Tag Archives: Negotiate

How Do You Communicate Benefits Changes After Being Acquired? Seven Suggestions

Situation: A company was recently acquired. The acquirer wants to merge benefit structures between the two entities. While company contributions are similar, distribution of benefits between retirement plans, health plans, and other benefits between the entities varies considerably. How do you approach the staff about the changes in a positive manner? How do you communicate benefits changes after being acquired?

Advice from the CEOs:

  • Ideally, you want to survey employees on what is and is not important to them about their benefits before the package is finalized. This will help you negotiate on your employees’ behalf.
  • Ask the acquirer whether a “cafeteria” benefit program is feasible. This would allow your employees to make choices among benefit options, and to fund these choices either at a company-paid base level or to supplement their choices through payroll deductions.
  • Inform the acquiring company of your state’s regulatory policies on state-specific benefits.
  • Once the new benefit package is finalized, ask for assistance communicating the new package to your staff. Create a simple and concise grid for the program: amount of company contribution: benefits under old program, benefits under new program, use the grid to demonstrate that while the allocation may be different, the company contribution remains the same and the total value of benefits offered is unchanged.
  • If you find that a highly valued benefit is being reduced, consider a short-term subsidy to ease the shift.
  • Be clear about decisions that your employees must make in the new program.
  • If you have access to industry or regional comparisons for like-sized companies, you may wish to share these.

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How Do You Reduce Dependence on a Few Customers? Four Thoughts

Situation: A company has been very successful, but one customer represents over 60% of their sales. To grow, the company needs to diversify its customer base. How do you reduce dependence on one large customer? What are the risks involved? How do you reduce dependence on a few customers?

Advice from the CEOs:

  • The key to getting new customers is to dedicate time and resources to the task. Consider hiring a business development professional – a commission based “hunter” who has experience landing big accounts. You may pay this person a hefty commission for bringing in new business, but diversifying your customer base can be worth the cost.
  • If there is shared ownership of technology co-developed by the company and client and the client does not wish to pursue markets beyond its strategic focus, is it feasible to negotiate rights to pursue this business? The larger client will pursue their own interests, not those of the smaller vendor.
  • Perhaps a win-win can be worked out, but it may be challenging – particularly if the client is concerned that use of the technology in other markets could have a negative impact on the client. Use caution. The easiest way for the client to defend itself from a perceived threat is to sue and bury the smaller vendor through legal expenses. Regardless of who is “legally right,” deep pockets can win through attrition.
  • Consider recreating the opportunity. Create your own adjunct proprietary product with your own software or design talent and use this to expand your horizons. Be aware, the large client can still sue if they believe that your proprietary product impinges on their rights.

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How Do You Boost Short-term Cash to Finance Growth? Three Approaches

Situation: The CEO of a company is seeing an upswing in work and backlog, but doesn’t have cash on hand to support the work. The bank won’t increase their credit line. How can they increase cash flow and better position themselves with the bank? How do you boost short-term cash flow to finance growth?

Advice from the CEOs:

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How Do You Access Key IP? 3 Steps to the Dance

Situation:  A company is moving from a specialty solution to a complete solution. They have identified a partner with intellectual property (IP) that will help them fulfill this vision. How should the CEO approach this company to access their IP? How do you access key IP?

Advice from the CEOs:

  • There are two aspects of any deal: technical feasibility that will produce both value and the emotional needs of the principals of each company. The technical aspects are the most straightforward and easiest to value. Frequently, a favorable deal hinges not on technical feasibility, but on the desires of the principals and their ability to trust one-another.
  • If you are convinced of the value, you must convince the other party that their best option is to work with you. This accomplished, you can negotiate the specifics. Sell your vision: the technologies together are much more valuable than they are alone: 1 + 1 = 5! If control of the technology is an issue, negotiate an arrangement where they are comfortable with your control. Do you and the other party have a trusted advisor in common or is there an individual who is respected by the principals of both companies? A person like this can help communicate your good intentions.
  • If your best efforts do not produce an appealing arrangement, your fallback position may be a partnership. If the partnership is backed by modest investment with options for future purchase, this can be another way for you to eventually gain control of the technology.

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How Do You Draft a Fair Partnership Agreement: Six Points

Situation: A CEO is negotiating a partnership entity. Her company will fund the entity, and the partner will earn ownership through sweat equity. How do you draft a fair partnership agreement?

Advice from the CEOs:

  • The most important factor is the ability of the two partners to create a successful venture.  Proof of ability to contribute needs to be a prerequisite to allocating ownership.
  • How does the sweat equity partner prove their capabilities? Create a schedule of milestones for the partner to earn ownership, based on mutually agreed objectives or revenue generation. The beauty of this is that you retain control until the partner has proven their value by delivering results.
  • The potential downside is long-term liability of the venture. The longer that you retain majority ownership, the longer you retain majority liability. Insure yourself against this liability.
  • Buyout clauses are important to retain your interest if the partner fails to deliver. Include a liquidation clause in case the venture fails.
  • While negotiating the agreement draw up a 6-month letter of intent. Specify what each side brings to the table and what each commits to deliver. Set clear, measurable, time-bound objectives. Negotiate fair protections desired by each party. Consider a consultant to facilitate settlement of areas of contention.
  • Theoretically, each party needs their own legal counsel. This adds expense but provides protections for each in the final agreement. Factor the cost of legal advice as well as consultant facilitation into your planning model.

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How Do You Purchase a Company as a Non-Owner President? Four Points

Situation: The President of a company has a long-standing relationship with the Chairman and Founder, who is also the principal owner of the company. The President joined the company at a time that the Chairman/Owner thought that he was terminally ill and needed an individual who could take over operations as well as leadership. Since then the owner has fully recovered and wants to retake control. The President would like to buy out the owner. How do you purchase a company as a non-owner President?
Advice from the CEOs:
• What role has the President played so far? The President has advised the Chairman on how to grow the company and is leading this growth through developing key customer relationships.
• What is the owner currently doing? The owner has fully stepped back into his prior role, and is micromanaging all aspects of the business, effectively shutting out the President.
• The best way to avoid a situation like this is to negotiate the full deal, including transition of authority and terms of transition of ownership, up front before the signing of an employment contract. Not having not done this, the President currently has no leverage.
• The best option at this point is to have a conversation with the owner and to see whether the owner is open to a transition of either power or ownership. If the owner is not interested, the President may want to consider other opportunities.

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What are the Trade-offs of Becoming a Company Principal? Four Points

Situation: A senior employee is on a good growth track within her company. The CEO has stated that he believes that she has the potential to become a principal of the company in the future. What are the tradeoffs of becoming a company principal?
Advice from the CEOs:
• Becoming a principal involves both greater potential rewards than being an employee and greater potential risks. Create a chart with two columns. In one, list the potential rewards of having a stake in the company. In the other list the costs and potential liabilities. This will help to weigh the rewards against the liabilities.
• Areas to negotiate include voting rights, granting of options, understanding the perks of becoming a partner, and also the possibility of legal liability for any malfeasance that the company may commit.
• If you see liabilities that concern you talk to an attorney – your own, not the company’s – about how to address these liabilities in the terms of an employment contract as a principal.
• Evaluate the potential long term value of the ownership share being offered. Does the company have a buy-back policy for a principal’s ownership share and, if so, what are the terms?

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How Do You Downsize Intelligently? Three Perspectives

Situation: A company has run into a rough patch and needs to cut costs. The CEO is considering a number of alternatives, but wants to hear input from other CEOs on how they have faced this challenge. How do you downsize intelligently?

Advice from the CEOs:

  • The key to intelligent downsizing is to take a different perspective. Look at the needs of the business in terms of a 3-5 year plan, not just at what is needed to do to survive today.
    • What key talent will be needed 3 years out? What key roles will need to be filled? Who is on-board today who will be needed in 3 years? How does this affect the decision on where to trim? Are there other options to simply laying off staff?
    • Answering these questions helps to consider options with a rational long-term view.
  • Establish a new paradigm. What do you want the business to become?
    • Is it the same as, complimentary to, or completely different from the current business model? Once the paradigm is developed plan personnel needs in line with this paradigm.
  • Look at all resources proactively.
    • For example, if you are considering moving your offices to a smaller space, look at your vision for the company 3 years out.
    • It may be more sensible to stay where you are and negotiate a new lease with your landlord that is more favorable short-term than paying for multiple moves.

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How Do You Preserve Exit Strategy Value as a Minority Owner? Five Points

Situation: A company has been in business for 38 years. The majority owner founded the company. One of two minority owners has obtaining her share position through sweat equity. Another minority owner is on the Board but is not involved in the day-to-day operations. There are buy-sell agreements in place to preserve the interests of the three owners. In the case of an exit how do the minority owners preserve the value of their shares of the company? How do you preserve exit strategy value as a minority owner?

Advice from the CEOs:

  • Details of the current arrangement:
    • All partners are currently capped at 33% ownership.
    • The expectation is that in 10 years the two minority owners will buy out the principal owner and split ownership between themselves.
  • It is far better to negotiate potential ownership position up front – at the time of entry into a business, rather than along the way. As this apparently was not the case the minority owner has two points of leverage:
    • The minority owner has a good relationship with the principal owner, a very important factor, and the owner cares about the minority owner.
    • As the minority owner develops a track record of success, this should be leveraged in addition to the relationship to assure that the interests of the minority owners are preserved.
  • Additional key points of leverage of the minority owner asking the question:
    • The option to walk away as principal manager of the business if not happy with the situation.
    • Upside value of the company.
    • The desire of all owners to maintain their current life-styles, which are dependent on income from the business.
  • Separate management and control of the business entity from day-to-day operations. These are distinct and different areas of focus.
  • Another option to consider is the use of insurance policies to fund a buy-out of the majority owner.

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How Do You Address the Compensation Side of an Employee Development Plan? Four Points

Situation: A CEO has an employee who consistently performs above expectations. The employee has asked whether they could be rewarded for over-performance on customer retention and for gaining new business from existing customers. How can this be structured? How do you address the compensation side of an employee development plan?

Advice from the CEOs:

  • This is the type of employee that every CEO wants to see. Responding positively to the employee’s request is essential, and an opportunity to assure the employee’s loyalty and retention by the company.
  • One structure is bonus multipliers based on under or over performance. An example of the structure could be to assign and have the employee agree to a target for customer retention or new business acquisition from existing customers. Bonus is then impacted by their performance against this objective as follows:
    • Hit <85% of the target – no bonus;
    • Hit 85-100% of target – receive your standard bonus;
    • Hit 110% of target – get bonus times 10%
    • Hit 120% of target – get bonus times 20%
    • And so on.
  • This is just an example for the purpose of illustration. Variations on the original bonus plan can be negotiated with the employee, and adjusted over time to further encourage continued outstanding performance.
  • The multipliers do not necessarily have to be large, but are there to show that a certain level of performance is expected to receive this portion of the bonus. In addition, the employee can increase the bonus by overachieving their objectives.

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