Situation: A company has developed a disrupting technology that allows OEM manufacturers to produce high-end machines at a fraction of their current cost. The challenge is that the company does not possess the capacity to reach producers of high-end machines. The CEO seeks advice on how to efficiently focus channel development. How do you build channel sales?
Advice from the CEOs:
The dilemma is having a major disrupting technology in a market with a strong division between OEMs servicing the low/medium-end market and those servicing the high-end market.
This technology collapses the division between the low/medium and the high-end markets.
This shift disrupts the current business models of either group of OEMs, as well as their technology development plans. This is the source of resistance.
Therefore, the most promising channel development partner is either:
A low/medium-end OEM who is also a disrupter and who has the capability to develop a high-end sales and marketing effort; or
A high-end OEM that knows the market but who’s current strategy is failing and needs an entirely different solution to revive their prospects.
The near-term task is to gain market capability – both manufacturing and marketing/sales – and to use this capability to gain early market acceptance.
If, over the next 12 months, the company can begin to impact the market shares of the high-end OEMs, this is the surest way to gain their attention. Once the company starts to gain share, a likely outcome is that one of the high-end OEMs will buy the company to lock up their IP.
Another company used a similar strategy several years ago.
They entered a new market by way of a business collaboration with a high-visibility partner.
In one year, they took 30% market share from the market leader through this collaboration.
As a result, the market leader bought them because “it was less expensive to buy you than to spend the marketing dollars that we would have had to spend to compete against you.”
Situation: A CEO is concerned that the current management team is not mature enough to support planned growth. Sales skills are necessary to start an office, but there is a wide range of business acumen and people skills among the managers. How do you develop current managers to support growth?
Advice from the CEOs:
Company policy requires manager candidates to demonstrate competence in at least three of five areas: sales, technical skills, customer management, customer management, and business acumen. A coaching or mentoring process from senior management would be beneficial.
A minimum number of clients is required to start an office. There are important differences in the skills needed to grow and sustain an office. More evaluation of the managerial skills of manager candidates will help.
Another CEO shared story of a regional office with a manager who was technically competent but had poor business development skills. This created a growth issue. Clear, mutually agreed upon, written goals helped. Office growth requires good administrative performance as well as technical or sales skills.
Frequent group meetings with managers and a deliberate agenda help. There is merit in allowing the field people to contribute to the agenda, having a “round table” type of review, and peer dialogue. In addition to current individual weekly telephone conversations and quarterly operations reviews, there is an opportunity to modify the format.
Sometimes there is a double loss in taking a good individual contributor and making them a poor manager. For example, of a good salesperson may turn out to be a bad sales manager. The transition may not play to the person’s strength. A more rigorous selection process will help.
Another CEO shared a story of one of his plant managers who reached the limits of his competency and could not continue to grow the plant. He was moved to a support position and a new plant manager was hired. The former manager found new satisfaction in the support role and was successful sharing his knowledge and skill with the new manager and a broader audience within the company.
Situation: A CEO has had to shift half of the company’s employees to part-time due to reduced business. This has hampered new product development. The situation has been exacerbated by slow payments from customers. Where should you focus for the next year?
Advice from the CEOs:
The company has a lot going on. Validate the company’s market potential for products in development, and start gearing up the marketing program so that it will impact this and next year’s sales.
Get a feel for how many customers want the new products in development. Invest in some market research to validate this.
The bottom line is that product development only pays if the company can sell a lot more product! The team needs to know whether customers for the new products exist, in what numbers, where and who they are, and their most critical needs. Without this market intelligence, the company is in no position to tell whether there is a market, nor is the company prepared to address it.
Assume that there is a market, that it can be quantified. Once the company knows who and where the customers are and knows their most critical needs, the next step is to prepare to attack this market. This is not something that is done in 1-2 months, after the product is ready to sell. The company needs to be starting now if marketing is to be initiated in 6-8 months.
Past practice has been to split R&D costs with the customer. The company has the expertise, the customer the money – this is close enough to 50/50. There is no need to show them the numbers. R&D should not be funded through future sales but should be making money now.
One project has been taking so much attention that it is hobbling the company. The company is so focused on getting this “just right” for the customer that sales and market development have been neglected.
For the next 3 months, focus on completing this project, getting it out the door, and getting the company’s focus back on growth. A sense of urgency is needed!
Situation: A CEO wants to increase awareness of company products and services. They have a strong customer list and a long history of successful projects. How to they increase awareness among potential customer decision-makers? How do you boost awareness of your products and services?
Advice from the CEOs:
There are three stages to a good awareness strategy:
The company already has great products and services. Hire a quality PR Firm and have them highlight this for company trade shows, blogs, YouTube, etc.
The objective is not broad awareness but getting to specific decision-makers – what will get to them?
Generate broad awareness of company capabilities through entertaining videos to excite the team members of prospect companies who report to the decision makers.
This is a complex strategic sell. If recommenders think that the company’s stuff is cool they will pass the word – create a campaign to encourage this.
The priority is to close more business. Why not brand or co-brand and promote the company’s products? This may ease reaching the target decision makers.
The PR advice is good – but how will this play to the crowd that’s writing the check?
What makes current customers comfortable working with the company? Is it repeatability? Credibility? Creativity? Referenceability? Decide which it is and highlight it.
Everything that the company is doing on the “cool” side falls under the marketing strategy. Efforts in PR and sales must support this marketing strategy.
Consider a campaign on YouTube – How do the parts of “Sally” work? How did we design it? This attracts a smaller audience, but it may be the right audience.
Within company capabilities, there are two distinctions to clarify – both are important but require different emphasis:
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 is facing the expiration of the principal patent for its main product. There are subsidiary patents which still have life. Currently, there are no competing products, but several companies understand the technology. How do you plan for patent expiration?
Advice from the CEOs:
Think of this as a two-step process:
Step 1 – Step back and look at what the company has:
Patents – including the claims that have been awarded on all company patents.
Facilities – capable of manufacturing current products, but also additional products, perhaps with a minimum of additional equipment.
People – competent staff running manufacturing operations, and tight office operations.
Step 2 – Loot at where the company could go and evaluate the markets where the existing technology is applicable:
Work with outside, imaginative people who can take a fresh look at the options.
Looks carefully at the claims in all the company’s patents.
What do they cover?
Is there an opportunity to extend current claims through process patents?
Caveat: a company can file for a process patent on anything that has been for sale on the market for less than a year. However, if they have been selling a product covered by this application for more than a year, they cannot.
Look at other markets – companies that could license the company’s technology, or with whom the company could partner to provide new consumer-oriented products:
Is there inexpensive, affordable equipment that would enable the company to produce additional products in the current location?
Think outside the box: what business is the company in? Think more broadly than the current market about where high value opportunities exist. These can be low to medium volume, high price/margin or high-volume lower price/margin.
Patents are not the only protection – trade secrets also work. 3M’s primary IP strategy, particularly on their adhesives, etc. is through trade secret – both for low and high-volume products.
“Product” patent extensions have limited utility. They are easy to design around. “Process” patents have more utility. These can be licensed at low cost per application in high volume applications and provide a nice royalty reserve stream.
Situation: A CEO perceives that the company has a conflict between performance and planned timelines. Of concern is performance against key metrics like pipeline performance and closing new business. A sense of urgency isn’t present. How do you create and communicate urgency?
Advice from the CEOs:
Management knowledge of company financial status and performance against key metrics – particularly key drivers like pipeline performance – is critical to their being able to assist the company.
A company decision to focus on project profitability may have the unintended consequence of exacerbating the lack of urgency. If revenue growth lags, the only option for managers who are tasked to hit a profitability target is to cut expenses. This delays projects and can negatively impact morale.
Accountability comes from meetings. Not 1-on-1 meetings but team meetings. Peer pressure is an important component of accountability. Nobody wants to be the individual who is consistently behind on projects or initiatives.
The challenge may be more external than internal. When business closes more slowly then everything else slows down: hiring, new development, investment and profits. All of these are driven by new business acquisition.
Another CEO has same issue with her contracts. All contracts include a timeline. If work or deliverables slip, the customer wants to slow down delivery and billings. Her solution is to include stop work and delivery delay fees in the contracts.
What actions would others take to address this?
Institute progress payments. For example, instead of charging 50% up front and 50% on contract completion, shift to, for example, 50/30/20 with the 30% due on completion of project framework. This way, only 20% can be delayed due of customer timing issues.
Built financing into total pricing. The customer is free to delay projects, or aspects of projects, but there is a charge calculated into delayed delivery which covers the cost of money and additional management.
Situation: The CEO of a start-up software company focuses on connecting potential parties to business opportunities. Early signs are that this offering has legs and potential parties have responded positively. The critical question for the CEO is how best to turn interest into revenue. How to you monetize your business model?
Advice from the CEOs:
The first step is to segment the audience and determine both the potential for each segment to both benefit from and fund the service that they receive.
Individual contributors may not have a lot of financial resources but may be interested in participating as employees or providers of expertise or services. They also may know others and can spread the word.
Collaborating organizations may be able to offer both funding and services to help build and sustain momentum.
Companies have funds to support the effort provided they see value to their bottom lines as a result.
Suggest a fee or contribution for services from companies who will benefit. Provide guidelines or a sliding scale of fees depending upon duration of services provided to the company. Make it clear that moneys earned will be reinvested to increase the range and depth of services offered.
Suggest a sliding fee scale for individual contributors based on the financial benefit that they receive.
For companies and collaborating organizations offer levels of membership or recognition for support based on benefit received.
For all segments – start with small, timed fees and increase these as the model proves its benefit to them.
Situation: A service company has developed the capacity to produce and sell a product. The CEO is considering two options for this new opportunity: create a separate entity for the new business or run the businesses in parallel under the current umbrella. How do you best exploit a new opportunity?
Advice from the CEOs:
Option 1: Create separate entity for the new business while the existing business continues in parallel.
How big is the potential win? The current company competes successfully for about 10% of the market. The new capability would allow the company to potentially compete for 100% of a larger market.
How different are the two opportunities? The current business requires specialized talent – it is a low volume, high margin business. The new opportunity is the reverse – high potential volume but lower margin. It is a more generic market with fewer specialized needs.
The separate entity option provides the most flexibility. The current model already functions well. A spin-off provides an additional option without losing what already exists.
Bring in another individual to develop and run the new entity. It’s a different game and requires a different focus. However, it will be a great opportunity for the right person.
The spin-off model will be more sustainable under separate management than under the current company.
Option 2: Operate both businesses under a single entity.
This option looks like a double compromise – it alters both the company’s current strengths and the fundamental business model.
A long-term alternative is to look for a financial acquisition for the current company. It produces good net margins, has good cash flow, a and spins off cash. This can be valuable to a financial buyer.