Tag Archives: Funds

How Do You Design an Effective Sales Compensation Plan? Three Steps

Situation: A young company is redeveloping its sales department and wants to develop an effective sales compensation plan. What advice do members have for the company on effective sales comp packages? How do you design an effective sales compensation plan?

Advice from the CEOs:

  • The first step is to develop broad outlines to the plan:
    • What salary range is the company contemplating? What can the company afford?
    • What skills beyond the ability to sell will be required? For example, will the sales person require technical skills in addition to sales skills? Or will the sales person need engineering design assistance both in making the sale and in providing service post-sale?
    • Who will be the ongoing contact for the customer once the sale is made? Will this be the salesperson, or will ongoing customer contact will be managed by engineering?
    • The higher the skill level and both sales and post-sale responsibilities, the higher the potential salary.
  • Once the broad outline is decided, set parameters and objectives for the position. The compensation plan should reflect and be consistent with these.
  • Third, establish the behaviors that sales people are expected to exhibit. Any compensation plan should reinforce the behaviors desired by the company.
    • If salespeople are expected to bring in high margin business, focus and scale compensation based on the margin generated by the sale.
    • If an objective is to avoid customers who are bad credit risks, then pay sales people on collected funds rather than on invoiced business.

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How Do You Evaluate an Acquisition? Five Points

Situation: A CEO is evaluating an acquisition which could significantly contribute to his company’s financial position. Patented technology may add value to the deal. The founders of the acquisition target are willing to work part-time to facilitate the transition of their technology to the acquirer. How do you evaluate an acquisition?

Advice from the CEOs:

  • Set a timetable to close the deal or walk.
  • Two key factors in the due diligence process will be strength of the intellectual property and cost of the acquisition long term.
  • Another key factor to evaluation will be how this opportunity fits into the company’s larger financing plan. Currently the company is undertaking a financing round. How much will this acquisition contribute to or distract from the financing round?
    • If this is a primarily a value-add opportunity, will it add to the larger financing round?
    • Can the larger financing round be completed on time while pursuing this opportunity?
    • An option is to negotiate a white label agreement – an agreement that will keep the company in the game while completing the larger round.
    • If the founders are not amenable to a delay, what is the cost in terms of funds and effort versus the larger round.
  • The technology appears interesting, but the timing is bad given your need for the larger financing round. Here’s an option.
    • Go to the founders and start the discussion. Secure a license or hire their programmer. Let the technology go dark until the financing round is completed.
    • There is value here – but do this as a side focus if it’s not too expensive. Assure that the deal includes both rights and the underlying algorithms.
  • Delegate this to someone else in the organization. The CEO’s focus is the larger financing round.

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How Do You Evaluate an Acquisition Opportunity? Four Issues

Situation: A company is considering purchasing a line from another company to complement its existing product line. They would split commissions with the current owner, and gain an additional employee with knowledge of the products to be acquired. The purchase would add to the company’s offering, as well as rights to additional products. The CEO sees this as a low risk move. How do you evaluate an acquisition opportunity?

Advice from the CEOs:

  • In evaluating a commission split opportunity, will the commissions that you would receive exceed the cost of both the additional employee which you will add, plus the support that it will require to maintain the new business? Do the new commissions cover the anticipated costs, plus a reasonable profit?
  • Have you vetted the numbers to demonstrate that this purchase provides a suitable return on investment vs. other potential investments that you could make? Is the marginal revenue that you will receive greater than the marginal cost that you will bear? Is the ROI of the new line greater than your cost of capital? If not, what can you do to improve the return?
  • Looking at your current operations, do you have your existing shop in order? Have you calculated the metrics that will allow you to understand, where you’ve been, where you are, and which provide a clear vision of where you want to go? If not, the question is whether you are ready to take on another line.
  • The bottom line question is – how do you know that this acquisition is the best use of your funds?

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How Do You Optimize a Financing Pitch? Seven Suggestions

Situation: A company is drafting a pitch for their next round of funding. They want to reach both current and a new set of investors and highlight the improvements that they’ve made since their last round of funding. How do you optimize a financing pitch?

Advice from the CEOs:

  • Work on a quick demo of the site. This is critical for a software company. The site must clearly and quickly show what differentiates you.
  • When you sit down with potential investors, start your pitch with a catchy statement, e.g., “We’ve all heard about ‘pay it forwards’. I want to talk to you about ‘Job-It Forward’.”
  • Start the presentation with an overview and a simple illustrative explanation so that the audience instantly gets what you are doing. For example, “we’re about generating social capital and here’s an example of how we do this.”
  • Be careful not to drown your audience in detail. Limit yourself to 3 bullets per page. Use graphics rather than words as much as possible. Most people can only absorb a limited amount of verbal information, but they remember pictures.
  • If you’ve already started talking to potential investors, what are your results? What feedback have you received to date? Analyze this and adjust your presentation and pitch accordingly.
  • Can you show a potential funder ROI? For example, if you give us $X, we will generate $Y in terms of return. You want to demonstrate IMPACT! Those who will support you want to see the advantage of investing in you vs. other options available to them.
  • Include a slide showing sources and uses of money spent to date. Show how you will use the money that you wish to raise.

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How Do You Build Market Awareness on a Small Budget? Seven Ideas

Situation: A small technology company has a handful of major customers. They are very good at what they do and want to expand and diversify their customer base. The challenge is that they don’t have the funds for large-scale marketing.  As an additional twist, for now they prefer to stay under the radar of their largest competitors.  How do you build market awareness on a small budget?

Advice from the CEOs:

  • Start with the basics. Define your market niche and build from there.  Create a beachhead in this niche and generate strong testimonials from your current customers.  Segue to tradeshows and broader marketing opportunities as you build marketing strength.
  • You already have several marquis clients. Look for opportunities in other divisions within these client companies. The work that you have done for existing divisions makes you credible.
  • Network with your current clients to develop other opportunities. They won’t want to help their competitors; however, if you can improve what they receive from their other vendors they may provide introductions for you.
  • As a small company, focus on a single market where you have strength and credibility.  You don’t want to spread yourselves too thin.
  • Find a good customer and solve their problem well. Create an evangelist who will tell others about you.
  • Look for speaker opportunities at high visibility events within your market niche.
  • Consider webinars, these are inexpensive and if you promote them to decisions makers in your target niche you can quickly build credibility.

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What’s the Best Way to Allocate a Bonus Pool? Three Points

Situation: A company allocates 10% of pre-tax profit to a Bonus Pool. Employees qualify for quarterly bonuses based on company and group performance, and for semiannual bonuses based on individual performance. Last year not all funds were paid out of the pool because some employees failed to hit performance targets. What’s the best and fairest way to allocate the excess funds in the pool?

Advice from the CEOs:

  • Why not let the pool be the pool? Employees will or will not qualify for bonus participation based on individual and group performance. The company determines who qualifies at each level and these individuals become the pool participants, splitting the full pool in proportion to their level of qualification and their salary.
  • Not all companies will do this based on pay and bonus level policies. For these companies there are options on what to do with unpaid bonus funds in the pool:
    • Leave the funds in the pool for future distribution;
    • Shift unpaid bonus to Retained Earnings; or
    • Retain a percent of the funds in the pool and shift the rest Retained Earnings.
  • Another consideration is whether to use discretionary or metric criteria to determine bonuses. Some companies use only or primarily metric criteria, others use discretionary criteria, and some use a blend of metrics for one portion of the bonus with the remaining portion discretionary. The rationale behind discretionary criteria is to give managers the opportunity to recognize extraordinary contributions that fall outside the normal metrics.

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How Can You Increase Cash Flow to Fund Growth? Five Options

Situation: A company is bringing in new business, but used up its cash reserves to stay afloat during the downturn. As it increases payroll and orders for components to meet production deadlines, it struggles to meet cash flow needs while waiting for customer payments. How can you increase cash flow to fund growth?

Advice from the CEOs:

  • Your customers need your product to meet their own deadlines. Have you talked to them about your needs and seen what they can offer? Offering modest early pay discounts on amounts due may help to ease your cash flow challenges.
    • Among discounts offered by other businesses is, for example 2% if they pay in 10 days.
    • Another option is to offer 5% off if they pay for new orders in advance.
  • As you bring in new business or projects, negotiate early pay options in your contracts. For example, offer the option to prepay on milestones in exchange for discounts on the final payment.
  • Factoring receivables is an option, but can be expensive. On the other hand with investors looking for good returns, it makes sense to check out options that are available on the web.
  • There are now web services which combine small contributions from a large number of investors into funds which can help you to finance short-term cash needs. There are also options which may provide lines of credit which are easier to secure than bank lines.
  • Look at local redevelopment options or funds which are targeted at local businesses. For example, in the San Francisco Bay area there is a organization called Working Resources which provides low interest loans local businesses to meet cash flow needs.

Key Words: Cash Flow, Payment, Discounts, Early Pay, Milestones, Prepay, Factoring, Funds

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