Situation: An early stage company is positioning itself for growth. The CEO believes that they need to adopt a new model to grow. She is focused on a new channel – an affiliate model using the web. How do you build a young company?
Advice from the CEOs:
Introducing a new product to a new market is very difficult, especially for an early stage business that is still establishing itself. Shifting from direct sales to ancillary services presents a new challenge and a new demographic. In addition, in your market there are low barriers to entry so it may be too early to diversify. You are more likely to be successful marketing to your core.
Evaluate and decide whether there is growth in your core business. If so, stick with your core plan. If not, then you either must change or decide that your core market is not what you thought it would be.
You offer a valuable, important service. The issue is branding and a clear vision of what you want to be. Start by identifying your revenue stream. Then assess ways that you can move from one-time sales to an annuity revenue stream without major adjustments to your model.
Is it feasible to build a revenue share model for ancillary services with your core business partners? Here are the steps:
Develop a model.
Talk to both your business partners and customers – test the concept. See how they respond.
There are two things to look for: does it turn out that that the model is easy to sell and implement, with little effort or distraction from our core business, or does it compliment your core business. If either or both is the case, you may want to pursue it.
Situation: A company works primarily with early stage/rapidly growing companies. To extend their service offering, they have alliances with corporations which are interested in these companies as sources of innovation. The alliances have helped them to gain new customers, but the CEO is curious whether he can gain additional revenue from these alliances. How can you monetize marketing alliances?
Advice from the CEOs:
Match making is a valuable resource – regardless of where your company is located or the customers that you serve. Companies are less likely to pay for something that they perceive as having received free in the past, but are more than willing to pay for options that will enhance both their top and bottom lines.
Look at ways that you can make your services more valuable to your current corporate alliance partners. How can you help them make more revenue, or enhance their bottom lines through a win-win revenue-sharing relationship?
Become a match maker and get a fee. Offer your alliance partners opportunities that are more intimate than speed dating. Make sure that you are playing both a key introductory and ongoing role.
Use speed dating to match companies and funding sources. Invite investment bankers or private equity firms. Charge a 1-2% match fee if they do a deal.
Simplify your model. Who is your real audience – who is the constituency that you can best serve?
The most valuable deals and matches are those that offer ongoing revenue opportunities to your alliance partners. This is where you can offer them the most important value – a value for which they will pay.
Situation: The CEO of an early stage company has identified a person to help her as an assistant. This will be her first real employee. Prior hires have been contractors who have been paid on revenue generated. This individual’s salary will be an expense without clear association to revenue. What guidelines do you suggest as she makes this hire? How do you hire your first employee?
Advice from the CEOs:
Create a cash flow projection to make sure that you have the cash to afford an employee.
If you consistently expect 40+ hours of work from this individual, consider a salaried position which will give both of you more flexibility.
Paychex currently handles your payroll and benefits. Work with them to make sure that all labor law compliance issues are covered. Also, consider hiring a labor law consultant to help you avoid minefields.
Do a background check even if you have known this individual for a long time.
Consider working with a professional employment organization that can provide back-office HR support for you.
An employee handbook is unnecessary at this point. However, think through how you will want to handle issues that may come up including vacation, benefits and paid/unpaid leave like bereavement leave. Document these for inclusion in a future employee handbook.
Under the current health care law employers with less than fifty employees are not required to provide health benefits without paying a penalty. This may change as the law continues to evolve.
Situation: A CEO is building a new company. She has a small, highly qualified team, and much of the work is hands-on. In addition, there is fund raising to support the venture. The CEO also makes time for exercise and keeping in shape. With all of this on her plate she is getting overwhelmed. How do you focus on priorities in an early stage company? How do you make time for priorities?
Advice from the CEOs:
Maintain your exercise and health – this makes everything else easier.
Decide on your strategic platform. This creates a larger conceptual framework and helps to clarify priorities.
Identify the gating items. Focus effort here and spend scarce resources strategically to push your goal.
Within your gating items, identify the factors that make you scalable. Focus most of your effort here.
Create a weekly focus.
Lay out your to-do list in a Covey quadrant – most and least important vs. urgent and not urgent. Review this weekly to eliminate or delegate less important priorities.
Operational issues are usually symptoms – identify the causes and fix them.
Daily, list what you’ve done. Look back every 1-2 weeks and assess how you spent your time. Eliminate time wasters.
Don’t let you passion be undermined by the drudgery.
As an early stage company, you have to react – understand and appreciate that some aspects of early stage company life will not be very strategic.
Fix things rather than adding people and complexity. This compliments Fisher’s Stages of Growth recommendations for a company of under 11 people.
Situation: Start-ups and early-stage enterprises are typically both resource and talent constrained. The CEO of a start-up asks how others successfully outsourced infrastructure cost effectively and when they were early-stage so that they could focus on critical success factors and improve their opportunity to succeed. How do small companies outsource infrastructure?
Advice from the CEOs:
In the early stages of company development, outsource everything possible and focus our efforts only on the key functions.
In order to focus on the most important things first, decide what must be accomplished and when. Set priorities, establish key milestones and create a timeline to measure achievement. Celebrate your successes!
Identify the most important strategic foci within your business model and outsource everything else.
For example, use outside data centers instead of developing these yourself.
With the increase in Cloud-based options, early stage companies can do without the IT infrastructure that they used to need. Just be careful to safeguard your intellectual property!
Attend relevant meetings and functions to learn about existing and available capabilities. Look for local networking opportunities relevant to your market.
Incubator sites have developed in a number of high tech centers. These are designed to cover infrastructure needs at a reasonable cost so that founders can focus on product and service development.
Hire a virtual assistant – you can find these locally using a Google search.
Take advantage of lower cost labor and enlist younger, less experienced labor to manage databases and clean records.
Set up a wiki for information. This exchange is free and you can tailor it to your needs. It is permission-based; you can find it at pbwiki.com.
Situation: An early stage manufacturing company has established repeatable operations that produce the desired quality. The CEO now wants to focus on efficiency. Early research suggests a number of areas on which they could focus. Based on your experience, what efficiency metrics are most important in manufacturing?
Advice from the CEOs:
Much depends upon what is being manufactured, and both the complexity and labor intensity of the manufacturing process. Start with the basics: looks for a relevant quality metric, and a time / delivery metric. Test these for relevance to your operations and adjust or change them as necessary over time.
Start with simple metrics and make them more complex over time.
On an ongoing basis, monitor your processes for continuous improvement. If an employee comes up with an improvement that increases efficiency and saves money, recognize and reward that employee.
Be selective. Limit your focus to 2-3 metrics per quarter. Make first period performance the baseline for the next period.
Areas in which to focus:
Statistical process control to monitor:
On time delivery to production schedule.
Quality check at end of production – yield rates versus pre-set targets.
Use Google to see what others are using. Google “Manufacturing Performance Indicators”.
As you develop your efficiency metrics, include your most effective metrics in performance measurement for bonus awards.
Interview with Ishveen Anand, CEO, OpenSponsorship.com
Situation: Emerging stage companies that get early traction must maintain momentum and strong growth. This is particularly true if the company is competing in an established industry where innovative and new solutions are not the norm. Early adopters fall back into old, comfortable habits. Filling the pipeline with new prospects takes a lot of energy. How do you maintain momentum as you grow?
Find a familiar, respected example of an existing service that is similar to yours. Match.com is widely recognized. We use Match.com to describe how we connect athletes with potential sponsors. Our service is free in the early stages and focuses on introductions. It costs nothing unless the parties decide on a deal. It’s up to the parties to decide whether to go out, form a relationship, and later end up together.
Map the stages of a sale for your offering, and select progressive KPIs that represent these stages. For example, early on it may be users. Later it becomes messages between users. A sale is closed when messages produce deals. Once you have progressive KPIs you can focus on tipping points between the stages and facilitating movement from user to message to deal. Set metrics and timeline objectives at each stage of the transaction.
Closely monitor conversation rates between users, messages and deals. Watch the momentum of conversion between the stages and test interventions that positively impact this momentum.
Match social media channels to the personalities of each of your stages. Twitter is a great metric of sales success and LinkedIn helps us to understand the reach of OpenSponsorship. Instagram is a great tool for those selling products, so slightly less relevant to us, but still necessary. Use the appropriate channel that will best bring potential users into your sales stream. An advantage of social media channels is that these provide additional insight into your transaction stream and what users are saying about you.
Understand what’s right for your users. Early on you look for elements that will create buzz and feed viral growth. Target special events and opportunities which offer high visibility. For us, a big event will be the 2016 Olympics in Rio de Janeiro. For another company it may be a large convention like CES or SxSW. Plan in advance and make the most of these opportunities.
Know your users’ seasonality. What are their peak purchase seasons? Do they have special seasons? What are their off-seasons? How can you take advantage of this knowledge to offer them new opportunities? Populate your web site with the right pages and social media marketing efforts linking to these pages to drive usage and business year-round.
Important pieces of momentum are staffing and investment. Early on, these seem almost like distractions to a CEO. The CEO is more engaged in the product or service being provided. However, personnel and fundraising decisions critically impact the future of the venture and must be taken seriously. Success will depend upon the CEO’s being able to move seamlessly between conversations about product and service, staffing and fundraising.
Situation: A company’s major customers are expanding their manufacturing in China. They want the company to be able to service their Chinese locations. If you don’t already have a presence in China, what are the best ways to create a presence in China? In addition, how do you get the cash produced by these operations out of China?
Advice from the CEOs:
Increasingly, multinational businesses with operations in China seek vendors who can seamlessly handle all of their domestic and international needs. In China, the objective is to be able to translate service output into English so that US managers can monitor the output and assure that Chinese operations are meeting the same or similar basic standards as their domestic and other foreign operations. If your company can’t do this large contracts are at risk.
Look for local partners, including partners located in Hong Kong or Japan who can deliver service in China to your standards. You want partners who you can risk-manage.
It is interesting to look at the Japanese approach to China. Japanese concerns known to CEOs around the table only transfer highly developed, late stage manufacturing projects to China.
As you look at partners who have capabilities in China there are a number of qualities that you want to investigate:
Competence and honesty.
Loyalty – a partner who will stick with your company and not just take the new knowledge and start to compete with you.
Absence of graft and record of compliance with the Foreign Corrupt Practices regulations.
If you work with Chinese partners, work with two of them. Do not give them exclusive agreements, and do not tell them about one-another. This is critical to protecting any IP that you will be using in China.
We’ve learned over the past year that taking cash from your Chinese operations out of China is difficult. The Chinese government imposes heavy fees and levies on companies exporting earned capital because they want this capital to remain in China. Given this, you must ask yourself whether this is important to you.