Tag Archives: Options

How Do You Build a New Channel? Four Cases

Situation: A company wants to increase business by building a new channel. The new business is different from the company’s base business, but won’t change the company’s focus on its base business. What lessons have been learned by other CEOs who have accomplished this? How do you build a new channel?

Advice from the CEOs:

  • One company created a new channel without changing the base business.
    • They responded slowly to the opportunity before deciding to change.
    • They needed to change infrastructure by adding more people.
    • They also needed to redefine the offering to meet the needs of new clients.
    • This involved adding additional data which had been accessible previously but hadn’t been presented.
    • At first the hand off wasn’t smooth. Hiccups that could have been foreseen with more planning were extra data fields and rough hand-offs. Future new releases will focus on improved process review and more challenging of assumptions, and more patience in the scoping stage.
  • The second company created a new branch with different products and operations, but maintained one financial and inventory management system.
    • The initial produce was sold and installed, utilizing union labor. The new product is sold wholesale business to businesses and is non-union.
    • After struggling with attempts to house both operations under one roof the new operation was moved to a separate location.
    • This enabled company to set up separate operations and to fully understand the financials of both operations. It also makes it easier to assess the viability of each business and to implement changes in one without disrupting the other.
  • The third company created a new offering to sell to the same customer base, with no change in the back-end systems.
    • The new business created an insurance model for the company’s services as an alternative to the original break-fix model.
    • The two systems use a common sales team, network engineers, and back-end system. Customers choose either insurance or break-fix.
    • The challenge was that the two models need completely different monitoring and incentive systems for the engineers. This took time for development and training.
  • The fourth company created two production operations: turnkey and component.
    • This called for different sales and contracting processes and separate production areas on the plant floor, with clear delineation but using the same back end, financial, and engineering support systems.
    • The component process is short-run, high value, high margin; the turnkey is high volume runs, lower value, low margin.
    • The challenge has been in setting up a new set of contract agreements and monitoring systems to monitor the financial success of the turnkey operation.
  • What is the common thread?
    • Put sufficient time into planning and evaluating options and challenges so that there is a solid understanding of the new channel before starting.

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How Do You Create a Professional Development Plan for Employees? Four Points

Situation: A CEO wants to develop employment growth/professional development plans to help individual employees reach their next level of skill and/or responsibility. This includes determining company needs, skill sets requirements, etc., and a plan to fulfill these.  How do you create a professional development plan for employees?

Advice from the CEOs:

  • Start by defining company needs and the skills required to meet these needs. Ask:
    • Do we currently have staff in place with the requisite skills? How deep is our resource base?
    • Do we have individuals who desire to acquire skills where we are not deep?
    • Do we need to be looking outside for these skills?
  • Create a mechanism to enable employees to express their expectations and aspirations.
    • Ask about individual employee’s aspirations during quarterly manager / employee 1-on-1s.
    • Look for alignment between employee aspirations and company needs. If there is alignment draft a training plan to meet both the employee’s and the company’s needs.
    • Explore alternative options for them available within company. List skill sets needed. Develop a growth plan.
    • Ask employees to set three objectives for next 12 months. This is best done with a standard self-evaluation and aspiration form.
  • How often is the plan reviewed with each employee?
    • For specific action items – track follow-up to milestone dates.
    • Manager one-on-ones – monthly.
    • Quarterly or semi-annual evaluations.
    • Annual formal performance reviews.
  • How does the company, demonstrate that they are paying staff more than fairly?
    • Research salary surveys to determine how the company’s salaries measure up to typical local or regional salaries for comparable companies in the industry. Plan adjustments if necessary.
    • On the company level, produce data that shows overall company salary levels vs. industry averages in the company’s locale.
    • In individual salary discussions, let the employee know how their salary measures up against area averages for their position.

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How Do You Manage Conflicts of Interest? Four Tactics

Situation: A service company was acquired by a larger company. There are limited operational crossovers between the two, but where conflicts of interest arise the acquirer seems uninterested in addressing these. How do you manage conflicts of interest?

Advice from the CEOs:

  • Within the company it is necessary to clarify what can be done autonomously and what must be done with the acquirer’s support.
    • Where the company sees issues it can develop a recommended set of actions that will avoid pain – particularly where its systems are more developed than those of the acquirer.
  • Reconstruct the acquirer’s motivations for the acquisition.
    • Was their objective synergy or portfolio diversification? If it was a synergy play, then more structure and integration are needed.
    • From observed behavior, it looks more like it was a portfolio diversification strategy. In this case they will expect the company to continue to perform as a quasi-independent structure, but under their umbrella.
    • Given this, where do possible market synergies between the companies exist? Look for these and develop mutually beneficial alternatives.
  • The CEO feels a responsibility to his company’s staff, assisting them to be more comfortable within the current situation.
    • If the analysis of the acquirer’s motivations rings true, then share this with the company’s staff. If this is the case then they should not be seeking a lead from the acquirer but should concentrate on maintaining what company has done well over the years.
  • What options are available for CEO?
    • It is possible to maintain status quo. The company is getting new business and performing well.
    • On the other hand, if the CEO is acting in the leadership role with decreasing focus and interest, this will not bode well for the organization or staff.
    • In the latter case, set a timeline and date for departure. This can be some time out but should be comfortable for the CEO.
    • Communicate this timeline to acquirer and when the time is right offer to help look for a successor.

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How Do You Avoid Payment Pickles? Five Options

Situation: A company has clients who are not paying on schedule for projects. If the company stops or delays work, the clients say this is why they aren’t paying. The CEO needs to find a solution that clarifies and codifies responsibilities of both the company and its clients. How do you avoid payment pickles?

Advice from the CEOs:

  • Look at the contract templates and adjust them to better meet the company’s needs.
    • Change the contract obligations – so that the company is not liable for failing to complete on time when the client does not pay.
    • Increase the frequency of client payments so that the company is paid on a more timely basis.
    • Document all payment promises in the contract, including clear penalties for untimely payment and the company’s ability to stop work if payments fall short.
    • Look for an insurance product that insures the company for clients’ failure to pay – include the cost of this policy in the job quote.
    • Always hold back something critical until the final payment is received.
  • Rebrand the company to improve the business proposition.
    • Highlight the founders’ credentials – use this credibility to differentiate the company from the competition.
    • Expand the company’s presence in customized solutions, tailored to meet customers’ needs.
    • Work the high-end solutions network to get to the high-end clients.
    • Obtain D&Bs on clients before signing contracts.
    • Find the founders passion and focus on this to build the business.
    • Build what the customers want and deliver on schedule.
    • Present multiple options to new clients – a basic option for a competitive price, with add-ons similar to car dealers who use add-ons to boost the value of the sale.

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How Do You Manage Succession Planning? Seven Considerations

Situation: The founder and CEO of company needs to find a successor. She is ready to reduce her role but wants to assure the ongoing operation and future growth of the company, as she will remain the principal shareholder. How do manage succession planning?

Advice from the CEOs:

  • Options for management succession and growth.
    • One option is to create an employee stock option plan (ESOP) to expand ownership of the company and to help recruit new managers to support growth.
    • A second option presented itself through a broker who has approached the company to help them find a buyer for the business. The broker suggests finding a customer who is a potential buyer and also the right fit.
    • A third option is to purchase a smaller company with a good CEO and then do an ESOP transaction to allow the CEO to reduce her role while providing new incentives for management.
  • Options for maintaining continuity of the business.
    • The CEO has identified an individual with the background to lead the company and identify the talent to fill key roles.
    • In addition to a leader, what other key roles must be filled? Look at the current and planned organizational charts. Determine which roles must be filled, the order of priority to fill them, and management succession plans for each.
  • When and how should the CEO’s plans and options be communicated to staff?
    • One approach is to say nothing until either a successor has been identified or an actual deal is in place. This will avoid unnecessary disruption that will accompany and news of the plans.
    • On the other hand, if an ESOP is the option, let current staff know early, along with anticipated specifics of the ESOP Plan.
    • It is best to be straight with staff once the timing has been determined. Complement disclosure of plans with assurances that the change will be good for staff and that there will be financial incentives for them to remain with the company.
    • Be sensitive to what drives and motivates staff – build this into plans to inform them of what is happening.

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How Do You Engage People in a New Offering? Eight Points

Situation: A founder has created a new social media offering. The concept is to attract individuals with complimentary interests and have them engage each other for mutual benefit as a better source of information and connections. Implied trust is an important component of these connections. How do you engage people in a new offering?

Advice from the CEOs:

  • People are willing to experiment with a new social media offering – in this case because they like to help others. It makes them feel good and they like the role of helping others.
  • People are always seeking good talent. If this does a better job helping them to find good talent, they will try it out.
  • Hiring managers prefer to pass on a resume of someone known to them because a bad referral could reflect badly on them. Strengthen this aspect of the offering through information gathered from participants.
  • A small pool is a negative. Broaden the pool to include those who are looking to step up their careers. Think of this as people-to-people direct hiring and use a social approach with broad appeal. This will increase the number of people willing to play.
  • Be the place where people can come to help others. Add additional tags – help to build confidence and get inspiration. Getting a job happens as a consequence.
  • The element of trust and relationship is important to many – 40% of early users of the current network express this. Assure that the value proposition is also attractive to the 60% who are not concerned about this.
  • The network will build on the energy from the emotional play.
  • Expand the options for how people can help. Investigate allowing trusted referral relationships within the system. Allow people to refer trusted people in their own networks. This can include people who “I would trust to refer good people.”

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How Do You Prepare for a Potential Acquisition? Three Areas of Focus

Situation: A CEO has been approached about a potential acquisition of his company. The offer was a surprise, and the team within the company is split on whether they are interested in a sale. They are currently very happy with what they do. How do you prepare for a potential acquisition?

Advice from the CEOs:

  • How does a company best position itself in advance of discussions?
    • Rebrand the company to boost the value proposition. Make what the company does best the focus of its value proposition. Position the company as the “experts” in this area.
    • Look at a series of possible scenarios that could develop and determine who on the team can best contribute each scenario. This will help to evaluate the implications of each scenario and to rank them in terms of favorability on the company’s terms. It will also help to quickly exclude certain scenarios if they come up during discussions with acquirers.
  • What research should the company conduct on the acquirer?
    • Do a deep dive into the potential acquirer. Research is simplified if the acquirer is public. Go online and look at their SEC and public filings. Look at their revenue trend as well as their profitability or losses.
    • What is the acquirer’s history of acquisitions? Interview people from companies that they have purchased.
    • Don’t pitch anything to the acquirer until you understand what they want to buy – this is critical so that the company positions itself well.
  • What is the best approach to take once the conversation starts?
    • Quick first step – send the company’s financials to the acquirer with a 3-year projection. Ask them, based on this, for a price range that they would consider for the company. If the range is outside of expectations, the conversation is over.
    • Determine whether this looks like a strategic vs. a financial buy. A strategic buy yields a higher price.
    • Cut a deal structure with a bonus tied to success post acquisition. This means a reasonable upfront payment with big payments for future success. This creates golden handcuffs to motivate the company’s staff to stay post-acquisition.
    • There should be multiple options on table – addressing both financial considerations and the future of team.
    • Always be ready to say no!

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What are the Best Options to Obtain Financing? Six Thoughts

Situation: A CEO has been the principal source of financing for her company. She is looking for Round #1 financing of $800K to $1 million to take the company through the next two years, followed by an additional two rounds of financing to take the company to profitability. What are the best options to obtain financing?

Advice from the CEOs:

  • Given the company’s size, it’s too risky to put all eggs in one basket. Also, it is difficult to simultaneously pursue all options. List and rank all financing options, and limit efforts to the top 3-5 options, forgetting the rest for now. The company is more likely to be successful with a limited number of targets.
  • The big question is which avenues to pursue? Current preferences are:
    • Sell what the company can sell now – focus on collaborators and bootstrap the company as much as possible.
    • Angel funding, if the company can find the right angel.
    • Avoid venture capital unless there are no other options.
  • Given these, where does the company have live contacts? What conversations can be pursued to a successful conclusion in the next 1-2 months?
  • For the Angel option, the company’s model is easy to explain and has appeal. Which potential Angels could be approached in the next 1-2 months?
    • An option is to bring an Angel in slowly – creative input, perhaps a Board seat.
    • Once the Angel is on-board, put together a list of your funding priorities and a list of 4-5 top prospects in a Board discussion. Ask this individual’s advice and assistance contacting some of the prospects. He may ask at that meeting or later why he hasn’t been asked.
  • For the first $1million – consider an SBA loan.
      • Under new guidelines, the application fee has been reduced.
      • Approval cycle – 30 days or less.
      • The trade-off between bootstrap and Angel funding and SBA is personal risk. Look at this as a fallback option.
  • VC funding is very time consuming. Also, VCs prefer that their clients are somewhat desperate, so that they will receive a larger piece of the company for their money.

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How Do You Fund Business Growth? Four Observations

Situation: A company is looking at options to fund growth. These include selling a stake in the company, bank financing, organic growth. or partnering with another company. There are trade-offs to each option. How do you fund business growth?

Advice from the CEOs:

  • There is a question that should be answered before talking about funding: what is the vision for the business?
    • Think about building the business that the founders want to run. What size company feels comfortable from an operational perspective? What does it look like?
    • Does the company have the right people and infrastructure to support planned growth? Are current direct reports capable of taking on additional projects and monitoring both current facilities and additional sites?
    • As the company grows, can the bottom line be increased as fast as the top line?
  • Commit the 5-year plan to paper. Before deciding how the company will grow, determine the vision, the growth rate to support that vision, the organization required, and the strategic plan to get there.
  • The funding decision is an investment decision. What’s the return for a multi-million-dollar investment?  What incremental revenue and earnings will it produce?
    • Estimate how much revenue the investment will generate in 5 years. At the current gross margin, what is the incremental gross margin per year.
    • Given this estimate, what is the projected EBITDA? Does the annual EBITDA represent a reasonable rate of return on the investment?
    • The investment ROI must be known – both from the company’s perspective and for any lender or partner who invests in the planned expansion.
  • How high do the company’s relationships extend in key client companies? Do client upper management realize how critical the company is to them?
    • If the answer is not high enough, develop these relationships. This could open new funding opportunities.
    • For example, if the CEO knows the right people at a key customer, let them know that the company may want to build a facility near them. The customer may be interested in partnering with the company to finance the facility.
    • A multi-million-dollar joint venture plant investment is a modest investment to a large customer if it gains them a strategic advantage.

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What is Appropriate Compensation for a Founder CEO? Four Points

Situation: A founder CEO established her company with a significant personal loan, which is being repaid. To compensate herself for the original investment, she is considering several options including an employee stock option plan (ESOP) through which employees would be able to establish ownership of a certain percent of the company. What is appropriate compensation for a founder CEO?

Advice from the CEOs:

  • The critical question is: what is the CEO’s goal? The next question is – what options best serve to achieve goal?
    • If the goal is long-term goal is maintaining or increasing current income combined with long-term security – like a Trust Fund – seek the counsel of a financial advisor who can help model how the options under consideration will satisfy the goal.
    • This individual can also evaluate the tax advantages associated with various options.
  • Is there a clear exit strategy in place?
    • Every company needs a written exit strategy, as well as a plan to put this strategy into action.
    • The simple existence of a strategy and a plan does not preclude adjusting either the strategy or the plan as conditions or opportunities change.
  • There are two important corollary points:
    • Having a strategy and plan is the only way to build a structure of accountability within the company; and
    • Recalling a lesson from Jim Collins’s book, Good to Great, the successful companies selected a solid strategy and stuck with it; the less successful comparators continually changed strategy and never allowed momentum to build.
  • To assist establishing an exit strategy, seek the advice of one or two consultants. There are several highly qualified exit advisors that can be researched through current professional contacts or via the Internet.

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