Situation: The CEO of a specialty component company wants to standardize documentation of company procedures covering sales, production and ISO documentation. This will take time and effort, and employees are concerned about accountability for poor results. How do you incentivize employees to document SOPs?
Advice from the CEOs:
Are employees are being asked for accountability without being empowered or rewarded for performance? Currently, there is nothing about employee performance that is directly tied to:
Dollars in raise, or
Share of the bonus pool.
Everything is determined at the CEO’s discretion.
Why would anyone want more accountability if they feel that they have little control over their jobs or future at the company?
To increase accountability and drive, employees must be given control over the factors tied to retention, pay and bonuses.
To create an effective system for employees to document standardized SOPs they need:
Incentives that are under their control to achieve the objective – creating standardized SOPs.
Objectives that are achievable with clearly stated rewards for performance.
Performance evaluations tied to clearly stated objectives, discussed with and agreed to by each employee, which drive raises, bonuses and rewards.
The messaging about these changes must be delivered with energy and passion. Employees must feel excited by this opportunity.
Understand that this may cost 10-15% in increased overhead but will boost the value of the company way beyond the cost.
Employees need to know the vision for the company and must be empowered to achieve the results to fulfill this vision.
The why behind the desire for standardized SOPs is just as important as the incentives created to achieve them.
The why must be clear, simple, and must be understood by the employees for everything to work.
To further motivate the team, involve them in designing the incentive program.
Ask what they want. Maybe it’s something as simple as a fun day with the team.
If they aren’t asked, the danger is that they will not respond to the incentive offered. Money is not the only, and in many cases is not the most effective incentive.
A company is looking at options to fund growth. These include selling a stake
in the company, bank financing, organic growth. or partnering with another
company. There are trade-offs to each option. How do you fund business growth?
Advice from the CEOs:
There is a question that should be answered before talking about funding: what is the vision for the business?
Think about building the business that the founders want to run. What size company feels comfortable from an operational perspective? What does it look like?
Does the company have the right people and infrastructure to support planned growth? Are current direct reports capable of taking on additional projects and monitoring both current facilities and additional sites?
As the company grows, can the bottom line be increased as fast as the top line?
Commit the 5-year plan to paper. Before deciding how the company will grow, determine the vision, the growth rate to support that vision, the organization required, and the strategic plan to get there.
The funding decision is an investment decision. What’s the return for a multi-million-dollar investment? What incremental revenue and earnings will it produce?
Estimate how much revenue the investment will generate in 5 years. At the current gross margin, what is the incremental gross margin per year.
Given this estimate, what is the projected EBITDA? Does the annual EBITDA represent a reasonable rate of return on the investment?
The investment ROI must be known – both from the company’s perspective and for any lender or partner who invests in the planned expansion.
How high do the company’s relationships extend in key client companies? Do client upper management realize how critical the company is to them?
If the answer is not high enough, develop these relationships. This could open new funding opportunities.
For example, if the CEO knows the right people at a key customer, let them know that the company may want to build a facility near them. The customer may be interested in partnering with the company to finance the facility.
A multi-million-dollar joint venture plant investment is a modest investment to a large customer if it gains them a strategic advantage.
Situation: A CEO and his COO find it difficult to focus on core tasks when business is booming and everyone is busy. The company is small but has been very successful. However, the pressure of simultaneously attending to key customer relationships, training new people, and formulating plans is overwhelming. How do you stay focused when it’s busy?
from the CEOs:
If the CEO and COO are doing a mix of corporate and project tasks, the first step is to delegate so that top staff focus on strategic areas rather than execution.
Over the next week, keep a record of what the CEO and COO are doing. At the end of the week sit down and determine which activities were corporate activities, and which should have been delegated to staff.
As an example, training of new personnel should be a key role of someone else. The CEO and COO will be involved, but only tangentially. The bulk of onboarding should be handled by staff.
Similarly,restrict sales activity of the CEO and COO to high level discussions and decisions.The rest should be handled by sales staff.
What must the CEO and COO be involved in? Intellectual property development, high level decisions about new service offerings, high level decisions on business expansion opportunities, and occasional oversight of company operations.
It is important to focus. The first priority should be the company’s principle revenue stream.
The second priority should be new service offerings which are central to efficient delivery of the primary revenue stream.
Meet with top staff and develop a five-year vision. The order of priorities that are developed will determine where to focus.
In the process of developing priorities, ask the following questions:
What do you love and what do you need to love?
Analyze the comparative importance and urgency of each activity of the CEO and COO. Which require top level input, and how much? Which are better delegated to staff?
Situation: The CEO of a product and service company has seen her company struggle for several years. While the overall market has turned around, her company has not. She is tired of barely staying afloat and not making the kind of money that she a decade ago. Is the glass half-full or half-empty?
Advice from the CEOs:
What keeps you from hitting the numbers? Creating a forecast, budget and objectives allows you to establish a reward system for meeting and exceeding objectives. Once there is an upside, then not hitting the numbers means that a manager misses the upside and the financial rewards that accompany this achievement. This is often consequence enough, particularly if others are hitting their numbers and getting performance bonuses.
The glass is half-full. The past few years have been difficult. Review what the company accomplished during an extended recession. Look at how the company fares versus local competitors. Review positive changes that have been made and take credit for these. This will provide energy to move forward.
Given the company’s successes, sit down with the management and show them what the company has accomplished. Celebrate. Use this opportunity to set goals for next year. A good place to start is to set a bottom line profitability objective before taxes.
To be a great manager requires more than just a revenue and profitability target. People rally around a vision and a culture that they aspire to and want to enjoy. The role of the leader is to create this vision and culture. Do this, and revenue and profitability will take care of themselves.
Two more thoughts on whether the glass is half full or half empty to check your bearings:
What is your passion? If you love what you’re doing, what else would you do?
If you were doing something else, would you be making more money or enjoying more success?
Situation: A software company is developing a new solution for their B2B market. The CEO has been in discussion with a potential partner to assist developing this solution. The question is whether this partner is the right partner. Is it smarter to complete development as a partnership, or on their own with the aid of subcontractors? How do you evaluate a potential partnership?
Advice from the CEOs:
Is the potential partner also a competitor? If so, is the partnership arrangement on or off the core focus of the company’s business. Is there potential for future development in the partnership, or is this just a one-shot opportunity?
What would a new partnership look like? Ask the following questions:
What is the long-term vision for the company?
Does the partnership fit this vision, and under what terms?
Is the potential partnership “sticky”? Will it bring in business that can be nurtured and developed under the company’s shingle?
Until answers to these questions become clear, soft pedal the partnership opportunity and plan for the company’s future.
Take advantage of situations that the partner presents as they benefit you, but do not let these become a distraction to the company’s focus unless the partner is open to working with you as a partner rather than as a source of bodies and skills.
Put a deadline and milestones on the partnership relationship. If they don’t pan out, walk.
Don’t burn bridges, if the partner takes off, then jump back in more strongly, but on terms that benefit the company’s strategy.
For the immediate future and until the situation becomes clear don’t let people become idle. Unless something develops quickly be ready to redeploy them.
An alternative is to stick with the company’s current customers and expertise. This involves investing resources and focusing R&D on solutions for these customers. If the market remains substantial and current customers are the largest players, this has the greatest potential for growing the company’s 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: A company is faced with the imminent departure or retirement of several key sales personnel. This presents the opportunity to rethink and rebuild the sales team. What is the best way to take advantage of this opportunity? How do you revamp your sales team?
Advice from the CEOs:
The timing is good. Take advantage of this opportunity!
You’ve identified the next generation of sales leadership. Now determine their role building the future.
This is an opportunity to reset your vision for the next 3-5 years.
The task of the new sales leaders is to learn the products, customers, and processes. One of the best ways to do this is in the role of sales engineer.
Be the listener first – become the solutions person.
Use existing company personnel as resources to develop closer relationships with key people within the company.
Have existing staff can introduce them to current customers and point them toward new opportunities. Focus on impeccable customer service.
What are the immediate priorities for the new sales leaders?
Do what must be done.
Observe experts on the job.
Listen and learn.
Ask lots of questions.
It’s scary, but don’t worry – just do it!
Let others assist.
They will make mistakes – it’s called learning.
Be sure to build an approach and team that can support both your existing core business and build new opportunities.
You need to replace the capabilities of those who will be retiring, and at the same time bring in new opportunities for future growth. This includes sales hunters who are good at finding new customers and helping them define their unique needs.
What fears or concerns do you see in the new leaders?
Fear and concerns regarding short and long-term roles.
Focus on the near term. The President is focused on the long term. Focus now on visiting customers, being introduced to them, and learning about them.
Are you fully focused on marketing of your services?
What is your Sandbox? What is your Value Proposition? What is your Brand Promise?
Define these and let the definitions guide your development of the sales leadership as well as the search for additional personnel.
Situation: A company’s Sales Manager is likely to retire in the next two years, but has no strict timeline. This individual is the chief rain-maker and has been for many years. The subject of replacing this individual has been sensitive when mentioned in the past. How do you replace a Sales Manager and how do you manage the transition?
Advice from the CEOs:
Have a frank conversation with the current Sales Manager. For the company to thrive it is necessary to start selecting and training an individual to take his place when he retires. Have him help develop the recruitment and transition plan. Also involve your Customer Service Manager.
o Hire a person like the current Sales Manager and allow for up to two years for the new individual to get up to speed.
o Find someone who is currently associated with one of your key customers and who has contacts.
o Adjust your compensation scheme to focus on growth and customer diversification with enhanced commissions for bringing in these accounts.
To ease the transition, start to build a different customer relations structure – one where the CEO has more engagement with key customers.
An alternative to replacing the Sales Manager is to create a different organizational structure. For example, hire a COO who will eventually take over business development as well. Think longer term about to how you want the management structure to grow. Build your future vision of the company into this process.
Situation: A small company (fewer than 50 employees) is reviewing their employee benefit package and wants to get a sense of what others are currently covering in their benefit packages. Where does your company currently stand on employee benefits, and what does your company cover in its benefit package?
Advice from the CEOs:
A recent small (unscientific) poll of entrepreneurial Silicon Valley SMB Companies on benefits offered found:
401K: 100%, 401K Match: 33% (most companies eliminated the match to reduce costs)
Reduced benefits in the last 6 months: 67%
Employee complaints or recruiting challenges following cuts: 0%
One company commented that when a key customer cut their payments they had to cut benefits. They reduced the company payment from 100% to 50% of benefit cost. Their employees make choices among options available, with a company dollar payment cap. Management explained the situation when they made the cuts, and there were no objections.
Several companies have shifted to consumer directed health care options.
A comment of caution was offered by one CEO – employees are unlikely to object to their company needing to reduce benefits to get through a difficult market. However, as conditions improve, employees are likely to expect some level of return to prior benefit levels. If not, the company at risk of increased turnover. It is best to stay ahead of the curve to assure that your benefits packages are competitive.
Situation: The spouse of a CEO works in the business but has conflicts with other employees. This creates personal tension for the CEO. The CEO wants to explore a different role for the spouse, and also wants to create more balance at home. The CEO believes that working with the spouse to create a simple family charter with common values, vision and mission will help the two of them to find common needs and goals both at work and at home. How do you create a family charter?
Advice from the CEOs:
As you build a family charter, consider both your individual and your common views. Once you have established common ground with your spouse, you can bring children into the process to reinforce values and share creation of the vision.
In preparation for this discussion, both you and your spouse should start by thinking about what you each want. Once you have done this, compare notes and look for commonalities where you agree on what is important. These commonalities will form the core of your shared values, vision and mission.
Have lunch with your spouse once a month, just the two of you. Why? Because you are telling your spouse that they take precedence over your second spouse – your job, and you are taking time and attention from work to spend time one-on-one with your spouse. Do this monthly, but not always on the same day – make it more spontaneous and special.
Reinforce your family charter with regular family or one-on-one meetings with your spouse and children.
When having a conversation, focus on listening and don’t try to “fix” things.