Situation: A company has received an inquiry from a large client requesting that they dedicate a significant portion of their staff to that client. The company hasn’t done this in the past, and the CEO seeks advice on the advisability of this choice. Would you dedicate significant staff to a single client?
Advice from the CEOs:
Provided that the terms offered by the client are favorable, the proposition may make sense. However, there are certain terms that you may want to assure are included in the contract:
In return for your dedicating choice staff to this project, ask for a substantial upfront payment – perhaps 50% of the total contract – to reimburse you for the opportunity costs that you incur committing your resources to the project.
Insist that the contract allows interchangeability of personnel if circumstances prevent initial personnel from continuing with the project.
Internally, work to assure that this project does not adversely impact your culture.
Talk to other companies that you know who have had similar arrangements with large clients. This will give you an understanding of the benefits and pitfalls of the arrangements.
Do everything that you can to assure that this project does not distract from your broader business strategy. Cash from the project may be nice, but if it inhibits your overall business strategy it may not be worth it.
If the employees assigned to this project are not happy with their assignment, the project may lead to unwanted turnover.
Situation: When an early stage company was founded, the CEO made vague promises of stock ownership to new employees. Some original employees have asked whether and when they will receive ownership. Should the CEO offer stock ownership, and what is the message to employees?
Advice from the CEOs:
The first question concerns company policy on ownership. For example, what do the founding owners think about expanding the ownership pool? It is important for the founders to have this discussion and agree on official company policy on ownership. This can then be communicated consistently to employees.
Investigate practices for similar companies in your industry. If you find that there is a size at which companies typically start to diversify ownership, then have a conversation among the owners as to what your company will do. You don’t have to follow the pack, but you may risk turnover if your policy is significantly different from the industry norm.
Employee stock ownership is a double edged sword. Employee shares only receive a true value in a liquidity event – sale of the company or an IPO. Absent a liquidity event, employee stock ownership can complicate corporate decisions, and there’s also the question of the value of an employee’s stock if the employee leaves.
If you decide not to expand ownership, what’s the best way to update earlier promises of ownership?
Tell the story: stock ownership was one option that we considered. We looked at industry practice, and here’s what we found. We determined that at our size there are few advantages to broad employee ownership, and several potential disadvantages to additional owners including tax consequences. Therefore, we decided that we could achieve our objective more effectively through our profit sharing plan.
Interview with Charles Bellavia, CEO, ElectraDrive
Situation: High tech entrepreneurs frequently see venture capital funding as a quick route to enabling their ventures. However VC funding is highly variable by tech sector and company cash needs, and few companies are ever funded. Do you need to rely on VC funding and what are the alternatives?
Advice from Charles Bellavia:
The first question to ask is what you want from VCs. In the past they brought both contacts and funding. Now, generally, they just bring funding. So ask three questions.
Can you fund the company out of your own pocket?
Far more companies are funded by founders, friends and families than by VCs. However self-funding demands conditions.
Cofounders should have alternate income sources so that they can operate without salaries for periods of time.
Watch the life stages of start-up cofounders. Avoid joining a start-up when your kids need your attention, especially during their teen years. Can you forgo regular income if you are paying for college? If an annual 2-week summer vacation is important, don’t join a start-up.
What is the minimum funding needed for the company?
What funding do you need just to prove your technology and generate cash?
Focus is key. People will suggest variations. You have to know your path and whether variations will help or distract.
Stay with your core idea and think in terms of product generations. Build fitting variations into future plans if they will delay initial launch.
How do you keep project workers motivated?
Plan for turnover. Know who is key to the project, and where you need back-ups.
Start-up life is all consuming. When the picture on the wall is crooked, everyone jumps to straighten it out.
Have fun and make it fun. This needn’t be expensive, like parking lot pot-luck barbeques with a CD deck and music.
Be generous with simple, low cost recognition. Acknowledge employees for who they are and where they came from. This is especially important when you have diverse employees and builds camaraderie. One company has pot luck lunches and employees are asked to bring their national dish; the food is wonderful and helps employees to appreciate one another.
Situation: A company has experienced rapid growth. This is creating stress for the staff and CEO, who finds it difficult to break away from the day to day to focus on strategy. Employees are not keeping pace with the evolving needs of the company and turnover has increased. What have you done to manage rapid growth?
Advice from the CEOs:
The first task is to improve forecasting of business growth, and the infrastructure needed to support this growth. This includes:
Regularly updating your sales and production forecasts.
Updating staff and training plans to meet growth forecasts.
Updating infrastructure and support plans.
Without these, the organization will whipsaw in response to market demands.
Take a critical look at your staff development plans and staff training.
Look at those areas that are most impacted by business growth. Determine whether you have the right managers and support in place.
Evaluate whether you have the right people and whether they have the skills to handle new demands of their positions.
Critically evaluate each now job that you take on. Assure that you have the staff and infrastructure to meet client demands.
Always assure that you deliver on your company’s integrity, reputation and core values.
In addition to addressing immediate needs, look at long-term plans strategically. Ask where you will be in 10 years. Articulate this vision in detail, and drive plans down through the organization. Make sure that everyone is on the same page, aligned with the same values, aiming at the same targets.
Also differentiate your vision from your mission:
You vision is a 10 year time frame, not one year.
Your mission is what you will be doing this year and in 5 years – the activities you will undertake to realize your longer term vision.
Fine tune your vision and mission and drive these through the organization. This will give you clarity on how you wish to do business and will help you to make hard choices as you handle rapid growth.