Situation: The head of a small service company wants to become more strategic – more like a CEO. Ideally, he wants to create a small samurai team to help him expand. He prefers working with a range of clients to develop creative, out of the box solutions. How do you transition from boss to CEO?
Advice from the CEOs:
The eMyth Revisited by Michael Gerber is a valuable primer on how to bring in more clients and revenue. The critical question that this book helps to answer is “what do I want to build?”
The book walks you through the critical questions that will help to answer whether your true ambition is to be a Picasso with helpers or a company. The answer may be either, but how you build each is different.
The more that skills can tied to a tangible outcome the easier it is for clients to hire a company. Quantify past successes. Make it easy to justify hiring your team.
To add to your pipeline:
Help friends help you. Make it easy for them to refer you. This can be simple: YouTube videos or improving the company website to highlight past successes.
The company web site can’t be just OK – it must be the all-important credibility builder that the company needs. Recreate the site to wow the visitor and tell the company’s story. Make it fun and compelling.
Participate in groups or forums that your targets attend. Create presentations, webinars, etc. Establish the company as an expert with the answer and as a trusted resource.
Also present to professional organizations to establish expertise and credibility.
Testimonials are powerful – particularly if backed by metrics.
Collaborate with people with similar depth of experience who can help develop the pipeline. Offer them a cut of total job revenue.
Situation: The Founding CEO of a professional services company has always been deeply involved as a service provider and rainmaker in addition to his role as CEO. As the company has grown he sees the need to spend more time as leader of the company instead of being a doer. What can be done to facilitate this transition, and what expectations need to be created? How do you transition from doer to leader?
Advice from the CEOs:
Another CEO removed himself from day to day business development activity by bringing in a new rainmaker. These were the adjustments made to facilitate the process.
During the first year he worked with the new individual in a team or partnership role.
Compensation was results-based. Discussion of equity consideration was deferred until the individual proved herself.
The CEO moved himself out of the individual contributor role except as needed to support the new rainmaker’s efforts.
All of this was accompanied with clear communication to clients: “this adjustment will provide better service to you; here’s my number if you need help.”
Rainmakers are a different personality type. To be most effective, they must be able to say “my team.” Allowing this will ease the transition and improve the relationship.
Create teams to deliver solutions that have traditionally been provided by the founder.
Identify skill sets behind the roles that are being delegated.
Build an organization that will fill these roles.
Participate in team meetings, but as an advisor rather than as principal decision-maker.
Adapt role and behavior in phases to ease the pressure of the change on both the CEO and the team.
How does the CEO manage his own expectations as well as those of the company as he makes this transition?
Delegation initially takes more time and effort than doing the work yourself. Be patient and let the investment pay off.
Larry E. Greiner of USC was an expert on the study of organizational crisis in growth. Per Greiner’s model, the company is currently at stage one – moving from principal and founder to initial delegator. It may be a useful to study this model.
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: 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.