How Do You Respond To A Frivolous Lawsuit? Four Suggestions

Situation: A company sued a customer for non-payment. The customer had a long history of slow payment or payment only on threat of denial of service. The customer countersued and has offered to settle for a $7,000 payment. How would you advise the CEO to respond to this frivolous lawsuit?

Advice from the CEOs:

  • One option is to let the countersuit go to trial. The challenge is that if this ends up before a jury the outcome is a crapshoot and can be very stressful. You may win, but at a higher cost than to settle, and if the other party declares insolvency you may never recover your costs. You also have to deal with the distraction of the suit.
  • Another option is to respond very aggressively through your lawyer. This sends a message to the other party and may prompt them to lower or drop the settlement demands. If this doesn’t work and you aren’t a gambler, give up the $7K and walk away. However, if there is a way to make this the most expensive $7K that the other party ever collected, go for it.
  • You may decide on principal to prosecute the case to send a strong message to the market that others should not fool around with your company.
  • To prevent this situation in the future, assure that you have clauses in all your agreements to prevent future repetitions of this situation. Specify binding arbitration in the case of payment or performance disputes. Arbitration can be more effective and timely than litigation.

Key Words: Suit, Countersuit, Jury, Arbitration, Cost, Opportunity, Delinquency, Payment, Settlement, Clause

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How Do You Know Your Team Can Handle Planned Growth? Six Steps

Interview with Gene Tange, President, PearlHPS

Situation: An acquired company is poised for dramatic growth. The corporation that acquired them has questions about the current team’s capability to realize planned growth, and achieve their financial and operational targets. How can they assess whether the existing team is up to the task?

Advice from Gene Tange:

  • Think of this as an assessment process that accurately predicts the ability of the leadership team to realize planned outcomes while maturing key business processes. The leadership team is tied to both financial and operational outcomes that cover competence, continuity and alignment. This enables proactive management of organizational changes to support planned growth of the business. A real life example will illustrate the steps of the process.
  • The starting point was whether the current CEO had the right compliment of skills and capabilities to lead a high performance team. Could this leader see beyond the current stage of growth in terms of the talent and processes required for growth? Could he build a high performance team, align them and retain them to achieve results?
  • The CEO then laid out the future state organization. The essential question was whether he had teams of leaders in each of the key functions to assure success.
    • Specifically, the Product Development Team generated a competitive analysis comparing the current product with all others to assure a 2 year competitive advantage.  They were also tasked with improving cost of manufacturing.
    • The Sales Team installed an integrated CRM system to support large orders, including internal cross functional communication to increase customer visibility and satisfaction scores.
    • The Operations organization moved from a traditional batch manufacturing process to a state of the art, focused factory organization, eliminating WIP, reducing operational costs and increasing the speed of order to delivery.
    • Finally, the Finance and Administrative functions were assessed.
  • As a result, in 16 months the company grew 5x in revenue and increased margins. Time from order to delivery was reduced by 16x. Headcount was reduced while shipping volume increased by 5x.
  • A disciplined assessment process that predict business outcomes and ties your talent to the bottom line can provide a significant advantage in today’s highly competitive environment.

You can contact Gene Tange at gtange@pearlhps.com

Key Words: Growth, Experience, Assess, Capability, Processes, Predictive, High Performance, Competence, Continuity, Alignment, Organization, Structure, Manufacturing, Sales, Marketing, Customer Relationship, Finance

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How Do You Handle A Loyal Employee Who No Longer Fits? Three Thoughts

Situation: A company has a long-term loyal employee who has served in a number of roles. The company is growing, and no longer has a clear role for this individual. This individual can’t and doesn’t want manage either other employees or projects. The CEO wants to be compassionate with this individual to honor their loyalty, but finds himself in a quandary. How would you handle a loyal employee who no longer fits the company’s needs?

Advice from the CEOs:

  • Your desire to treat this individual compassionately is commendable. This individual has been loyal and has served you well. There are a couple of questions to ask: is there a valuable function that this individual can serve within the company, and is this individual essential to the company?
    • What happens when this individual goes on vacation? Are there gaps in service or function?
    • Who handles this individual’s duties while they are on vacation?
    • If the answer to these questions is that others fill in easily and not a beat is missed, particularly when this individual is absent for long vacations, then either they have made excellent preparations prior to their vacation absence, or they may not be essential to the team.
  • As a business grows, it changes. Not everyone who came onboard early will have a place as the company grows. Think of a pick-up basketball team on the local playground. In pick-up basketball, you play with whoever is available. Let’s say that the team starts to improve, and they decide to join a competitive league. Now the game starts to change, and some of the buddies who played pick-up ball won’t be able to make the shift to competitive ball. They aren’t bad people; they just no longer fit the game that the team is playing.
  • You may need to sit down with this individual and have a heart-to-heart discussion about the needs of the company and their ability to serve these needs. This is difficult, but if there is truly no longer a role for this person, then you need to be honest with them while at the same time honoring their past contribution.

Key Words: Company, Growth, Needs, Roles, Manage, Function, Value, Essential, Honesty, Contribution

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How Do Identify and Bring In A COO? Five Suggestions

Situation: A company’s Board is pressing the CEO to hire a COO to oversee operations. The Board’s concerns include succession planning for the CEO and a desire for the CEO to put more focus on the vision and strategy of the company. There are no current candidates within the company. How do you identify and bring in a COO?

Advice from the CEOs:

  • Think beyond roles and responsibilities and consider how you would describe the ideal candidate. This includes attitudes and behaviors, talents, experience, and essential skills. Map these attributes and use them to guide your recruitment and selection process.
  • Increasingly, companies are using a values-based process to evaluate personnel both for promotion and outside selection. Tony Hsieh of Zappos talks about this in his book “Delivering Happiness.” This doesn’t substitute for skills and experience, but helps to identify candidates who will help to strengthen your company’s culture.
  • Assure that you have a full process in place that will help you to recruit and select a good candidate. If it has been a while since you last recruited a high level executive, consider securing outside resources to assist. One of the CEOs even hires a 2nd expert to vet the recommendations of the primary expert.
  • Where can you look for good candidates?
    • Talk to your key vendors about who is really good in the industry. Look for a high potential individual in another company who doesn’t have room to grow in their current situation.
    • Also look at related industries where there will be cross-over knowledge and skills.
    • Don’t overlook the military. Talented officers are regularly rotating out of the services – people who have exceptional experience leading and motivating people.
  • On-boarding a new senior executive is different from a lower level employee. If you choose the right individual and they fit your culture, this will ease the process. Be aware that some of your current senior employees will likely be upset that they were passed over and may be difficult. If you haven’t done this in some time, it is worthwhile to secure counsel on the best ways to bring a new COO on-board.

Key Words: COO, Operations, Succession, Candidate, Role, Responsibilities, Attitude, Behavior, Experience, Values, Process, On-Boarding

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When Do You Decide to Expand Your Office? Three Options

Situation:  A company signed a 3-year lease a year ago, assuming that this would accommodate their needs. Growth has been much more rapid than anticipated, and they’ve outgrown the space. Should the company expand or move now and run the risk of over-purchasing new space, or should they wait until actual growth requirements are more apparent?

Advice from the CEOs:

  • The answer depends on the risk that you are willing to take as a company. When you signed your lease you took a risk based on your expected 3 year needs. The current situation is no different. Analyze your current growth trajectory and take a comfortable level of risk.
  • Options will vary depending on whether the move is relatively high or low cost, and what space configuration you need.
    • Determine whether you have a high or low cost to expand or move – equipment, communications, wiring, etc.
    • If your costs to reconfigure space and move equipment are low, then the risk is relatively low beyond your new lease obligations.
  • Talk to your landlord.
    • With the amount of space currently available in Silicon Valley and the Peninsula, your landlord may have alternatives that are attractive to you.
    • Look for a solution that allows you the space you need under a comfortable risk scenario, but which also gives you options to expand into adjoining space as need arises.
  • Also talk to a broker about what kinds of space are available at what rates, and what incentives may also be available.
  • Short-term, consider leasing excess space from your neighbors as you consider alternatives.

Key Words: Office, Space, Lease, Growth, Risk, Cost, Landlord, Broker

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What is Your Opinion of Maintenance Agreement Models? Four Thoughts

Situation: A plumbing company wants to broaden their market and is intrigued by building maintenance agreement models. They have looked at one franchise offering that would cost $120K in purchase and monthly fees the first year. The up-front investment per new customer would be $10-50K with no guarantee of closing a maintenance contract with the customer. What are the pros and cons of maintenance agreement models

Advice from the CEOs:

  • Don’t look at just one company’s maintenance agreement model. Investigate companies that provide similar services.
    • Ask the company who their principal competitors are, and what companies have similar or differing models.
    • Investigate each of the competitors. One of them may be more appealing for a company your size.
    • If the company is unwilling to share this information, be VERY careful.
  • You should be able to talk to the franchisees since you would not be competing in their territories. Tell them you are evaluating the company and its model and want to learn about their experience. Ask about training, processes and procedures, and any upside or downside that the current franchisees have experienced.
  • As you evaluate this and other offerings, calculate worst case scenario in terms of risk and expense. Is this something that you can afford? If not, the model doesn’t look good.
    • Can you write in exclusions to your maintenance agreements to limit your liability for large ticket items?
    • Analyze the potential of your market. Conservatively estimate the number of clients that you could generate, and what you would earn. Do a cash flow analysis of your upfront expenses, risks and revenue.
  • Watch for red flags in the agreement models. For example, in one model the vendor is responsible for the maintenance of a building; however, they can’t require any tenant to use their services. This means that they would effectively be guaranteeing the work of other companies, or the impact of this work on the building’s services, with no control over the quality of the other companies’ work. This could expose them to significant potential losses.

Key Words: Maintenance Agreement, Franchise, Investment, Pros, Cons, Red Flag, Due Diligence, Worst Case, Scenario, Market Potential

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How Do You Respond to an Onerous Contract Clause? Five Options

Situation: A company just received an approved vendor renewal contract from their major customer. Upon review, they found language that potentially holds them liable to cover the customer’s legal costs of enforcing the agreement. If the company does not sign the contract, they potentially lose their major customer. How do you respond to an onerous contract clause?

Advice from the CEOs:

  • Corporate attorneys are paid to protect the corporation and purposely write vendor agreements to their favor. There are two issues here: whether they will negotiate this clause, and the likelihood of enforcement – which may be very small.
  • Double check your previous vendor contract and assure that this language want not present then. If the language is the same as in past agreements all you are doing in updating an expired agreement. Perhaps there is less of an issue than you anticipate.
  • If you find that this is new language, then call your primary contact in the customer company and ask about the new language. It may be something that their lawyers are trying to add to contracts but will forgo if called on the language. However, if your primary contact responds that this is new standard language in their contracts, you still have options.
    • Try pushing the issue to higher levels of the organization or through your advocates in the company and ask them them to modify the language.
    • Call your own company lawyer and ask how they advise you to respond. A letter from your lawyer to the customer’s lawyers may settle the issue.
    • Call other vendors of this customer and find out how they have responded to the new contract language. If several vendors call and complain about the fairness of the language, the customer may determine that the new language is not worth the hassle.

Key Words: Contract, Clause, Vendor, Customer, Liability, Enforcement, Negotiate, Lawyer, Fairness

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How Do You Engage People in a New Platform? Three Strategies

Interview with Luosheng Peng, CEO & President, GageIn

Situation: A fast-growing company is working to engage new users on their platform. They are leveraging ease of use, demonstrated ROI, and fit within an existing ecosystem as their levers to attract and engage new users. What have you found effective to attract and engage new users in a new platform or service?

Advice from Luosheng Peng:

  • The most important factors to attract new users are ease of use and a demonstrable ROI. It is important to address a complex value proposition simply and easily.
    • You must know, ahead of time, the single most important value for your target user. Your examples must be clearly tied to your target user’s most important need.
    • Quick, simple, visual and verbal illustrations are effective. For example, we used short and fun videos like Tracker the dog to explain our products.
  • You must demonstrate a clear ROI and increased productivity. Your ROI must be real if you want to gain users attention – particularly if you want to gain viral levels of attention.
    • In business intelligence, finding information is not a problem. The challenge is finding the right information, filling the gaps in information from standard sources, and delivering it at the right time. We spent a great deal of development time getting this part of our product right.
    • To improve understanding of your ROI, engage early adopters and get their feedback on your current features and how to improve your platform. Early adopters are more analytical and passionate than other users. They want to be acknowledged so be responsive to them.
    • Offer a freemium model so that new users can try you out and test your value proposition. If they like what they experience, offer a low cost limited premium model with incrementally scaled pricing for additional features or functionality.
  • Manage your ecosystem. Building a new ecosystem takes a lot of effort and expense. Most small ventures will want to compliment or fit into an existing ecosystem.
    • Existing ecosystems may already be crowded. Small companies have to be able to break through the crowd and be seen. We completed major integrations with Yammer’s Enterprise Social Network and Salesforce.com’s CRM. Your platform will have the most success if you address a gap or unmet need within the existing ecosystem.

You can contact Luosheng Peng at lpeng@gagein.com.

Key Words: Platform, New, User, Ease of Use, ROI, Ecosystem, Business Intelligence, Value, Proposition, Audience, Example, Freemium, Early Adopter, Yammer, Salesforce.com

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How Do You Increase the Strategic Focus of a Board? Four Guidelines

Situation: A company has a board which is uncomfortable with strategic issues. Faced with a strategic decision, they gravitate quickly to tactical issues. What can you do to increase the Board’s strategic focus?

Advice from the CEOs:

  • Change the focus of your Board meetings.
    • Change the agenda of Board meetings. Start with a review of the Strategic Plan and progress toward meeting the objectives of the Plan. Over time, input to the Plan grows as Board members become more comfortable with the strategic issues addressed in the Plan.
  • Develop a Board Charter and annual objectives for the Board as a whole.
    • If you have an individual on the Board who models or nearly models the behavior that you wish to see in the full Board, ask this individual chair a Board subcommittee to work on the Charter. Devote time at Board meeting to discussion of the subcommittee’s recommendations.
    • Develop annual objectives for the Board, including both global objectives and specifically how you want individual members to contribute. Outline your most important expectations of the Board, what you need from them, and ask them to develop objectives to meet these needs and expectations.
  • Start to proactively educate your Board on how they can be most helpful to the company.
    • Gather benchmarking data from similar companies. Educate the Board on best Board practices.
    • Look at the best performing companies in your industry – preferably organizations that do not compete directly with you – and ask to attend their Board meetings as a guest. You may want to take one of your own Board members along. Look for practices that will augment your meetings.
  • Augment the Board with individuals who will help to steer it toward the strategic focus.
    • As you begin to bring the right talent to the Board, recommend the creation of Board subcommittees to work on key strategic areas. At meetings, after the Strategic Plan update, the Subcommittees can formally present their updates to the Board for discussion and consideration. Choice of subcommittee chairs is important to success.

Key Words: Board, Strategy, Tactics, Agenda, Charter, Objectives, Accountability, Best Practices

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How Do You Transition from Product to Business Development? Three Thoughts

Interview with Trevor Shanski, Founder, eWORDofMOUTH, Inc.

Situation: A company with a new lead generation solution is ahead of the curve for their market segment, and ready to transition from a product development focus to a full-scale business development focus. This means developing new capabilities on a limited budget. How have you made the transition from product development to business development?

Advice from Trevor Shanski:

  • The reality of early stage companies is that they live on scarce resources. Founders and early executives have to be able to work for lean base salaries during the learning curve. They will be individuals who have selective characteristics.
    • They will be able to accept conservative salaries near-term, as well as during financial bumps in the road. Their focus will be growing the company’s value and their incentive will be having a material stake in the company.
    • They will have limited outside demands on their time and attention so that they can work long hours.
    • They will appreciate the challenge of heavily performance-based compensation, with the potential to win big if they can deliver.
    • They will have a network of connections and relationships upon whom they can call to gain early business traction.
  • Characteristics for successful early stage executives include the ability to work intimately with the founding team. Early stage companies are idea and capability incubators where things change quickly. Players must be able to get the job done with little support.
  • It is critical to have a clearly defined set of expectations for the first few months as you bring on new executives. Early foci will include:
    • Immersion in understanding the product capability and possibilities.
    • Sitting down with a white board and openly looking at fresh thoughts for how the market should be approached. Founders frequently suffer from tunnel vision after a long period of development and need a fresh outside perspective on the market and messaging. What partnerships could accelerate market development? What knowledgeable experts should be leveraged to build awareness? What potential is out there that the founders are not seeing?
    • After these factors are defined, the next step is to develop an action plan and milestones to guide plan execution, plus a budget and alternatives under different resource scenarios.
    • Once the plan is in place, the focus will be to gain early feedback on the company’s product and capabilities, and then iterate quickly to find the right message to target significant segments of the market.
  • The focus of early stage companies has to be on quickly developing plans, and then executing.

You can contact Trevor Shanski at tshanski@ewordofmouth.com

Key Words: Product, Business, Development, Limited, Budget, Transition, Resource, Scarce, Incentive, Focus, Compensation, Performance, Network, Expectations, Action Plan, Execution

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