Category Archives: Strategy

How Do You Find A-Players? Six Strategies

Situation: An early stage company will be staffing-up over the next year. In the past the CEO has recruited individuals with big company experience and solid resumes, only to find that they had difficulty transitioning to the hands-on responsibility of a small company. How do you find candidates who are highly experienced but who can also excel in a small company environment? How do you find A-players?

Advice from the CEOs:

  • The best candidates are not in the job-search pool. They are currently working but open to a change with new challenges. Some will wish to return to a more hands-on situation.
  • Let people know that you are looking for “the best” and have a great opportunity. Create some buzz. Go to your network and ask, “who do you know?” Don’t be shy!
  • Look for achievers – individuals with proven performance in companies of the size that you plan to be in 12-18 months and who are interested in the excitement of building that company. Check their references carefully.
  • What can the company do now, while seeking the right people? Use contractors and consultants. These people are more entrepreneurial, self-starting, and self-accountable. Monitor their work. If they are good, add them to your team as permanent employees.
  • Develop a milestone-based personnel plan as part of your business plan. For example when we hit Milestone A, we will need an operations manager. When we hit Milestone B, we will need channel or market development expertise.
  • Conduct case studies of how other companies in your or similar spaces have facilitated their scale-ups. What worked? What didn’t? Why?

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How Do You Sell an Annual Plan? Five Points

Situation: A CEO has developed an annual plan. She wants ideas on the best way to communicate the plan to staff, secure buy-in and create accountability for execution. How do you sell an annual plan?

Advice of the CEOs:

  • Communicate your vision for the company and the future as a broad outline so that employees know how they can contribute. Create a picture so that they can see and support your vision. Ask for input on how to implement the plan. Since they will be doing the work, the best way to generate buy-in and accountability is for them to own the implementation plan.
  • You don’t have to share all details of the plan with everyone. If you communicate the plan in parts to those who will implement them, tailor the message to the person, and create individual objectives that will support the overall plan. Connect achievement of objectives to job evaluations.
  • Limit the number of objectives for each person – three key objectives plus one personal development objective. Have each employee develop activities to support achievement of their objectives.
  • Once objectives are in place, conduct regular meetings to review progress against plan and objectives, identify performance obstacles and solutions, and to reinforce the overall vision. The vision must be simple and direct. Consistently repeat and reinforce the message. Publicly recognize individual contributions that support the vision.
  • Establish metrics to track progress toward the vision. Stay on message with each person – focus on their goals and contributions. Be consistent in your words and actions and use them to reinforce the vision.

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Is it Better to Sell or Downsize? Four Perspectives

Situation: A company is losing money and has been approached about a merger. The CEO’s ideal outcome would be to get cash on the table, integrate with the merger partner and continue business. The other alternative – downsizing – may hurt company morale. What are the best options available? Is it better to sell or downsize?

Advice from the CEOs:

  • The realities of mergers: 70% of mergers fail, and the merger process often leaves founders with a minority stake in the company. The experience of others with partners has been disappointing – it’s better to control your own destiny. Look at all alternatives before you jump into a merger. You founded the company and have brought it this far. The company will be a different company following a merger, and not the company that you founded or have led to date.
  • The message to your potential merger partner: Be a reluctant bride. “We are making improvements to return to profitability and I’ve joined a board of CEOs who are consulting me through the process.” If the partner sweetens the offer to keep the merger on the table, make sure that you get 51% of the merged company and retain control of your own fate.
  • Downsizing: Others have found the downsizing experience wrenching, but with more positive results than they expected. A 10% cut resulted in a 30% increase in productivity. Employees once thought to be critical were not missed post-layoff. The employees generally understood more about the situation than the CEO knew, and those remaining responded positively to a restructuring that allowed them to keep their jobs. Some companies used a layoff as an opportunity to cross-train employees and increase company flexibility.
  • Smoothing the layoff process: Communicate with the employees. Let them know the truth and share enough of the situation so that they understand. Challenge employees to come up with ways to save money or make processes more efficient and cost-effective. This can have a remarkable impact. Consider a cross-the-board salary reduction as a temporary alternative to layoffs. Position this as a layoff to restructure expenses – this keeps you on the right side of employment law. Obtain assistance from a personnel consultant who can help to handle the process effectively.
  • Smoothing the layoff process: Communicate with the employees. Let them know the truth and share enough of the situation so that they understand. Challenge employees to come up with ways to save money or make processes more efficient and cost-effective. This can have a remarkable impact. Consider a cross-the-board salary reduction as a temporary alternative to layoffs. Position this as a layoff to restructure expenses – this keeps you on the right side of employment law. Obtain assistance from a personnel consultant who can help to handle the process effectively.

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How Do You Draft a Fair Partnership Agreement: Six Points

Situation: A CEO is negotiating a partnership entity. Her company will fund the entity, and the partner will earn ownership through sweat equity. How do you draft a fair partnership agreement?

Advice from the CEOs:

  • The most important factor is the ability of the two partners to create a successful venture.  Proof of ability to contribute needs to be a prerequisite to allocating ownership.
  • How does the sweat equity partner prove their capabilities? Create a schedule of milestones for the partner to earn ownership, based on mutually agreed objectives or revenue generation. The beauty of this is that you retain control until the partner has proven their value by delivering results.
  • The potential downside is long-term liability of the venture. The longer that you retain majority ownership, the longer you retain majority liability. Insure yourself against this liability.
  • Buyout clauses are important to retain your interest if the partner fails to deliver. Include a liquidation clause in case the venture fails.
  • While negotiating the agreement draw up a 6-month letter of intent. Specify what each side brings to the table and what each commits to deliver. Set clear, measurable, time-bound objectives. Negotiate fair protections desired by each party. Consider a consultant to facilitate settlement of areas of contention.
  • Theoretically, each party needs their own legal counsel. This adds expense but provides protections for each in the final agreement. Factor the cost of legal advice as well as consultant facilitation into your planning model.

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How Do You Protect Your IP from Infringement? Six Suggestions

Situation:  A company has a competitor who is infringing their key intellectual property. Legal counsel tells the CEO that his company has a case, but to expect the process to take 2-3 years and to cost $2 million minimum to defend. The CEO is concerned that if the company starts down this path, it will drain the company of both time and cash. How do you protect your IP from infringement?

Advice from the CEOs:

  • The risk here isn’t just the company’s IP; it’s the value of the company! For example: if the company’s current valuation based on their IP is a 5x multiple of revenue, and if 60% of this IP is at risk, 60% or more of the company’s valuation may be at risk. Under this scenario, the company cannot allow the infringement to go unchallenged.
  • The hard reality is this: can the company withstand, in time and of money, a large and distracting suit? If the infringer is larger than the company is, they may be gambling that the company won’t sue. Remember, the loser pays the winner’s out of pocket costs, plus damages. If the company’s case is good, it may be possible to get a lawyer to represent the company on a contingency basis.
  • If the company decides to sue, it must be a surprise. If not, the infringer may outmaneuver the company by setting venue, etc. through countersuit.
  • Get a second opinion, and as much independent advice as possible without showing your hand.
  • A key Question: Can the company show its IP and research predates the competitor’s? If the company can clearly demonstrate that it is the true developer of the IP, then this provides an important edge.
  • Is there a middle ground or a settlement scenario that makes more sense than an all-out suit?

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What are Effective Metrics for a Service Company? Seven Suggestions

Situation: The CEO of a service company finds it challenging to measure project profitability and client satisfaction. What measures and metrics have other service companies found to be most useful? What are effective metrics for a service company?
Advice from the CEOs:
• For billable services one CEO measures utilization percent defined as (hours available for service delivery)÷(billable hours). Include in the denominator both billable hours and customer good-will or preventative maintenance hours. The latter, while not producing current income, are an investment in future income. Set up audits for service needs, especially future needs, when working with customers. This will help you to stay abreast of changes in the service environment and to plan accordingly.
• For fixed budget projects – another CEO measures budgeted vs. actual expenditures by project.
• For fixed-fee services a third CEO calculates a fraction expressed as: (income per customer company) ÷ (cost in hours for that customer).
• In a discussion on customer audits and surveys, options offered included: (1) An exit “pizza party” with the client. The challenge is that this may produce tainted results. While this builds customer good-will and may provide qualitative feedback, it should be supplemented by more objective measures. (2) A mailed survey – from a 3rd party with a prize for responding. (3) Email follow-up from a 3rd party that directs the customer to the 3rd party site to complete the survey.
• A final suggestion was ambassadorial CEO visits to the top contact person in key accounts. This provides an opportunity to learn about the customer’s present and future needs, staffing plans, business and strategic direction. Helps to anticipate changes in the competitive landscape. The more a business relies on recurring revenue, the more important these visits are.

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How Do You Make Time to Plan? Four Points

Situation: A CEO is up all night worrying that things are “too good”. Business has turned around positively in the last six months and she so focused on sales that she hasn’t had time to plan. How and when do you plan for growth? More basically, how do you make time to plan?
Advice from the CEOs:
• Think about the business cycle – the upswing, the peak and the downturn. On the upswing there is a tendency to be so focused on the day-to-day that there’s no time to spend testing the business environment or on long-term planning activities that are critical to sustained growth and success. If the CEO doesn’t take time during the upswing to evaluate new opportunities it’s easy to fall into the trap where planning occurs too late – after the cycle has peaked.
• After the business cycle has peaked, it is too late to take advantage of opportunities that were available during the upswing. Once the business cycle is in a downturn attention shifts to preservation and survival. The opportunity to reallocate resources to build alternative future scenarios has been lost.
• If there is pressure to bring on additional resources to handle the workload, set a timeframe to evaluate the situation – a few weeks or a month – and see if the pressure is sustained. If it is, have a plan in place to secure those resources. Do this with a clear head – not on impulse. Exercise discipline.
• Remember that leadership is the CEO’s job – not being immersed in the day-to-day. A leader keeps others immersed in and focused on the day-to-day.

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How Do You Finance an Early Stage Company? Three Considerations

Situation: The CEO of an early stage web company is looking at steep ramp-up expenses. Many companies have bootstrapped their way to success. However outside investment may speed the process. How have others evaluated these options? How do you finance an early stage company?
Advice from the CEOs:
• Raising money takes time and is a major distraction to the development process. The two big variables will be investor interest and the timing of investment. Talk to Angels and venture capitalists now. Start by presenting a broad outline of your technology and business model. Ask what they will want to see to offer you funding at different levels. This will give you a reality check as to investor interest in funding the company. It also creates a roadmap to funding if the response is positive.
• What is the company seeking – money or accountability? One CEO bootstrapped her company during the early stages, then looked for outside investment to gain accountability and advice – a whip to help move things along. This CEO found that investors brought few of the anticipated assets, and added a new level of distraction and pain.
• If you are looking for funding to purchase content to serve through your Internet portal, consider a more creative way to gain content. Can you use a Web portal through which your target audience provides both the content and the consumer audience in a marketplace exchange? Establish the audience and then add premium services to monetize the model. This can minimize your upfront cash investment requirements, and may create a faster track to positive cash flow.

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How Do You Scale Up a Product That Is Taking off! Four Points

Situation: Demand for a product produced by a company has increased dramatically. The CEO realizes that they need to scale up production quickly to meet this unexpected demand. The company is small and the CEO wants advice as to how his company can accomplish this without killing the product. How do you scale up a product that is taking off?
Advice from the CEOs:
• This represents a major change of both mentality and culture. Essentially, the company needs to move from a “handmade” process to a commodity volume process. This may also mean moving from low volume/high margin production to high volume/lower margin production. This shift will significantly change the company.
• If there is high confidence that the company will land a contract for long-term production consider establishing high volume production at a new site. Rent or lease another facility. Alongside this hire a set of experienced people who understand the challenges of scaling up rapidly. Consider giving this facility a new name to suit the new team. This will help to establish a new culture suitable to the new opportunity.
• While negotiating a lease, ask for an option for additional space to be included in the lease. If things don’t pan out, look at this new space as the eventual location for your existing team.
• Two other options to consider: (1) Outsourcing to a 3rd party manufacturer. This is an option unless the company is an OEM outsourced producer itself. However, be careful – you could be telling your customer that they could go directly to your OEM source at a lower price. (2) Establishing an overseas production capability – one where you own the facility and manage quality control. This will be a challenge if the customer wants to specify “Made in US”, or where quality concerns are essential.

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What New Business Options Should You Pursue? Five Guidelines

Situation: The CEO of a company observes that the business climate has been uncertain, but she hopes that it will improve soon. This will open up new options for her company. As these start to develop how do you decide what to do and what not to do? What new business options should you pursue?
Advice from the CEOs:
• Talk to your customers. What do they value about your current product or service and what is less valuable? Build on opportunities that customers value. What options are most consistent with the company’s strength and focus?
• Consider a customer survey – either online like Survey Monkey or by telephone. If there isn’t in-house expertise to design and administer a survey, look for knowledgeable outside resources. Assure that the survey questions will drive understanding of the company’s focus and potential.
• Get an expert to review the survey and administration plan. Before launching the survey to your full customer base, test it with a select group of customers. This will tell you whether it will produce usable information. If it doesn’t, revise the survey.
• Which opportunities will build sustainable recurring revenue vs. opportunistic or one-time revenue? Recurring revenue can be lower margin if the income stream is sustainable. Balance efficiency and utilization. For example, fixed fee service contracts that renew consistently.
• Judge opportunities against your “Hedgehog” as defined by Jim Collins in his book Good to Great: What you are passionate about? What you can be best at in your marketplace? What you can measure by a single economic ratio?

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