Tag Archives: Communication

What Do You Gain by Buying Out a Co-founder? Six Points

Situation: A CEO founded his company with a long-term friend. For several years, this co-founder has contributed little and has proven to be difficult with key employees. In an important sense, the co-founder has become a distraction. A challenge is that the co-founder is a significant shareholder. What do you gain by buying out a co-founder?

Advice from the CEOs:

  • First and foremost – peace of mind. While the CEO and his allies control a majority of shares there is no guarantee that this remains the case. Long-term it can cause headaches to have a large block of shares in the hands of someone who could be hostile. The challenge is gaining control of a solid majority of shares at a reasonable price.
  • How is the value of the co-founder’s shares determined?
    • In most minority interest situations, minority interest is discounted because it is of limited value to a non-company purchaser. While it may be necessary to pay a premium to gain controlling interest in the company, this will be a premium over the discounted minority interest value, not over the fair value for all shares.
  • There are two aspects to a purchase: price and terms. It is acceptable to accept the co-founder’s price, but insist on favorable terms, e.g., 10 years to pay at 5% interest.
    • Set the terms so that the company guarantees the payment, not the CEO personally.
  • At this point the co-founder is a disruptive force within the company. Act now before more damage is done.
    • As to order of business, take action with respect to the co-founder first, then negotiate the purchase of his shares after he is no longer an employee.
    • Be sure to communicate the decision effectively to the other employees. Speak to the long-term strategic value of the company, the CEO’s vision for the company, and a determination to build the company into a viable entity with a range of customers and growth opportunities for the team.
  • Important steps as you move forward:
    • Have a plan.
    • Speak to an attorney – the company should pay but this is the CEO’s attorney, not the company’s attorney. Assure that as CEO you limit personal exposure and do things appropriately.
    • Assure that the employees understand and support this action and that they clearly understand the plan going forward.
    • Offer the co-founder a more generous severance package than would ordinarily be considered prudent.
    • Fire the co-founder as soon as plans are in place and announce a Board Meeting 30 days hence to discuss the management restructuring.
  • As a final note, this is one of the most difficult things that must be done by a CEO. The co-founder has been a long-term friend. Nothing about this is easy. It is likely to get more painful before it gets better. In the long run, however, this can be better for both individuals. Work toward that objective.

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How Do You Prepare for Sale of the Company? Six Points

Situation: A company’s founder and CEO wants to sell the company. The company’s software is well-suited to current governmental priorities and should be of value to potential buyers. What are the best steps to take both to prepare for a sale and to sell at the highest price? How do you prepare for sale of the company?

Advice from the CEOs:

  • Add a person with connections to potential buyers to the board.
  • Look for an M&A specialist who knows the company’s market.
    • The right specialist will help validate the valuation of the company, review and identify potential purchasers, and make the inquiries that will lead to the sale of the company.
  • Investigate M&A cases in the industry and related technologies – both cases of firms like the company and cases of companies that may be suitors to determine their purchasing behavior.
    • This will help develop strategies to maximize the value of the company and the optimal bargaining position and will help prepare for negotiations.
  • Maximize the value of the company in preparation for the sale.
    • The fastest business growth may come from within the company’s current customer base – additional business customers where the company already has contacts.
    • Work up the food chain within existing customers to increase the company’s business within these companies.
  • Important preparations for a sale:
    • Assure that financial records are very clean. These are critical during the price-setting process and in negotiating the final price.
    • In computing company valuation, exclude the salaries of current principals to improve the income statement. These individuals will be replaced post-sale with lower-paid employees.
    • Continue to operate the company as though there will never be a sale. This maintains the value of the company regardless of what happens.
  • How open should be the company be – internally and externally – concerning a potential sale of the company.
    • Be as honest and open as is prudent. The biggest concern will be salespeople who may leave the company if they feel threatened by a sale, or who may stop selling because they do not want to try to explain the situation to prospects.
    • The other “at risk” group is developers, who may fear that they will be replaced or terminated following a sale and who may leave.

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How Do You Change the Company Structure to Support Growth? Ten Points

Situation: A CEO is concerned that her current company structure may not be set up to support envisioned growth. She is not sure how to differentiate managers from developers. She also seeks guidance on how to evolve the CEO role. How do you change the company structure to support growth?

Advice from the CEOs:

  • How do you differentiate and select managers versus developers?
    • Use an organizational development process to facilitate this selection.
    • First, outline the organizational structure that will evolve as the company expands. Share this with key staff and listen to their input.
    • Next, with key staff, determine the metrics. For example, what revenue or net profit before tax milestones will trigger the addition of managerial staff.
    • For each managerial position create a position description and a list of talents and skills that a candidate for that position should possess. Review these with staff and adjust with their input.
    • Let the company know the plans for the organization, and the positions that will be created as the company hits the milestones that will trigger growth. This will prompt anticipation of the opportunity and professional growth for staff that will accompany expansion.
    • Schedule a 1 or 2-day planning meeting with staff to discuss how to develop and improve both the organizational structure and operations. Continue this discussion in staff meetings at least quarterly.
  • The CEO’s role within the company.
    • The first question to ask is “what do you enjoy?” Is it being CEO, or is it leading the development teams? These are different roles.
    • Look at immediate needs. If the CEO is doing the books, it may be time to either choose or hire a COO – someone who can handle accounting, HR, and all the back-office functions.
    • Up to this point, the company has had a flat organization. The difficulty with this is that the first real crisis will take up so much CEO time that the company will fall behind in key areas currently overseen by the CEO.
    • Maturing the organizational structure is the right way to go. It will remove CEO from a “doer” role and allow the CEO to take the “leader” role – moving from working IN the business to working ON the business.

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How Do You Manage Succession Planning? Seven Considerations

Situation: The founder and CEO of company needs to find a successor. She is ready to reduce her role but wants to assure the ongoing operation and future growth of the company, as she will remain the principal shareholder. How do manage succession planning?

Advice from the CEOs:

  • Options for management succession and growth.
    • One option is to create an employee stock option plan (ESOP) to expand ownership of the company and to help recruit new managers to support growth.
    • A second option presented itself through a broker who has approached the company to help them find a buyer for the business. The broker suggests finding a customer who is a potential buyer and also the right fit.
    • A third option is to purchase a smaller company with a good CEO and then do an ESOP transaction to allow the CEO to reduce her role while providing new incentives for management.
  • Options for maintaining continuity of the business.
    • The CEO has identified an individual with the background to lead the company and identify the talent to fill key roles.
    • In addition to a leader, what other key roles must be filled? Look at the current and planned organizational charts. Determine which roles must be filled, the order of priority to fill them, and management succession plans for each.
  • When and how should the CEO’s plans and options be communicated to staff?
    • One approach is to say nothing until either a successor has been identified or an actual deal is in place. This will avoid unnecessary disruption that will accompany and news of the plans.
    • On the other hand, if an ESOP is the option, let current staff know early, along with anticipated specifics of the ESOP Plan.
    • It is best to be straight with staff once the timing has been determined. Complement disclosure of plans with assurances that the change will be good for staff and that there will be financial incentives for them to remain with the company.
    • Be sensitive to what drives and motivates staff – build this into plans to inform them of what is happening.

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How Do You Shift Culture as the Company Grows? 12 Challenges & Countermeasures

Situation: A company has grown through its expertise consulting for other companies. For its next growth step the CEO and Board want to shift to a project basis. This entails several changes, from compensation to organization and focus. How do you shift culture as the company grows?

Advice from the CEOs:

  • Risks & Challenges
    • Biggest risk – dissatisfied employees who see less billable income per hour and may not see the “more hours” part of the picture.
    • The biggest personnel challenge will be those who have been with the company for many years, and who will see the most change – maybe not to their specific practices if they can bring in business, but on the project side.
    • Communication is a critical challenge, and also the best way to avoid landmines. Put a velvet glove on the presentation of the opportunity: “This is good news – we know that the low hanging fruit is now mostly gone, and that the remaining fruit is higher; to counter this we now have more options.” Carefully prepare communications to both management and consultant team members.
    • Another potential landmine – the impact on the company’s reputation if it blows up after a year. Set appropriate expectations – the company is introducing a new program rather than a wholesale rebranding.
  • Countermeasures to Mitigate the Risks
    • Maintain a structural option that preserves the old model for those who can bring in new projects and who prefer this model. For them, the new model is just an option that can help tide them over if there are gaps between the projects that they bring in.
    • Present the project option as new opportunity. Give more senior and experienced consultants priority in choosing whether to participate or not in new project work.
    • Plan and create the ability to assess the old consultancy model vs. the new project model. This will be especially important when individuals are spending part of their time in each area.
    • Create a set of metrics for each business – the consulting and project businesses – to measure whether they are on track. Identify and monitor the drivers for each business.
    • Keep the title Consultant on consultants’ business cards – Consultant, Sr. Consultant, etc. Allow them to continue to take pride in their role.
    • Move to the new model through a planned phase-in but retain the option to adjust the speed of transition between the old and new models. This will allow sensitivity to changes in the environment.
    • Don’t consider an immediate and complete rebranding – think in terms of introducing a new product under the company’s well-known brand. Plan a gradual transition of business to the new model. Introduce the new product as a new offering. As it picks up steam, gradually move brand identification and promise to the new model.
    • For the new project model, create incentives for project performance. Show team members that while the hourly rate may be less, if they perform as a team they will share the upside through project bonuses.

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How Do You Create an Incentive-based Compensation Plan? Seven Ideas

Situation: A CEO wants to build additional incentives into the company’s compensation plan. The objective is to add group incentives to the pay mix – to focus more attention on group performance rather than just company goals. How do you create an incentive-based compensation plan?

Advice from the CEOs:

  • The best policy is to be upfront, open, and transparent as the plan is presented.
  • Communication is the key to success, including the following bullet points:
    • Pay starts at a base which is 75th percentile – a generous base in our industry.
    • Group bonuses, which reflect the results of the group’s efforts, allow you allow to reach the 90th percentile or higher.
    • On top of this, profit sharing enables the addition of 10-20% of your base.
    • Altogether, management thinks that this is a generous package. The difference from the old system is that employees will be rewarded for making decisions which will benefit the group as well as the company – and you will be generously rewarded for this.
  • Once plans are communicated to employees 1-on-1, reinforce the message with a group presentation and open discussion at monthly company meetings.
  • Consider: significant changes in compensation may be best taken in small rather than large increments. Start with small incremental adjustments. If these are effective proceed to larger increments on a planned and open schedule. This is particularly true if the historic culture has been that we all win or lose together.
  • A downside of rewarding by team is that some will get rewarded for producing minimal results. Consider some percentage of discretionary payments to recognize and reward effort instead of pure parity within the team.
  • Consider longer-term results within the payment scheme – not just quarterly results.
  • People need to know that they are accountable. Let them know that a 75% base is reasonable but that the significant rewards will be for producing results above this level.

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How Do You Implement a Process Change? Six Suggestions

Situation: The CEO of a service company is concerned about lost income from uncaptured billing. He has identified the cause – failure to capture extra hours that haven’t been billed – but is struggling to get employees to monitor this more effectively. How do you implement a process change?

Advice from the CEOs:

  • The group presented two options for growth: bring in experienced outside people to develop additional systems to run the company, or a hybrid model using internal resources, augmented with outside expertise.
  • Bring in Experienced Outside Resources: Hire an experienced outsider with a track record in your industry to design and implement the needed systems.
    • Pros for this solution: the outsider will bring a fresh vision and new energy, plus the experience and know-how to make the desired changes.
    • Cons: impact on current business culture. This may generate resentment among employees who can no longer make decisions on the spot and may remove a path to management for existing staff. Possible negative impact on customers who receive larger bills due to change orders.
  • Hybrid Model: Outside person creates model and trains employees to implement it, then monitors the system and progress long-term. The key is to change expectations and behavior within the team.
    • Pros for this solution: more opportunity for current employee participation; involves employees in the design of the system, providing better buy-in to the solution.
    • Cons: as with any change, this won’t provide the full expected return. Just the fact that things are being changed impacts the efficiency of implementation. Unanticipated blocks and resistance may hinder progress – don’t be surprised by this, it is predictable.
  • Implement SOPs that facilitate rapid response to change orders – starting now and with whichever option is chosen.
  • Generate a pick list of all possible change orders with pre-calculated costs to guide employee choices and keep customers informed.
  • Whatever solution is chosen, be sure to communicate frequently and consistently with employees to facilitate the change.

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How Do You Boost Company Morale? Five Suggestions

Situation: A CEO is concerned that her #2 is being challenged by others in the company. An option is to hire a technical project manager; someone who carries the CEO’s authority and who can get things done. What are the obstacles to achieving this? How do you boost company morale?

Advice from the CEOs:

  • The technical project manager must have a non-threatening role – they shouldn’t challenge the technical skills of the developers. The role is to oversee schedules, progress, and to resolve barriers – both technical and personal. The job is to get things back into shape.
  • While the business involves highly technical software, operationally it is people centered, not software centered. People centered means a team that collaborates and supports one-another. The important questions are:
    • Where do the needed people skills come from?
    • How do the model and reality transition to a people centered business?
    • Look for someone who can nurture talent. People skills are more important for this role than technical skills, with the caveat that individual must be able to understand technical challenges.
  • An option is a 3rd party within company to straighten this out.
    • “COO” Responsible for Technical Direction – title is important because it conveys respect.
    • The CEO’s voice and ears.
    • Run weekly meetings and is the go-to person when the CEO us traveling.
    • The focus is to manage the primadonnas and keep them focused on their jobs instead of on interpersonal conflicts.
    • This role focuses inwardly on company vs. the CEO who focuses outward on the broader vision, key stakeholders, etc.
  • The bottom line – this is your company, your vision. Make it work. The task is teaching maturity – learning to give rather than worrying about making a name for themselves.
  • Have regular lunches with each of the developers and have frank conversations with them. What’s up and what’s wrong? Listen and let them air their concerns. Talk them through these concerns, but make sure that they understand that the CEO sets the direction both for the company and the boundaries of acceptable and unacceptable behavior within the company.

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How Do You Maintain Company Culture in a Merger? Four Suggestions

Situation: A US-based company is in the process of merging with a foreign company. The US company has multiple locations across the US, and there are cultural differences between these locations. The CEO has worked diligently to mitigate these differences. The foreign merger presents new challenges. How do you maintain company culture in a merger?

Advice from the CEOs:

  • Between some of the US locations, there has been a “we make money, but you spend money” perception. How did the company get past this?
    • The company adjusted metrics to demonstrate the contribution of each division to short and long-term profitability.
    • This information was communicated selectively to key opinion leaders within the company.
    • Use the lessons from this experience to plan post-merger communications and protocols that will contribute to team integration post-merger and improve the chances of merger success.
  • Focus on the common vision and interdependency of the teams. This accommodates differences in culture and encourages teams to appreciate each other’s contribution. Use the same technique during the merger.
  • Have lunch with CEOs of other companies that have been bought by foreign firms. Learn how they adapted to the new reality. Ask what worked or didn’t work. Seek specific details of solutions that were developed that could be applicable to the planned merger.
  • Become better educated on business culture in the country of the company with which you will merge. Seek experts who can give seminars to company employees on what to expect and how to work most effectively with workers and executives of the foreign company.

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How Do You Incentivize Employees to Document SOPs? Six Observations

Situation: The CEO of a specialty component company wants to standardize documentation of company procedures covering sales, production and ISO documentation. This will take time and effort, and employees are concerned about accountability for poor results. How do you incentivize employees to document SOPs?

Advice from the CEOs:

  • Are employees are being asked for accountability without being empowered or rewarded for performance? Currently, there is nothing about employee performance that is directly tied to:
    • Longevity,
    • Dollars in raise, or
    • Share of the bonus pool.
    • Everything is determined at the CEO’s discretion.
    • Why would anyone want more accountability if they feel that they have little control over their jobs or future at the company?
  • To increase accountability and drive, employees must be given control over the factors tied to retention, pay and bonuses.
  • To create an effective system for employees to document standardized SOPs they need:
    • Incentives that are under their control to achieve the objective – creating standardized SOPs.
    • Objectives that are achievable with clearly stated rewards for performance.
    • Performance evaluations tied to clearly stated objectives, discussed with and agreed to by each employee, which drive raises, bonuses and rewards.
    • The messaging about these changes must be delivered with energy and passion. Employees must feel excited by this opportunity.
  • Understand that this may cost 10-15% in increased overhead but will boost the value of the company way beyond the cost.
  • Employees need to know the vision for the company and must be empowered to achieve the results to fulfill this vision.
    • The why behind the desire for standardized SOPs is just as important as the incentives created to achieve them.
    • The why must be clear, simple, and must be understood by the employees for everything to work.
  • To further motivate the team, involve them in designing the incentive program.
    • Ask what they want. Maybe it’s something as simple as a fun day with the team.
    • If they aren’t asked, the danger is that they will not respond to the incentive offered. Money is not the only, and in many cases is not the most effective incentive.

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