Situation: A CEO has an opportunity to combine with another business to expand their market geographically. A lead to work with the current owner to manage the transition has been identified. A second option is to bring in a new manager from the outside to manage the transition and the expanded business. How do you construct a deal to expand?
Advice from the CEOs:
Basics that are needed prior to initiating negotiations:
Define what the seller wants – both financially from the sale and in terms of ongoing involvement in and support of the business.
Without a lengthy transition period, the value of the business is not significant. The value is in the current owner’s relationships – both with clients and his team. It is critical to retain both.
The other big question is what the seller wants personally.
Is it legacy? Is it the opportunity to transfer knowledge?
The seller knows the CEO’s company and approached them about a sale. Play on this.
Are there potential complications to the deal?
Do any non-compete clauses exist with other companies?
Do other agreements exist that impact the value of the acquisition?
What other aspects of the deal does the group recommend?
Within the new organization, put the current owner under the recommended lead. This gives the lead more prestige and demonstrates trust. It also raises the bar for the lead.
A bonus is that the current owner and the lead get along. This will facilitate the current owner’s mentoring of the lead – like the child that he wishes would have taken over the business.
The current owner is a savvy businessperson, and the existing relationship between the seller and the lead will facilitate his ability to pass this knowledge on to the lead.
The current owner’s key assets are his connections and knowledge of the business. This will include subtle aspects to the business of which only the current owner is aware.
The option to bring in an outside office manager potentially complicates the situation.
Bringing in an outside office manager to manage both the lead and the current owner is the worst case – the most likely to blow up.
This arrangement puts the current owner two reports away from the CEO.
With an additional person involved, the personal dynamics become more complex. Keep it simple.
Situation: A small company wants to reduce costs by consolidating accounting and operational communications between remote divisions, with home office coordination. Can you more effectively reduce costs by consolidating services or is it better to set up parallel but complimentary accounting and operational communications in each division?
Advice from the CEOs:
There are a number of things that need to be considered, including:
Whether the existing legacy system is off the shelf with modifications or was custom designed for your operation.
Does the current system meet your needs, and do operators understand it? Is operational understanding diffuse or can only one or two people operate it?
How similar are the divisions in terms of product, customers and operations?
Do divisions serve distinct, non-overlapping customers with different product lines?
Are there important operational differences, for example are some divisions union, and others non-union?
On an ongoing basis, except for accounting, do divisions function as complimentary or distinctly separate businesses?
How complex are the product and pricing offerings? Could you consider a simple solution like QuickBooks or are there are complexities to your business model and accounting that the off-the shelf or web-based systems can’t address?
How much historical data from your current system is needed to support ongoing and future operations?
The simplest solution may be to run your current system off of a server, with multiple nodes connected to the system – a direct connection at your home office, and point-to-point lines connecting your remote offices. This will solve both your data transfer and communications needs.
Hire a computer consultant to set this up and assist you in establishing a link. It will cost some money, but will save you time and money in the long-run.
If you decide to change your accounting system, do so at the end of your current fiscal year. Trying to change accounting systems in the midst of a fiscal year creates an accounting nightmare for a small business.
Situation: A company has used the same accounting system for over 10 years. The current system produces information quickly and easily, and empowers management and sales to make good decisions. However, it doesn’t respond to customer information requests as well as newer packages. What are best practices for updating your accounting system without losing data?
Advice from the CEOs:
One option is to keep your legacy system, but migrate to a user-friendly platform designed to work with a CRM system that can better meet customers’ needs.
Keep both systems up live until you no longer need the old system, except as an archive of your historic data.
Be sure to cross-train other employees so that your current system doesn’t become worthless if your key administrator gets hit by a truck.
Before you decide which direction to pursue, ask what your employees like the current system.
What do they find most useful?
What accounting features do you need to support your growth plans?
What key functions of the current system would you have to emulate?
How expensive is it to maintain your current system?
Is your business so unique that no off the shelf alternatives exist?
Could you adopt an 80-90% solution and customize the rest?
It may be difficult to do this on your own. Look for a consultant with a background in accounting applications to analyze your needs.
If you feel that you must make a change, but are not ready to do so, develop your solution gradually.
Interview with Anju Bajaj, CEO, Zuna Infotech, Inc.
Situation: The US economy is slowly trying to get back on its feet, but many potential obstacles remain. In the mid-west, there is good talent with deep enterprise-level IT experience, and lots of new young talent looking for positions. How can private business help to retool the workforce and boost employment?
Advice from Anju Bajaj:
Working in IT services to provide end-to-end technology solutions, we have found highly skilled talent in the American Midwest. In recent years, many seasoned IT professionals have lost their jobs as Midwestern companies downsized. These individuals have deep enterprise level IT skills, but may not be up to speed with the latest technologies. There are also many brilliant young people available who have good web-based technology skills, but no experience in legacy systems or the working of complex enterprises. Our focus is on cross-training both groups as they collaborate to build IT solutions for our customers.
We have found that by organizing these two groups into small teams, guided by a lead who knows both web-based and legacy systems, we can leverage their individual strengths to cross-train each other. It turns out that both sets of workers are smart, capable and, in live project settings, collaborate and acquire technical skills and domain knowledge relatively quickly.
The bigger and more subtle challenge is teaching younger workers about business processes. Each process must fit the workflow so that a process change in one area doesn’t produce difficulties in other areas. For this, you need to have people with deep expertise in functional and domain disciplines as well as technical experts. By teaming talent, we can produce functional experts who understand all areas. We have found that in three to six months of working together, about 25% of team members reach almost guru status; while the remaining 75% have become quite skilled.
Like most leading service providers, we at Zuna Infotech also build capability through our Centers of Excellence. We focus on developing practices within different industry verticals. With this comes knowledge and structure which we can then pass on through train-the-trainer programs.
We have been inspired by the desire to help keep US workers working while retooling their skills. The results that we’ve found to date have been very encouraging. We hope that this can provide a model for other companies.
Interview with Jim Kaskade, Global Executive (most recently SVP and General Manger, SIOS Technologies, Inc.)
Situation: Cloud computing as a concept dates back to the 1960s. “Cloud” became a more prominent concept in 1990s as a metaphor for service delivery over the Internet. The technology that makes it a practical reality has advanced significantly. Broad business adoption, however, has varied depending on the deployment architectures used. What are some of the barriers to enterprises “crossing the chasm” and embracing moving to the cloud?
Definitions: There are three cloud deployment architectures or market segments when defining the opportunities and barriers to entry:
Software as a Service – SaaS – represented by distinct B2B applications like Salesforce.com and Google Apps, and B2C applications like Apple’s iCloud.
Platform as a Service – PaaS – represented by application platforms targeted at application developers and including Microsoft Azure and Amazon Beanstalk.
Infrastructure as a Service – IaaS – represented by on-demand access to low-level IT infrastructure such as virtualized computer, storage, and networking infrastructure.
The elephant in the room is that, relative to global IT spend, use of public cloud is in its infancy.
Adoption of the cloud varies by business size and IT structure.
Start-ups – particularly technology start-ups – use all three segments. The rationale is simple. It is easier and conserves capital to use all three delivery segments as an expense rather than invest in IT infrastructure. Another benefit is time to market.
Mid-sized companies – up to hundreds of employees – have more challenges.
They start with SaaS applications to get their feet wet. Primary concerns are availability and security. If they have good, dependable Internet access, barriers to entry can be low.
Using a PaaS is also attractive but begins to compete with internal, existing platforms. Mid-sized companies typically have their own IT and developers who may prefer an internal platform. The company’s choices are also limited to a PaaS system that is similar to current development platforms.
The barrier to IaaS adoption is the IT staff itself. If the IT staff is savvy, they can maintain and run their internal data center less expensively than IaaS services. The question comes down to whether building and maintaining a “crazy smart” IT group is core to the company’s business model.
Enterprise companies – Fortune 100s or even 1,000s – have far greater challenges.
Their current IT model already has moved to a mix of 30% in-house and 70% outsourced with partners like CSC and Accenture.
Most Enterprise CIOs begin their use of “cloud” with a migration to SaaS. The barriers to PaaS are that their systems are tailored to customer-specific applications and internal infrastructure, limiting PaaS use to small, non-critical applications which require quick, global deployment.
The barriers to using IaaS services are similar to PaaS, where CIOs struggle with tradeoffs between agility and issues of cost, security, and availability.
The Achilles’ heel of these companies is that 80% of their IT spend is just keeping the lights on.
The implications of all this are that the cloud is ideally for small to medium companies, some of which will become large enterprises. If you can succeed with a migration of legacy applications to cloud-based services you will become more nimble in responding to customer’s needs – the biggest upside to cloud services in general.