Situation: A company is transitioning from a service model to a product model. A major challenge is meeting funding needs during the transition. Funding sources perceive the current service model as heavy on cost of sales vs. implementation and this hinders acquisition of funds. The CEO sees this as a short-term problem as the company will quickly start to generate more cash through the product model. How do you transition from service to product?
Advice from the CEOs:
In a competitive funding environment, it is important that the offering be credible. While others may be offering similar solutions, believability will prove to be a strong differentiator.
Where to focus over the short term?
Create a hybrid model as a transition between the current service offering and the planned product offering. Demonstrate that current customers have responded favorably to the product/hybrid opportunity.
Test this concept with an investor. The story is that the company needs funding to get to a saleable product model.
What is the message to investors?
Helping the company to achieve a short-term and very feasible objective gives the investor the following advantages: purchasing at a lower valuation, getting a larger share of the company for less, and at a low risk.
As the valuation of the company increases, the earliest investors will get the best deal!
During meetings with investors, ask them for advice on the current and following rounds and financing, and what they will find most appealing.
How do you mitigate the risk to the first investor?
Have a solid business plan and projections that have been vetted by others.
Have a list of referenceable clients.
Utilize the current service model and demonstrate the product/hybrid Package. Build a case on the advantages of the hybrid model including the financial case. The company is always there to provide back-up assistance to meet customer needs in the hybrid model.
Demonstrate flexibility – the customer can always choose the service model or convert to this if they wish.
A Key Point: You are selling yourself as the trustable resource, not the product or service.
Reference previous investment including founders’ investments. The founders did not invest to fail!
Situation: A company has contracted with a broker to sell the company. At the minimum acceptable sale price to the founder, the commission would be 2.5%. Is this reasonable? How should the founder think about earn-outs, residual payments, and role post-sale? What is a reasonable broker commission?
Advice from the CEOs:
The proposed commission structure looks reasonable. To validate this, ask merger and acquisition experts what they think reasonable commission rates on a sale of this size looks like in the current market.
Beware of earn-outs – don’t take them if offered, at least not without a fight. The challenge with earn-outs is that it may tempt the buyer to report the books in a way that minimizes your share. This will depend upon the terms, but experience advises against this alternative.
Similarly, you don’t want a residual payment conditioned upon your remaining with the company for a period following the sale. The buyer will ask because they see you as important. Counter with an employment agreement at twice your current salary.
Your job following the sale is assuring a smooth transition, not company growth. Growth is the new owner’s responsibility. They wouldn’t be talking to you if they didn’t see a growth opportunity.
Understand that their vision for the company is not yours. Accept this gracefully. Once the company is sold it is no longer your company.
Situation: The key to a career development company’s growth, historically, is leveraging relationships with insiders in potential client companies who know the needs of their own companies. The key benefits to these people are access to good people, no recruiting fees and feeling good about the experience. What is the marketing message to this group? How do you market to company insiders?
Advice from the CEOs:
Ask them. You already have a number of company insiders who work with you. Develop a detailed survey to query what they see as the key benefits of working with your company, and which of these benefits are most important to them.
Consider a broad quantitative survey that you can administer via the web.
Complement this with a smaller in-depth interview survey to understand qualitatively how they benefit from their relationship with your company and the service that you provide.
Your equity is the experience that these people enjoy when they work with you – this is your leverage.
Your pitch is emotionally oriented. Stick with this. Saving recruiting fees will not be as important given your focus and the company insiders that you are likely to attract.
Situation: A West Coast company has recently acquired an East Coast company. The two companies serve similar customers with different but complimentary services. The acquired team has a history and mode of operating. The CEO seeks advice on how much they should require the new team to operate as they do at the home office. How do you integrate a new team into your culture?
Advice from the CEOs:
Have patience. The transition and transfer of culture will take time. Your priority is for both offices to operate smoothly and profitably. Business practices differ by geography to suit their regional cultures. The remote office need not function just like the home office.
If you want a manager from your home office in the new office, take care who you select. Since you have history with the new company and office, select a manager who already has a good relationship with key senior managers in the new office. This will ease the transition, and will keep you updated on what is happening there.
Organize a dinner with your new manager and the senior managers in the new office. At dinner you will want to communicate your expectations and accelerate the transition.
Involve the senior managers from the new office in mentoring the new manager. This will give them an important role and will show respect for their knowledge and expertise.
Do all that you can to reinforce the link between the offices – in a constructive way.
Set benchmarks and plans of action, and manage to these.
Situation: A company has a long-term employee who has been growing in responsibility as Customer Service Supervisor. The CEO is considering giving this employee the new title of Production Manager at the same time that the employee receives an annual wage increase. How do you optimize a promotion?
Advice from the CEOs:
Any promotion or increase in responsibility must be consistent with the strategic direction of the company. What are the company’s current and future needs and, based on past performance, can this individual satisfy those needs? If so, this may be a good match.
In addition, it is important to consider the needs and career path of the individual. Does the new position involve an increased time commitment, additional skills and training, or other important factors, and is the individual prepared for this increased commitment? Will a higher level of commitment be rewarded financially? The only way to answer these questions is to have a conversation with the individual.
If as the first two questions are considered there is any doubt, a longer-term transition may be appropriate. Meet with the Customer Service Supervisor and set a series of goals and objectives that will demonstrate their ability to assume the new role over a 6 month time frame. The concept here is that you must work at the level of the new job before you get it.
Before embarking on the above recommendations, draft a job description and list of responsibilities for the new Production Manager position, consistent with the company’s needs as it grows. This will involve input from employees who currently handle these responsibilities. Also look at the reporting structure as it currently exists and as it may change.
Situation: A company’s CEO came from sales where she excelled in building relationships with important customers. As CEO she must adapt to new responsibilities. This seems to be working, but she misses her sales role as the face of the company to customers. She wonders whether this is normal. How do you adapt from sales to CEO?
Advice from the CEOs:
First, congratulations on your new role and responsibilities. It is clear that your Board saw your potential and has rewarded you with a new opportunity. You have a lot to feel good about.
Second, adapting to new roles is a necessary pain of personal growth. The company needs a different you now. Everyone in the room has gone through the same emotional trauma – and survived! You will, too, in your own way.
In your sales role self validation came from your ability to convert customers, satisfy their needs and solve their problems. As CEO, self validation must now come from managing, coaching and motivating others, not from doing the job yourself. Your new customers are internal as well as external. Many of the techniques that worked in sales can work in your new role. Look for potential wins and take pride in these just as you did in sales.
You are still the face of the company, but now in a bigger role. Enjoy this and leverage it for the benefit of the company. Take pride in team wins just as you did previously in personal wins.
You will never find someone just like you or who does the job the way that you would! Accept this, accept that others will add value different from your own, and that this has benefits. The more you can help others win the more success you will experience.
Situation: An early stage company is preparing for an IPO. The founder and Board have selected a new CEO with experience taking companies public. How do you facilitate a CEO transition, and how can the founder best position himself to support the new CEO?
Advice from the CEOs:
Get clear on your own strengths and desired primary responsibilities, but prepare to be flexible in negotiating responsibilities with the new CEO. For example, if the founder’s strengths are marketing, IP and early stage fund raising, see how these compliment the strengths of the new CEO. Then select a title which will allow you to leverage your strengths without impinging on the focus of the new individual. Don’t pigeon-hole yourself with your new title; keep it as broad as possible, for example Executive Vice President.
If you, as the founder, have a good long-term relationship with your VCs and the Board this will be one of your strengths. Be prepared to counsel the new CEO on individual personalities and objectives of this group. The CEO will form him own relationship with the VCs and Board over time.
Chemistry between the founder and new CEO will be very important. The job of the new CEO is to captain the ship. Your new job is to be a superior first mate.
It appears that you have an excellent learning opportunity. Learn as much as possible from the new CEO as well as the experience of the IPO process.
To smooth the transition personally between the two of you, take the opportunity to tell the CEO that you believe that the Board made the best choice and that you look forward to the opportunity to learn from him. This might be best done outside of the office, for example taking the new CEO to dinner.
Maintain your relationship with the key VCs on the Board. Let them know about your future ambitions and that if the right opportunity opens up in one of their portfolio companies, you could be interested.
Interview with Trevor Shanski, Founder, eWORDofMOUTH, Inc.
Situation: A company with a new lead generation solution is ahead of the curve for their market segment, and ready to transition from a product development focus to a full-scale business development focus. This means developing new capabilities on a limited budget. How have you made the transition from product development to business development?
Advice from Trevor Shanski:
The reality of early stage companies is that they live on scarce resources. Founders and early executives have to be able to work for lean base salaries during the learning curve. They will be individuals who have selective characteristics.
They will be able to accept conservative salaries near-term, as well as during financial bumps in the road. Their focus will be growing the company’s value and their incentive will be having a material stake in the company.
They will have limited outside demands on their time and attention so that they can work long hours.
They will appreciate the challenge of heavily performance-based compensation, with the potential to win big if they can deliver.
They will have a network of connections and relationships upon whom they can call to gain early business traction.
Characteristics for successful early stage executives include the ability to work intimately with the founding team. Early stage companies are idea and capability incubators where things change quickly. Players must be able to get the job done with little support.
It is critical to have a clearly defined set of expectations for the first few months as you bring on new executives. Early foci will include:
Immersion in understanding the product capability and possibilities.
Sitting down with a white board and openly looking at fresh thoughts for how the market should be approached. Founders frequently suffer from tunnel vision after a long period of development and need a fresh outside perspective on the market and messaging. What partnerships could accelerate market development? What knowledgeable experts should be leveraged to build awareness? What potential is out there that the founders are not seeing?
After these factors are defined, the next step is to develop an action plan and milestones to guide plan execution, plus a budget and alternatives under different resource scenarios.
Once the plan is in place, the focus will be to gain early feedback on the company’s product and capabilities, and then iterate quickly to find the right message to target significant segments of the market.
The focus of early stage companies has to be on quickly developing plans, and then executing.
Situation: The Company has a geographical sales and service organization. Much of the sales effort comes from the consulting reputation of the managing director of each geographical unit, but he directors’ core values usually favor consulting over meeting sales plans. How do we get these directors to meet sales goals?
Advice from the CEOs:
Experience turning around a consulting organization with no sales culture:
Ours was a 5-year process. It starts with a leader who sells successfully and teaches by example.
As we made the transition, we selected new hires for sales skills to compliment their consulting skills. This facilitated our transition to a strong sales culture.
You need to commit to build a sales culture.
Moving to an account manager team versus an engineering/professional team was a big shift. It takes time and patience.
Hire effective sales people to jump-start the process. Most of the successful seller/doers will be new hires.
Revise your reward and recognition structure around your objectives.
Make rainmakers your best paid people. This will bring others out of the woodwork.
Bias sales compensation for doer/sellers toward variable compensation. Allow successful individuals to make over $200K per year.
Consider a 3-year phase-in by not increasing base pay through raises. More than make up the difference in available variable pay. Directors will now have more incentive to hit their sales numbers.
This is a difficult change in both sales leadership and culture. You may have to make significant leadership changes.