Tag Archives: Allocate

How Do You Draft a Fair Partnership Agreement: Six Points

Situation: A CEO is negotiating a partnership entity. Her company will fund the entity, and the partner will earn ownership through sweat equity. How do you draft a fair partnership agreement?

Advice from the CEOs:

  • The most important factor is the ability of the two partners to create a successful venture.  Proof of ability to contribute needs to be a prerequisite to allocating ownership.
  • How does the sweat equity partner prove their capabilities? Create a schedule of milestones for the partner to earn ownership, based on mutually agreed objectives or revenue generation. The beauty of this is that you retain control until the partner has proven their value by delivering results.
  • The potential downside is long-term liability of the venture. The longer that you retain majority ownership, the longer you retain majority liability. Insure yourself against this liability.
  • Buyout clauses are important to retain your interest if the partner fails to deliver. Include a liquidation clause in case the venture fails.
  • While negotiating the agreement draw up a 6-month letter of intent. Specify what each side brings to the table and what each commits to deliver. Set clear, measurable, time-bound objectives. Negotiate fair protections desired by each party. Consider a consultant to facilitate settlement of areas of contention.
  • Theoretically, each party needs their own legal counsel. This adds expense but provides protections for each in the final agreement. Factor the cost of legal advice as well as consultant facilitation into your planning model.

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How Do You Make Time to Plan? Four Points

Situation: A CEO is up all night worrying that things are “too good”. Business has turned around positively in the last six months and she so focused on sales that she hasn’t had time to plan. How and when do you plan for growth? More basically, how do you make time to plan?
Advice from the CEOs:
• Think about the business cycle – the upswing, the peak and the downturn. On the upswing there is a tendency to be so focused on the day-to-day that there’s no time to spend testing the business environment or on long-term planning activities that are critical to sustained growth and success. If the CEO doesn’t take time during the upswing to evaluate new opportunities it’s easy to fall into the trap where planning occurs too late – after the cycle has peaked.
• After the business cycle has peaked, it is too late to take advantage of opportunities that were available during the upswing. Once the business cycle is in a downturn attention shifts to preservation and survival. The opportunity to reallocate resources to build alternative future scenarios has been lost.
• If there is pressure to bring on additional resources to handle the workload, set a timeframe to evaluate the situation – a few weeks or a month – and see if the pressure is sustained. If it is, have a plan in place to secure those resources. Do this with a clear head – not on impulse. Exercise discipline.
• Remember that leadership is the CEO’s job – not being immersed in the day-to-day. A leader keeps others immersed in and focused on the day-to-day.

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How Do You Create a Side Business? Five Suggestions

Situation: A CEO has built a successful company. She is considering creating an additional company, unrelated to the current company but which will enable her to pursue a long-term dream. The second company will be sufficiently different from the current company that it makes more sense for it to be a separate entity. What success parameters should she set? How do you create a side business?

Advice from the CEOs:

  • A number of successful entrepreneurs have been able to do this. Elon Musk is an excellent example. Study the steps that he took as he moved from PayPal to SpaceX and Tesla. This will provide insight into the factors that must be taken into account.
  • For the short term, pursue the dream of setting up the new company. Draft a business plan and seek an angel – perhaps someone that you already know – to get it moving.
  • Fall-back positions are good to have in mind. While looking at options, assure that sufficient time is allocated to pursue the long-term goal. Be aware of and provide the necessary resources to meet the demands of the new entity. Assure that there is a qualified individual to take the lead in the existing company as your attention shifts to the new entity.
  • For your long-term goal, be the Beta subject of the new program.
  • Assure that all of the ramifications of the long-term goal – including financial and quality of life realities – are taken into account and that there is a plan for each.

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How Do You Manage Multiple Products and Segments? Five Ideas

Situation: A company was launched on a single product with variations. Their R&D team has now developed several additional products which they are planning to launch. This will involve new product names and new customer segments. Having not done this before, the CEO seeks advice on managing multiple products, brands and market segments. How do you manage multiple products and segments?

Advice from the CEOs:

  • The most important element is the plan – write it carefully and build from a solid base.
  • When working with multiple products or market segments, match your segment strategy for each segment to your product strategy for that segment.
    • Build a grid that shows all products and all segments where you wish to sell them. In each cell, determine both the decision maker(s) and their top purchasing priorities. This will help you to build your Product/Segment strategy and optimize resource allocation while increasing sales and marketing effectiveness.
    • It may also help you to fire problem customers who cost you money and attention and reallocate these resources to more promising opportunities.
  • Analyze the customer’s decision-making process for each product and segment. Make sure that your marketing and sales effort makes sense within their decision process and focus on what is workable.
  • When introducing a new product or idea, focus first on smaller segments and test the fit of your product or idea. This is low risk if you fail, and you can leverage what you have learned if you win.
  • Build a one-page strategic plan that covers your full company strategy. Each department compliments the company strategy with its own departmental strategy to support the company strategy.

Special thanks to John Maver of Maver Management Group for his contribution to this discussion.

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How Do You Prioritize Demands on Your Time? Six Points

Situation: A CEO is involved in a number of outside Boards and organizations, both because this involvement helps the company, and for personal reasons. Recent changes in family demands are now prompting reconsideration of this level of involvement. How do you prioritize demands on your time?

Advice from the CEOs:

  • List all of your priorities – both business and personal – and the amount of time that they require on a weekly or monthly basis. For non-family activities, rate each in terms of importance both to your organization, and to your heart.
  • Decide how many outside Boards or organizations you are willing to participate in and how many hours of the week or month you are willing to allocate to this.
  • Reduce your involvement in outside boards and organizations so that you get the time commitment down to what you are willing to allocate. Thereafter, to maintain control of your time. If you add a new commitment, drop an existing commitment.
  • Where you have commitments that are important to the company, but lower priority in terms of your own passion, delegate representation to good people within your company. This both maintains company presence and enhances their professional growth.
  • Where you want to terminate involvement let the organization know of your plans in advance, and negotiate a phase out schedule and timeline. They will appreciate your working with them.
  • Consider putting someone between you and your calendar to communicate with those making new requests for your time. This person can say no more easily than you can.

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What’s the Best Way to Allocate a Bonus Pool? Three Points

Situation: A company allocates 10% of pre-tax profit to a Bonus Pool. Employees qualify for quarterly bonuses based on company and group performance, and for semiannual bonuses based on individual performance. Last year not all funds were paid out of the pool because some employees failed to hit performance targets. What’s the best and fairest way to allocate the excess funds in the pool?

Advice from the CEOs:

  • Why not let the pool be the pool? Employees will or will not qualify for bonus participation based on individual and group performance. The company determines who qualifies at each level and these individuals become the pool participants, splitting the full pool in proportion to their level of qualification and their salary.
  • Not all companies will do this based on pay and bonus level policies. For these companies there are options on what to do with unpaid bonus funds in the pool:
    • Leave the funds in the pool for future distribution;
    • Shift unpaid bonus to Retained Earnings; or
    • Retain a percent of the funds in the pool and shift the rest Retained Earnings.
  • Another consideration is whether to use discretionary or metric criteria to determine bonuses. Some companies use only or primarily metric criteria, others use discretionary criteria, and some use a blend of metrics for one portion of the bonus with the remaining portion discretionary. The rationale behind discretionary criteria is to give managers the opportunity to recognize extraordinary contributions that fall outside the normal metrics.

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