Tag Archives: Company

How Do You Find the Right Funding Source? Six Solutions

Situation: A company is short of cash and needs a source to fund their cash flow needs. Their needs are mapped out for the next four years and they can fund current operations for a few months. However, their bank will not extend their credit line. How do you find the right funding source?

Advice from the CEOs:

  • Try another bank. Ask friends and contacts about their banks and see if they’ll refer the company to their bank.
  • Explore renegotiating the company’s lease to ease the cash flow needs.
  • Explore renegotiating payment terms with suppliers. See what can be worked out. The bottom line – if the company goes Chapter 7 or 11, they get nothing.
  • Consider going to a larger company and working out an arrangement.
    • Ask that they allow the partners to operate as an “independent” entity retaining their titles.
    • In exchange for funding the company’s cash needs, the larger company shares in the profits.
    • Seek a temporary arrangement to allow the company can get back on its feet financially.
    • Use the friends and reputation that the company has developed over the years. The company is a good outfit and respected. Others may help if asked.
  • A similar tactic is to approach a larger company to negotiate an arrangement that will allow the company to survive. Start with a business plan.
    • Highlight the company’s reputation and the quality of its products. Use references from highly satisfied customers.
    • Highlight the company’s key strength – developing the critical path and plan for a successful project.
    • The thrust of the presentation: the partner gets a quality team and shares in the profits from projects completed. The partner provides the cash to fund the projects. Compare the risk and return on these funds compared with other investment options available to highlight the value of the proposal.
  • Other CEOs shared similar situations that have worked for them.
    • The financial realities were kept secret from staff, customers, and competitors.
    • All unnecessary expenses were cut.
    • The focus was on making money today.
    • Supplier payments were delayed as necessary to manage cash flow.
    • The process was managed creatively, sometimes with the assistance of friends, and the companies were able to prevail.
  • There is no shame in facing and dealing with this problem. Determination will pay off.

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What is the Best Way to Utilize Excess Year-end Cash? Three Perspectives

Situation: A company has excess cash at the end of the year. Options are to distribute the excess in bonuses following a challenging year, or to invest in the company. Two questions: how should the company structure a bonus distribution, and how would the company best invest the excess cash? What is the best way to utilize excess year-end cash?

Advice from the CEOs:

  • Evaluating bonus options.
    • One company uses a published step-function bonus program, with the steps tied to company profitability, and performance against individual objectives.
    • Include evaluation and scoring on company core values as part of the overall performance evaluation scheme.
  • What’s the best way to utilize the current cash surplus?
    • Use the current surplus to reduce debt or invest it in the future of the company. Build value. Retained earnings are fine even if the company’s accountant is concerned about tax consequences.
    • Consider purchasing life insurance, or other tax-favored deferred-compensation for partners and key employees. Cash bonuses get spent by recipients, whereas tax-advantaged deferred compensation programs build future value for the team.
    • Consider using the excess cash to buy the building.
      • The company can afford a sizeable down-payment.
      • Negotiate a favorable purchase price at a reasonable interest rate.
      • Doing this, monthly lease payments become monthly payments toward ownership of the building and additional value for the firm.
      • Consider purchasing the building under a separate corporate entity, even if ownership of this second entity is identical to current ownership. This may create tax advantages.
  • What do company owners keep in pay versus investing in the future?
    • Keep the cash needed to run the company, plus a bit. Focus on securing the long-term value of the company.
    • “If you take care of the company, the company will take care of you.”
    • If excess cash is invested in the firm, assure to retain long-term access to the value invested. There will be times when the company will need the cash.

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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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What Are Good Metrics for a Service Company? Four Recommendations

Situation: A service company has been debating internally about which metrics they should use to evaluate company performance. This is important because it ties both to strategy, marketing, and bonus compensation. The CEO seeks advice based on the experience of others. What are good metrics for a service company?

Advice from the CEOs:

  • For a service company the key goal is delivery of a consistent quality product/service to the customer – as a company rather than as individual performers.
    • Instituting regular activities or meetings to infuse the company’s “special sauce” to projects will help assure consistent quality of service delivery.
  • To generate support and consensus within the company, ask employees what they would do to develop metrics to assure delivery of quality.
    • Have a clear view in mind of what the metrics should achieve – the result rather than the fully detailed process – before initiating this exercise and articulate this result as the desired objective.
    • Remain open to ideas from the group.
    • Use the exercise to establish a shared vision and to generate the best possible set of metrics to support the desired result.
  • Once both the metrics and a methodology for delivering the result have been selected – for example, weekly performance review meetings if this is the answer – then institutionalize these. It may be best to start with a “trial process” to refine details of the process.
    • An efficient regular process review meeting may save the company more than the 3 hours that it takes (preparation + travel + meeting) for this process.
    • If there are many “islands” of employees working at different company locations, consider organizing meetings into geographically convenient archipelagos.
    • Establish, within the service review process a “patented” company process that focuses on quality delivery. Publicize the existence of this process (not the details) when speaking with existing or potential clients. This is a key part of the company’s essential differentiation and “value add”.
  • Establish a definition of quality for the company.
    • Develop this as the company’s vision.
    • Develop the methodologies to consistently deliver this quality.
    • Long-term, drive this to professional training systems to consistently produce this quality.

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How Do You Mitigate Temporary Loss of Personnel? Five Points

Situation: The CEO of a small company is concerned that the loss of a key individual could seriously impact operations. Alternatives include adding an assistant to the affected department or cross training another individual who could serve as a short-term back-up in case of an absence of 2 weeks or more. How do you mitigate temporary loss of personnel?

Advice from the CEOs:

  • In cases like the current pandemic, planning for multi-week personnel absences is essential. Though systems are documented, subtleties of key jobs may not be documented. This is where cross-training becomes an important alternative.
  • Train another employee as a backup for the person in question and refresh the training every 2-3 months. If the company runs into an emergency due to short or longer-term loss of an individual, hire a replacement for the individual and have the individual who is cross-trained train the replacement.
  • Have the key individual and the individual who is cross training refine the ISO 9000 documentation as the key employee trains the back-up individual. This will assure that ISO 9000 documentation is being updated regularly.
  • Establish a plan with appropriate procedures that all positions must have a back-up. Include this within the company’s personnel procedures.
  • Rewarding the key individual with a bonus for selecting and training his or her back-up is the wrong thing to do. It’s both the wrong incentive and the wrong reward. Training a back-up is an essential part of each key employee’s job, not a special task that deserves separate recognition or reward.

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What is the Best Way to Roll out a Business Opportunity? Six Suggestions

Situation: A CEO is reviewing options for introducing a new offering. The target customers are small companies or projects within larger companies. The offering includes both an initial product and follow-on services. Education or training will be a component of the offering. What is the best way to roll out a business opportunity?

Advice from the CEOs:

  • It is best to position the offering as a straightforward proposition at launch and develop proof of concept. This will provide experience and an income stream to fund more complex offerings based on the initial model.
    • It will also provide insight on how to sell the product and service in different markets – manufacturing, service, and software.
    • Leverage this experience to pursue more complex models.
  • Build a portfolio of case studies before pitching to paying companies.
    • Use companies with whom relationships already exist as the proving base. These will become references for new clients.
    • Develop data to show actual cost savings from the use of the product and services.
  • Establish a relationship with an existing company for which the offering is complimentary and cross-offer products and services on an ad hoc basis.
    • Trial the product and service with one of their clients in return for a royalty or share of the profit.
    • Ask that company to make the introduction.
  • Target start-ups – offer an initial package for a low price. Offer the product to start-ups for free and get them hooked as long-term customers.
  • What would be needed to roll the offering through growth equity firms or venture capitalists?
    • This will require some proof that the offering increases the ROI to growth equity and VC portfolio companies and funds.
    • Note that the portfolio companies of growth equity firms are larger and farther up the growth curve
  • In current economy the key message to prospects may be that the offering will help them to “right size” their company.
    • Take a closer look at the offering and determine whether it is configured appropriately for the current environment.

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How Do You Improve Your Company Presentation? Four Points

Situation: The CEO of a specialty company that is a leader in their market asked the group to review the company presentation. The members of the group were asked to put themselves in the place of a potential customer or investor. How do you improve your company presentation?

Advice from the CEOs:

  • Don’t assume that the audience has a sophisticated understanding either of the company’s market or its technology. In any pitch either to a new prospect or for funding there will be individuals in the audience who are not experts. The pitch needs to deliver a message that any listener can easily translate to any colleague.
    • Give brief examples from the experience of current customers to make the technology and its advantages concrete.
  • What is the problem that the company solves?
    • State up front: What is the pain – why is it there? How does the company’s solution address this pain? What’s the impact?
    • Show market potential and explain why the company’s solution will be a home run.
    • What makes the company’s solution unique and gives it a sustainable advantage?
    • Assume Ignorance – KISS – Keep It Simple Silly!
    • The presentation should be high level, easy to understand, and crystal clear in 5 minutes.
  • Establish credibility by summarizing current success and list the names of current customers.
  • For presentations to investors have ready answers for the following questions:
    • How the funding sought accelerate development, and what is the expected return that this will produce?
    • Assure that timelines are realistic, particularly for a ground-breaking technology.
    • Do not be vague in answers to questions like “what is your market share?” Answers must be crisp and believable. If additional documentation is required to validate company estimates have a back-up slide in the presentation to address this. Keep the explanation in the back-up slide simple, even if the analysis is complex.
    • Add an expectation of return on investment. What equity will the company give for an investment of $X. State the company’s pre-money valuation as a believable number. Then give an estimated 3-year post money valuation with $X investment. Investors will discount anything number given but will not want a range.

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How Do You Improve a Business Model? Four Observations

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.”

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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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