Situation: A small company is growing nicely and needs more people. However, the CEO is struggling to find the time to properly interview and hire additional people. In addition, he is not comfortable in this role. Hiring the right people will be critical to the future success of the company. How do you get the right people on the bus?
Advice from the CEOs:
Particularly if the CEO does not feel that hiring is a strength, hire an outside HR firm or consultant to screen and select candidates for interviews.
It is critical to decide, in advance of any search, exactly what the company needs in the individuals that are hired. A good HR consultant can help the company work through this.
Structure the agreement with the HR professional so that they are paid based on successful integration of the individual into the company. It may cost more on the back end for this type of agreement, however, it will save the CEO and the company valuable time and money far in excess of what the company will pay for this assurance.
Plan to only see the final candidates.
What does the company look for in an HR consultant relationship?
Generation of a job description and the key traits of the individual that the company seeks. This helps the HR consultant to select the right candidates for the business and situation.
Candidate recruitment, screening, and selection of final candidate(s) for company review.
The HR consultant will also prep the candidates to succeed in the company’s environment.
Assistance in identifying the key objectives and metrics that will be used to assess the success of the individuals hired during the first quarters or year in the company. If the HR consultant’s compensation is structured so that they are paid well for long-term success, it may cost the company more for the successful hires, however the company will only pay for success and will save considerable cash by averting failures.
In addition to making sure that the right people are put on the bus, work diligently to assure that they are also in the right seats, and that they change seats as necessary to complement the company’s growth.
A young company is in the process of hiring new employees. Good customer
service, including excellent communication skills and empathy are the most
important qualifications. Good follow-up skills are more important than
educational background. How do you train new employees?
from the CEOs:
Training new employees may be putting the cart before the horse. The first task is to solidify the company’s business model. The next task is to determine what roles and positions fill that model. Only then can the company determine how best to train employees.
Build an organizational chart for a $1 million company.
Who will the company serve?
What are the positions and roles?
This is future that the company will be building and determines how to select and train people to fill the positions.
Suggested Reading: The eMyth Revisited by Michael Gerber – a guide to envisioning the future of the company and how to build it.
A word of caution. As CEO, you don’t want to be training people like yourself. This is both difficult and risky. You may be training future competition.
As an alternative, think of a series of distinct roles or functions that make up the business, then select and train different individuals to handle each role. It’s difficult to find people who can do it all. It’s much easier to find people who can bring in new clients, establish and nurture relationships with partners, network to develop a referral base, or counsel new clients on alternative solutions to fit their needs.
Organizing this way means training and creating experts in segments of the business, but nobody knows the full business the way that the CEO does.
Each position within the company will need individualized objectives and performance evaluation criteria. What are the key metrics for each position? This helps to build efficiency.
Think about both one-time and recurring income models. This may call for different employees or at least a different sales activity to build each business segment.
Situation: A company has multiple locations from which it both sells products and provides services. One location has been in place for several years and produces good revenue but consistently fails to be profitable. The CEO has met with the managers in charge of this location and has set broad objectives to demonstrate a trend toward profitability. However, she is concerned that these objectives won’t be met. How do you manage for profitability?
Advice from the CEOs:
To be effective objectives must be specific, measurable, and timebound. In addition, there must be clear consequences for failing to meet objectives.
If a business is not covering its own costs, there are three alternatives: increase prices, reduce costs, or both.
Calculate the revenue impact of a 1% cross-the-board price increase at the location or across the company. Is this enough to cover the loss? What about a 2% increase? What is required to produce profitability?
Historically, have the location managers been responsible for business results? If not, does it make sense to continue with these managers and to expect different behavior or results?
While the managers may be well-intentioned, do they possess the necessary business skills? Would training or education assist?
Once objectives are set and incentives are changed to make the managers’ pay dependent on profitability, the CEO may be surprised at their ability to comprehend and tackle the situation – with the CEO’s oversight.
How do you change pay and incentives without sending a negative message?
A person who is paid hourly has the incentive to maximize hours worked, not productivity during hours worked. If the manager is shifted to salary at the same level he receives now or lower, with the potential to more than make up the difference through regular incentive bonuses, it becomes easier to direct him to make efficient use of his time.
How do you change the roles and focus of the managers?
The customer development manager is the only one who can impact revenue – by bringing in more business. Bonuses are based on both new business acquired and total revenue received.
The operations manager cannot contribute to revenue within his current responsibilities but can look for places where the cost of operations can be reduced. Bonuses are based on cost savings achieved.
Situation: A CEO wants to establish baseline metrics to evaluate company performance, and guide both planning and operations. Without baseline metrics it is difficult to compare the impact of options that the company faces. What are the most important areas to analyze, and what do other companies measure? How do you establish performance metrics?
Advice from the CEOs:
Start with the basic divisions of the business. As an example, take a company which has three arms to its business – products that it represents for other companies, products that it distributes, and custom products that it manufactures to customer specifications.
For each of these lines track gross revenue, profit net of direct costs, FTEs necessary to support the business, number of customers, net profit percent, net profit per employee and net profit per customer.
Calculate these metrics on at least a quarterly basis for the past 2-3 years to set a baseline and a chart of historic trends.
Once you establish a baseline, chart current performance on at least a quarterly basis and look for trends and patterns.
Where is your greatest growth and greatest profitability – not just on a global basis but in terms of profit per customer and profit per employee?
If you’ve included your full costs including the costs of the FTEs to support each business, then the analysis should show you where you want to invest and what it will cost you to support additional investment.
Do a similar analysis of costs per line to further support investment analysis.
This analysis will help to evaluate whether it is better to purchase another rep line, or whether you would be better off investing the same funds to grow custom business.
Similarly, it will demonstrate on what kinds of customers and products you want your sales force to focus to grow profitable business and will help you to establish objectives based on anticipated revenue or profit per new customer that sales closes.
Finally, it will highlight potential vulnerabilities such as the impact of the loss of a key customer in one portion of the business.
Situation: A company has developed a number of initiatives and priorities which are important to the success of the company. All of the initiatives are daunting. What do they need to do to get all of these accomplished? How do you manage multiple priorities?
Advice from the CEOs:
Start with corporate level objectives and set these independently from your initiatives. Pick your top corporate goals and objectives – financial, performance, and so on. Once this is in place, rate your initiatives in terms of how they help to meet your company objectives.
Create an initiative list. Measure the upside and risk for each initiative. Based on the results of your analysis classify each initiative: critical, important, or nice to have. This, plus alignment between initiatives your corporate objectives will indicate which initiatives are most critical to company success.
Every company needs long and short term goals. Use these to align and prioritize initiatives. Only and your team you can tell what is important and importance is a matter of your strategic focus and objectives.
They key to accomplishing multiple objectives is focus. Focus on your top 2-3 initiatives first – if you can reasonably handle this many. Once these are accomplished, focus on the next 2-3, and so forth.
Look at your competitors – where are the opportunities in the marketplace. How will your initiatives make you more competitive?
What does your leadership development plan look like? If you plan to add new leadership, include in your thinking a transition plan to new leadership, taking into account your multi-year timeline.
Situation: A company hired an experienced individual to sell for them as a consultant. The individual initially asked to be paid on an hourly basis. Results have come with surprising speed. Now the consultant is asking for a commission on sales. How much should you pay a salesperson?
Advice from the CEOs:
Tailor the commission structure to company objectives. For example, if the objective is to reward new business development, and to retain the individual, try something like:
Offer 10% commission on Year 1 sales.
If both the customer and the consultant are still with the company in Year 3, the consultant gets a 5% bonus on Year 2 and 3 sales.
Repeat this for successive years.
If the interest is a long-term relationship, determine the nature of the sales services where the consultant excels.
What is the individual’s focus?
Have a highly qualified sales expert do a telephone interview of the consultant and offer their assessment of the individual’s talents.
One successful sales model includes one measure to retain the job, and another to calculate commissions:
Set a dollar quota for sales performance – if the individual does not hit at least 85% of quota, they lose their job.
However, calculate commissions based on the gross profit that their sales generate.
This properly balances the focus between revenue and gross profit generation. To succeed, the individual must pay attention to both measures.
If the individual wants a substantial commission, then don’t pay a substantial base. Instead pay a draw against commissions to allow them to support themselves between sales.
Pay on receipt of payment, not on receipt of orders.
Situation: A company plans to implement a new CRM system. They have a project road map and have assigned a manager for the implementation. However, the CEO has concerns because this is the most significant software roll-out that the company has ever attempted. She wants to assure that the roll-out proceeds smoothly, and that and that sales, marketing and customer service functions are not hampered. How do you simplify a firm-wide software roll-out?
Advice from the CEOs:
Focus on company business objectives as you plan and implement the roll-out. Optimize the system to company business objectives, not just what the team wants.
Scope this out as a project management exercise.
Build and test.
Roll the system out to preliminary production and collect feedback on functionality.
Rebuild and test.
Plan and conduct system orientation training.
Set a date for the roll-out.
Don’t immediately roll the new system out company-wide. Conduct an initial implementation with a small scale test team. Make sure that everything works as planned and that day-to-day function is not compromised. From the information that you gather during initial implementation, tweak orientation training so that everyone is comfortable with the new system.
During initial planning sessions to set system objectives, meet first with managers whose teams will be impacted by the roll-out. Managers may not speak freely if their support staff are present.
Have a roll-out celebration and be generous complimenting personnel who have been involved in planning and roll-out.
Situation: A CEO has hired an individual who is currently working on projects for the company. The CEO likes this person and anticipates that he could eventually become General Manager. There have been a few rough spots but, overall, objectives are being met. How do you bring in a new General Manager?
Advice from the CEOs:
Transition the individual from their current responsibilities to GM in small steps. This will allow him to develop relationships and credibility with the rest of the team. These relationships and credibility are what he will need in the more senior position.
Coach the individual about any behaviors that you may observe, or which may be reported to you by others within the company, which are contrary to your culture. Understand, from the new individual’s perspective, what motivates these behaviors. Encourage the individual to develop alternative behaviors that are more consistent with your culture. Be open to the possibility that some of the behavior may be addressing flaws in the current culture.
Maintain open communication with your key managers who will be impacted as the new individual gains responsibility. As the individual gains authority within the organization, be clear that you support your new manager.
Your current culture is always in flux, and will continue to change as you bring in the new GM. This will create natural resistance as people adapt to the new situation. Be patient and stick with the plan. When others complain be honest and up-front that you support the new manager, and that everyone will have to adapt.
Situation: A company is preparing for a reorganization. The CEO plans to hire a new manager to in time become General Manager of the company. He also wants to terminate two current employees. How do you manage a reorganization?
Advice from the CEOs:
Develop a 90-day integration plan for the new manager, including his/her top 3 to 5 objectives, and have the individual develop and execute the plan to achieve these objectives.
Use an early project to schedule working sessions with each department in the company during the new manager’s first week. This will help the new manager and current employees learn to work together and develop trust in each other.
In addition to providing broad objectives for the new manager’s first 90 days, clearly establish behaviors and outcomes that are unacceptable.
One of the employees to be terminated is a long-term employee who reports to the CEO but has not performed to expectations. The CEO should take the lead in terminating this person, and offer them a suitable severance package.
A junior employee who is not performing to expectations reports to a supervisor. However, the junior employee has repeatedly tried to work around his supervisor by approaching others in the company with his suggestions and complaints.
o First, make it clear to everyone that the employee’s behavior is not acceptable and that he has to work through and with his supervisor.
o Then let the supervisor determine whether or not to eliminate the employee, and support the supervisor’s decision. This includes offering a suitable severance package should the supervisor decide on termination.
Situation: An early-stage company is in discussions with a high-powered individual who could invest, join their Board, or help them more directly as an executive. They want to involve him enough so that he is interested in working with them. How do you attract a high powered individual?
Advice from the CEOs:
You are still in fact finding mode. Get an NDA ASAP! Backdate the NDA to your first conversations.
o This individual needs to meet face to face with your current team. See how the dynamics work; be very sensitive to conflicts and jealousies. These can wreck an early stage company.
o You need to see how the new individual interacts with your current team to check chemistry before you go too far.
o Be gingerly with your co-founders about adding another “founder.”
Create a high level straw man for this person’s roles and responsibilities.
o Ask the individual what he sees as the potential for the company and how he foresees being able to contribute.
o Develop a business plan for this individual – with the appropriate title. Spell out roles and expectations.
If you offer an equity position, be sure that shares are on a vesting schedule and that you have a shareholder’s agreement.
o Be creative in your vesting. Rather than vesting on time, consider vesting on individual and company performance against milestones. If the company doesn’t hit the milestones what is the value of the shares? Make the milestones consistent with the individual’s objectives – bringing dollars into the company based on investment or revenue hurdles.
o If this individual wants to come in as a “founder” insist on some investment to demonstrate commitment – you and your co-founders have funded the company to date.