern Europe. After three years their European operation is now break-even.
International markets, especially in Europe, can be very conservative. Job security and maintaining cash flow are the focus.
Labor laws encourage companies to do things themselves rather than outsource. The result is that a new entrant will face competition from internal departments of potential prospects.
In European the emphasis is not growth, but on conservative steady operation. Growth tends to come from acquisition.
Sales pitches should be tweaked for international audiences. For example, highlight reduced need for additional personnel to manage the systems, fewer breakdowns and glitches, and the ability to count on seasoned outside expertise to quickly address complications.
Relationship selling is very important internationally. Sales and tech support are best provided, and in some cases required to be provided in the local language.
In Europe, Italy can be an important lever to sales with the right partner. Italian companies can be excellent at marketing and can jump-start European sales. This will be a very personal relationship.
Situation: The CEO of a company is looking at her succession plan. The preferred option, from a family standpoint, is to groom one of her children to eventually become the CEO. A concern is how current key employees will react to this plan. How do you bring children into the company?
Advice from the CEOs:
As preparation for a key role at the company, have your child gain experience at a company that has been where the business is today but has grown to a higher level. Learn from them what they went through and what they would change were they to do it again.
How did Peter the Great become the greatest leader of Russia? As young man, and son of a czar, he apprenticed in England and Holland – in ship building and other important arts that were scarce in Russia. He was able to leverage what he learned to help build the country when he became czar.
Have them develop the leadership qualities and maturity that they need to run this company in another company – where there is the freedom to make mistakes and learn from them. Bring this wisdom and experience back to the company. It will help gain the respect and loyalty of company employees.
Have them take on tasks which are not comfortable – for example, sales. Don’t underestimate the value of being able to visit a new customer. This is the key role of the principal of any company.
A parent/child relationship can be difficult in business. It can get tense when business, money, survival of the company and making payroll are on the line.
The son or daughter must be aware that in a new role one doesn’t start out in control. This may be achieved in the end, but it is not the starting point.
An option, once experience has been gained in another company, is to have the individual start a new branch of the company in a different location. This will provide a valuable learning experience and will demonstrate both capacity and success to company staff.
A company is looking at options to fund growth. These include selling a stake
in the company, bank financing, organic growth. or partnering with another
company. There are trade-offs to each option. How do you fund business growth?
Advice from the CEOs:
There is a question that should be answered before talking about funding: what is the vision for the business?
Think about building the business that the founders want to run. What size company feels comfortable from an operational perspective? What does it look like?
Does the company have the right people and infrastructure to support planned growth? Are current direct reports capable of taking on additional projects and monitoring both current facilities and additional sites?
As the company grows, can the bottom line be increased as fast as the top line?
Commit the 5-year plan to paper. Before deciding how the company will grow, determine the vision, the growth rate to support that vision, the organization required, and the strategic plan to get there.
The funding decision is an investment decision. What’s the return for a multi-million-dollar investment? What incremental revenue and earnings will it produce?
Estimate how much revenue the investment will generate in 5 years. At the current gross margin, what is the incremental gross margin per year.
Given this estimate, what is the projected EBITDA? Does the annual EBITDA represent a reasonable rate of return on the investment?
The investment ROI must be known – both from the company’s perspective and for any lender or partner who invests in the planned expansion.
How high do the company’s relationships extend in key client companies? Do client upper management realize how critical the company is to them?
If the answer is not high enough, develop these relationships. This could open new funding opportunities.
For example, if the CEO knows the right people at a key customer, let them know that the company may want to build a facility near them. The customer may be interested in partnering with the company to finance the facility.
A multi-million-dollar joint venture plant investment is a modest investment to a large customer if it gains them a strategic advantage.
A CEO struggles to balance time and responsibility commitments to his business
with demands of his family. This is not an uncommon struggle for executives.
The question is: what strategies are effective to address the needs of both.
How do you balance the demands of work and family?
from the CEOs:
Member: It takes a plan to find a solution.
what you want and write a business plan to get there.
relationship do you want with your soul mate? Make this part of the plan.
a conversation and test whether your and your spouse’s long-term visions are
take on additional work – this is good both for family relationships and the
role as CEO.
Member: My spouse and I talk about this a lot – particularly around time.
have agreed on how the week is carved out – family time/work time.
agree to honor each other as we are – not how we want the other to be.
work commitments because – long-term – your spouse and children more important
and more lasting than work.
Member: I’ve lived through the same issues.
probably erred on side of family vs. career. The benefit is that now, I can’t
get enough time to play with my kids. It’s great!
to children is very important during the early years. While infants are not as
capable of communicating as they will be later, the basic emotional and
learning patterns – as well as affection patterns – are created early in life.
It’s like the foundation of a building – not much to look at from the street,
but it allows the whole building to stand.
same mind that developed your business can solve this.
open to solutions.
is uncomfortable, but not bad. The struggle proves that you care.
your spouse as somebody who cares enough about herself so that she thinks she deserves
a class act from her mate. Isn’t this what you want in a mate?
Situation: The President of a professional service company and his team are considering adjustments to their business model. The alternatives under consideration are a client-centered model and a service delivery model. What’s the right model for a service company?
Advice from the CEOs:
In the client-centered model, the emphasis is on maintenance of the customer relationship by the responsible manager, with support from the group to optimize service delivery.
Consider the service being provided and the client’s expectations. Does the client want to have a principal point of contact – a client manager – to address their needs?
This model centers on the key manager creating and maintaining an ongoing relationship with the customer, including rapid response to inquiries from the customer.
In the service delivery model, the emphasis is on a developing and maintaining a high standard of service delivery so that multiple individuals can deliver the service rapidly and reliably.
As in the client-centered model, consider the service being provided and the client’s expectations. Is the customer’s principle concern functionally rather than personally oriented – for example keeping a system up and running in the fastest time with a manageable expense? In this case, the individual technician is not as important as speed of response and assurance of a quality outcome.
The service delivery model centers on standardized and predictable delivery of a defined service, with high responsiveness to the client’s needs. Those who deliver the service are paid variably based on their skills and assigned to deliver service consistent with their abilities. A benefit of this model is that business maintenance is not as dependent on individual service providers as the client-centered model.
In choosing between these models, it is important to speak with your clients and to understand their needs and priorities. Is your model a direct business to customer relationship or a business to business relationship? Is your offering perceived by the customer as a service or a product with tangible results? Is your customer more interested in meeting short-term needs or developing a long-term relationship?
As an example, is the customer expecting a personal, customized service and desirous of maintaining a long-term relationship? For this, a Nordstrom-like model may make the most sense – a highly personalized level of service where the relationship managers on the sales floor keep detailed records of individual customer’s tastes and past purchases and will even have items pre-selected prior to the customer’s arrival at the store.
This model implies that the most important assets to client development and retention will be your account managers. A business development manager may bring in a new client and then hand off that client to “one of my best managers” who will develop the long-term client relationship. The account manager will become the principal point of contact for the client; however, they will bring in other expertise or assistance to handle specific client needs. When a customer calls in, depending on the immediate need, that customer may be triaged directly to their manager or to an individual who could, for example, perform a transaction for them. Responsiveness by the manager within a defined time frame will be an important metric to monitor.
Situation: A professional services company wants to grow while maintaining the small company atmosphere that has been the key to its success. There is a limit to how many clients a manager can manage, and with this the reality that if the firm is to grow they will have to bring on more client managers and support personnel. How do you maintain your culture as you grow?
Advice from the CEOs:
To maintain your boutique atmosphere, consider hiring to fit your needs rather than to maintain a culture. Use team meetings to direct team members while communicating and instilling the culture that you wish to maintain.
Don’t risk diluting the strength of your client relationships. A $250K client who is fully committed to your service may have more demands than a $1M client for whom you only represent 10% of their business.
Service companies with the highest profit ratios rotate customer contact among several qualified people. What matters is the level of service provided, not the individual providing the service.
Grow by adding locations. Instead of growing vertically in the same office, grow modularly by spawning additional offices.
Create an optimally sized model for the level of service that you wish to deliver.
Design the organizational structure for this model and identify the order in which slots will be filled as business grows through each office.
Develop a service and organizational template with standard operating procedures, metrics, technology, and reporting.
Once the model is created, spawn it.
Focus your business. Define a niche that you can serve better than your competitors. Focus on this niche and develop a sustainable advantage over your competition.
Assure that your service delivery is seamless to the client and make sure that it remains seamless.
Offer a menu of service options and price options by the level of service delivered. Some will want to buy a Mercedes, and some will be happy with a reliable lower priced sedan.
Situation: A tech company competes in a rapidly changing marketplace. The companies they serve constantly evolve their platforms. The company must respond rapidly to assure compatibility with both hardware and software innovations. Users adapt to new platforms at different rates, and the company must address their needs, as well. With so much time spent tending these diverse needs, how do they plan for market evolution?
Advice from the CEOs:
In the market you serve you must constantly reinvent yourselves as technology changes. Some platforms make changes on a 5-year cycle, while mobile platforms are currently on a 6-month cycle. This may force choices as to which platforms to serve. You also may want to focus on platforms where what you bring to the table is most useful.
You have made the strategic choice to tie the future of your company to a few large companies that dominate their markets. It is imperative that you cultivate close relationships with the technology as well as strategic leadership of those companies. This will give you more advanced insight into their plans, and they may even involve you in discussions about how the market evolves. If so, you will have positioned yourself for that evolution. These relationships may also become your exit strategy.
Businesses run on cash, or access to cash. As you cultivate relationships with your key customer companies, look for opportunities to invest in developing markets on a subscription basis which will provide ongoing annuity revenue. Figuring out how to leverage advertising or positioning options into your offering offers an additional revenue stream.