For the last two weeks I’ve been working with my hosting service to upgrade the software to the latest versions. As a result, you haven’t seen any posts either today or last Sunday. New articles will resume on Sunday, November 29.
Situation: The founder and CEO of company needs to find a successor. She is ready to reduce her role but wants to assure the ongoing operation and future growth of the company, as she will remain the principal shareholder. How do manage succession planning?
Advice from the CEOs:
- Options for management succession and growth.
- One option is to create an employee stock option plan (ESOP) to expand ownership of the company and to help recruit new managers to support growth.
- A second option presented itself through a broker who has approached the company to help them find a buyer for the business. The broker suggests finding a customer who is a potential buyer and also the right fit.
- A third option is to purchase a smaller company with a good CEO and then do an ESOP transaction to allow the CEO to reduce her role while providing new incentives for management.
- Options for maintaining continuity of the business.
- The CEO has identified an individual with the background to lead the company and identify the talent to fill key roles.
- In addition to a leader, what other key roles must be filled? Look at the current and planned organizational charts. Determine which roles must be filled, the order of priority to fill them, and management succession plans for each.
- When and how should the CEO’s plans and options be communicated to staff?
- One approach is to say nothing until either a successor has been identified or an actual deal is in place. This will avoid unnecessary disruption that will accompany and news of the plans.
- On the other hand, if an ESOP is the option, let current staff know early, along with anticipated specifics of the ESOP Plan.
- It is best to be straight with staff once the timing has been determined. Complement disclosure of plans with assurances that the change will be good for staff and that there will be financial incentives for them to remain with the company.
- Be sensitive to what drives and motivates staff – build this into plans to inform them of what is happening.
Situation: A small company is growing nicely and needs more people. However, the CEO is struggling to find the time to properly interview and hire additional people. In addition, he is not comfortable in this role. Hiring the right people will be critical to the future success of the company. How do you get the right people on the bus?
Advice from the CEOs:
- Particularly if the CEO does not feel that hiring is a strength, hire an outside HR firm or consultant to screen and select candidates for interviews.
- It is critical to decide, in advance of any search, exactly what the company needs in the individuals that are hired. A good HR consultant can help the company work through this.
- Structure the agreement with the HR professional so that they are paid based on successful integration of the individual into the company. It may cost more on the back end for this type of agreement, however, it will save the CEO and the company valuable time and money far in excess of what the company will pay for this assurance.
- Plan to only see the final candidates.
- What does the company look for in an HR consultant relationship?
- Generation of a job description and the key traits of the individual that the company seeks. This helps the HR consultant to select the right candidates for the business and situation.
- Candidate recruitment, screening, and selection of final candidate(s) for company review.
- The HR consultant will also prep the candidates to succeed in the company’s environment.
- Assistance in identifying the key objectives and metrics that will be used to assess the success of the individuals hired during the first quarters or year in the company. If the HR consultant’s compensation is structured so that they are paid well for long-term success, it may cost the company more for the successful hires, however the company will only pay for success and will save considerable cash by averting failures.
- In addition to making sure that the right people are put on the bus, work diligently to assure that they are also in the right seats, and that they change seats as necessary to complement the company’s growth.
Situation: A service company has been debating internally about which metrics they should use to evaluate company performance. This is important because it ties both to strategy, marketing, and bonus compensation. The CEO seeks advice based on the experience of others. What are good metrics for a service company?
Advice from the CEOs:
- For a service company the key goal is delivery of a consistent quality product/service to the customer – as a company rather than as individual performers.
- Instituting regular activities or meetings to infuse the company’s “special sauce” to projects will help assure consistent quality of service delivery.
- To generate support and consensus within the company, ask employees what they would do to develop metrics to assure delivery of quality.
- Have a clear view in mind of what the metrics should achieve – the result rather than the fully detailed process – before initiating this exercise and articulate this result as the desired objective.
- Remain open to ideas from the group.
- Use the exercise to establish a shared vision and to generate the best possible set of metrics to support the desired result.
- Once both the metrics and a methodology for delivering the result have been selected – for example, weekly performance review meetings if this is the answer – then institutionalize these. It may be best to start with a “trial process” to refine details of the process.
- An efficient regular process review meeting may save the company more than the 3 hours that it takes (preparation + travel + meeting) for this process.
- If there are many “islands” of employees working at different company locations, consider organizing meetings into geographically convenient archipelagos.
- Establish, within the service review process a “patented” company process that focuses on quality delivery. Publicize the existence of this process (not the details) when speaking with existing or potential clients. This is a key part of the company’s essential differentiation and “value add”.
- Establish a definition of quality for the company.
- Develop this as the company’s vision.
- Develop the methodologies to consistently deliver this quality.
- Long-term, drive this to professional training systems to consistently produce this quality.
Situation: A company has developed a disrupting technology that allows OEM manufacturers to produce high-end machines at a fraction of their current cost. The challenge is that the company does not possess the capacity to reach producers of high-end machines. The CEO seeks advice on how to efficiently focus channel development. How do you build channel sales?
Advice from the CEOs:
- The dilemma is having a major disrupting technology in a market with a strong division between OEMs servicing the low/medium-end market and those servicing the high-end market.
- This technology collapses the division between the low/medium and the high-end markets.
- This shift disrupts the current business models of either group of OEMs, as well as their technology development plans. This is the source of resistance.
- Therefore, the most promising channel development partner is either:
- A low/medium-end OEM who is also a disrupter and who has the capability to develop a high-end sales and marketing effort; or
- A high-end OEM that knows the market but who’s current strategy is failing and needs an entirely different solution to revive their prospects.
- The near-term task is to gain market capability – both manufacturing and marketing/sales – and to use this capability to gain early market acceptance.
- If, over the next 12 months, the company can begin to impact the market shares of the high-end OEMs, this is the surest way to gain their attention. Once the company starts to gain share, a likely outcome is that one of the high-end OEMs will buy the company to lock up their IP.
- Another company used a similar strategy several years ago.
- They entered a new market by way of a business collaboration with a high-visibility partner.
- In one year, they took 30% market share from the market leader through this collaboration.
- As a result, the market leader bought them because “it was less expensive to buy you than to spend the marketing dollars that we would have had to spend to compete against you.”
Situation: A CEO faces challenges with clients. The first is vague customer specs because they don’t understand the product. Second is misunderstandings as to timelines. Third is insistence on strict timelines while simultaneously demanding revisions to previous work. How do you add more discipline to quotes and pricing?
Advice from the CEOs:
- Is the company’s technology strategy aligned with its capabilities? Currently the company is trying to build advanced solutions in multiple international markets with a small staff. There does not seem to be the technology or development discipline to convert current capabilities into a sustainable market advantage.
- For near term focus, because of commitments and milestone payments due from the key customers, focus resources on finishing the last piece of these projects. Once this is done, step back. Look at options and determine the company’s technology strategy moving forward.
- The key challenge is to define ONE beachhead on which the company will focus and which they can dominate. The objective is to leverage existing engineering creativity to create a sustainable competitive advantage.
- As this exercise is designed, start with a clean slate. Don’t burden the process with a lot of restrictive assumptions. Consider using an outside facilitator to help facilitate this process.
- Until this exercise is completed does it really make sense to seek additional work or to commit the company to the next phases with current customers?
- Once the company has selected and committed to a technology strategy, the decision process becomes different.
- The objective is to develop laser-like focus on the technology. Minimize distracting the team with other opportunities.
- It may be OK to lose money on development projects if this work will significantly impact or accelerate the development of the company’s core technology.
- How does the company justify asking for payment for development for future projects?
- First, determine and clearly state the company’s technology strategy. Evaluate all future development projects and decisions in terms of their alignment with this strategy.
- Second, if a particular project is completely aligned with the technology strategy, the company may waive the requirement of payment for development. This, ideally, will be the only exception.
- Ask for a limited time/scope project to jump start and define new projects. This provides proof of company capabilities and establishes its credibility.
- If is it necessary to negotiate or bid, start high and bargain down to but not below the best estimate of the cost of development.
- Remember that deciding what NOT to do or quote is often harder, but just as critical, as deciding what to quote.
Situation: A CEO’s company has experienced margin erosion due to designs that did not transfer well to manufacturing, and inefficiencies in the transfer process between design and manufacturing engineering. He wants to transform the culture without losing technical performance while meeting cost targets and delivery timelines. How do you improve internal processes and procedures?
Advice from the CEOs:
- Reinventing the culture of a workforce is an organizational design challenge.
- The heart of the challenge is understanding the motivations and desires of the individuals involved – particularly the natural leaders within the groups.
- Learn this is by speaking with them one-on-one, either as the CEO, or through individuals with whom they will be open and trusting.
- Once their emotional drivers are understood, design accountability and incentive solutions that will align their personal reliability and accountability drivers with their emotional drivers.
- Tailor the language of communication with the organization so that it responds to the emotional triggers discovered during the 1-on-1s. For example, if there is a negative reaction to sales within the engineering teams, use a different term like client development.
- Expose the designers to the “hot seat” that gets created when their designs produce manufacturing challenges. The objective is for the designer to see the manufacturing group as their “customer.”
- Involve manufacturing engineering in design architecture meetings. Do this early in the process so that they can communicate the framework and constraints under which manufacturing occurs and suggest options that will ease manufacturability.
- Shift from individual to team recognition on projects. Instead of recognizing the contributions of the design component or the manufacturing component, recognize the contributions of the team of design and manufacturing engineers that produced a project on time, on budget, with good early reliability.
- To kick off the new process:
- Identify some of the waste targets.
- Involve individuals who are known to be early adopters.
- Have them look at the problem, develop and implement a solution.
- Deliver ample recognition/rewards to these individuals.
- Next use these people to mentor the next level of 2nd
Situation: A CEO wants to fund future growth through better management of cash flow. Cash flow has been positive for several years, and the company uses a bank line to fund receivables. How to you manage cash flow to fund growth?
Advice from the CEOs:
- Since the company is cash flow positive, go to the bank with the assistance of a connected Board member and ask for better terms on your line. This will reduce financing expense.
- What are the company’s Days Sales Outstanding (DSO = accounts receivable (AR) divided by average daily revenue)? Reducing this will have an immediate positive impact on cash flow.
- Normal up-front payment is 20%. With 35% gross margins and 20% up-front, the company is funding profits through the bank line. The adjusted gross margin (GM) is the company’s Operating GM less the cost of the bank line.
- Solutions: Reduce DSO by offering a 1% discount for payment in 15 days and increase up front retainers from 20% to 50%. This takes time but is doable by working with customers.
- Some customers have seen AR slip from 30 to 45 days. Offering a 1% discount for payment in 15 days is an inexpensive way to decrease AR and increase cash flow.
- What is the most immediate need?
- The company has positive cash flow, marquee accounts and proof of concept.
- What is needed is additional referenceability. Can reference accounts come from exiting marquee accounts? What would this take? Can the Board help to identify and develop additional reference accounts?
- The company is resource limited in sales. At this point people are needed. How can this be done without extending current resources?
- Shift resources from other departments to sales to boost sales efforts. Another CEO did this very successfully and generated a substantial pick-up in revenue growth.
- Increase the incentive for service people to come up with new revenue opportunities. Consider teaming them with the salespeople to generate opportunities.
- Consider independent rep firms. Ask key customers who they respect among the independent rep firms.
- Develop a joint venture or strategic partnership to feed sales – a situation where this is a strong win-win for both parties.
- Leverage the Board to create opportunities. Another CEO has a Board objective of 3 new accounts per year. This comes from 10 leads/connections per year (2 per Board member). Board members who can’t produce leads are turned over.
Situation: A company founder was advised by her Board to help them hire a CEO with more experience to run the company. This new CEO is now in place. As the founder gains more experience, the Board has indicated its willing to consider her as CEO. How do you transition to a new CEO?
Advice from the CEOs:
- Become the fire hose! Build a tight relationship with the new CEO and together build the future strategy that will enable you both to win.
- Others will focus on past issues. Keep your approach and advice positive. Position yourself as a partner, not an adversary. Emphasize your supportive and collaborative capacities.
- Become the new CEO’s go-to person: trustworthy, objective, knowledgeable, reliable. Nurture the development of chemistry with the new CEO.
- When the new CEO asks what needs to be done, produce the plan. Leverage your knowledge and expertise to become his greatest resource.
- Enlist the CEO’s support of one or more of the focused strategies that are already in play within the company. Build the support of the Board and focus on boosting company value to 2x sales. The Board won’t forget who produced the original initiatives.
- You have more power than you imagine – both with the Board and the new CEO – due to your knowledge of the marketplace and the business. Use it wisely.
- While there is a new CEO, the company has already been profitable and company operations are clean. The Board will remember this.
- How do you boost the chances to eventually be named CEO by the Board?
- Tie yourself very closely to the new CEO – be this person’s more important resource. Build and cement your position as his most important ally within the company. It will help you to gain his support for implementing your ideas.
- Segue your relationship with the Board members to become the company’s next CEO.
- At the same time, grow your successor within the company so that you will be ready to move up to CEO when the opportunity arises.
Situation: The CEO of a service company sees that 20% of their business is serving large corporate customers. These accounts have proven to be more profitable than smaller clients. Their objective is to increase the large corporate client base from 20% to 60% of their business. How do you expand your large client base?
Advice from the CEOs:
- Emphasize the differences and unique talents of the firm in comparison with the competition. Trust in the company’s abilities and act like a big-league firm.
- Top shelf prices for services are not an issue for large clients; in fact, they expect quality firms to have high prices. Find the “clinch” price – where the client says, “you’re expensive, but because of your special talents you’re the firm that we will choose.” Compliment this with the firm’s ability to utilize lower cost outsourced services to offer an appealing overall cost of services. Clients will pay a premium for top shelf when they need it but will like the fact that routine needs can be met within their budgets.
- Use the lessons from Blue Ocean Strategy to create advantages for the company’s services that existing firms don’t or can’t offer because of their structures and cultures.
- Highlight the company’s high-touch culture, with great personal service. This provides a welcomed relief from the typical client experience with service firms.
- Create buzz around the company’s leadership. Focus on speaking opportunities. Enhance the references to the company’s leadership on the company web site, including a listing of upcoming speaking engagements that are open to potential clients or individuals interested in the company’s expertise.
- During speaking engagements to local groups on topics of high interest, build an educational library of edited flash content that hits the high points of the talks – not the full talk, but the most important 2-3 minutes on a given topic.
- Add a library of these short videos on the company website.
- By charging premium prices for select services, while sourcing research and expertise from personnel in lower cost geographies, the company will generate additional profit. Allocate some of these profits to community outreach to further enhance the company’s reputation and buzz. Be the firm that gives back.