Category Archives: Strategy

How Do You Manage Conflicts of Interest? Four Tactics

Situation: A service company was acquired by a larger company. There are limited operational crossovers between the two, but where conflicts of interest arise the acquirer seems uninterested in addressing these. How do you manage conflicts of interest?

Advice from the CEOs:

  • Within the company it is necessary to clarify what can be done autonomously and what must be done with the acquirer’s support.
    • Where the company sees issues it can develop a recommended set of actions that will avoid pain – particularly where its systems are more developed than those of the acquirer.
  • Reconstruct the acquirer’s motivations for the acquisition.
    • Was their objective synergy or portfolio diversification? If it was a synergy play, then more structure and integration are needed.
    • From observed behavior, it looks more like it was a portfolio diversification strategy. In this case they will expect the company to continue to perform as a quasi-independent structure, but under their umbrella.
    • Given this, where do possible market synergies between the companies exist? Look for these and develop mutually beneficial alternatives.
  • The CEO feels a responsibility to his company’s staff, assisting them to be more comfortable within the current situation.
    • If the analysis of the acquirer’s motivations rings true, then share this with the company’s staff. If this is the case then they should not be seeking a lead from the acquirer but should concentrate on maintaining what company has done well over the years.
  • What options are available for CEO?
    • It is possible to maintain status quo. The company is getting new business and performing well.
    • On the other hand, if the CEO is acting in the leadership role with decreasing focus and interest, this will not bode well for the organization or staff.
    • In the latter case, set a timeline and date for departure. This can be some time out but should be comfortable for the CEO.
    • Communicate this timeline to acquirer and when the time is right offer to help look for a successor.

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What Do You Gain by Buying Out a Co-founder? Six Points

Situation: A CEO founded his company with a long-term friend. For several years, this co-founder has contributed little and has proven to be difficult with key employees. In an important sense, the co-founder has become a distraction. A challenge is that the co-founder is a significant shareholder. What do you gain by buying out a co-founder?

Advice from the CEOs:

  • First and foremost – peace of mind. While the CEO and his allies control a majority of shares there is no guarantee that this remains the case. Long-term it can cause headaches to have a large block of shares in the hands of someone who could be hostile. The challenge is gaining control of a solid majority of shares at a reasonable price.
  • How is the value of the co-founder’s shares determined?
    • In most minority interest situations, minority interest is discounted because it is of limited value to a non-company purchaser. While it may be necessary to pay a premium to gain controlling interest in the company, this will be a premium over the discounted minority interest value, not over the fair value for all shares.
  • There are two aspects to a purchase: price and terms. It is acceptable to accept the co-founder’s price, but insist on favorable terms, e.g., 10 years to pay at 5% interest.
    • Set the terms so that the company guarantees the payment, not the CEO personally.
  • At this point the co-founder is a disruptive force within the company. Act now before more damage is done.
    • As to order of business, take action with respect to the co-founder first, then negotiate the purchase of his shares after he is no longer an employee.
    • Be sure to communicate the decision effectively to the other employees. Speak to the long-term strategic value of the company, the CEO’s vision for the company, and a determination to build the company into a viable entity with a range of customers and growth opportunities for the team.
  • Important steps as you move forward:
    • Have a plan.
    • Speak to an attorney – the company should pay but this is the CEO’s attorney, not the company’s attorney. Assure that as CEO you limit personal exposure and do things appropriately.
    • Assure that the employees understand and support this action and that they clearly understand the plan going forward.
    • Offer the co-founder a more generous severance package than would ordinarily be considered prudent.
    • Fire the co-founder as soon as plans are in place and announce a Board Meeting 30 days hence to discuss the management restructuring.
  • As a final note, this is one of the most difficult things that must be done by a CEO. The co-founder has been a long-term friend. Nothing about this is easy. It is likely to get more painful before it gets better. In the long run, however, this can be better for both individuals. Work toward that objective.

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How Do You Recruit and Retain the Best People? Three Suggestions

Situation: A company is losing employees. Not the top ones, but the 2nd level. It’s not a manner of money but other reasons. Some don’t like the developing culture of accountability. Others are younger high potential employees who have performed well but have left for unexplained reasons. How do you recruit and retain the best people?

Advice from the CEOs:

  • It’s important to learn why they are leaving.
    • It may be a millennial phenomenon – this group may regard work as a transitory necessity.
    • Determine whether it because of accountability or other reasons.
      • Could they be unhappy with the level of growth opportunity?
      • Previous generations were used to moving to move up – are the younger employees less prone to do this?
    • Could younger workers see work as a job, whereas previous generations saw work as their livelihood – as their life.
  • What options could be tried?
    • Set up a hiring plan – over-hire to assure availability of talent – 15 people in the next 3 months.
    • During the hiring process employ a focused interview diagnostic to identify the key factors that will boost in employee retention.
  • One CEO has suggested an approach:
    • Start with a volunteer employee focus group that holds a series of meetings over lunch.
    • Use company channels to ask for volunteers.
    • Allow the group to relax and open-up over time. Then begin to drill down to the real issues, including legacy issues.
    • Use feedback from the focus group meetings to design a survey to establish metrics, validate the findings of the focus group, and establish benchmarks for long-term attitude monitoring.

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What’s Your Exit Strategy – Both Timing and Price? Four Considerations

Situation: A CEO is considering an exit strategy for the company that she founded. The company has been very successful, and the CEO wants to optimize the value of the company on sale. She seeks advice on how to both maximize the company’s value and how to best prepare for a sale. What’s your exit strategy – both timing and price?

Advice from the CEOs:

  • Value is tied to revenue and profit growth. Revenue growth is based on expansion of the customer base and reshaping the product offering to optimize its market appeal.
    • Consider a usage-based price for the offering. Accompany this with a range of usage offerings based on current customer use patterns.
    • Consider tiered pricing or pricing/use to access lower tiers of the market.
    • Consider bundled products, for example along with complementary products of another company with whom marketing partnerships could be formed.
  • As part of the valuation exercise, determine the best exit strategy and timing:
    • Identify the companies that could be buyers.
    • In each case, identify why they would buy the company.
    • The most compelling reason to purchase the company will be strategic, not financial.
    • Identify the key decision maker in each of the potential buyers.
    • Also identify any factors that would make the company less desirable to any potential acquirers and develop remedies for these.
    • This exercise may help to plan the timing and to understand more about the price that could be fetched.
  • To appeal to a buyer, optimize the organizational chart.
    • If the CEO occupies too many seats on the chart this presents a substantial risk to an acquirer if the founder leaves.
  • Evolve the organizational structure to support growth.
    • If there is no compelling reason to sell in the near term, then staff the company with professional marketing, financial talent, and so on.
    • A lack of talent in key positions limits both the company’s growth and its appeal to potential buyers.
    • In the case of this company, the most important hire will be in marketing. Note that marketing does not equal sales. The company is creating a market and convincing people to change their habits. This is a marketing task, not a sales task.
    • If the analysis of the factors mentioned above determines that now is time to sell, then stay slim.

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How Do You Make Sales More Predictable? Five Points of Focus

Situation: A CEO is concerned that year to year sales revenue is unpredictable. Sales reps are averaging 25% of quota and commissions per year. While internally generated sales are up 20%, partner sales are down 83% and up sales from existing customers are down 54% from last year. How do you make sales more predictable?

Advice from the CEOs:

  • It is critical to both understand what is happening in the company’s market, and why up sales and partner sales are down so significantly from last year.
    • What is the total available market – not just broad numbers, but information reflecting both the available market and key trends within the industry?
    • What is known of the latest product introductions from key competitors – are these significantly better than their earlier products?
    • Have cases of lost sales been thoroughly analyzed – either lost competitive bids or customers who have left and why? Was this business lost to internal or external competition?
    • Have an independent 3rd party talk to lost customers.
  • Is the company’s product well-defined, and is there a road map for future development? Do the company’s product definition and road map align with market directions and demands?
  • How good is the company’s competitive analysis? Is there a good understanding of how to position the offering within the market? Are salespeople selling to the right people?
    • These require what is outlined above: who is in the market, old and new products, product features and positioning, product and product acceptance trends.
    • If salespeople don’t have the right weapons, they can’t articulate the company’s advantages: a clear ROI benefit, and Cost/Risk Avoidance Analysis. For these analyses, the sales target is the CFO and Risk Management Officer.
  • There may be too many salespeople.
    • How does the company measure sales productivity? Are salespeople accountable for performance or non-performance?
    • What are the consequences – besides lower commissions – when they don’t produce?
    • Given current trends, it is likely that the company will lose some of the current salespeople. Take control of the situation and remove the poorest performers rather than risking losing the better performers.
  • Do you have the right VP of Sales? While he may have been a great sales rep, few sales reps successfully make the transition to management. The skill set required for success is completely different. The company may better-served by letting him do what he is good at – selling or training other sales reps – and hiring an experienced industry veteran to run the sales operation.

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How Do You Optimize the Business Model? Four Suggestions

Situation: A company works on a project basis, and the CEO is concerned that the return per project is too low. She is looking for ways to boost the return per project without substantially increasing project risk. How do you optimize the business model?

Advice from the CEOs:

  • What are the risks and potential upsides surrounding the projects?
    • The principal risk is long-term liability, connected with residual liability following project completion.
    • This risk can be mitigated by purchasing a wrap policy; however, this can cut into the profit generated by the project.
    • It is possible to build scale more quickly with larger projects. The percentage return may be lower, but the dollars can be higher.
  • What are the principal components of the company’s time risk?
    • Higher cost of money and greater exposure to fluctuations in prices and interest rates over the project period.
    • This risk can be mitigated using financial derivatives particularly over longer-term projects.
  • How broad is the company’s geographical scope?
    • Currently customers are within a 30-mile radius of the company’s office primarily because company personnel are frequently at the client’s site.
    • This area will broaden as the company’s reputation becomes known.
    • Consider the creation of branch offices to extend the breadth of the company’s service area.
  • What are the key variables that the company faces completing projects?
    • Payment is not received under current contracts until a project is completed.
    • This can be mitigated by creating milestones with payments due at the completion of each milestone.
    • It may be worthwhile sacrificing a level of project profit in return for more frequent payments to boost the company’s cash flow.

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When Should You Bring in External Resources? Four Suggestions

Situation: A company provides market research, technical assistance, and related services for clients. It receives most of its work from proposals. Both writing successful proposals and carrying out the work of accepted proposals are critical capabilities. Should they bring in external resources to increase the number of proposals submitted? Where should these resources be focused?

Advice from the CEOs:

  • Identify the most critical tasks that contributed to proposals that have been awarded.
    • Determine, between writing and editing, which tasks are most critical. Focus internal resources on these tasks and seek outside resources to assist with the less critical tasks.
    • Provide incentives to those who write grants that are awarded.
  • What portions of the proposals could be written using external resources?
    • Background information, including corporate history, tends to be repetitive between proposals. However, this material is also difficult for an outsider to master.
    • One option is to secure outside resources that will commit to the company for a long time. These resources would have the time to learn and master the historical data.
    • Another option is to use the company’s database to store and code historical data. These data could then be managed by a less expensive internal resource and collected with appropriate filters for each new proposal that arises.
  • Codify the repetitive source material in a database. Secure software that makes it easy to filter and recall selected data for the writers of new proposals.
  • An alternative to using outside resources is to develop an internal coordinator who is master of this database and who is responsible for gathering appropriately filtered data to support the efforts of the company’s proposal writers.
    • By taking care of this portion of the proposal writing task, it will be easier to find enthusiastic project leaders to take on the more creative aspects of new proposals.

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Where Should You Focus the Business? Four Recommendations

Situation: A company has experienced limited growth and profitability for the past five years. It is also short of resources. They have invested a lot of time and effort in a new technology which has yet to bear fruit. The CEO seeks advice on the company’s future direction. Where should you focus the business?

Advice from the CEOs:

  • Continue to support BOTH business – the core product line and the new technology – but rearrange priorities to boost revenue and profitability growth. Simultaneously, focus new R&D investment in the company’s core product. This has three principal benefits:
    • The company’s primary expertise is in its core product line. This product is its principal source of revenue and has the greatest potential for profitability and growth.
    • R&D and start-up production of new iterations of the principal product is less resource intensive than the new technology.
    • Further, sales of the core product are far less cyclical than the market for the new technology, and therefore more promising to a small, niche company.
  • Looking at this recommendation sequentially, the group recommends that the company:
    • Continue to sell the current product line a well as existing complimentary products to maintain revenue and profits.
    • If additional work or resources are needed to mature the new technology, have someone else take the lead role in R&D and private label the technology for the company.
    • Focus all new R&D investment on improvements to the core product.
    • Refocus market research on current and potential customers for the principal product line to determine their greatest needs to guide product line innovation.
  • The company needs access to advanced equipment to support development of the core product line. Consider creative ways to gain access to this equipment at little expense.
    • Look for advanced equipment that is available at distress or liquidation-sale prices by companies who made poor investment decisions.
  • Find a partner that wants to focus on the new technology, but who also wants and needs the company’s expertise in its core product line.
    • The company focuses on the core line; let the partner develop the technology.

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How Do You Foster Channel Development? Three Topics

Situation: A company has grown successfully designing and producing products for larger companies. In the process they have enhanced their own reputation in the industry. The CEO wants to boost growth by designing and marketing their own products. This will require the development of new marketing channels. How do you foster channel development?

Advice from the CEOs:

  • What are the initial steps?
    • Hire a commissioned salesperson with deep experience and contacts in in the company’s industry. This individual’s objective will be to seek new business opportunities.
    • Have top management, including the CEO, take a sales course – for example Dale Carnegie Sales Training.
  • What are the company’s objectives as it seeks to grow?
    • To feed the company’s ability to develop, produce, and sell their own proprietary products.
    • To create the capacity for the company to grow without relying on the efforts and success of current customers.
    • To develop pride in building a solid and lasting company that makes important contributions to technology.
    • To increase profitability and company value to benefit owners and shareholders.
  • What can be done right now, as the early steps are put into place?
    • Find ways to include pictures of company’s products in all company collateral – whether the company’s own or products developed and produced for others.
    • This may mean creating a small variation to an easily recognized existing product – without the customer’s logo – so that it becomes clear that the company is the source of these ideas and products without voiding existing agreements with key customers.

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How Do You Plan for a Leadership Transition? Four Points

Situation: A CEO is planning a transition to the next phase of his life. This will include resigning as CEO and preparing  the company for this transition. What are the important steps for the transition, and what can he do to best prepare the company for the change? How do you plan for a leadership transition? 

Advice from the CEOs:

  • Prepare a transition plan for the board and set up a meeting to discuss the plan.
    • If the CEO is not the Board Chair, then a preliminary step is a conversation with the Chair about the CEOs plans, timing, and an update on short and long-term issues which must be addressed.
    • Given that the CEO will be leaving, the Board Chair’s responsibilities will include overseeing the transition. Prepare the transition plan with this in mind.
  • By solving the problem of transition for the Board, their task is eased, and opportunities for future relationships and alternatives are created.
    • Update the business plan for the company, including a SWOT analysis.
    • Line up search firms in advance who can assist in finding a replacement if internal candidates are not available.
    • The proper attitude is “my job is to make your job easier.”
  • As to the timing of the transition, 3 months is short notice. If personal needs dictate a transition in this timeframe, develop options to facilitate the transition and offer these as an alternative.
  • If the CEO’s career options for the future include consulting, the company can become an early client.

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