What Software Version Do You Launch First? Three Suggestions

Situation: The CEO of an early-stage software company has two versions of its software that they could launch. It has an alpha site set up and is configured to serve up to 10K simultaneous users. There are two beta versions that they could launch next. What software version do you launch first?

Advice from the CEOs:

  • Use the more basic version for the Beta launch.
    • Restrict the Alpha to individuals within the company until the major bugs are resolved. Once this is ready, proceed to Beta launch.
    • The right target users will be both early adopters who are effective sneezers.
    • Select a segment of the market that is the home of both enthusiasts and sneezers – for example, if it were the music market target dance music – a crowd that is easy to attract.
    • Target a service that many in the game and related early adopter worlds like. At the right time they will sneeze frequently to their friends and contacts.
    • Let the creative audience know that the Beta version is an artist-centric site, but that it will be followed soon by a consumer link that they can tell their fans about.
  • Assemble a knowledge bank of experts to guide the company as it progresses through Beta. These experts can and to help the company prep as fully as possible prior to launch.
  • Crossing the Chasm – when the company is ready for this.
    • Find an appropriate venue that attracts target users. Again, as an example, in the music world this could be American Idol. Through American Idol, the play would be to allow fans to access and download the songs that their favorite contestants sang this week, plus other songs from their favorites.
    • An approach like this quickly opens a large market for a new app.

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How Do You Create a Good Lead Generation Campaign? Five Thoughts

Situation: A CEO wants to increase the company’s customer base. What have others done to generate leads in order to expand their customer base. What techniques have worked best? How do you create an effective lead generation campaign?

Advice from the CEOs:

  • One CEO who targets large customers used outside telesales at first but found them to be ineffective. They have since gone to an inside team. There is a learning phase, but with experience this can be an effective solution.
  • Another company uses an inside telesales team. This started with one individual and has become a team. Because this provides more control, one can hire for quality. This is often older callers who sound very professional on the telephone. It also provides the opportunity to tweak the telephone script for special promotions or circumstances.
    • For this company the number of calls per lead and closed account are high – up to 5% for leads and 1% for closed accounts. With a disciplined team and proper incentives, this is very doable.
  • Investigate the availability of local business lists such as Craig’s List or Rich’s Business Lists These lists are searchable by industry and business parameters.
  • Consider small professional conferences that attract target personnel of your key potential prospects. These are great networking and lead generation opportunities.
  • Make sure that there is a good link between the telemarketing and sales teams. This includes tracking, credit and rewards for landing accounts, and similar incentives.

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What is Your 10-Year Growth Plan? Four Points

Situation: A CEO is building a 10-year growth plan for her well-established company. Options include building the company on its current track, growing through purchase of another company, or merging with another company. What are the most important considerations for each option? What is your 10-year growth plan?

Advice from the CEOs:

  • Considerations to start the process:
    • When acquiring another company or merging, the value is the reputation, relationships, and good will of the other firm. This may be more expensive but can provide a head start in the new market.
    • Perform an ROI analysis of build vs. buy. Estimate what it will cost to build. Compare this to what others are asking for their firms. In both cases generate a 5-year cash flow forecast. Discount future cash flows using the company’s desired rate of return – for example the company’s PBDI&T target – as the discount rate.
    • Also compare the relative risk of each option.
  • Build Option:
    • It’s not necessary to recreate the full home office operation.
    • Start small – sales, support, or maybe just an address.
    • Do the actual work at the home office until sufficient business is generated at the new site to support a larger local operation.
  • Buy Option:
    • Look for a company with a good local reputation, who shares the acquiring company’s values, but who wants to sell.
    • This option provides staff, relationships, and a reputation in place. They will already know the local code.
    • Structure a deal for long-term value to the owner. The ideal is to pay as much as possible with future rather than current dollars, with a premium for high retention of personnel and business
  • Spend some time in a new area and get to know it before deciding. If the company already does some business in the new locale, this simplifies the decision.
    • Some locales have been found by others to require a local head of the office who is from the area – who “talks the local talk and walks the local walk.” This will be the case whether the decision is to build or to buy.

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Do You Need a Formal Marketing Function? Four Points

Situation: A small company serves a specialized, targeted group of customers. The founder/CEO seeks advice from the group on whether it is time for the company to create and staff a formal marketing function or can this be outsourced. Do you need a formal marketing function?

Advice from the CEOs:

  • The company services a specialized and targeted group of customers. However, they target the high end of this market, so the target market is smaller.
    • A highly targeted promotional and marketing strategy will work best.
  • There are two principal functions within marketing: providing direction to guide product development efforts and creating awareness of the company’s products through promotions and advertisements.
    • To serve a narrow market, the information and insight gathered from trade shows, technical meetings, the company’s sales and design engineers may be sufficient to drive product development efforts.
    • It may not be necessary to do more than this unless the company is planning for substantial growth and wishes to diversify the product offering in a short period of time.
  • To handle promotions and advertising there are two options: hire an individual to do this or utilize the resources of an outside agency.
    • The marketing plan should be refreshed and updated on a regular basis – at least annually.
    • A good task for the company’s marketing committee is to become aware of local resources that could help.
    • Identify marketing themes to guide advertising in specialty magazines, supported by trade shows, technical conferences, and on-site training session for key customers.
    • Create and maintain a calendar of marketing activities and assure that that messaging is consistent across promotional events.
  • If the strategic plan calls for substantially increasing the revenue base or broadening the product offering, consider a merger with a competitor that already has the ability and resources to meet these needs.
    • Just the planning exercise for a merger will help the company to evaluate the issues involved in market expansion.

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How Do You Prepare for Sale of the Company? Six Points

Situation: A company’s founder and CEO wants to sell the company. The company’s software is well-suited to current governmental priorities and should be of value to potential buyers. What are the best steps to take both to prepare for a sale and to sell at the highest price? How do you prepare for sale of the company?

Advice from the CEOs:

  • Add a person with connections to potential buyers to the board.
  • Look for an M&A specialist who knows the company’s market.
    • The right specialist will help validate the valuation of the company, review and identify potential purchasers, and make the inquiries that will lead to the sale of the company.
  • Investigate M&A cases in the industry and related technologies – both cases of firms like the company and cases of companies that may be suitors to determine their purchasing behavior.
    • This will help develop strategies to maximize the value of the company and the optimal bargaining position and will help prepare for negotiations.
  • Maximize the value of the company in preparation for the sale.
    • The fastest business growth may come from within the company’s current customer base – additional business customers where the company already has contacts.
    • Work up the food chain within existing customers to increase the company’s business within these companies.
  • Important preparations for a sale:
    • Assure that financial records are very clean. These are critical during the price-setting process and in negotiating the final price.
    • In computing company valuation, exclude the salaries of current principals to improve the income statement. These individuals will be replaced post-sale with lower-paid employees.
    • Continue to operate the company as though there will never be a sale. This maintains the value of the company regardless of what happens.
  • How open should be the company be – internally and externally – concerning a potential sale of the company.
    • Be as honest and open as is prudent. The biggest concern will be salespeople who may leave the company if they feel threatened by a sale, or who may stop selling because they do not want to try to explain the situation to prospects.
    • The other “at risk” group is developers, who may fear that they will be replaced or terminated following a sale and who may leave.

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How Do You Find the Right Funding Source? Six Solutions

Situation: A company is short of cash and needs a source to fund their cash flow needs. Their needs are mapped out for the next four years and they can fund current operations for a few months. However, their bank will not extend their credit line. How do you find the right funding source?

Advice from the CEOs:

  • Try another bank. Ask friends and contacts about their banks and see if they’ll refer the company to their bank.
  • Explore renegotiating the company’s lease to ease the cash flow needs.
  • Explore renegotiating payment terms with suppliers. See what can be worked out. The bottom line – if the company goes Chapter 7 or 11, they get nothing.
  • Consider going to a larger company and working out an arrangement.
    • Ask that they allow the partners to operate as an “independent” entity retaining their titles.
    • In exchange for funding the company’s cash needs, the larger company shares in the profits.
    • Seek a temporary arrangement to allow the company can get back on its feet financially.
    • Use the friends and reputation that the company has developed over the years. The company is a good outfit and respected. Others may help if asked.
  • A similar tactic is to approach a larger company to negotiate an arrangement that will allow the company to survive. Start with a business plan.
    • Highlight the company’s reputation and the quality of its products. Use references from highly satisfied customers.
    • Highlight the company’s key strength – developing the critical path and plan for a successful project.
    • The thrust of the presentation: the partner gets a quality team and shares in the profits from projects completed. The partner provides the cash to fund the projects. Compare the risk and return on these funds compared with other investment options available to highlight the value of the proposal.
  • Other CEOs shared similar situations that have worked for them.
    • The financial realities were kept secret from staff, customers, and competitors.
    • All unnecessary expenses were cut.
    • The focus was on making money today.
    • Supplier payments were delayed as necessary to manage cash flow.
    • The process was managed creatively, sometimes with the assistance of friends, and the companies were able to prevail.
  • There is no shame in facing and dealing with this problem. Determination will pay off.

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What are the Pros & Cons of In-House Software Development? Three Points

Situation: A company used internal resources for a small in-house project – developing web-based time sheets. They had obtained bids for external development but found that internal resources could do the same time for about half of what external development would cost. The trade-off was slow delivery. What are the pros & cons of in-house software development?

Advice from the CEOs:

  • Why was delivery slow?
    • When faced with a choice in priority between the internal development task vs. responding to the needs of external customers, internal delivery was pushed back in time.
  • This is exactly what others have experienced when faced with the choice between internal and external software development. Look at the trade-off, not just in terms of “cost” quoted by internal developers, but also in terms of opportunity cost. The real cost is what these resources could have provided had the same time been spent to support external revenue-producing projects.
  • Just as the company did in the first place, get external bids. If the use of internal resources is an option, compare time to delivery forecasted using internal resources plus any other internal costs. Then analyze the opportunity cost of not dedicating these resources to revenue-producing activity. The sum of these costs should then be compared with external bids. Adding opportunity cost to the analysis can make a big difference.
  • Once the company has this information, make a business decision as to the best choice. Keep in mind that unless the priorities of the internal group doing the development work are changed, they may not respond to the needs of the internal project on a timely basis. It will be the CEO’s call as to whether the developers prioritize their time to support external projects or the internal project.

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How Do You Position the Company for Growth? Four Key Points

Situation: A company is completing the design of a new line of equipment which is expected to drive future growth. An important distributor for a company’s principal product – a consumable – also distributes equipment. The CEO is concerned that this distributor may perceive his new line of equipment as competing with their existing line. How should the CEO handle this? How do you position the company for growth?

Advice from the CEOs:

  • Meet with the CEO of the distributor and ask two questions:
    • Can they sell the company’s new line of equipment, as well?
    • Do they have any other source for the company’s consumable product?
    • If the distributor must rely on the company for the consumable, whether they decide to distribute the new equipment line or not, there should not be any risk.
  • The company has a wonderful opportunity to start doing business in a new way.
    • The company has a proprietary consumable and chemistry/formulation knowledge that will be difficult for others to copy.
    • The company now has knowledge of how to design equipment that utilizes the consumable.
    • Proprietary trade secrets may be more valuable than patents, presuming that the company can keep a lid on these secrets. Coca Cola and 3M have never sought patents on their key products. In a well-managed environment, trade secrets have a much longer life than patents.
  • Think about the sales mix in a new way, one that would address concerns about the annuity vs. capital equipment mix as well as improve overall profitability.
    • Focus on turn-key solutions. Use Hewlett Packard as a model. HP makes the most money selling paper and ink cartridges – annuity products; not from selling printers which sell less frequently than the cartridges. A busy office will spend far more on ink cartridges and paper per year than they spend on printers – and at a better margin for HP.
  • Combine the two prior points to leverage the new model.
    • Lease or provide the equipment at just above cost, in exchange for a contract commitment to purchase the consumable for a defined period.
    • Triple the cost of the consumable over time!
    • This should provide a more profitable and sustainable model. Adjust the cost of the ink upwards so that it pays. On a per-piece basis, the consumable at 3x or 4x current cost will still be a miniscule part of overall product cost. Further, the buyer won’t have to amortize the cost of the equipment over their production, making this an attractive option.
    • Concentrate on equipment design and outsource the manufacturing on a modular basis while keeping control of the one or two most critical components.

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How Do You Manage Company and Board Dynamics? Four Points

Situation: A company started as a collaboration of friends. Upon incorporation the leader became the CEO, and some of the original team became members of the Board. The CEO struggles with the responsibilities of being CEO while wishing to maintain the friendships that drive the company. How do you manage company and board dynamics?

Advice from the CEOs:

  • While the company was formed as a collaboration of friends, once it incorporated the nature of the relationships necessarily changed. While away from work the CEO may remain friends and close to the others; however, within the company there must be one CEO who is responsible to the shareholders for operating the company according to that individual’s vision. If the CEO and company are successful, all will be rewarded.
    • Shareholders are not partners – a partnership entity is inherently different from a corporate entity based on share ownership.
  • Within a corporate structure, majority control is critical.
    • While one should never trample on the rights of other shareholders, having 51% is better than having 47% ownership. Majority ownership makes it unnecessary to assemble a majority to drive the company in the direction that the CEO seeks.
    • That said, it is important to encourage the ideas and creativity of minority shareholders who are also employees. There is an art to recognizing and incorporating the ideas of others while the CEO, in the end, maintains final say.
  • The CEO’s job – and preferably within a small company as both Chairman and CEO – is to develop the CEO’s vision of the company and drive this through the organization.
  • Having a key employee report to the Board rather than to the CEO is likely a mistake. Employees do not do well long-term reporting to a committee.

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How Do You Rapidly Ramp Sales? Three Tactics

Situation: A company’s key marketing partner has excelled at analyzing key potential customers, the right decision makers within those customers, and completing sales to them at a premium price. The CEO wants advice on what more they can do with this partner to leverage and boost sales. How do you rapidly ramp sales?

Advice from the CEOs:

  • The company’s current strategy is to start a customer on the company’s product to add additional functionality. Once the customer learns to use the product, they work to extend the customer to other products from the company.
  • It is difficult to win with a “push” sales strategy. The situation described is like that of Linux competing with Microsoft. Everyone knows how to use MSFT, and for most of what they do MSFT is good enough. It takes a particular level of pain or need to justify the pain of transitioning to something different.
    • The only alternative is to show a significant pay-back for the pain that the customer must endure in order to convert, large scale, to another solution.
  • The company’s target customer will be the key manager who will shut down the line because they don’t have the company’s solution. This forces the purchase decision above the manager’s boss to the executive suite. The company’s solution then becomes the alternative that saves the day.
    • Seek a forum or trade show that will put the company’s solution in front of these key managers. Through this venue, create buzz that will make the company’s the booth to visit.
    • It is critical to have a compelling story for potential users when they respond to this gambit and visit the company’s booth.
  • The solution to this dilemma is the same as the solution to the company’s overall strategy.
    • The company’s offering, at this point, is just another alternative available to the customer. While the company has a compelling product, it is not world changing and the company lacks the market presence to make its solutions first to adoption.
    • The solution is to focus. Stop what the company is currently doing and take the time to develop a technology strategy.
    • Once this strategy has been defined, focus efforts on developing the killer application that becomes the reason that people must come to the company to satisfy their need.
    • Once this killer application has been developed, positioning and gaining traction with the customer will become easier.

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