Tag Archives: Company

How Do You Plan for a Leadership Transition? Four Points

Situation: A CEO is planning a transition to the next phase of his life. This will include resigning as CEO and preparing  the company for this transition. What are the important steps for the transition, and what can he do to best prepare the company for the change? How do you plan for a leadership transition? 

Advice from the CEOs:

  • Prepare a transition plan for the board and set up a meeting to discuss the plan.
    • If the CEO is not the Board Chair, then a preliminary step is a conversation with the Chair about the CEOs plans, timing, and an update on short and long-term issues which must be addressed.
    • Given that the CEO will be leaving, the Board Chair’s responsibilities will include overseeing the transition. Prepare the transition plan with this in mind.
  • By solving the problem of transition for the Board, their task is eased, and opportunities for future relationships and alternatives are created.
    • Update the business plan for the company, including a SWOT analysis.
    • Line up search firms in advance who can assist in finding a replacement if internal candidates are not available.
    • The proper attitude is “my job is to make your job easier.”
  • As to the timing of the transition, 3 months is short notice. If personal needs dictate a transition in this timeframe, develop options to facilitate the transition and offer these as an alternative.
  • If the CEO’s career options for the future include consulting, the company can become an early client.

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How Do You Maintain Your Culture as You Grow? Five Points

Situation: A company has been growing well and has developed a solid culture. Currently a key individual has decided to leave the company and has said that he is uncomfortable with the company’s culture and values and feels that he could make more money elsewhere. This has caused the CEO to question how he maintains the company’s culture. How do you maintain your culture as you grow?

Advice from the CEOs:

  • The individual who is leaving was the wrong person for the company. The company is lucky that he is leaving.
    • As this individual departs the company, conduct an exit interview and listen closely to what he has to say.
  • Develop a simple statement of the company’s culture. This is not the current vision and mission but is a statement that represents the core values to be maintained by the company and staff.
    • This will help to identify and evaluate new people as they are brought onboard.
    • It will also help to guide the company as it faces both new opportunities and the numerous business choices that will be encountered in managing both current business and future growth.
    • As an example, J&J’s “Credo” starts: “We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality.”
    • This statement of values guides everything that J&J does and saved them as they formulated their response to the Tylenol scare.
  • The team leads are the key to cultural fit. They determine whether the culture of their teams is consistent with the culture of the company.
  • Look at the culture of subgroups within the company. These have a huge impact and represent areas where the company truly excels.
    • Microsoft excels at managing software development but does not have the skill set to manage networks – nor do they care to develop this. Focus on what the company’s leadership are staff are best at doing.
  • From what has been said, it appears that the company was founded:
    • To create a professional work environment – to the founder’s standards; and
    • To be of uncommon value to the company’s clients.
    • If leadership conforms to these two standards, they will guide decisions about new opportunities and directions. Either a particular choice fits these standards, or it does not.

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Do You Diversify or Stay the Course? Five Thoughts

Situation: A CEO seeks advice on the direction of her company. Her objective is to build a lasting company which is a wonderful place to work. She has a creative group of employees who have suggested options to expand the scope of the company. Should she maintain the current direction or entertain exploration of these options? Do you diversify or stay the course?

Advice from the CEOs:

  • With a solid, sustainable business model and the current level of revenue, diversification is not as important as it was when the company was a fraction of its current size. Current objectives could well be reached by just doing more of what the company does now.
  • The most important question to ask is: “What do we want from this or that option?”
  • Concerning the top opportunity under consideration, the group felt that:
    • It’s not the company’s core business and doesn’t play to the company’s strengths.
    • However, there are aspects of the opportunity that fit both the company and the existing client base. These represent an opportunity that fit’s the company’s culture.
    • Explore these aspects in small steps that do not detract from the current business.
  • If culture is a key ingredient of the company’s offering, how scalable is this, particularly into new markets? Look for ways to grow that are consistent with the strong culture that already exists.
  • Improve selling the full breadth of the company’s offering. The company offers many services that may be of interest to clients, but which are not mentioning in initial sales calls.
    • In sales presentations focus on the client, rather than a detailed description of the service offering. Offer clients a small brochure that covers the range of the company’s services.
    • By focusing on clients’ needs it is easier to selectively mention options that will serve these needs.

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What Software Version Do You Launch First? Three Suggestions

Situation: The CEO of an early-stage software company has two versions of its software that they could launch. It has an alpha site set up and is configured to serve up to 10K simultaneous users. There are two beta versions that they could launch next. What software version do you launch first?

Advice from the CEOs:

  • Use the more basic version for the Beta launch.
    • Restrict the Alpha to individuals within the company until the major bugs are resolved. Once this is ready, proceed to Beta launch.
    • The right target users will be both early adopters who are effective sneezers.
    • Select a segment of the market that is the home of both enthusiasts and sneezers – for example, if it were the music market target dance music – a crowd that is easy to attract.
    • Target a service that many in the game and related early adopter worlds like. At the right time they will sneeze frequently to their friends and contacts.
    • Let the creative audience know that the Beta version is an artist-centric site, but that it will be followed soon by a consumer link that they can tell their fans about.
  • Assemble a knowledge bank of experts to guide the company as it progresses through Beta. These experts can and to help the company prep as fully as possible prior to launch.
  • Crossing the Chasm – when the company is ready for this.
    • Find an appropriate venue that attracts target users. Again, as an example, in the music world this could be American Idol. Through American Idol, the play would be to allow fans to access and download the songs that their favorite contestants sang this week, plus other songs from their favorites.
    • An approach like this quickly opens a large market for a new app.

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What is Your 10-Year Growth Plan? Four Points

Situation: A CEO is building a 10-year growth plan for her well-established company. Options include building the company on its current track, growing through purchase of another company, or merging with another company. What are the most important considerations for each option? What is your 10-year growth plan?

Advice from the CEOs:

  • Considerations to start the process:
    • When acquiring another company or merging, the value is the reputation, relationships, and good will of the other firm. This may be more expensive but can provide a head start in the new market.
    • Perform an ROI analysis of build vs. buy. Estimate what it will cost to build. Compare this to what others are asking for their firms. In both cases generate a 5-year cash flow forecast. Discount future cash flows using the company’s desired rate of return – for example the company’s PBDI&T target – as the discount rate.
    • Also compare the relative risk of each option.
  • Build Option:
    • It’s not necessary to recreate the full home office operation.
    • Start small – sales, support, or maybe just an address.
    • Do the actual work at the home office until sufficient business is generated at the new site to support a larger local operation.
  • Buy Option:
    • Look for a company with a good local reputation, who shares the acquiring company’s values, but who wants to sell.
    • This option provides staff, relationships, and a reputation in place. They will already know the local code.
    • Structure a deal for long-term value to the owner. The ideal is to pay as much as possible with future rather than current dollars, with a premium for high retention of personnel and business
  • Spend some time in a new area and get to know it before deciding. If the company already does some business in the new locale, this simplifies the decision.
    • Some locales have been found by others to require a local head of the office who is from the area – who “talks the local talk and walks the local walk.” This will be the case whether the decision is to build or to buy.

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Do You Need a Formal Marketing Function? Four Points

Situation: A small company serves a specialized, targeted group of customers. The founder/CEO seeks advice from the group on whether it is time for the company to create and staff a formal marketing function or can this be outsourced. Do you need a formal marketing function?

Advice from the CEOs:

  • The company services a specialized and targeted group of customers. However, they target the high end of this market, so the target market is smaller.
    • A highly targeted promotional and marketing strategy will work best.
  • There are two principal functions within marketing: providing direction to guide product development efforts and creating awareness of the company’s products through promotions and advertisements.
    • To serve a narrow market, the information and insight gathered from trade shows, technical meetings, the company’s sales and design engineers may be sufficient to drive product development efforts.
    • It may not be necessary to do more than this unless the company is planning for substantial growth and wishes to diversify the product offering in a short period of time.
  • To handle promotions and advertising there are two options: hire an individual to do this or utilize the resources of an outside agency.
    • The marketing plan should be refreshed and updated on a regular basis – at least annually.
    • A good task for the company’s marketing committee is to become aware of local resources that could help.
    • Identify marketing themes to guide advertising in specialty magazines, supported by trade shows, technical conferences, and on-site training session for key customers.
    • Create and maintain a calendar of marketing activities and assure that that messaging is consistent across promotional events.
  • If the strategic plan calls for substantially increasing the revenue base or broadening the product offering, consider a merger with a competitor that already has the ability and resources to meet these needs.
    • Just the planning exercise for a merger will help the company to evaluate the issues involved in market expansion.

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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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