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 targets mid-sized clients with pricing that is similar to its competitors. They believe that their principal differentiation is their relationship with their clients. The problem is that this is also what all of their competitors claim. They are considering testing a new pricing concept – a monthly fixed fee that will provide a pre-negotiated set of services at a favorable discount, with a weekly presence in their clients’ offices. How to you test a new service delivery model?
Advice from the CEOs:
This looks like an appealing concept. With this arrangement there is no clock ticking and the client may view your various services as a more open menu of options available to them.
Another company has a similar relationship with their CPA firm and have both enjoyed this and are using more services from this firm.
Just a regular presence in the office is worth the retainer.
Another appeal is that this allows regular participation in management and Board meetings.
Another CEO offers a similar program for her professional service company’s clients and have found it successful.
Since there appears to be strong support for this model within the group, what is the best way to implement this new offer?
Negotiate an initial monthly rate for a set level of services as a retainer without a clock.
Agree to a periodic review and adjustment of services and pricing – perhaps quarterly – based on the time and services that have been provided during the preceding period.
How do you sell this program to those within your own company who are skeptical?
Try the program with three clients on a limited trial basis and measure it.
Situation: Early stage companies often find it difficult to raise funds from traditional sources. An experienced CEO wants to help certain new companies of which she is aware in two ways – assisting them in receiving funding, and then helping to assure that they reach key milestones. What is the best way to profitably address this ambition? How do you fund a start-up?
Advice from the CEOs:
Build relationships with a few select sets of local investors – venture capitalists, angels, and private investors – with whom you have strong credibility. For a retainer or fee, agree to bring them a number of new pre-vetted companies in the next year, and post-finding, help the companies to succeed and hit milestones. From the companies that you bring to funders, ask for equity in return for securing funding and providing guidance.
Put yourself in the shoes of the person who will pay you – what do they want and how do you deliver this for them? Develop statistics from your past successes that highlight your capabilities. Don’t be shy about your accomplishments.
What are you passionate about? If the answer is development – linking technology entrepreneurs to strategic partners and then being an accountability partner to assure that milestones are met – this will be your focus and your pitch to both funders and tech companies.
Your value is linking the entrepreneur to the funding source and being an accountability partner.
Situation: A CEO is transitioning her role in a company that she founded to new ventures, while maintaining a part-time commitment to the company. The company seeks a proposal as to how she will split her time and what compensation she wants during the transition. The CEO seeks guidance on the focus and content of the proposal. How do you structure a transition proposal?
Advice from the CEOs:
This sounds like a set of half-decisions.
The CEO envisions a transition from the current position to a transition position to a new position. The more likely scenario is that the CEO will go straight to the new position. As soon as one new venture starts to solidify, this will demand 100% of the CEO’s time.
Given that this is most likely the CEO’s priority, the important question is what the company wants and needs from the CEO. Deliverables, time commitment and compensation should follow these needs.
Another approach is to look at an exit package, including a long-term consulting retainer. For example, full salary for 6 months with a retainer for another 6 months. This will allow the CEO more freedom and flexibility to pursue the new ventures.
The current negotiation is just a starting point. Here are the things to consider in the proposal to the company:
Does the CEO need income from the current company during your transition? Will a new venture benefit from financial or professional assistance from the company?
If the CEO is not fully engaged with the company, leadership will likely want the CEO out sooner than later.
The company mostly will want a non-compete and the ability to use the CEO as a resource as needed.