How Do You Maintain a Robust Pipeline? Five Suggestions

Situation: A CEO is concerned that her company does not have enough new prospects or business on the horizon. New business opportunities appear sporadically but not predictably. She asks how others schedule their time and effort to bring in new clients. How do you maintain a robust pipeline?

Advice from the CEOs:

  • Devote a regular amount of time to business and relationship development. Even when business is busy it is important to have the discipline to devote 4 to 6 hours per week to new business development. Schedule this time and fill it with activity. Occasional networking doesn’t work.
  • What differentiates a company is its brand. If new business comes from referrals, turbo-charge this by becoming the information hub for the referral group. Make it easy for others to make referrals.
  • There is a hierarchy of things to do.
    • Stay on potential referrers’ radar screens – monthly or quarterly awareness marketing to referral sources.
    • Spread awareness of best practices in areas where the company has expertise.
    • Make best practices relevant with situational stories.
  • Think in terms of a target.
    • Where do most referrals come from? This is the center of the bull’s eye
    • 2nd Ring – 2nd level of referrals
    • 3rd Ring – 3rd level of referrals
    • Network more with contacts at the center of the target – they know clients in need of help.
  • There is a lot of information in the cloud that is relevant to the business – personnel moves, hiring, firing, etc. If you it is possible to track this, it can help.
    • LinkedIn can help. Look for 1st and 2nd degree links to individuals of interest. For example, you want to meet a CEO who on LinkedIn is a 2nd degree link. Request a warm introduction from a 1st degree link between you and the CEO.
    • Think of LinkedIn in terms of rifle shots, not a shotgun approach. This makes it both more manageable and more valuable.

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How Do You Respond to a Purchase Offer? Five Thoughts

Situation: A company has been approached by a larger company that is interested in purchasing it. The purchaser wants to fill a niche that they don’t currently serve, but which is important to their growth. The CEO is concerned about what will happen to employees following sale of the company. How do you respond to a purchase offer?

Advice from the CEOs:

  • Questions for Preliminary Stage Research:
    • What valuation is the tipping point for an attractive offer by the buyer?
    • Determine the nature of the purchaser’s interest in the company and how it fits into their broader strategic picture. If their plan will dramatically change the market the company’s current market value may go down later relative to doing a deal with them today.
    • If the acquirer has a history of buying other companies, look at who they’ve recently bought, what they paid, and what kind of impact they had on the staff and culture of the companies purchased.
    • Check out the purchaser’s P/E ratio. If it is in the range the company’s desired multiple on EBITDA, a good deal is possible.
  • Temper the company’s response and approach to get the most from this experience.
    • Currently, assumptions about the acquirer make the offer appear unappealing. Ask questions to validate or challenge these assumptions.
    • Be open-minded so that the purchaser reveals more about themselves and the market than they would if they sensed a lack of interest in an acquisition.
  • How does the company protect itself during the inquiry and due diligence process?
    • Keep staff numbers and individuals, and customer lists close to the chest.
    • Have an LOI and ask for a breakaway clause before sharing significant information. 
      • Breakaway clause: if the two companies get into discussions and the potential acquirer decides to abandon the discussions, it will cost them $1M.
      • The potential acquirer may not agree to this, but it demonstrates that the company is serious both about the discussions and about preserving the confidentiality of its business information.
  • More Advanced Stage Questions and Research:
    • This looks like a strategic interest. If so:
      • Get assistance from an investment banker.
      • Look at what other alternatives may be available to the acquirer to assess the company’s potential value.
      • Any offer other than a high-multiple strategic valuation and offer should not be of interest to the company.
    • What restrictions will the acquirer put on the company? 
      • For example, if there is an earn-out value, will they give the company the freedom to operate to maximize this value?
    • Be careful with employee communications and how employees are informed of an outside interest. This can be difficult during due diligence.
    • If the founder remains with the company post-sale this could help lock in the value of the exit and assure the employees’ future.
  • Make the most of this opportunity.
    • Are there ways that the company can become better and smarter working with the acquirer?
    • Is there a relationship short of acquisition than would benefit the company like a collaboration or partnership?
    • Can a relationship short of sale enhance the company’s market presence and help the company to achieve national status more quickly?

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How Do You Fund an Early Stage Venture? Four Suggestions

Situation: An early stage venture which focuses on a humanitarian mission needs funding. The founder is more interested in providing a peer-driven platform and service than in producing profits. She envisions most of the funding coming from donations rather than investors, at least near term.  How do you fund an early stage venture?

Advice from the CEOs:

  • Given that the venture is focused on building a peer-driven software platform, it is possible that it may be of significant value if the venture was to be sold for its technology or audience. Facebook and similar platforms could have a distinct interest as the venture attracts a significant audience. Is this a potential conflict with the original vision? The answer to this question will impact funding choices going forward.
  • There are several resources available to assist in fund raising:
    • Look for local groups that assist with fund raising.
    • The Foundation Center (www.foundationcenter.org) specializes in helping organizations to secure funding for non-profit ventures from foundations. They have online facilities as well as locations in New York, Boston, San Francisco and other major cities. They also provide training in raising funds from foundations.
  • Us the founder’s network to find people with an interest and contacts in fundraising.
  • Connect with local churches and synagogues which also excel in fund raising. The congregations may be smaller than the mega-churches, but the members are often very connected. Because of the humanitarian nature of the new venture, churches and synagogues may be natural partners.

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How Do You Manage Conflicting Demands from a Client? Three Points

Situation: A CEO is struggling to manage conflicting demands from a key foreign client. The client frequently changes targets and priorities; however, the performance contract with the client does not allow variations from plan. In addition, the CEO and client have different expectations concerning ROI. How do you manage conflicting demands from a client?

Advice from the CEOs:

  • Recruit or access expertise from an individual who knows both cultures to coach you on intercultural communications. This will help you to avoid inadvertent miscommunications where your well-intended queries are negatively interpreted by the other party.
    • Cultural interpretation is an increasingly important factor for multi-national business growth.
  • Are there elements of the client’s structure and the agreement with the client that offer significant benefit, but which are underappreciated by company staff?
    • Access to capital?
    • Access to funding or allowance on expenditures that allow the company to increase staff to meet company demands?
    • Assure that staff are aware of these benefits and how critical these can be to the company’s, and their future growth and income.
  • Meet with the client’s leadership to outline the conflicts that the company faces meeting the client’s needs and demands. Explain to them how these conflicts are compromising the company’s ability to meet their needs. Once the conflicts in priorities are clearly expressed this may help the client to understand and resolve the conflicting demands.
    • This may involve a considerable personal risk and cost to the CEO. However, if the effort is successful it will, in the long-term, benefit both companies.

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Which is More Important – Cash Flow or Value Creation? Six Thoughts

Situation: A family-owned company has built a sustainable and modestly profitable business. They have built high quality, referenceable collaborations. The CEO is ambitious and wants to become a world-class company. They now seek limited partners as investors to grow the company. Which is more important – cash flow or value creation?

Advice from the CEOs:

  • Both cash flow and value creation are important. There are several sub-questions to the question:
    • First, what is the fundamental business model?
    • Second, the CEO is the company’s charismatic leader. How best to follow his energy?
    • Finally, and most fundamentally, does the current business model make sense? Can it be simplified it to improve its scalability?
  • Currently there are three divisions, each with a different objective.
    • Operations – to be sustainable.
    • Services – low profit and low percentage of company revenue but also low overhead.
    • Investment – to achieve an acceptable rate of return.
  • How does the company get the best valuation?
    • Currently, the company is organized as a conglomerate.
    • Conglomerates are too diffuse and difficult to optimize to attract investors. Pure plays do better. Consider refocusing the company around its key strengths.
  • The family business model is fine. The question for the family – how does the CEO keep and attract the key staff like that makes this business work? Salary alone doesn’t do it. What are the future rewards for key personnel? Consider deal participation to incentivize key employees.
  • The investment and operations divisions are different companies – this is fine. Optimize both.
  • To attract the best LPs, the business model should evolve from a family to corporate model. This will make more sense to investors and improve their ability to participate in future growth and profits.

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Where Do You Find Sources of Capital or Savings? Seven Suggestions

Situation: A CEO closely watches company cash flow so assure that it is enough to fund the company during both upswings and downturns. The company is doing well, but the CEO is concerned about a near-term potential downturn. Where so you find sources of capital or savings?

Advice from the CEOs:

  • In anticipating future cash flow needs, planning to breakeven may not be enough. Anticipate contingencies and cut enough to be profitable. This is particularly true if a downturn is longer than anticipated.
  • Take a close look at operating capacity.
    • Estimate current capacity based on staff count and average billing rates.
    • Forecast best – worst case scenarios given market trends. Compare each against current capacity and evaluate the gaps. This will help set staffing levels to assure that the company is not overcommitted in case of a downturn.
  • Discount future cash flow for non-payables based on experience. This may indicate the need to cut expenses deeper to assure that the company survives an extended downturn.
    • In a recovery, pull back those who were let go.
  • If there is underutilized time from the team, pitch this to investors to obtain equity financing for new IP.
  • Consider selling a key customer on a royalty model. This can be a small royalty – maybe 1-2% of products sold based on the company’s contribution.  This is pure profit to the company, and provides an annuity revenue stream, even if small.
  • Look at banks which are aggressively expanding in the region. If they are hungry for new clients they will offer attractive rates.
  • Companies are better sources of funding than investors. A good client can become a strategic partner. Do some homework before first before making the call to a key contact.
    • Know the level of financing that is needed.
    • Know where it would be used and what kind of return the company can yield on the investment.

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How Do You Generate Near-Term Revenue? Seven Suggestions

Situation: A young company that focuses on personalized solutions needs to generate near-term revenue to meet expenses. There are also options for debt or equity financing, but the terms for each will equally depend on near-term revenue potential. How do you generate near-term revenue?

Advice from the CEOs:

  • Think in terms of the referenceability of early customers.  As a new company, the first five customers define the company to future customers.
    • The core values of the company will help clarify how to make early choices.
    • Don’t just go for the easiest closes.
  • Create a chart of potential customer prospects:
    • Segment potential prospects into groups.
    • What is the deal model and key value proposition for each group?
    • Create a video and communications package to demonstrate the company’s benefit to each group.
  • There are trade-offs between the different deals that the company will pursue:
    • Small fast deals are most likely to meet immediate cash flow needs.
    • The biggest deals may involve the creation of LLCs. These will involve both more time and additional legal fees.
  • Make sure that early deals align with the company’s core brand.
  • Consider outsourcing to speed the provision of services to early clients. Build this cost into your billings. Assure that the funds from early deals flow to or through the company. This will improve the financial story to additional clients.
  • Consider serving special interest groups. Their potential value is that they work for their passion more than for money. If the company chooses to work with one or more of these groups, assure that customer selection aligns with company values.
  • The current focus for near-term monetization is on merchandizing. As an alternative, consider charging a separate fee for the use of company IP. This may give clients additional incentive to utilize company technology to monetize their investment.

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How Do You Choose Between Strategic Options? Four Points

Situation: The founding CEO of a technology company is considering options for the future. The company is doing well, with two options for future development either within or outside the company. How do you choose between strategic options?

Advice from the CEOs:

  • Domain expertise is less important than business experience, P&L experience, and fund-raising success. A diversified background and successful experience as a CEO are as important as specialty industry experience.
    • Continue to pursue all options for the time being. See how the new opportunities mature before making final choices, and either split time between the options or assign good managers to oversee each.
    • Ownership agreements should be based on cash investment of the parties – not time and effort.
  • Option #1 – Focus on the primary company.
    • A challenge is that most of the Board members just see the numbers, not the dynamics of day-to-day operations. They don’t know the CEO’s contribution.
    • Assure that the Board understands the CEO’s contribution and is rewarding the CEO appropriately.
  • Option #2 – Focus on New Opportunity #1.
    • Is this option more like a product or a company?
    • Consider this option as a product incubator rather than a single product company – producing and spinning off a series of ideas for development.
    • This can be done either within the primary company or as an outside effort.
  • Option #3 – Focus on New Opportunity #2.
    • Software development can be self-funding. Compared with manufacturing, software is inexpensive to develop and requires little investment to scale and sell once the code is written.
    • The trick is to rigorously focus on market opportunity while minimizing cost.
    • Watch staffing commitments. Use scarce resources to lock up irreplaceable capabilities. Hire or offer equity only for significant contributions such as IP development. For labor, use consultants, independent contract arrangements, or look for what can be outsourced.
    • Like Option #2 this can be done either within the primary company or as an outside effort.

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How Do You Balance the Demands of Work and Family? Five Views

Situation: A CEO struggles to balance time and responsibility commitments to his business with demands of his family. This is not an uncommon struggle for executives. The question is: what strategies are effective to address the needs of both. How do you balance the demands of work and family?

Advice from the CEOs:

  • One Member: It takes a plan to find a solution.
    • Decide what you want and write a business plan to get there.
    • What relationship do you want with your soul mate? Make this part of the plan.
    • Have a conversation and test whether your and your spouse’s long-term visions are complimentary.
    • Don’t take on additional work – this is good both for family relationships and the role as CEO.
  • Another Member: My spouse and I talk about this a lot – particularly around time.
    • We have agreed on how the week is carved out – family time/work time.
    • We agree to honor each other as we are – not how we want the other to be.
    • Watch work commitments because – long-term – your spouse and children more important and more lasting than work.
  • Another Member: I’ve lived through the same issues.
    • I probably erred on side of family vs. career. The benefit is that now, I can’t get enough time to play with my kids. It’s great!
    • Attention to children is very important during the early years. While infants are not as capable of communicating as they will be later, the basic emotional and learning patterns – as well as affection patterns – are created early in life. It’s like the foundation of a building – not much to look at from the street, but it allows the whole building to stand.
  • The same mind that developed your business can solve this.
    • Stay open to solutions.
    • Make a choice.
    • This is uncomfortable, but not bad. The struggle proves that you care.
  • View your spouse as somebody who cares enough about herself so that she thinks she deserves a class act from her mate. Isn’t this what you want in a mate?

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How Do You Manage a Business Transition? Five Thoughts

Situation: A company is moving from sole focus on servicing a market to a split focus including developing and marketing their own products. This is a significant transition for the team. What is the best way to organize this effort? How do you manage a business transition?

Advice from the CEOs:

  • While the company’s financials are great for their market, cashflow may be insufficient to fully fund a development company.
    • Internal development of new products can create conflicts if it creates competition for resources between internal and external projects.
    • To avoid this, create an independent company or entity – in a separate location. Seek outside funding whether bank, angel or partner financing. The independent entity can then buy resources from the primary entity at competitive rates.
  • Several years ago, another CEO utilized the strategy just described. The important lessons were:
    • Assure that venture is properly resourced.
    • Assure that there is a balance between proven structure and creative application development.
    • Utilize best resources available at same rates that key customers pay.
    • Offer free guidance but not free services – peer reviews are key.
  • A third CEO had an opportunity to open a new business using the spin-off model.
    • They allowed infrastructure sharing – with proper compensation and incentives (equity ownership).
    • Ultimately both entities were successful.
    • Lesson: Properly implemented, this model works.
  • There are four aspects to the challenge.
    • Product concept
    • Talent for execution
    • Financing
    • Distribution
    • The business plan for the new venture must address all four.
  • Building internally (vs. externally) creates natural conflict. Workers will tolerate change in direction from clients better than they do from insiders.

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