Situation: A company finds that new opportunities are coming in more slowly than they had planned. They have work now, but no confidence that this will continue long term. This is frustrating because they are in the middle of a transition in their business model. How do you create clarity about the future?
Advice from the CEOs:
There is a lot of uncertainty in the business world. Low oil prices are depressing investment in the energy sector. Global political and economic uncertainty are not conducive to bold expansion plans. This uncertainty may last for some time. Companies have to adapt.
A mapping solution is a used by some companies use to create clarity between alternatives:
Start with box representing where you are now.
Draw boxes representing each of the alternatives that you are considering.
Map the paths that will get from where you are now to each alternative. Draw them out, including what you have to accomplish and what resources you have or must acquire to get to each.
Do a SWOT analysis (strengths, weaknesses, opportunities, threats) for each alternative.
This will help you to think through each of the options and identify the benefits and pitfalls of each.
This is a great exercise to do with your management team, as others will add their own perspective and insights.
Tools: use Post-it notes – either easel pads or larger (5” x 8”) Post-it notes. Put these on the wall, and start sketching out your ideas with boxes and paths. Revisit the charts for at least a few minutes a day for the next 3-5 days. You will be amazed at both the number of new options you generate and how the obvious options rise to the top.
This is much easier and more productive than it may sound. Don’t fear the process.
A small company has need for legal advice, but is unsure how to properly utilize a lawyer. Legal costs have gone up over the last decade, so expense is one concern. Another is a desire to understand how to form an effective relationship with a lawyer or law firm, and how to effectively manage billable hours. Bottom line, how can a lawyer help you meet your business goals?
Advice from the CEOs:
First, seek the counsel of a firm that specializes in small businesses. Just as you would seek a specialist physician to treat a serious medical condition, SMBs are best served by corporate lawyers who understand how they are different from large corporations and who can advise them at a rate and under an arrangement that fits their financial situation.
Schedule regular “off the clock” lunches and conversations with your lawyer. The ideal lawyer for smaller companies serves as an “outside counsel.” Your outside counsel is essentially your legal quarterback and should be willing to meet with you off the clock to discuss general business needs. Of course, as a courtesy to your lawyer, if your conversation starts getting into areas where you are receiving legal advice you shouldn’t expect free advice.
Know what to ask your lawyer versus what to ask your auditor and tax specialist. Each has a separate and distinct domain.
Trust your lawyer – or find a new lawyer. The best legal relationship is when your lawyer is treated as a member of your team. Sharing the business context aids your lawyer in advising you.
There is no need to overspend on lawyers, but you do need to assure that you spend for what you need. A good relationship with your lawyer can help you to walk the line where you are spending appropriately.
Special thanks to Deb Ludwig of DJL Corporate Law for her contribution to this discussion.
Situation: A company has been presented with a new business opportunity. The opportunity is compatible with the company’s current business, but also involves skills and markets with which the company is not familiar. How do you evaluate a new business opportunity?
Advice from the CEOs:
There are at least four critical questions to assess as you evaluate any new businesses opportunity:
What is the total available market, and what is the immediately convertible market for the product or service?
Can you acquire expertise in the new markets that this will open to you?
Do you have a track record starting and nurturing new business within your company?
Is there sufficient seed money available – through company funds or outside investment – to keep the effort going for at least a couple of years as you develop the core team that will operate this business and gain traction?
If there is an offer of outside investment, consider how many months this funding will support the salaries of the team that will build this business, plus operating and overhead costs. You want to be sure to give yourself an adequate runway.
New business development opportunities typically require huge energy, creativity and focus for the first few years. Key management will have to devote all of their effort during the start-up period. Can the company afford to lose the services of key personnel for the time that you estimate this effort will take?
Before deciding to pursue this opportunity, take the time to investigate the market for this opportunity.
In particular, look for other companies that have tried to enter this market, and learn from their experience.
Develop a network of advisors who understand this market and can help you understand both the workings of the market and why companies may have struggled trying to enter the market.
A late stage private high-tech company wants to know what questions are most critical for managing the next stages of growth. This includes factors that can help differentiate good opportunities from poor ones. What questions would you ask about managing a late stage private high-tech company?
Advice from the CEOs:
Never compromise on your team. Is this a team of individuals who will be effective together, and can you make changes where necessary to build and manage the team that you need?
There is no room for someone who is not a cultural fit – do the team members work well together and does everyone see and support a win?
Who are the key stakeholders, and what drives them? Are these drivers compatible or in conflict? Can you bridge potential conflicts, or will they defocus your efforts?
Market & Strategy
Are your market projections realistic or fluffed?
Will your value proposition appeal to a large enough market to justify the investment of time and resources?
Is there a strong, realistic plan?
If you do a full SWOT (strengths, weaknesses, opportunities, threats) analysis, is the net positive?
Finances & Capital markets
Are the revenue and financial projections done correctly and achievable?
Raise money when you can, not when you need it – will the timing of your deal or opportunity, given existing financial markets, allow you to raise the funds necessary to bring the opportunity to fruition?
Is there openness to all potential capital or financing options? Financing is a personal relationship – how strong is the relationship?
Boards & Governance
Investors are investors; don’t overestimate their industry savvy. Are they aligned or in conflict? Are they fresh or tired? Will they support your efforts, and do they have the ability to generate extra funds as required?
It is impossible for a CEO or deal to be successful without the full support of the board – will you have full board support for your opportunity?
Is there clear differentiation between governance and management?
Looking over these questions, is the balance positive or negative? That balance will help you to accurately assess whether a given strategy or opportunity makes sense for the company.
Situation: A company recently hired two employees. In their first weeks of work, they were observed using company computers, on company time, to do personal work – in one case to monitor a personal web-based business. What is the best way to communicate company policy to these individuals?
Advice from the CEOs:
Everything starts with the orientation on the first day of employment and the atmosphere established in the first weeks of work.
Particularly in a small company, new employees should meet with the CEO whose job it is to describe the culture of the company, the vision for the future and broad expectations of the role and contributions expected from employees.
Matters concerning personal work on company time and with company equipment should be clearly addressed in the employee handbook. Key points should be reviewed by a representative of upper level management, along with a conversation to assure that these key points are clearly understood.
Particularly during the initial weeks of work, new employees should have frequent meetings with their immediate supervisors to assure that they have the resources they need, that any questions they have about their work are addressed, and that they are performing to company and role expectations.
Given what has been observed, you, as CEO, should definitely speak to them about the behavior observed, and give them the opportunity to explain what is happening.
Clarify expectations of all employees, and ask whether these individuals understand these expectations.
Document the meeting. If the behavior continues, take action.
What is being done by other employees, and is there a broader issue to be addressed? Are other employees behaving similarly? If so, the new employees may just be responding to what they perceive as allowable behavior within the company.
Start with a company meeting or a letter to all employees. Highlight relevant passages from the employee handbook, and speak in terms not only of company culture but of the destructive impact that this behavior has on company performance and viability. The future of everyone in the company is tied to company performance and success.
Key Words: Leadership, Team, Expectations, Personal Work, Company Time, Policy, Orientation, Culture, Expectations, Employee, Handbook, Evaluation Period, Supervision, Documentation
Situation: A company has historically given Christmas bonuses at the rate of 10-20% of salary in a good year. The CEO is concerned that employees may stay until their bonus is received, and then leave for another job. What are your plans for 2011 bonuses?
Advice from the CEOs:
First, what is your objective in granting bonuses? Which among the following are you trying to achieve?
Acknowledgement of effort.
Effort above and beyond the norm.
Once you determine your goal, design a structure that will effect this goal.
What practices are typical for your industry – your competitors, vendors and clients?
Background research on industry practices provides a basis for your own practice. You can then evaluate whether varying from industry practice can give you an advantage.
Company performance should be a factor in determining bonus payment. So should performance against individual employee goals and objectives.
How much discretion should be given to managers for setting bonuses for their direct reports?
Talk to your managers and get their input on how they would handle bonus evaluation.
A number of companies give managers a pool guideline, and have them produce a spreadsheet of recommended bonus distribution for executive review and approval.
Individuals should not decide their own bonuses. Bonuses for all employees/managers should be decided by their direct supervisors.
Should the CEO be concerned if an employee takes their bonus and then leaves?
If an employee has earned their bonus, then you are granting them an earned reward. Their departure likely has much less to do with whether or not they receive a bonus than other factors.
Human resource research consistently demonstrates that compensation is at the bottom of the ladder of reasons that workers remain or leave – particularly workers who exercise critical thinking and judgment in their jobs.
Interview with Doug Merritt, President & CEO, Baynote
Situation: A company has a proven technology and satisfied customers. To achieve their goals, they need delivery on sales and service to ramp revenue. At the same time, new opportunities arise daily. How do you keep the team focused on execution and delivery?
Advice from Doug Merritt:
The first thing to focus on is focus itself. Most of us don’t suffer from lack of opportunities, but from an inability to make hard choices and diligently pursue the few critical or high pay-off options. To tell the difference between gold nuggets and distracting bright shiny objects, you must have a clear strategy and priorities on customers and channels you want to develop. It is critical to choose the right opportunities that will optimize achievement of the strategic plan and to say not to those that don’t. This must be constantly reaffirmed through a simple set of metrics around your optimal customer set, revenue ramp, and quality of services delivered.
The second thing is attracting the right talent. A small and rapidly growing company has little time and resources to effectively train fresh talent. If scale is the issue, it’s important to identify and attract experienced individuals – those who have proven their ability to deliver and who bring along a high quality, proven, loyal following. Top talent that can open the purse strings of your target customers. This means hiring rock stars who do this better than you can! The challenge for the CEO is remembering that success almost always comes from hiring people who can do their jobs much better than you ever could. The CEO’s unique talent isn’t being the smartest person in the room – it’s your ability to build and guide an organization that will achieve more than you can alone.
Third is to keep the team focused on the most important priorities. The CEO needs to generate a crisp vision and to distribute information that maintains focus on that vision. Most “Type A” overachievers want to do lots of things well. The key is doing the right things well. You do this by measuring, and by creating transparency around the few key levers that drive the strategy. It helps your cause to say no to a visible and enticing “bright shiny object” that, in the past, the team would have reluctantly accepted. Finally, it also helps to create a few large and non-negotiable milestones that get the company to focus, as a unit, on achievement. Ultimately, the CEO needs to coach and guide their team to do the right things right.
Situation: A company has a long-term clerical employee. While this individual has handled a wide range of responsibilities, they have not significantly grown their skills even though cumulative yearly pay raises put this individual on the higher end of the company pay scale. Increasingly, the individual is refusing to do work requested. In your experience, what can the CEO do to get this individual back on track?
Advice from the CEOs:
Recently the CEO hired a personal assistant. The position was offered to the individual in question but declined because of hours and expectations. The personal assistant has supplanted much of the contribution that this individual historically made to the company. They are likely hurt by the resulting reduction in their role. This may explain the refusal to do certain tasks that used to be routine.
To have the best chance of recovering this individual, it is important that your approach be positive, not punitive.
Instead of going over performance variances in your next review, bring the individual into your office and let them know that “we need you.” Present a vision of the company and its future growth. If the individual shows a willingness to turn around, take them into your confidence and show them your plans. Ask them what role they see for themselves in the organization chart.
Simultaneously, be frank. The company has changed and is poised for growth that was not possible two years ago. Tell the person you want them on the team and set forth long-term goals. Establish and agree on objectives for 90 days and measure from this meeting forward.
Either the individual will rise to the challenge or will let you know within the 90 days that the company is no longer the place for them.
The key point is that this must be a caring and heartfelt discussion.
Analyze how this situation arose so that it isn’t repeated with other employees.
Hire for both current skills and the potential for growth. Develop new and existing staff in line with plans for growth. This is how you achieve extraordinary results with ordinary people.
Situation: Sales at a small company have grown rapidly. They need to expand staff to keep up with demand and fulfillment. There are two options: expanding current functional teams in sales and service or adding a back office operations function. Based on your experience, which of these two options makes more sense for a company of fewer than 20 people?
Advice from the CEOs:
Since the company is planning to grow from 10 to 20 people, create an organizational chart for what the company will look like with 20 people. From this back into what it looks like with 15, and then 10 people.
Look at how the positions work, and what talents you want to see in each position. Assess how well your current staff fills both current and anticipated talent needs.
The company’s key market differentiation is and will continue to be exceptional client service. Here are some of the questions to ask:
Are the back office needs of the sales and service teams similar or different?
If there is enough overlap, can one person, and eventually a team, supply the operational needs of both your client services and sales functions?
If there is little overlap, what specific needs are currently unfulfilled by each team? Is there enough work to justify adding more than one person so that each team manages their own operations?
One option is a matrix organizational structure which can work well in a firm of 10 to 20 people. Key factors include:
Establishing a company culture to compliment your strategy and objectives.
Establishing clear expectations of accountability and expectations to govern the model.
Matrix structures don’t always succeed. Ask whether your current people and culture are suited to a matrix organization.
Interview with Sandy Lawrence, Past CEO, Therative, Inc.
Situation: The technology sector is growing following a couple of lean years. Whether you want to fund a new company, or a new effort within a smaller company, what are the best avenues to capital? How has the game changed?
Funding and credit markets are opening but still tight. The bar has been raised because too many people are chasing too few available dollars.
The venture capital sector has consolidated. Over 80% of current focus is on technology, software and medical. Under 20% goes to the consumer sector.
It is important to target VCs who specialize in your technology, market and business model.
Research current VC portfolios.
Angels now act more like VCs – particularly structured angel groups.
Initial investments are typically under $1 million.
If you have a technology, investigate the grant world – e.g., NIH or DARPA. These organizations fund research, but not marketing, etc.
Look for specific programs or RFPs that align with your technology.
Target your grant request toward prototype development and studies.
Search LinkedIn for military people who can introduce you to contacts within programs like DARPA.
Investigate SBA Grants, and foundations with an interest in your technology or application.
Foundations sometimes will grant funds ($100k) to support the work of individual scientists and researchers.
Call on friends and family who believe in you and your work.
Whoever you approach, these rules apply:
Do your homework. Choose sources that align with your project and profile.
Presentations must be crisp and easily understood. Investing in professional assistance is wise.
Be able to make your case in 15 minutes or less. The first minutes are most crucial, so have your ‘elevator’ pitch perfected.
Your model and financials must support a high multiple exit, 5-10x their investment in a reasonable period of time (~5 years).
Team, Team, Team – credentials, experience, presentation – be a team with whom the investor can work.