Where Do You Currently Stand on Benefits? Three Comments

Situation: A small company (fewer than 50 employees) is reviewing their employee benefit package and wants to get a sense of what others are currently covering in their benefit packages. Where does your company currently stand on employee benefits, and what does your company cover in its benefit package?

Advice from the CEOs:

  • A recent small (unscientific) poll of entrepreneurial Silicon Valley SMB Companies on benefits offered found:
    • Health: 100%, Dental: 83%, Vision: 67%, Disability: 17%
    • 401K: 100%, 401K Match: 33% (most companies eliminated the match to reduce costs)
    • Reduced benefits in the last 6 months: 67%
    • Employee complaints or recruiting challenges following cuts: 0%
  • One company commented that when a key customer cut their payments they had to cut benefits. They reduced the company payment from 100% to 50% of benefit cost. Their employees make choices among options available, with a company dollar payment cap. Management explained the situation when they made the cuts, and there were no objections.
  • Several companies have shifted to consumer directed health care options.
  • A comment of caution was offered by one CEO – employees are unlikely to object to their company needing to reduce benefits to get through a difficult market. However, as conditions improve, employees are likely to expect some level of return to prior benefit levels. If not, the company at risk of increased turnover. It is best to stay ahead of the curve to assure that your benefits packages are competitive.

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How Do You Ask for Consideration? Four Suggestions

Situation: A company played matchmaker between another company in the concept stage and a funding source. Having performed this service, the company would like to get something in return. There is no agreement in place regarding consideration for this service. How do you ask for consideration?

Advice from the CEOs:

  • A way to introduce the conversation is to say – We’ve been happy to help you identify funding for your company. What kind of role and contribution do you see for us as you move forward? This prompts the other company to confirm the inequity, instead of you, and makes it more likely that they will offer you something.
  • This is really a relationship challenge. You’ve done a great favor for the other company – obtaining funding for an early stage company is a major accomplishment. If there is a good relationship between the two of you it is reasonable to hope that they will recognize this. A minimal way to ask for this is to say – If you get funded we want to be your service provider.
  • In business, many leads are referrals. When we get a good lead, we try to assure that the referral source gets some business from the resulting project. This encourages them to continue to provide us with leads. It also reflects common courtesy. Providing this example may help your case.
  • On option may be to ask for an equity interest. For an early stage company, this is inexpensive as they have not yet established significant value.

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How Do You Craft an Effective Trial Offer? Five Suggestions

Situation: A professional services company has developed a new trial offer to promote their services to prospective clients. The offer includes a discount for an initial evaluation accompanied by a discount on services should the client choose to proceed with recommended solutions. They seek guidance on whether this is an effective approach. How do you craft and effective trial offer?

Advice from the CEOs:

  • The suggested approach is similar to what others offer to new prospects, but only goes half way. A discounted offer only works if you’ve convinced the prospective client that first, they need your services, and second, that there will be a positive financial impact to their bottom line if they agree to your trail offer. You need to add recommendations that will demonstrate a significant short term financial benefit.
  • Target your message. Give the prospect a reason to spend scarce dollars now.
  • Offer to apply all or some of the initial fee to future expenses if they contract you to solve problems that you identify in your initial review.
  • An example of a more targeted offer would be as follows – we will audit your accounts receivable as well as any debts that you’ve written off last in the last 2-3 years. Based on this audit, our past experience has been that you can boost short-term collectibles from these accounts by 30%. An offer like this demonstrates an immediate impact on cash flow.
  • Do you feel comfortable offering a guarantee? You will save the client $X over a guaranteed period or the service will be free.

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How Do You Optimize Supply Agreements? Seven Guidelines

Situation: A company wants to add off-shore manufactures to its supply chain. This is a new experience and the CEO seeks guidance on how to negotiate supply agreements. They want win-win agreements with their new suppliers. How do you optimize supply agreements?

Advice from the CEOs:

  • No supplier relationship is risk-free, especially if you are a small company. Be sure to cover ownership of new IP developed during the relationship. For example, assure that the supplier adds no new developments without communicating these to you in writing. You may want to fund new developments selectively to assure protection of your IP. This is essential if you need to switch or add suppliers rapidly to maintain adequate supply.
  • A service agreement is not always about cost. It’s about deliverables, and quid pro quo is important.
  • Manage your key supplier relationships as diligently as you manage your key client relationships. They are equally critical.
  • In a contract negotiation between supplier and OEM or customer, both sides need to clarify customer needs and supplier capabilities. The greater the transparency on expectations, deliverables, and contingencies, the better the agreement and contract.
  • In negotiating an agreement with a Chinese company, make the enforcement jurisdiction either Hong Kong or Macao. Why? So that courts can enforce terms of the agreement on the Chinese party in the case of a dispute.
  • Post-termination obligations are a key to any negotiation – you want this clarified in advance.
  • Contracts serve two purposes: a legal tool, and a way to drive behavior. They provide an opportunity to assure that both parties are on the same page and, under the best circumstances, serve as process documents.

Special thanks to Bijan Dastmalchi of Symphony Consulting for his contribution to this discussion.

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Do LEAN and Six-Sigma Work for Services? Three Thoughts

Situation: A professional service company is intrigued by LEAN and Six-Sigma approaches to increasing production efficiency and reducing costs. Most of the examples that they see of LEAN and Six-Sigma in action are in production or manufacturing settings. Do LEAN or Six-Sigma programs apply to processes in a professional services environment?

Advice from the CEOs:

  • LEAN and Six-Sigma are heads-down approaches to process improvement.  In a customized solution environment, standardization of processes has less pay-off. As an alternative, consider Agile Development and similar heads-up process solutions.
  • Agile Development is both a philosophy and a process. Steps to introducing Agile Development to a professional services environment include:
    • Identifying high risk areas of individual project plans,
    • Double resourcing high risk areas to increase the likelihood of fast, satisfactory solution outcomes,
    • Looking for collaborative synergies and scenarios,
    • Scheduling regular team meetings to enhance collaboration,
    • Working opportunistically rather than systematically to increase efficiency, and
    • Using project post-mortems to refine systems and processes.
  • One professional services company which has adopted Agile Development assigns Senior Engineers as outside consultants on projects. These individuals bring a more experienced perspective, and can identify more efficient ways to find solutions and produce a more cost effective and timely result.

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How Do You Succeed in Turbulent Markets? Seven Suggestions

A CEO is concerned about a possible downturn in the company’s market. They have survived the Great Recession and want to assure that they continue to survive future downturns. How do you succeed in turbulent markets?

Advice from the CEOs:

  • In turbulent markets, companies do everything that they can to reduce costs. This includes just-in-time ordering – regardless of lead times which they view as the supplier’s problem, delaying orders until they have confidence that they can sell what they order and produce, being miserly with cash, and demanding lower prices – even if supplier costs are rising. Dealing with each of these requires a steady head and creative solutions.
  • Spend as much time as possible meeting with important vendors and clients. Maintain the dialogue. They need you as much as you need them – without your products and services, their business is compromised, too. Spend time finding and cultivating the right relationships in client companies. Most of the time, this will NOT be the purchasing departments, but higher ups within the business units who are being pressed by their superiors to generate sales and revenue.
  • Pushing harder does not work in turbulent markets. Too many others are doing this.
  • Change your message – what used to work does not work now. Adjust your message to the times and adapt your message to your customer’s needs.
    • People want choice, and to do business with those whom they can trust to deliver.
    • Develop good case studies and testimonials – stories that your customer can share with others in their company.
  • Adjust your sales approach – look at SPIN Selling (Status, Pain, Implication, Needs-Payoff).
  • Don’t cut sales and marketing – focus it on the sectors that have cash and who are using the current market to grow. These people will continue to buy.
  • Look at what worked for you in the last five years – this situation is similar.
  • Look at your communications through the eChannels – if your competition is there, you should be too. For example, explore LinkedIn.

Special thanks to Jennifer Vessels of NextStep for her contribution to this discussion.

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Can Bonus Plans Differ Between Departments? Four Thoughts

Situation: A CEO wants to build a new bonus program for the company’s professional services team. He wants to include a customer satisfaction component, because the group is historically weak in this area. Does it make sense to have a different bonus plan for professional services personnel and managers than for product development personnel and managers? Can bonus plans differ between departments?

Advice from the CEOs:

  • Many companies have different bonus structures for different departments. This is natural because different departments have different functions. For example, Sales may evaluated for bonuses based on a combination of revenue and gross margin achievement, while Finance is evaluated on profitability and Product Development is evaluated on hitting product launch schedules and new product sales.
  • Changing bonus structures can be a sensitive matter. If the team impacted is not included in the process of drafting the new plan, changes may be perceived as negative. If this is the case, it’s better to frame the new program so that you limit your commitment to it to just one year, and let the team know that this may change this next year.
  • How do you go about including customer satisfaction surveys as a component of bonus calculation?
    • If you want to use customer satisfaction as part of the plan, benchmark customer service satisfaction before you launch the plan. If you don’t benchmark, how do you know whether performance improves?
    • Survey response rates will be an issue – you won’t get 100% and may get a survey response rate of 10% or worse. Be prepared for this and make sure that data with a low response rate will support your objectives.
    • A survey is a lagging metric. If you can find a measurable leading metric to use as well this is better.
    • Be careful of how the survey is drafted and who conducts it. Both can bias results.
  • As an alternative to making customer satisfaction part of a bonus plan, consider starting a customer satisfaction or loyalty program. The most important question to ask will be: would you recommend us to your peers?  Any low response guarantees a follow-up call from the company.

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How Do You Tell Hunter from Farmer Sales People? Four Tips

Situation: A company hired a sales person who looked during the interview process like a hunter, but turned out to be a farmer. The company’s product-service mix is new to the market and requires a sales person who excels at landing new accounts. How do you tell hunter from farmer sales candidates?

Advice from the CEOs:

  • The hunter sales person is naturally more aggressive and loves the thrill of landing new accounts. The farmer excels at follow-up sales and cultivating existing accounts for new purchasing potential. Neither is particularly good at the others’ job, and it is rare to find individuals who excel in both roles.
  • To differentiate between these two personalities, behavioral interviewing is better than tests.
    • Screen resumes for past sales success in companies in a similar size range as yours to select a group for further evaluation.
    • Behavioral interviews are very different from traditional interviews. They the focus on specific skills and requirements associated with the job and require candidates to give concrete examples of when and how they have demonstrated the skills needed for the job. The interviewer then follows up with probing questions to elicit more details. Responses can be verified in follow-up with references provided by the candidate.
    • During the questioning process, the interviewer may interrupt the candidate with a question like “what are you thinking right now?” These questions provide more insight into the interviewee’s personality and also help to filter out B.S.
    • You are seeking someone who’s “been there done that” in a company which resembles yours and who can convincingly demonstrate what they’ve done.
  • Thoroughly check references – not just those provided by the candidate, but dig and talk to others in the same companies.
  • Strongly align the pay and incentives for a hunter. Hunters prefer a comp package that is heavily commission-based and this will scare away farmers. If they don’t sell, they get paid little.
  • Offer an extended trial period with burden of proof on performance by the sales person.

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How Do You Manage in Crisis Situations? Four Foci

Situation: From time to time companies face crisis situations. A company, planning ahead, wants to establish a culture that can deal with crises effectively. What are the most important elements that should be part of this culture?

Advice from the CEOs:

  • Everything starts with a brutally honest SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats) of your company and operations. Identify where you are Strong, where you are Viable, where Urgent Care is Necessary, and where you have No Reason to Be. Based on this assessment, cut your losses – for example, eliminate exposure to the No Reason to Be activities and efforts – and focus resources on your strengths and what is necessary to assure your future.
  • Support all efforts or activities that you will keep or pursue with a Bottoms-Up Financial Analysis. This will include a P&L, Balance Sheet, Cash Flow Analysis, assumptions, variables, and best, most likely and worst case scenarios. This Financial Analysis is an essential part of facing up to the Brutal Facts of your business and environment. From this exercise you will gain clarity on where to focus first.
  • The greater the potential crisis, the more frequent this exercise must be.
  • When dealing with creditors, remember their priorities: honesty, eventual payment, fair treatment and long-term customers. Present them with a credible plan, don’t make commitments you can’t keep, keep all commitments that you make, keep in touch monthly, and pay what you can. The development of trust makes it possible to negotiate incredible terms.

Special thanks to Tom Spanier of Spanier & Associates for his contribution to this discussion.

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How Do You Move from Manager to Strategist? Four Suggestions

Situation: The CEO of a small-to-medium business wants to reduce day-to-day management activities and spend more time focusing on new opportunities. How do you shift focus from management to strategy and how do you identify the right person to take on the management role?

Advice from the CEOs:

  • As CEO your primary focus needs to be on the future more than the day-to-day. As a smaller company, the management role needs to be filled by an individual with broad multidisciplinary experience. To replace yourself, you need a Renaissance person – someone with industry knowledge and experience who buys into your business model.
  • As you evaluate candidates, look for attitude, not resume.
    • Analytical skills are critical – mental capacity.
    • These need to be complimented by guts – emotional intelligence.
  • Your current business is not the business that you and your co-founders started. It is a larger entity, more solid, and you need to bring in people who can take it to higher stages of growth. Finding the right person to fill your role is a long-term process.
    • Bring in 3 to 4 solid candidates as employees in important roles. Test them with challenges to see who can grow into the larger role of company manager.
    • Look for people who can grow your downstream businesses as candidates to manage the full business.
  • In the current market you have time on your side. While hiring is improving in some regions, there are still many more candidates out there than available jobs. This is unlikely to change soon.

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