Situation: A CEO faces challenges with clients. The first is vague customer specs because they don’t understand the product. Second is misunderstandings as to timelines. Third is insistence on strict timelines while simultaneously demanding revisions to previous work. How do you add more discipline to quotes and pricing?
Advice from the CEOs:
Is the company’s technology strategy aligned with its capabilities? Currently the company is trying to build advanced solutions in multiple international markets with a small staff. There does not seem to be the technology or development discipline to convert current capabilities into a sustainable market advantage.
For near term focus, because of commitments and milestone payments due from the key customers, focus resources on finishing the last piece of these projects. Once this is done, step back. Look at options and determine the company’s technology strategy moving forward.
The key challenge is to define ONE beachhead on which the company will focus and which they can dominate. The objective is to leverage existing engineering creativity to create a sustainable competitive advantage.
As this exercise is designed, start with a clean slate. Don’t burden the process with a lot of restrictive assumptions. Consider using an outside facilitator to help facilitate this process.
Until this exercise is completed does it really make sense to seek additional work or to commit the company to the next phases with current customers?
Once the company has selected and committed to a technology strategy, the decision process becomes different.
The objective is to develop laser-like focus on the technology. Minimize distracting the team with other opportunities.
It may be OK to lose money on development projects if this work will significantly impact or accelerate the development of the company’s core technology.
How does the company justify asking for payment for development for future projects?
First, determine and clearly state the company’s technology strategy. Evaluate all future development projects and decisions in terms of their alignment with this strategy.
Second, if a particular project is completely aligned with the technology strategy, the company may waive the requirement of payment for development. This, ideally, will be the only exception.
Ask for a limited time/scope project to jump start and define new projects. This provides proof of company capabilities and establishes its credibility.
If is it necessary to negotiate or bid, start high and bargain down to but not below the best estimate of the cost of development.
Remember that deciding what NOT to do or quote is often harder, but just as critical, as deciding what to quote.
Situation: A CEO wants to fund future growth through better management of cash flow. Cash flow has been positive for several years, and the company uses a bank line to fund receivables. How to you manage cash flow to fund growth?
Advice from the CEOs:
Since the company is cash flow positive, go to the bank with the assistance of a connected Board member and ask for better terms on your line. This will reduce financing expense.
What are the company’s Days Sales Outstanding (DSO = accounts receivable (AR) divided by average daily revenue)? Reducing this will have an immediate positive impact on cash flow.
Normal up-front payment is 20%. With 35% gross margins and 20% up-front, the company is funding profits through the bank line. The adjusted gross margin (GM) is the company’s Operating GM less the cost of the bank line.
Solutions: Reduce DSO by offering a 1% discount for payment in 15 days and increase up front retainers from 20% to 50%. This takes time but is doable by working with customers.
Some customers have seen AR slip from 30 to 45 days. Offering a 1% discount for payment in 15 days is an inexpensive way to decrease AR and increase cash flow.
What is the most immediate need?
The company has positive cash flow, marquee accounts and proof of concept.
What is needed is additional referenceability. Can reference accounts come from exiting marquee accounts? What would this take? Can the Board help to identify and develop additional reference accounts?
The company is resource limited in sales. At this point people are needed. How can this be done without extending current resources?
Shift resources from other departments to sales to boost sales efforts. Another CEO did this very successfully and generated a substantial pick-up in revenue growth.
Increase the incentive for service people to come up with new revenue opportunities. Consider teaming them with the salespeople to generate opportunities.
Consider independent rep firms. Ask key customers who they respect among the independent rep firms.
Develop a joint venture or strategic partnership to feed sales – a situation where this is a strong win-win for both parties.
Leverage the Board to create opportunities. Another CEO has a Board objective of 3 new accounts per year. This comes from 10 leads/connections per year (2 per Board member). Board members who can’t produce leads are turned over.
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: 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.
Situation: A company offers a product combined with a service. Small companies can’t afford the combined price, but don’t need the full functionality of the combined product plus service. An option is to create an offering on a per-seat basis. In this option, how do you price seat utilization? How do you price a product and service?
Advice from the CEOs:
Pricing needs to follow value. For large companies, functionality and seamless operation are key. Small companies have different challenges – they have less money and don’t need all the features required by large companies. Configure a limited product for this market.
Don’t de-feature the product – create a different use / pricing model. Consider a model that prices based on the user company’s revenue, with periodic review of their revenue and fees paid. As they grow and increase utilization, they increase their ability to pay for, and their need for full utilization.
Use a cloud model and create a “pay per amount of use” option. Limit this offering to X number of users or X number of projects to create a different product from the full license option. While this will require monitoring, it will differentiate the partial license option from the full license option.
Develop an alternative to what is offered by the chief competitor and create an offering that this competitor can’t compete with.
Before making a final decision, institute a formal process for collecting ongoing feedback from customers. This will help to clarify alternatives going forward.
Situation: A small company has a parts supplier for product that they sell to their most important customer. That customer’s specs are “copy exact” on components for existing products; also, their new products are usually based on existing components. The supplier significantly raised prices on the parts supplied to the company. How you respond to a price increase from a supplier?
Advice from the CEOs:
This is an extremely sensitive situation. One solution is to not to rock the boat. The reality is that the company needs the parts, and it will take a lot of effort to replace them with parts from an alternate vendor. Just continue the relationship. Quit worrying about it and milk it for as long as it lasts.
Find out what caused the supplier to raise prices. The supplier needs to understand that to preserve the company’s margins they may have to raise prices to the final customer. This may threaten both the company’s and the supplier’s business with the customer.
Make sure that the supplier understands the company’s costs: office, salaries, equipment, maintenance, and local regulations that are unfriendly to business and difficult to deal with. Ask them to reconsider or reduce the price increase.
Assure that the supplier understands the value that the company provides and the importance of this collaboration to the business and profits and bottom lines of both companies. Leverage this value to get the price that the company needs.
Renegotiate the relationship to assure that supplier can’t go around go around the company and sell directly to the final customer.
Start building relationships with alternate suppliers.
Situation: A CEO’s company has built an admirable suite of products. The next step in company growth is to create a more structured marketing pipeline. They have experienced salespeople, but these people have come to the end of their rolodexes. A new approach is needed. How do you boost your sales and marketing?
Advice from the CEOs:
Create a profile of the ideal customer. This is the customer who can create the greatest leverage using the company’s suite of product. Aim for the top management of this customer.
Incentivize the sales reps to target high value accounts. To create targeting incentives, graduate the commission base.
Set initial commission based on the size of the customer.
Differentiate commission by product – pay the highest commission for highest gross profit products or the company’s highest priority products.
Salespeople need to be able to close sales by themselves.
Currently, salespeople are acting as lead generators and are counting on the CEO to close the sale.
Create a different set of expectations, including thresholds to limit the CEO’s direct involvement in the sales process – for example, limit CEO involvement to accounts with a revenue value over $500K.
Train the salespeople to communicate the value proposition for initial conversations as they qualify a new client. Create a set of resources to assist them along the way.
Is it a good idea to pay ongoing commissions forever?
Another CEO used to do this but has moved to X% for the first period/project and X/2% on follow-on-periods/projects. This keeps them hungry for new customers who will pay the higher commissions.
Don’t create a perpetual annuity – the way insurance brokers are paid. Reduce commissions on existing accounts so that they decline over time – keep salespeople focused on bringing in new accounts to maintain their income levels.
Decide on an acceptable level of total compensation for salespeople. Plan the commission structure to allow them to reach this level, but they have to keep selling to maintain this level. Keep them hungry.
Situation: The CEO of a company is finding it increasingly difficult to maintain the passion that she had when the business was young. Day to day work feels like having a monkey on her back with too much time spent on sales and business minutiae. Too little time is spent on strategy and growth. How do you maintain the passion for your business?
Advice from the CEOs:
Look at what you like and don’t like – delegate what you don’t like.
Delegate activities which are inappropriate for a top executive – like answering the telephone when others are present to do this.
Get everybody in the same boat – get them rowing in unison.
Delegate more responsibility – with the understanding that others will make mistakes. When they do, they must understand their responsibility for repairing them.
Prioritize tasks as they are delegated to reduce conflict or confusion.
Strengthen relationships with key suppliers and customers. This is a strategic move to reduce future risk to the company.
How did you get the monkey off your back?
Ask managers and employees for their input – have them develop solutions. If they push back that they don’t know how or don’t have the resources, let them know that their job is to provide solutions, not just to identify problems.
This takes time and patience, but if the CEO is steadfast this can yield results in a surprisingly short period of time.
Reduce time spent on sales. Become the closer – the only person who can do that little something to close a sale.
Have the others do the heavy lifting our qualifying the customer, developing the solution, crafting the proposal and presenting this to the customer. Limit the CEO’s involvement to reviewing the proposal prior to presentation, and to acting as closer ONLY if sales can’t do the job themselves.
Learn to take time off – develop other interests. This is the first step in being able to take longer periods of time off.
Situation: The CEO of a service company needs to expand its market base due to concerns that a significant service and referrals partner may decide to stop working with them. A break-up would have significant impact on salaries, effort and focus. The company’s priority is to expand client growth to minimize the impact of a break-up. How do you expand your market base?
Advice from the CEOs:
To expand or build a market requires a champion. Someone like the company’s founder who has the passion and contacts to build new business.
Second, incentives must be established to reward success bringing in new clients. These incentives must have teeth – no success, no incentive. No safety valves.
Third, create a plan to support the new business development – including marketing, event attendance, etc.
Initially, be selective and target just a few highly desirable new clients to test and refine the client attraction model before expanding to the broader potential client audience.
Build a set of case studies of services and results for new clients.
Track and prove out the profitability and workability of this model.
How should the effort to expand the market base be constructed?
Start with preparation. Research the current prospect list to assure that they are good prospects. Also look at the current company culture – do the company’s strengths align with what is needed to attract and serve new clients?
If the research shows that a significant number of prospects are different from current clients, think of this as a new channel. Create a different business unit to specialize in serving these clients. Hire a team to focus exclusively on the new client group, with proper incentives tied to achievement with these prospects.
Another company had a similar choice. They created a program to increase their market base and went after it with full focus. It took five years to accomplish vs. the two years that they had planned. Nevertheless, the results have been worth the effort and expense. If the company believes in the model, invest in it.
Situation: The CEO of a service company continually finds the company short of cash. They have just hired a new accountant, but it will take time for this individual to understand the financial situation and to generate recommendations to improve cash flow. How do you keep a company afloat short-term?
Advice from the CEOs:
Point #1: This isn’t just a question of controlling costs; the company needs to build the infrastructure to succeed.
If there isn’t someone on the team in a position of authority, who the CEO can trust completely, hire this person. The CEO can’t control all risks.
While the company has shrunk over the last two years, it is still a substantial company and needs professional management. To grow effectively, professionals are required in key leadership positions. If necessary, hire experienced outside talent
Look for teachable moments as challenges arrive. The CEO, instead of solving a problem, should work with employees and mentor them through discovering and implementing solutions.
How to communicate this to current staff?
Put the story together. Be able to make a clear statement to them, including the current situation and future possibilities for which the company must prepare.
Generate charts and metrics to support key points.
Use senior staff as the mouthpieces to present the story to the rest of the organization. Once they are onboard, have them help craft the message. Don’t underestimate the CEO’s authority. This is business, not a popularity contest.
Let others make mistakes – it is part of the learning process – no matter how critical the situation.
Point #2 – Return to the company’s roots.
The faster everyone accepts that a focused approach is the only way to survive, the faster the company will turn around. Reestablishing company presence in key markets with a new model that speaks to their desires makes a lot of sense.
Be very clear as to what flat-rate service pricing covers. Include this in the signed customer agreement. Don’t allow costs to creep up or it will kill the profitability of flat rate jobs.
Create an infrastructure nimble enough to adapt as market conditions change. Identify what really works and focus on this.