Tag Archives: Factors

How Do You Create a Side Business? Five Suggestions

Situation: A CEO has built a successful company. She is considering creating an additional company, unrelated to the current company but which will enable her to pursue a long-term dream. The second company will be sufficiently different from the current company that it makes more sense for it to be a separate entity. What success parameters should she set? How do you create a side business?

Advice from the CEOs:

  • A number of successful entrepreneurs have been able to do this. Elon Musk is an excellent example. Study the steps that he took as he moved from PayPal to SpaceX and Tesla. This will provide insight into the factors that must be taken into account.
  • For the short term, pursue the dream of setting up the new company. Draft a business plan and seek an angel – perhaps someone that you already know – to get it moving.
  • Fall-back positions are good to have in mind. While looking at options, assure that sufficient time is allocated to pursue the long-term goal. Be aware of and provide the necessary resources to meet the demands of the new entity. Assure that there is a qualified individual to take the lead in the existing company as your attention shifts to the new entity.
  • For your long-term goal, be the Beta subject of the new program.
  • Assure that all of the ramifications of the long-term goal – including financial and quality of life realities – are taken into account and that there is a plan for each.

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How Do You Frame a Make Versus Buy Decision? Two Thoughts

Situation: A CEO is facing a decision whether to make or buy key technology frequently used by the company. What have others done when faced by similar decisions? What are the most important factors that impacted those decisions? How do you frame a make versus buy decision?

Advice from the CEOs:

  • In considering either option evaluate the opportunity by asking whether the technology:
    • Complements the company’s core strategic focus – the company’s “Main Thing” – what you are passionate about, what drives your key economic denominator, and what can you be best at in your market.
    • Supports the key economic denominator – the single factor that has the greatest impact on the company’s profitability and growth.
    • Complements the best use of the company’s critical resources.
    • Protects the company’s process secrets.
    • Feeds your passion as CEO.
  • In evaluating a buy decision look at the strengths of the people who come along with the opportunity.
    • Do they complement the company’s strengths or not?
    • Will they fit the company’s ecology and culture?

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How Do You Interview New Tech Hires? Four Necessities

Situation: A CEO wants advice on hiring new technical staff. Important considerations are cultural fit, identifying the characteristics of effective people, assuring that the right people are hired, and evaluating people for specifics tasks. In the past hiring technical people has proven challenging and poor hires have inhibited company growth. How do you interview new tech hires?

Advice from the CEOs:

  • It is critical to be clear on the factors necessary to be successful in the enterprise. Once these have been identified, align the factors with existing individuals in the organization as role models. Also align these factors with those who will be involved in candidate selection. This facilitates identification of good candidates.
  • Develop clarity on candidate evaluation. Identify and develop questions that will allow candidates to describe what is important to them and what they want to get out of their career choice.  In addition to specific knowledge, candidates should demonstrate a personal value system compatible with the company’s culture. They must also demonstrate a high energy level.
  • Once there is clear articulation of desired characteristics of candidates work with others such as college placement organizations, friends of the firm, Craig’s list, and so on to assist with candidate identification. A well written position description not only describes the type of individual desired, but also why someone would want to join the firm.
  • It’s imperative to be able to give a sales presentation on the company including specific reasons why people should join it. Avoid getting so wrapped up in the selection mode that you fail to recruit. Some who have done this were stunned to find that after they have made their selection the candidate was no longer interested.

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What’s Your Exit Strategy – Both Timing and Price? Four Considerations

Situation: A CEO is considering an exit strategy for the company that she founded. The company has been very successful, and the CEO wants to optimize the value of the company on sale. She seeks advice on how to both maximize the company’s value and how to best prepare for a sale. What’s your exit strategy – both timing and price?

Advice from the CEOs:

  • Value is tied to revenue and profit growth. Revenue growth is based on expansion of the customer base and reshaping the product offering to optimize its market appeal.
    • Consider a usage-based price for the offering. Accompany this with a range of usage offerings based on current customer use patterns.
    • Consider tiered pricing or pricing/use to access lower tiers of the market.
    • Consider bundled products, for example along with complementary products of another company with whom marketing partnerships could be formed.
  • As part of the valuation exercise, determine the best exit strategy and timing:
    • Identify the companies that could be buyers.
    • In each case, identify why they would buy the company.
    • The most compelling reason to purchase the company will be strategic, not financial.
    • Identify the key decision maker in each of the potential buyers.
    • Also identify any factors that would make the company less desirable to any potential acquirers and develop remedies for these.
    • This exercise may help to plan the timing and to understand more about the price that could be fetched.
  • To appeal to a buyer, optimize the organizational chart.
    • If the CEO occupies too many seats on the chart this presents a substantial risk to an acquirer if the founder leaves.
  • Evolve the organizational structure to support growth.
    • If there is no compelling reason to sell in the near term, then staff the company with professional marketing, financial talent, and so on.
    • A lack of talent in key positions limits both the company’s growth and its appeal to potential buyers.
    • In the case of this company, the most important hire will be in marketing. Note that marketing does not equal sales. The company is creating a market and convincing people to change their habits. This is a marketing task, not a sales task.
    • If the analysis of the factors mentioned above determines that now is time to sell, then stay slim.

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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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In Challenging Times Do You Cut Losses? Three Considerations

Situation: A company lost money last year, but turned the corner with a profitable final quarter. One of the company’s divisions continues to lose money, though the losses are small compared to the total picture. The CEO is considering cutting this business. What factors should the CEO consider in making this decision?

Advice from the CEOs:

  • What expense factors contributed to the loss?
    • The biggest factor was allocation of vehicle and space expense. This division has seasonal revenue but carries the allocated expenses for the full year.
  • Make sure that your allocated expenses are fair to the business. Do overhead allocations reflect utilization? Unless closing the business eliminates vehicles or space, if you terminate this business these expenses will be borne by the rest of the company.
    • Study your allocations by shifting the allocation made to this business to other businesses. What is the impact on their profitability?
    • If you find that the current allocation does not reflect utilization and adjust accordingly, does the business still lose money?
    • If this division covers its direct expenses along with most of its allocated expenses, a small loss in this division may be preferable to a reduction in profitability of other businesses from closing the division.
  • How strategic is this division to the overall business mix?
    • Is this business essential to your product/service mix or just a customer convenience? If you terminated the business will customers be upset?
    • Do competitors offer this service, and would you be disadvantaged by discontinuing it?
  • What are the alternatives?
    • Can you raise prices to increase profitability and refuse business that does not meet this pricing?
    • Can you restrict the offering to less price sensitive customers?
    • Can you refer customers to other vendors or sub out this business?
    • Can you reduce the scope of the offering while adjusting pricing to enhance profitability?
    • Can you source other labor alternatives to reduce cost?

Category: Strategy, Service

Key Words: Profitable, Loss, Division, Business, Critical, Factors, Expense, Allocation, Seasonal, Overhead, Loss Limit, Customer, Price, Competition, Offering, Scope, Labor, Skilled, Contractor

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