Situation: A CEO wants to create new markets outside the US. They have investigated options and locations and are starting to plan. One question is how long it will take to start seeing results, so that they budget accordingly. How do you build international sales?
Advice from the CEOs:
Decision timelines internationally are longer than they are in the US. For example, in Europe timelines are easily twice as long. This means that new entrants must budget for a sustained effort.
It took another company three years to develop traction in Europe. They have an office in Germany, but most new sales are coming from Eastern Europe. After three years their European operation is now break-even.
International markets, especially in Europe, can be very conservative. Job security and maintaining cash flow are the focus.
Labor laws encourage companies to do things themselves rather than outsource. The result is that a new entrant will face competition from internal departments of potential prospects.
In European the emphasis is not growth, but on conservative steady operation. Growth tends to come from acquisition.
Sales pitches should be tweaked for international audiences. For example, highlight reduced need for additional personnel to manage the systems, fewer breakdowns and glitches, and the ability to count on seasoned outside expertise to quickly address complications.
Relationship selling is very important internationally. Sales and tech support are best provided, and in some cases required to be provided in the local language.
In Europe, Italy can be an important lever to sales with the right partner. Italian companies can be excellent at marketing and can jump-start European sales. This will be a very personal relationship.
Situation: A CEO is concerned that her #2 is being challenged by others in the company. An option is to hire a technical project manager; someone who carries the CEO’s authority and who can get things done. What are the obstacles to achieving this? How do you boost company morale?
Advice from the CEOs:
The technical project manager must have a non-threatening role – they shouldn’t challenge the technical skills of the developers. The role is to oversee schedules, progress, and to resolve barriers – both technical and personal. The job is to get things back into shape.
While the business involves highly technical software, operationally it is people centered, not software centered. People centered means a team that collaborates and supports one-another. The important questions are:
Where do the needed people skills come from?
How do the model and reality transition to a people centered business?
Look for someone who can nurture talent. People skills are more important for this role than technical skills, with the caveat that individual must be able to understand technical challenges.
An option is a 3rd party within company to straighten this out.
“COO” Responsible for Technical Direction – title is important because it conveys respect.
The CEO’s voice and ears.
Run weekly meetings and is the go-to person when the CEO us traveling.
The focus is to manage the primadonnas and keep them focused on their jobs instead of on interpersonal conflicts.
This role focuses inwardly on company vs. the CEO who focuses outward on the broader vision, key stakeholders, etc.
The bottom line – this is your company, your vision. Make it work. The task is teaching maturity – learning to give rather than worrying about making a name for themselves.
Have regular lunches with each of the developers and have frank conversations with them. What’s up and what’s wrong? Listen and let them air their concerns. Talk them through these concerns, but make sure that they understand that the CEO sets the direction both for the company and the boundaries of acceptable and unacceptable behavior within the company.
Situation: The CEO of a software company has been presented with two opportunities by a large customer – international expansion to support their sales and creation of a data warehouse facility. The company has the option of pursuing either or both. The customer is not offering up-front cash to support either opportunity. Should they pursue either or both? How do you choose between opportunities?
Advice from the CEOs:
Keep pursuing both opportunities and establish a series of decision points which will yield either a Go or No-Go decision on each. The big question is to determine how either will support company growth.
The customer is interested in both opportunities so ask them for assistance such as: removing barriers, client referrals, or some form of cash or investment.
For either opportunity to succeed requires a high level of internal buy-in and support from the customer.
If the company can afford to be aggressive now, this is a great time to move.
Look carefully at the ROI on each opportunity under different scenarios.
Do background work with potential clients to validate each market opportunity.
Specifically to International Expansion
Buy-in from the customer’s head of international sales is essential – without this it will be difficult to establish a solid relationship with the international sales team. Lack of this support will be a No-Go sign.
Can the customer provide office space, access to their infrastructure, administrative support, assistance in gaining necessary licenses to do business, etc. during start-up?
Could this venture be undertaken through a joint venture with an established international company? This would save start-up costs and allow validation of the opportunity before risking the company’s investment.
Execution will require a large-scale effort – both time and money. Include both in the Go/No-Go calculation.
Specifically to the Data Warehouse Facility
A competitor’s right of first refusal on this business is a barrier. However, the opportunity may be viewed as too small for the competitor. Is it possible to buy rights from this competitor?
Ask the customer to transition their customers to your company and its product.
Situation: The CEO of a small technical company is in the process of handing off responsibilities to a new President who lives in another state. The CEO and President have known each other for a long time and have a strong relationship. The CEO will hand off several key responsibilities immediately, while retaining financial and HR because of the President’s location. How do you transition to new management?
Advice from the CEOs:
Most of the current hand-off plan concerns non-technical areas. The next logical area to delegate is Customer Support.
Establish a trigger process for new requests for support that keeps key parties informed and meets customer needs on a timely basis.
Think about bumping up Customer Support to a more proactive Customer Relations function. This is important during economic downturns when trade show attendance is low.
Next in line are Installation and Installation Planning, since the new President will already have Installation Support.
Think about Technical Support. This could be combined with Customer Support and makes sense because many customer support questions come through technical support.
Beef up the financial function to support future growth. Growth brings new complexities into the picture. Consider handing this off to a part time professional who can provide regular updates of the company’s financials. A professional can also look at the structure of the books and suggest changes that will provide more insight into company operations, opportunities for savings, and sources of funding to support planned growth.
Situation: The CEO of a family business seeks to create a succession plan. One family member has expressed an interest in taking the reins of the company but has failed to take the initiative to demonstrate that he is prepared to take on this role. Another family member is now demonstrating both interest and initiative. How do you plan for succession?
Advice from the CEOs:
How should this situation be approached?
Do not view this situation competitively, but rather from the standpoint of what is best for the whole family because many family members stand to benefit from the ongoing success of the business.
Whatever decision is made, the successor will need support and assistance understanding both the financial and business sides of the company. This individual must also be aware of conflicts and challenges that face the business.
What else should be done to prepare for succession?
Given that there are two individuals interested in becoming CEO sit down with each individual and negotiate a clear boundary statement on what you, as CEO, can and can’t do, as well as what can and cannot be expected of you, as CEO, as the succession decision is made. This understanding should be documented in writing and signed, signifying understanding by both the CEO and the candidate. Each candidate should have their own signed agreement with the CEO.
In a family business, the CEO, as guarantor of the company, may be faced with a different level of financial risk than other family members. Both candidates for the CEO position must understand that if they accept this position, they also accept this risk.
Situation: A company has built a solid core business and wants to expand its product portfolio by adding new business. Core functions can serve both existing and new business, reducing overhead on individual businesses. What pitfalls must the company avoid? How do you balance core and new businesses?
Advice from the CEOs:
New business activity cannot impact core business. The core business is the company’s bread and butter. It is important to make this clear to both employees and clients and to structure the handling of new business opportunities accordingly.
From a staffing standpoint, new business opportunities cannot impact marketing, service and operations staff supporting the core business. New business development activity and operations cannot result in a pull from their focus on the core business. This separation may be facilitated by placing the staff supporting new business in separate facilities, or in an area separate from the staff supporting core business.
In the case of support functions that will serve both existing and new business, recruit and hire staff to support the new business to assure that both existing and new business receive proper support.
Hire a new person, one with experience and contacts, to develop the new business opportunities. Look for a sales person who can bring in significant new business. This will pay for the individual quickly.
How does leadership communicate these changes to staff?
Meet with key managers to identify potential concerns. These may include impact on company culture and client focus. Use the responses gathered to develop a communication plan to allay employee concerns.
As new business opportunities are added, it will be necessary to bring in new, experienced personnel. Previously, the company brought in experienced personnel to build the current business. Be open and up-front about this and explain that as the company grows there will be new opportunities for existing employees.
The company’s objective is to improve the quality of the organization and to raise the boat for all. Current owners and managers will automatically benefit from the efforts of new people to expand the business.
Building new business opportunities as separate businesses diversifies the company and reduces the risk of overdependence on existing clients and key vendor relationships. This enhances the job security of current employees.
Situation: The President of a professional service company and his team are considering adjustments to their business model. The alternatives under consideration are a client-centered model and a service delivery model. What’s the right model for a service company?
Advice from the CEOs:
In the client-centered model, the emphasis is on maintenance of the customer relationship by the responsible manager, with support from the group to optimize service delivery.
Consider the service being provided and the client’s expectations. Does the client want to have a principal point of contact – a client manager – to address their needs?
This model centers on the key manager creating and maintaining an ongoing relationship with the customer, including rapid response to inquiries from the customer.
In the service delivery model, the emphasis is on a developing and maintaining a high standard of service delivery so that multiple individuals can deliver the service rapidly and reliably.
As in the client-centered model, consider the service being provided and the client’s expectations. Is the customer’s principle concern functionally rather than personally oriented – for example keeping a system up and running in the fastest time with a manageable expense? In this case, the individual technician is not as important as speed of response and assurance of a quality outcome.
The service delivery model centers on standardized and predictable delivery of a defined service, with high responsiveness to the client’s needs. Those who deliver the service are paid variably based on their skills and assigned to deliver service consistent with their abilities. A benefit of this model is that business maintenance is not as dependent on individual service providers as the client-centered model.
In choosing between these models, it is important to speak with your clients and to understand their needs and priorities. Is your model a direct business to customer relationship or a business to business relationship? Is your offering perceived by the customer as a service or a product with tangible results? Is your customer more interested in meeting short-term needs or developing a long-term relationship?
As an example, is the customer expecting a personal, customized service and desirous of maintaining a long-term relationship? For this, a Nordstrom-like model may make the most sense – a highly personalized level of service where the relationship managers on the sales floor keep detailed records of individual customer’s tastes and past purchases and will even have items pre-selected prior to the customer’s arrival at the store.
This model implies that the most important assets to client development and retention will be your account managers. A business development manager may bring in a new client and then hand off that client to “one of my best managers” who will develop the long-term client relationship. The account manager will become the principal point of contact for the client; however, they will bring in other expertise or assistance to handle specific client needs. When a customer calls in, depending on the immediate need, that customer may be triaged directly to their manager or to an individual who could, for example, perform a transaction for them. Responsiveness by the manager within a defined time frame will be an important metric to monitor.
Situation: A CEO wants to establish baseline metrics to evaluate company performance, and guide both planning and operations. Without baseline metrics it is difficult to compare the impact of options that the company faces. What are the most important areas to analyze, and what do other companies measure? How do you establish performance metrics?
Advice from the CEOs:
Start with the basic divisions of the business. As an example, take a company which has three arms to its business – products that it represents for other companies, products that it distributes, and custom products that it manufactures to customer specifications.
For each of these lines track gross revenue, profit net of direct costs, FTEs necessary to support the business, number of customers, net profit percent, net profit per employee and net profit per customer.
Calculate these metrics on at least a quarterly basis for the past 2-3 years to set a baseline and a chart of historic trends.
Once you establish a baseline, chart current performance on at least a quarterly basis and look for trends and patterns.
Where is your greatest growth and greatest profitability – not just on a global basis but in terms of profit per customer and profit per employee?
If you’ve included your full costs including the costs of the FTEs to support each business, then the analysis should show you where you want to invest and what it will cost you to support additional investment.
Do a similar analysis of costs per line to further support investment analysis.
This analysis will help to evaluate whether it is better to purchase another rep line, or whether you would be better off investing the same funds to grow custom business.
Similarly, it will demonstrate on what kinds of customers and products you want your sales force to focus to grow profitable business and will help you to establish objectives based on anticipated revenue or profit per new customer that sales closes.
Finally, it will highlight potential vulnerabilities such as the impact of the loss of a key customer in one portion of the business.
Situation: A company is considering purchasing a line from another company to complement its existing product line. They would split commissions with the current owner, and gain an additional employee with knowledge of the products to be acquired. The purchase would add to the company’s offering, as well as rights to additional products. The CEO sees this as a low risk move. How do you evaluate an acquisition opportunity?
Advice from the CEOs:
In evaluating a commission split opportunity, will the commissions that you would receive exceed the cost of both the additional employee which you will add, plus the support that it will require to maintain the new business? Do the new commissions cover the anticipated costs, plus a reasonable profit?
Have you vetted the numbers to demonstrate that this purchase provides a suitable return on investment vs. other potential investments that you could make? Is the marginal revenue that you will receive greater than the marginal cost that you will bear? Is the ROI of the new line greater than your cost of capital? If not, what can you do to improve the return?
Looking at your current operations, do you have your existing shop in order? Have you calculated the metrics that will allow you to understand, where you’ve been, where you are, and which provide a clear vision of where you want to go? If not, the question is whether you are ready to take on another line.
The bottom line question is – how do you know that this acquisition is the best use of your funds?
Situation: The CEO of a software company pays a high base and incentives for their key sales person. While this is in line with the company’s industry, the CEO wants the opinions of others as to the comp packages they offer and any controls that they put in place. What is an effective sales compensation plan?
Advice from the CEOs:
While the paid seems high, your industry may be different from other industries. Most see a 50/50 split between base and incentive as the norm.
Consider a draw system so that if the individual falls behind you have the option to reduce future draws.
Look at both the compensation formulas, and at the individuals’ predilections and the behaviors that you want to generate. Compensation should align with desired behavior and results.
Do you have bonus incentive plans in place for your sales support people? Consider these, and check whether the goals and objectives for your sales and support people complement each other. They should.
Consider a discretionary bonus pot that you can use to reward specific achievements at your discretion.
What will you do if your sales person performs significantly below target – for example, this person is only hitting 40% of the objective after 2-3 quarters?
Consequences for non-performance should be clearly understood by both you and the employee before you launch any new plan with the individual.
Whatever you decide for this person, you may well be setting a standard that you will have to live with as you hire additional sales personnel.