Situation: The CEO of a specialty component company wants to standardize documentation of company procedures covering sales, production and ISO documentation. This will take time and effort, and employees are concerned about accountability for poor results. How do you incentivize employees to document SOPs?
Advice from the CEOs:
Are employees are being asked for accountability without being empowered or rewarded for performance? Currently, there is nothing about employee performance that is directly tied to:
Dollars in raise, or
Share of the bonus pool.
Everything is determined at the CEO’s discretion.
Why would anyone want more accountability if they feel that they have little control over their jobs or future at the company?
To increase accountability and drive, employees must be given control over the factors tied to retention, pay and bonuses.
To create an effective system for employees to document standardized SOPs they need:
Incentives that are under their control to achieve the objective – creating standardized SOPs.
Objectives that are achievable with clearly stated rewards for performance.
Performance evaluations tied to clearly stated objectives, discussed with and agreed to by each employee, which drive raises, bonuses and rewards.
The messaging about these changes must be delivered with energy and passion. Employees must feel excited by this opportunity.
Understand that this may cost 10-15% in increased overhead but will boost the value of the company way beyond the cost.
Employees need to know the vision for the company and must be empowered to achieve the results to fulfill this vision.
The why behind the desire for standardized SOPs is just as important as the incentives created to achieve them.
The why must be clear, simple, and must be understood by the employees for everything to work.
To further motivate the team, involve them in designing the incentive program.
Ask what they want. Maybe it’s something as simple as a fun day with the team.
If they aren’t asked, the danger is that they will not respond to the incentive offered. Money is not the only, and in many cases is not the most effective incentive.
Situation: A CEO has hired a banker to advise on the potential sale of a privately-held company. What else should she be doing in advance of the sale? How do you prepare to sell a company?
Advice from the CEOs:
Prior to moving forward with a banker, it is necessary to prepare a privately-held company for sale. Get an advisor – not a banker – to assist you. Search online for a good mergers and acquisitions advisor. If you know CEOs from other local companies, network with them to discover high quality advisors.
In selling a company, the final deal must provide for the survival and continuing effective operation of the company. A buyer may want assurances from you, or assistance in the transition. This can have a significant impact on your final payout.
Be prepared for the reality that you or someone else within the company will have to remain with the company post-sale. If this is to be another person, this individual will be very important to you during the negotiation process with potential buyers. Keep this individual up-to-date with your intentions and plans.
A company is more than numbers – it is a story. The story must be very crisp and compelling.
The buyer will want to perform due diligence before offering you a price and setting conditions on a purchase. This may involve more than you and your top managers. Communications within the company will be critical to keeping managers and employees informed and on-board.
You will want to have two or three potential buyers, both in case a top prospect fails, and to assure competition and a higher sale price.
Think carefully about your next move from a personal standpoint. Being at leisure may not fulfill you. What do you really want to do for the next segment of your life? This is far more important for you, personally, than you may estimate.
Situation: A company has been approached by a larger company that may be interested in acquiring them. The prospective acquirer is a current customer. Absent an extraordinary offer, the company isn’t interested in selling. Nevertheless, a conversation could be valuable. How much information about the company should the CEO share now? How much do you share with a potential acquirer?
Advice from the CEOs:
The key term here is potential. At this point, there is no commitment, and you really don’t know the other company’s motivation. As you start this process, don’t share confidential details about your plans or prospects, or your pipeline. Just broad information. If things get serious, slowly open the kimono.
Make sure that you have an NDA in place covering anything that they ask you to disclose for this possible transaction.
Given your current situation, a standard offer probably won’t be appealing, so be open to a creative option.
Decide ahead of time what your price is. If they are in the ball park, keep talking.
For example, Say you want $XX. Would you be attracted to 50% of that now, 50% later? Under what terms?
Put a low valve on future payouts, particularly if you are not in a position to call the shots.
Be open and creative. You never know what can happen. You could sell to them now at the right price. Then, if the acquisition doesn’t work out, buy the company back in 2-3 years at a discount!
If you get into higher level negotiations, employee retention will be critical. Make provision for this as part of the deal.
Hire a disinterested professional negotiator you who you can trust.
If things get serious, bring in an investment broker to assist. It will cost you 5% but they are helpful in the negotiation and could bring in competing suitors to up the ante.
Situation: A CEO has been analyzing the metrics that she uses to track her company’s performance. Historically she has used common metrics like sales, gross and net margin, profit and net operating income, budget plan vs. actual expenses, and sales forecast vs. actual sales. She is curious what other companies use to track performance. What are your key business metrics?
Advice from the CEOs:
The most important financial metric for many companies is actually cash flow – how much cash you have on hand and your cash flow forecast. Two metrics that can help you to better understand and boost cash flow are:
Receivables – aging rate
DSO – Days Sales Outstanding
Additional financial metrics include:
Variable versus fixed cost ratios
To augment understanding of profitability, track “good” profit – revenue from customers who are profitable, as opposed to revenue that is either break-even or unprofitable.
Sales metrics to measure future revenue include:
Order backlog – by month for X months out
From this, forecast beyond visible orders
Marketing metrics include:
Net promoter score – would the customer refer us to a friend or family member?
Client and referral client retention rate
Metrics for utilization of resources for a service provider include:
Total hours paid versus total hours billed
Business trend tracking. If business is seasonal, look for historic peak to peak times – this may be 3 months and may be 18 months. Determine this and make the rolling cycle equivalent to your business cycle.
Review your metrics regularly to reinforce their importance across the company
Situation: A company is in the midst of due diligence for sale of the company. Chances of closing the deal are 50/50. The CEO, key staff and the Board must plan for both contingencies. How have you planned for contingencies whether a sale goes through or not?
Advice from the CEOs:
You have to assume that the company will be a going concern. If there’s no hope for the future, there’s no power in the present. Without hope, you can’t establish a motivating vision around which to rally the team. Whether or not the sale goes through:
It is essential that the owners and Board make a commitment to the key employees, if not to the long term business.
Absent a long term commitment to the business, customer initiatives and alliances may prove difficult, because major customers will know that an offer is on the table. They want to be sure that they can count on you for ongoing needs.
The Board and Leadership Team must create a strategy for moving forward.
Key to success will be material and financial commitments from the Board to motivate the Leadership Team to stay on-board.
Retention plans may include:
Sizeable retention bonuses to the team.
If an employee stock-ownership program is in the works, there must be assurance that this will be put into place.
Rules of engagement in the case of future due diligences that will preserve the financial interests of the team.
For the CEO, support of the Board is crucial. It is imperative that the CEO impress on the Board how critical their support is to both the company and their own financial and fiduciary interests. If the Board fails to make commitment to the team and company moving forward, it will be difficult to create a winning strategy.
Situation: Sales technique is constantly evolving. Based on research completed by the Sales Executive Council, this evolution has accelerated since 2008. The implications for selecting, training and retaining top sales reps are significant. How has sales evolved in the last four years?
Advice from Michael Griego:
A 2009 study by the Sales Executive Council (SEC) – Replicating the New High Performer– studied 6,000 international sales representatives from 90 companies comparing top sales performers with core sales reps across 44 attributes.
The study found that Challenger sales reps represented the largest cohort (39%) of the most successful sales reps, followed by Lone Wolf (25%), Hard Worker (17%), Reaction Problem Solver (12%), and Relationship Builder (7%) sales reps.
The Challenger sales rep is best suited for a complex sales environment, while the Hard Worker is best for less complex enterprise sales or sales of off-the shelf products.
Identify the characteristics required for your sale. In addition, identify the mix of sales people currently on your team – from young, eager people just out of school to seasoned vets who can be realigned to current methodologies.
Selection should focus on the prior experience of the candidate. What have they have sold in the past? Ask for details of sales situations. How do they usually open a sales conversation? How did they adjust their sales pitch to different audiences? Were they hunters or farmers? Top talent reps can deftly go both ways.
Training involves reinforcing sales fundamentals plus the modern application of provocative consultative selling where salespeople provide true insight and challenge customers well beyond feature/function/benefit selling.
SEC study results indicate that if you are involved in a complex sale you need to identify the challenges, acknowledge what is happening in your client’s market and the challenges that they face, quantify the implications, and position potential solutions for exploration; all of this occurs BEFORE you start selling your specific solution.
Retaining the best sales reps fundamentally takes good sales management.
Pay special attention to top performers, while attending to all your reps and treating them fairly.
Challenge them to be better in areas that will enhance their success.
Recognition is a great motivator. Make them an internal mentoring resource for the rest of the team.
Identify your core (average) players and train them to act like your top players.
If you do these things they won’t be attracted to the shiny objects dangled by head hunters.