Situation: A company founder was advised by her Board to help them hire a CEO with more experience to run the company. This new CEO is now in place. As the founder gains more experience, the Board has indicated its willing to consider her as CEO. How do you transition to a new CEO?
Advice from the CEOs:
Become the fire hose! Build a tight relationship with the new CEO and together build the future strategy that will enable you both to win.
Others will focus on past issues. Keep your approach and advice positive. Position yourself as a partner, not an adversary. Emphasize your supportive and collaborative capacities.
Become the new CEO’s go-to person: trustworthy, objective, knowledgeable, reliable. Nurture the development of chemistry with the new CEO.
When the new CEO asks what needs to be done, produce the plan. Leverage your knowledge and expertise to become his greatest resource.
Enlist the CEO’s support of one or more of the focused strategies that are already in play within the company. Build the support of the Board and focus on boosting company value to 2x sales. The Board won’t forget who produced the original initiatives.
You have more power than you imagine – both with the Board and the new CEO – due to your knowledge of the marketplace and the business. Use it wisely.
While there is a new CEO, the company has already been profitable and company operations are clean. The Board will remember this.
How do you boost the chances to eventually be named CEO by the Board?
Tie yourself very closely to the new CEO – be this person’s more important resource. Build and cement your position as his most important ally within the company. It will help you to gain his support for implementing your ideas.
Segue your relationship with the Board members to become the company’s next CEO.
At the same time, grow your successor within the company so that you will be ready to move up to CEO when the opportunity arises.
Situation: A CEO wants to raise money to expand the company. Target investors will be private equity investors with a minimum investment threshold of $10 million. What are the key points to make in an investor presentation?
Advice from the CEOs:
To demonstrate the company valuation, and the potential increase in value to investors, calculate the EBITDA trend for the last 3-4 years and project it out for the next 5 years.
The valuation is the whole company – not just the investment piece.
Show the increase in exit valuation with and without the target investment. Show impact.
Show revenue and EBITDA on the company’s current trend and what this will become with the investment.
An alternate view: Don’t focus on valuation. The company is profitable and growing. Pitch the plan and the financials associated with the plan. Let the potential investor come back with an investment proposal and terms. KISS – Keep It Simple Silly – take all the risk out.
There are periodic Shake the Money Tree events in Silicon Valley, sponsored by SVASE – Silicon Valley Association of Startup Entrepreneurs. Start attending these.
Ask for advice – not money. There is an adage in Silicon Valley is that if you ask for money you get advice; whereas if you ask for advice you get money.
There’s a subtle difference between the two asks. The point is that potential investors don’t just want to invest money. They want to be involved in the decisions as to how the company spends that money. By asking for advice, a potential investee demonstrates that they respect the opinions and input of potential investors and will listen to them.
Situation: A company has a technology that was developed by but not of interest to a major corporation. The company continues to have significant business ties with the corporation, but the corporation wants to be assured that they are never connected to the technology in question. How do you create a Chinese wall around a product?
Advice from the CEOs:
The challenge facing the company is this: representatives of the large corporation don’t and can’t sell the services offered by the company, however exclusive clients of the corporation represent 25% of the available market for the services provided by the company. To date the large corporation has been unwilling either to reward the company for selling to these clients or to assist them in the sales process.
A solution: show the large corporation that the company provides a higher value or potential value to them than they receive on their existing products.
Show them the potential financial value to them of a symbiotic relationship.
Does the company develop the capabilities and value of the technology on their own, or do they partner with client companies in the market?
Many the potential clients in the market appreciate the technology and want to work with the company in some form so a partnership is possible.
The issue is that an open partnership might offend the large corporation who may then perceive the company as taking advantage of their clients.
How does the company establish a Chinese wall so that neither the large corporation nor the clients who purchase the company’s product are concerned about any activity that the company undertakes in the market?
Set up a separate entity and license the technology to this entity. The company would be an investor and would do some of the work but through a client/service relationship with the separate entity.
Get independent M&A advice on how to structure this entity.
Investigate other companies that have set up similar structures. Determine how they have addressed concerns such as conflict of interest, and what structures they have set up to avoid this.
Situation: A company started small with everyone wearing many hats including the person in charge of HR. They wish to create a more formal HR structure with professional advice, but don’t yet want to hire a full-time HR professional. How do you create HR using outside resources?
Advice from the CEOs:
One company outsources their full HR function. Services include:
Putting records in order and maintaining them.
Developing different hiring packages for different levels of employees.
Keeping the company and employees updated on compliance regulations.
Coordinating on-boarding and training.
There are several national HR and personnel outsourcing companies that can help. Examples include Paychex and ADT. There are also a large number of local providers. Network with your business peers or check out your local Chamber of Commerce to learn who these providers are.
What about training?
Outsourced HR professionals can organize training for formal certifications and some aspects of job skills training.
Training in company culture should be done by company leadership. Outsourced HR can organize schedules for this. The key point is that company leadership is the face of the company and the foundation of company culture. This can’t be effectively outsourced.
In some cases, training can be done via video. Outsourced HR can help to plan and coordinate creation of the videos, and can then schedule video training for new employees.
Have your in-house person join an HR roundtable to embellish their own training.
A small company has need for legal advice, but is unsure how to properly utilize a lawyer. Legal costs have gone up over the last decade, so expense is one concern. Another is a desire to understand how to form an effective relationship with a lawyer or law firm, and how to effectively manage billable hours. Bottom line, how can a lawyer help you meet your business goals?
Advice from the CEOs:
First, seek the counsel of a firm that specializes in small businesses. Just as you would seek a specialist physician to treat a serious medical condition, SMBs are best served by corporate lawyers who understand how they are different from large corporations and who can advise them at a rate and under an arrangement that fits their financial situation.
Schedule regular “off the clock” lunches and conversations with your lawyer. The ideal lawyer for smaller companies serves as an “outside counsel.” Your outside counsel is essentially your legal quarterback and should be willing to meet with you off the clock to discuss general business needs. Of course, as a courtesy to your lawyer, if your conversation starts getting into areas where you are receiving legal advice you shouldn’t expect free advice.
Know what to ask your lawyer versus what to ask your auditor and tax specialist. Each has a separate and distinct domain.
Trust your lawyer – or find a new lawyer. The best legal relationship is when your lawyer is treated as a member of your team. Sharing the business context aids your lawyer in advising you.
There is no need to overspend on lawyers, but you do need to assure that you spend for what you need. A good relationship with your lawyer can help you to walk the line where you are spending appropriately.
Special thanks to Deb Ludwig of DJL Corporate Law for her contribution to this discussion.