Situation: A CEO is in conversation about combining with another company. One option is for the other company to absorb his company. What are the pros and cons of this option? Are there other options that will better serve both owners and employees? How do you improve a business model?
Advice from the CEOs:
- The company has a great model today. The option under consideration looks like a double compromise – it alters both the company’s strengths and its fundamental business model.
- The company’s strength is lean and mean – moving from a hourly/fee-based model with high utilization to a salary-based model, as the option on the table proposes, will change this. It also changes the dynamics of who will work for the company.
- The magic of the current model is that it attracts top talent by offering them the best of two worlds: high individual billing rates with ready access to billable hours. Over the long term this has also made it very profitable.
- Explore an alternative – how does the company transform its existing business model while retaining its strengths – lean, mean, low overhead – while transforming the model so that it builds “products,” perception, and recognition for the company?
- A longer-term alternative is to look for a financial acquisition of the company. It has good net margins, good cash flow, and even spins out cash. This is valuable to a financial buyer.
- What is the role of the CEO right now? Another CEO was asked “Do you have a job or a company? What happens if you leave? If the company dies, you have a job. But it may not be necessary to change much to become a company.”