Situation: A company is facing the expiration of the principal patent for its main product. There are subsidiary patents which still have life. Currently, there are no competing products, but several companies understand the technology. How do you plan for patent expiration?
Advice from the CEOs:
Think of this as a two-step process:
Step 1 – Step back and look at what the company has:
Patents – including the claims that have been awarded on all company patents.
Facilities – capable of manufacturing current products, but also additional products, perhaps with a minimum of additional equipment.
People – competent staff running manufacturing operations, and tight office operations.
Step 2 – Loot at where the company could go and evaluate the markets where the existing technology is applicable:
Work with outside, imaginative people who can take a fresh look at the options.
Looks carefully at the claims in all the company’s patents.
What do they cover?
Is there an opportunity to extend current claims through process patents?
Caveat: a company can file for a process patent on anything that has been for sale on the market for less than a year. However, if they have been selling a product covered by this application for more than a year, they cannot.
Look at other markets – companies that could license the company’s technology, or with whom the company could partner to provide new consumer-oriented products:
Is there inexpensive, affordable equipment that would enable the company to produce additional products in the current location?
Think outside the box: what business is the company in? Think more broadly than the current market about where high value opportunities exist. These can be low to medium volume, high price/margin or high-volume lower price/margin.
Patents are not the only protection – trade secrets also work. 3M’s primary IP strategy, particularly on their adhesives, etc. is through trade secret – both for low and high-volume products.
“Product” patent extensions have limited utility. They are easy to design around. “Process” patents have more utility. These can be licensed at low cost per application in high volume applications and provide a nice royalty reserve stream.
Situation: A company offers a product combined with a service. Small companies can’t afford the combined price, but don’t need the full functionality of the combined product plus service. An option is to create an offering on a per-seat basis. In this option, how do you price seat utilization? How do you price a product and service?
Advice from the CEOs:
Pricing needs to follow value. For large companies, functionality and seamless operation are key. Small companies have different challenges – they have less money and don’t need all the features required by large companies. Configure a limited product for this market.
Don’t de-feature the product – create a different use / pricing model. Consider a model that prices based on the user company’s revenue, with periodic review of their revenue and fees paid. As they grow and increase utilization, they increase their ability to pay for, and their need for full utilization.
Use a cloud model and create a “pay per amount of use” option. Limit this offering to X number of users or X number of projects to create a different product from the full license option. While this will require monitoring, it will differentiate the partial license option from the full license option.
Develop an alternative to what is offered by the chief competitor and create an offering that this competitor can’t compete with.
Before making a final decision, institute a formal process for collecting ongoing feedback from customers. This will help to clarify alternatives going forward.
Situation: A CEO wants to increase brand awareness for her company and its primary service. The objective is to increase the client base and drive revenue growth. They have identified their primary growth opportunity and differentiating advantage. What else should they do? How do you increase brand awareness?
Advice from the CEOs:
What is lacking is a clear vision, path, and marketing plan. These are prerequisites to deciding either the solution or hiring a high caliber individual to execute the plan.
What steps are involved?
Survey 20% of current clients. Ask “why did you choose us?”
Develop the tools to track and show clients service performance online.
Use these same tools to show company performance online.
Tune messaging to potential clients to highlight demonstrated service performance.
Play elite – as the company’s name and reputation grow, clients should aspire to being accepted as clients.
What is unique about the company’s ability to manage and extend the longevity of clients’ key assets?
How well prepared are potential clients to manage this on their own?
How does the company help potential clients to manage and extend the life of those assets?
Once there is a clear plan, fine-tune the internal focus of the company to align with the plan.
Increase involvement in communities where potential clients are found.
Host seminars and webinars on relevant topics.
Evening seminars in locations that potential customers congregate – existing clients attend and bring a friend.
Focus on referrals from existing clients – with a reward – a free consultation.
Look for non-competing service providers who can be good referral sources.
Make it easy for potential clients to switch. Use mass-marketing to spread the word with a multi-tiered approach to different segments of the target market.
Situation: The CEO of a start-up software company focuses on connecting potential parties to business opportunities. Early signs are that this offering has legs and potential parties have responded positively. The critical question for the CEO is how best to turn interest into revenue. How to you monetize your business model?
Advice from the CEOs:
The first step is to segment the audience and determine both the potential for each segment to both benefit from and fund the service that they receive.
Individual contributors may not have a lot of financial resources but may be interested in participating as employees or providers of expertise or services. They also may know others and can spread the word.
Collaborating organizations may be able to offer both funding and services to help build and sustain momentum.
Companies have funds to support the effort provided they see value to their bottom lines as a result.
Suggest a fee or contribution for services from companies who will benefit. Provide guidelines or a sliding scale of fees depending upon duration of services provided to the company. Make it clear that moneys earned will be reinvested to increase the range and depth of services offered.
Suggest a sliding fee scale for individual contributors based on the financial benefit that they receive.
For companies and collaborating organizations offer levels of membership or recognition for support based on benefit received.
For all segments – start with small, timed fees and increase these as the model proves its benefit to them.
Situation: The CEO of a software company needs to increase revenue to cover expenses. He doesn’t want to cut salaries because if employees leave it will be hard to find replacements with the required skills. The better solution is to increase revenue. How do you expand business development efforts?
Advice from the CEOs:
Look at the markets which are growing rapidly:
Gaming. This is currently a good investment area. Large casinos are spending heavily on high end projects, and people just keep gambling!
Medical imaging. Potential targets include:
Pharma and Biotech R&D and Marketing/Sales – the ability to show how a drug binds with the cell receptors and how this impacts the cell is interesting to both groups. Also look at Medical schools. This is where you find the top researchers and they love teaching and presentation aids.
Military markets, particularly simulation spaces and unmanned vehicles. They value realistic simulated environments. Also look at training programs that value visually intensive simulations including marine and naval applications, aircraft, and battlefield simulations.
Consider the company’s business focus and strategy. How can it move from a “next project” model to a recurring revenue model? Is it possible to write client agreements to include a piece of the recurring revenue stream from client products?
Look at what the company does and package this as a product/service vs.an hourly problem-solving model. Focus on where the market is going. For example, iPhone apps – cheap to the customer, so millions buy them People now interact differently using electronic media. This opens new options.
What is the company’s key focus – Product Leadership, Operational Excellence or Customer Intimacy? How is the company’s differentiating strength presented consistently to client audiences?
It is important to clearly define the company’s niche – what makes it truly different. The communication must be clearly understood both by the engineers, and the business development and marketing people.
Invest additional funds in business development – with payments highly weighted on success.
A CEO is concerned that too much of her company’s business is focused on two
few customers. The loss of a single large customer can potentially mean a significant
hit to revenue and profitability. How do you diversify your customer base?
from the CEOs:
If current cash flow is good, the company should consider purchasing diversity by buying a company.
Consider acquiring a supplier that is in good shape, but with lower margins. They will have the infrastructure to run their own operation, and the purchasing company will have the additional profitability to make the combined entity more interesting.
Given the company’s existing cash generation potential, there are creative ways to finance such an acquisition.
Why is this a good strategy?
Purchasing another company can instantly expand the customer base.
Diversifying the company opens additional options to build long-term sustainability.
A purchase strategy can bring in a ready-made and smoothly running infrastructure in the form of the purchased company.
Diversification can boost the value of the combined company on a more diversified business base. It might allow the company to combine low volume, high profit lines with high volume, lower profit lines. There are advantages to each of these business models.
Where can such a company be found?
Look both inside and outside of the current geographic base.
A candidate could be a higher volume but lower profit supplier of one of the company’s current customers that does not compete with the company’s current offering. Alternately, look at companies with more diversified customer bases in a related industry.
Look at the niches that the company’s current customers serve.
What similar niches exist? Are there acquisition candidates there?
Look at the functionality that the company’s products add for its clients. In what other industries would similar functionality be of value?
As these questions are asked, look for candidates that have complementary customer sets, customer bases, and geographical reach.
the grim reality. In volatile markets, forecasts are meaningless. Instead of
fretting over forecast accuracy, focus on increasing billable rates and
generate additional revenue per project, add a flat percentage charge for
project management on top of time and materials. This is often treated by
clients like a sales tax or a gasoline cost adjustment and may not penalize
it possible to build a sustainable revenue source to resolve profit lumpiness? There
maintenance projects. After building a box add a provision for maintenance/upgrades
as new capabilities and technologies are developed. This can cost-effectively
extend the life of the box and long-term profitability of the product that the
box supports, while gaining an annuity revenue stream.
a maintenance add-on service to leverage the company’s core competence on an
ongoing basis. Provide technology upgrades through a maintenance subscription similar
to software companies adding optional access to all new releases over the
course of a year for a fixed subscription cost. The cost to the company for upgrade
downloads is essentially nothing, but it gains an annual annuity revenue
a help desk service to sell via subscription to small companies. Most clients use
less than they anticipate; however, they prefer the security of a flat price
additional info can be gathered through sales to better drive sales forecasts metrics?
Look at the past several years: is there any seasonality in a multi-year
analysis. It may not occur every year, but if you there’s a pattern it may
enable the company to proactively reduce costs where there’s a predictable dip
in project demand.
sales people responsible for both maintaining client relationships and creating
new business? Most companies split these
functions because maintenance is like farming while new business development is
hunting – few sales people excel at both.
in development, the company develops IP, can this be used? When there’s
down-time can capacity be leveraged to develop the company’s IP portfolio? Look
at IP licensing opportunities. This provides an additional potential source of
it is important to figure out an annuity revenue stream, the principal lesson
from the discussion is that most CEOs say that margins are better on fixed
price projects than on time and materials. The key is to control to client
requests for add-ins or adjustments and to include provision for these in
Situation: A CEO and his COO find it difficult to focus on core tasks when business is booming and everyone is busy. The company is small but has been very successful. However, the pressure of simultaneously attending to key customer relationships, training new people, and formulating plans is overwhelming. How do you stay focused when it’s busy?
from the CEOs:
If the CEO and COO are doing a mix of corporate and project tasks, the first step is to delegate so that top staff focus on strategic areas rather than execution.
Over the next week, keep a record of what the CEO and COO are doing. At the end of the week sit down and determine which activities were corporate activities, and which should have been delegated to staff.
As an example, training of new personnel should be a key role of someone else. The CEO and COO will be involved, but only tangentially. The bulk of onboarding should be handled by staff.
Similarly,restrict sales activity of the CEO and COO to high level discussions and decisions.The rest should be handled by sales staff.
What must the CEO and COO be involved in? Intellectual property development, high level decisions about new service offerings, high level decisions on business expansion opportunities, and occasional oversight of company operations.
It is important to focus. The first priority should be the company’s principle revenue stream.
The second priority should be new service offerings which are central to efficient delivery of the primary revenue stream.
Meet with top staff and develop a five-year vision. The order of priorities that are developed will determine where to focus.
In the process of developing priorities, ask the following questions:
What do you love and what do you need to love?
Analyze the comparative importance and urgency of each activity of the CEO and COO. Which require top level input, and how much? Which are better delegated to staff?
Situation: The CEO of a consulting company is frustrated by lumpy revenue and profits. From quarter to quarter it has been difficult to predict either number. Unpredictability reduces options in valuation and exit exercises, as banks and acquirers favor predictability. How do you generate a predictable P&L?
Advice from the CEOs:
The objective is to construct a revenue base built on predictability, even if this is at lower margins. Given a predictable base, the company can complement predictable revenue and profits with higher dollar and margin opportunities as they arise.
Analyze the projects that the company contracts for both revenue and profitability. Some projects will be bread and butter situations which are more common and predictable, but which generate less revenue and profit per project. Others will be customer crisis driven. These latter projects will have higher revenue and profit, particularly if the company is the vendor of choice; the tradeoff is that the frequency of these contracts is unpredictable.
If the objective is predictability, the company’s base should be built on bread and butter projects. As the company grows, focus on this base. Customer crisis projects can then be added as they arise to bump both revenue and profit.
The objective will be to become one of the top 2-3 outside vendors of the choicest clients. Target projects may be ongoing maintenance of older projects in the client companies’ portfolios.
How would this model be pursued?
Focus on the company’s top 5 customers. Reduce risk by optimizing customer leverage as a proven entity and offer them strategic deals.
The focus is long-term project based with guaranteed delivery at lower cost.
Identify the fear or insecurity that exists within the customer and provide sleep insurance.
This model works well in the new economy – get lean, manage infrastructure size and cost, and grow with the economy.
Alternately, identify an area where the customer may not have enough resources and provide a solution that allows them to address this without adding additional personnel or by using existing personnel more efficiently.
Another option is to develop a virtual office model. Provide resources for $X per month, with an evergreen provision.
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.