Situation: A CEO is concerned that business operations are inconsistent. Employees are always coming to her for answers instead of working things out themselves. As a result, the CEO is continually focused on operational details as opposed to strategic direction. How do you create consistent business operations?
Advice from the CEOs:
Make managers live up to their titles.
Require them to go to each other to solve problems first, instead of always asking the CEO.
When they ask a question, don’t give them the solution, but advice on how to solve it.
Require them to present solutions vs. problems
Be willing to spend money on their solutions.
Answer all questions with questions.
Ask them for their recommendation.
Keep asking until they come up with the answer.
When one starts to delegate, it hurts for a while but will work itself out.
The CEO should not be doing “regular jobs” that are really employees’ responsibilities.
How has implementing these suggestions impacted other companies?
Businesses have become more diversified.
CEOs are focused strategically vs. tactically.
Businesses are more successful and profitable.
CEOs enjoy coming to work again.
Create a sales intern program.
Hire 4 sales interns for $10-15/hour – with the offer that after 3 months there will be full time jobs for those who prove they can sell.
Have the top 4 sales staff design the intern program – call response scripts, responsibilities, etc. – subject to CEO review and approval.
Assign one intern to each of these 4 sales staff in mentor/mentee relationships. This will demonstrate the capacity that each has as a sales manager.
Should younger workers be handled differently?
Allow flexibility – where appropriate – on hours and how they do their jobs.
Responsibility will also vary by pay level – higher pay equals more hours and more accountability.
Situation: A CEO has been approached about a potential acquisition of his company. The offer was a surprise, and the team within the company is split on whether they are interested in a sale. They are currently very happy with what they do. How do you prepare for a potential acquisition?
Advice from the CEOs:
How does a company best position itself in advance of discussions?
Rebrand the company to boost the value proposition. Make what the company does best the focus of its value proposition. Position the company as the “experts” in this area.
Look at a series of possible scenarios that could develop and determine who on the team can best contribute each scenario. This will help to evaluate the implications of each scenario and to rank them in terms of favorability on the company’s terms. It will also help to quickly exclude certain scenarios if they come up during discussions with acquirers.
What research should the company conduct on the acquirer?
Do a deep dive into the potential acquirer. Research is simplified if the acquirer is public. Go online and look at their SEC and public filings. Look at their revenue trend as well as their profitability or losses.
What is the acquirer’s history of acquisitions? Interview people from companies that they have purchased.
Don’t pitch anything to the acquirer until you understand what they want to buy – this is critical so that the company positions itself well.
What is the best approach to take once the conversation starts?
Quick first step – send the company’s financials to the acquirer with a 3-year projection. Ask them, based on this, for a price range that they would consider for the company. If the range is outside of expectations, the conversation is over.
Determine whether this looks like a strategic vs. a financial buy. A strategic buy yields a higher price.
Cut a deal structure with a bonus tied to success post acquisition. This means a reasonable upfront payment with big payments for future success. This creates golden handcuffs to motivate the company’s staff to stay post-acquisition.
There should be multiple options on table – addressing both financial considerations and the future of team.
Situation: A company wants to expand to new sites. It’s business model relies on high levels of customer service, with high customer retention and efficiency. The challenge is that the model is low margin, because only a few employees are billable. How do you finance site expansion?
Advice from the CEOs:
To evaluate profitability and start-up time create a low-cost prototype site to test the model and collect data.
Develop a template with a high likelihood of survival over the first 6-12 months when investment will outweigh income.
Consider a SWAT resource team to accelerate early success for new sites.
Key areas of focus:
Understand the value of the business. For example, is it:
Improving client operational efficiency?
Building the team?
Response time to client needs?
From experience define the most important variables for success:
What is front office, what is back office?
How important are the dynamics between key people? Is it better to hire key people as the number of sites expands or grow them internally.
Determine what is being sold, with a reasonable prospect of return – methodology or services?
Consider a franchise model. The model must show a reasonable return to the prospective owner, including the cost of franchise purchase and start-up costs.
As franchisor, it is important to know what this model looks like to a prospective franchisee; however, take care not to create a representation to which would be bind the franchisor as a promise.
A successful franchise should have a branded presence.
Offer potential franchisees a guarantee: if after one year the net costs to establish and maintain the site are below a certain level, the franchisor will credit the difference between their estimate and the actual net costs in Year 2.
MacDonald’s does not allow franchisees to choose store locations. Similarly, the franchisor can choose locations, determine the availability of key talent, select anchor clients, and develop a reasonable estimate of the value of a new franchise before selling it. This increase the value for the franchise sale and creates a more predictable ROI for new franchisees.
Situation: The CEO of a professional service company is reaching retirement age. The plan for years has been for a key field manager to take on this role; however, neither the CEO, the founder nor most employees feel that this individual is up to the job. What can be done to either better prepare the key manager for the new role, or to demonstrate that this is unfeasible? How do you transition to new leadership?
Advice from the CEOs:
For the long-term benefit of the company, it is important to create a situation that will either prepare the field manager to succeed or provide the Company with a back-up plan for ongoing leadership.
If the CEO and founder are concerned about this individual’s ability to succeed, then coordinate a plan with the founder and then meet with the key manager.
Let the key manager know that the owners plan to sell the company in 3 years.
This can be an internal sale – the CEO and founder sell their shares to the key manager – or the owners will look for an outside buyer to buy out all current owners.
See how the key manager responds.
If the key manager expresses an interest in buying the CEO’s and founder’s shares, then require this individual to make the same level of financial commitment that the CEO and founder have made.
Another CEO experienced a comparable situation with an individual who was both underperforming and a significant shareholder.
This CEO created a very public vision of what he expected this individual to achieve – in positive terms. The CEO also put an outside hire in a similar role to create a performance comparison. The result was a significant increase in performance by the inside individual and a successful transition to additional responsibility.
If the key manager is to be put on a track that leads to the CEO role there will be two challenges: assuring that this individual can acquire the skills to succeed and assuring that the individual can demonstrate successful leadership within the Company. To meet these challenges, take the following steps:
Make a public announcement of the plan to transfer the mantle of leadership to the key manager;
Raise the bar of expectations for the key manager to demonstrate his or her leadership capacity;
Define a full program of training to provide the key manager with the skills to lead the Company;
Ideally, allow the key manager to prove his or her mettle through a highly visible responsibility – like growing a key market segment – so that he or she gains the respect of the others.
Require the same level of financial commitment that the CEO and founder currently bear, so that everyone knows that the key manager has “skin in the game.”
Put the key manager on the same compensation program as the CEO and founder, as this will become his or her compensation program on becoming CEO.
Situation: The CEO of a product and service company has seen her company struggle for several years. While the overall market has turned around, her company has not. She is tired of barely staying afloat and not making the kind of money that she a decade ago. Is the glass half-full or half-empty?
Advice from the CEOs:
What keeps you from hitting the numbers? Creating a forecast, budget and objectives allows you to establish a reward system for meeting and exceeding objectives. Once there is an upside, then not hitting the numbers means that a manager misses the upside and the financial rewards that accompany this achievement. This is often consequence enough, particularly if others are hitting their numbers and getting performance bonuses.
The glass is half-full. The past few years have been difficult. Review what the company accomplished during an extended recession. Look at how the company fares versus local competitors. Review positive changes that have been made and take credit for these. This will provide energy to move forward.
Given the company’s successes, sit down with the management and show them what the company has accomplished. Celebrate. Use this opportunity to set goals for next year. A good place to start is to set a bottom line profitability objective before taxes.
To be a great manager requires more than just a revenue and profitability target. People rally around a vision and a culture that they aspire to and want to enjoy. The role of the leader is to create this vision and culture. Do this, and revenue and profitability will take care of themselves.
Two more thoughts on whether the glass is half full or half empty to check your bearings:
What is your passion? If you love what you’re doing, what else would you do?
If you were doing something else, would you be making more money or enjoying more success?
Situation: The CEO of a privately held company wants to share company success with employees. An option that she is exploring is phantom stock. The objective is to engage employees in company success. Does a phantom stock plan make sense?
Advice from the CEOs:
Why would you use phantom stock options instead of real stock?
Phantom stock options are popular in the tech sector. Phantom stock confers the right to receive cash at a future point in time, typically a share of the proceeds received upon the sale of a company.
The principal difference between phantom stock and real stock, is that real stock must be issued in exchange for cash, property or past services. There is also a tax consequence to the receipt of real shares. When shares are issued in exchange for past services the employee must recognize taxable income, just like wage compensation. Employees may be disappointed to learn that they may face taxable income based on the fair market value of their shares received without compensating cash to pay the tax.
Let’s assume that the objective is to increase employee engagement as they observe the value of the shares increasing with company success over time.
Under phantom stock programs the value of the company is pegged on a periodic basis, based on a pre-set formula developed by the company.
In some cases, employees can “sell” their phantom stock back to the company for the differential between the price when they were awarded the stock and the current pegged price.
The structure of the program is determined by management based on company objectives.
Employees frequently don’t have the cash to purchase real stock or options at a fair price given the value of the company. Using a phantom stock plan, a company can offer the rewards of stock ownerships without a purchase requirement or tax implications at the time of award. Employees can be apprised of the value of their phantom stock based on a periodic internal accounting exercise.
Situation: A company is interested in partnering with a larger company to market a suite of services. They have identified two good candidates. They haven’t worked with partners in the past and are curious about how other companies work with marketing partners. How do you evaluate marketing partners?
Advice from the CEOs:
The danger of working with a single marketing partner is that all of your eggs are in one basket. Your success in this relationship will depend upon the success of the marketing partner. This, in turn, will depend on the amount of attention that they pay to marketing your services, and on how actively their sales department sells your services. The danger to you is loss of control over the marketing and sales process.
Another company had a similar situation several years ago. At that time, the advice of the CEOs was to not select an exclusive partner, but instead to work with two different marketing partners, even though they are competitors. The company followed this advice, and it has worked like a charm.
Start with a position that you want a non-exclusive relationship. If a potential partner insists on exclusivity then ask for fixed guarantees of business and fixed minimums.
Other companies around the table work in partnership with competing companies all of the time. All of the partners value the services that these companies provide, and the relationships are harmonious.
If a possible partner insists on an exclusive relationship, another alternative is to split territories and supplement your agreements with most favored nation clauses.
Going back to the original question, provided that the terms offered by the marketing partner/partners are favorable, you won’t really know how they will perform until you establish a relationship and monitor it over time. Exit clauses and conditions will be an important part of any marketing agreement.
Situation: A company has developed a number of initiatives and priorities which are important to the success of the company. All of the initiatives are daunting. What do they need to do to get all of these accomplished? How do you manage multiple priorities?
Advice from the CEOs:
Start with corporate level objectives and set these independently from your initiatives. Pick your top corporate goals and objectives – financial, performance, and so on. Once this is in place, rate your initiatives in terms of how they help to meet your company objectives.
Create an initiative list. Measure the upside and risk for each initiative. Based on the results of your analysis classify each initiative: critical, important, or nice to have. This, plus alignment between initiatives your corporate objectives will indicate which initiatives are most critical to company success.
Every company needs long and short term goals. Use these to align and prioritize initiatives. Only and your team you can tell what is important and importance is a matter of your strategic focus and objectives.
They key to accomplishing multiple objectives is focus. Focus on your top 2-3 initiatives first – if you can reasonably handle this many. Once these are accomplished, focus on the next 2-3, and so forth.
Look at your competitors – where are the opportunities in the marketplace. How will your initiatives make you more competitive?
What does your leadership development plan look like? If you plan to add new leadership, include in your thinking a transition plan to new leadership, taking into account your multi-year timeline.
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: A company has hired interns in the past and wants to upgrade their intern program to attract more interns from top schools. How do you attract interns from top schools?
Advice from the CEOs:
Top schools want to build lasting relationships with the companies to whom they send interns. In addition, the ability of top schools to attract top students increasingly relies on the placement rate of the school, so this can be a win-win proposition for both company and school. Take the time to cultivate this relationship and let the school’s representatives know your intentions. Get to know the top professors in programs from which you wish to recruit interns.
Provide a high quality internship experience. Treat interns as though they were normal employees during internships. Give them a job, objectives and tell them that you will evaluate you as though they were FTEs. They will feel more like members of the team and will have a higher quality internship experience. They will likely tell their placement office and other students about their experience. Interns should understand that if all goes well, the company MAY have a job for them; no job is guaranteed.
If you want more applicants from top schools then view your internship program as an investment. Look at it as a recruiting tool, not as an expense.
Pay for interns may not be same as FTEs – frequently interns are paid less, and don’t get the same benefits as FTEs. Before you make an offer or hire, call the school from which the potential intern comes and check out the candidate’s representations as to expected salary, etc.
Hire more than one intern and compare their performance against each other.
The CEO of a technology company has hired many engineer interns. Many of these were subsequently hired as employees. Overall their success has been good, but not fantastic. Similar to a new employee, it takes time for an intern to get up to speed.