Tag Archives: Pain

How Do You Finance an Early Stage Company? Three Considerations

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Situation: The CEO of an early stage web company is looking at steep ramp-up expenses. Many companies have bootstrapped their way to success. However outside investment may speed the process. How have others evaluated these options? How do you finance an early stage company?
Advice from the CEOs:
• Raising money takes time and is a major distraction to the development process. The two big variables will be investor interest and the timing of investment. Talk to Angels and venture capitalists now. Start by presenting a broad outline of your technology and business model. Ask what they will want to see to offer you funding at different levels. This will give you a reality check as to investor interest in funding the company. It also creates a roadmap to funding if the response is positive.
• What is the company seeking – money or accountability? One CEO bootstrapped her company during the early stages, then looked for outside investment to gain accountability and advice – a whip to help move things along. This CEO found that investors brought few of the anticipated assets, and added a new level of distraction and pain.
• If you are looking for funding to purchase content to serve through your Internet portal, consider a more creative way to gain content. Can you use a Web portal through which your target audience provides both the content and the consumer audience in a marketplace exchange? Establish the audience and then add premium services to monetize the model. This can minimize your upfront cash investment requirements, and may create a faster track to positive cash flow.

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How Do You Rapidly Ramp Sales? Three Tactics

Situation: A company’s key marketing partner has excelled at analyzing key potential customers, the right decision makers within those customers, and completing sales to them at a premium price. The CEO wants advice on what more they can do with this partner to leverage and boost sales. How do you rapidly ramp sales?

Advice from the CEOs:

  • The company’s current strategy is to start a customer on the company’s product to add additional functionality. Once the customer learns to use the product, they work to extend the customer to other products from the company.
  • It is difficult to win with a “push” sales strategy. The situation described is like that of Linux competing with Microsoft. Everyone knows how to use MSFT, and for most of what they do MSFT is good enough. It takes a particular level of pain or need to justify the pain of transitioning to something different.
    • The only alternative is to show a significant pay-back for the pain that the customer must endure in order to convert, large scale, to another solution.
  • The company’s target customer will be the key manager who will shut down the line because they don’t have the company’s solution. This forces the purchase decision above the manager’s boss to the executive suite. The company’s solution then becomes the alternative that saves the day.
    • Seek a forum or trade show that will put the company’s solution in front of these key managers. Through this venue, create buzz that will make the company’s the booth to visit.
    • It is critical to have a compelling story for potential users when they respond to this gambit and visit the company’s booth.
  • The solution to this dilemma is the same as the solution to the company’s overall strategy.
    • The company’s offering, at this point, is just another alternative available to the customer. While the company has a compelling product, it is not world changing and the company lacks the market presence to make its solutions first to adoption.
    • The solution is to focus. Stop what the company is currently doing and take the time to develop a technology strategy.
    • Once this strategy has been defined, focus efforts on developing the killer application that becomes the reason that people must come to the company to satisfy their need.
    • Once this killer application has been developed, positioning and gaining traction with the customer will become easier.

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Do You Share Company Costs with Customers? Five Points

Situation: A B2B company has historically negotiated pricing with customers individually. While there are similarities between customers, each receives a product customized to their needs. The CEO is considering creating a “full disclosure” pricing model including their costs and seeks feedback from others. Do you share company costs with customers?

Advice from the CEOs:

  •  With only two exceptions, the CEOs did not agree with the concept of fully disclosing their cost structure to the customer.
    • The industry exceptions were public construction and government work. Some cities and the federal government require cost breakdowns and mark-ups by regulation.
  • The difficulty with the profit or license line, however it’s labeled, is that it becomes obvious that this is the company’s profit ‘nut.” This may be shared with a CEO that you respect; however, if the CEO shares this information with others in the organization your cost breakdown may become the basis for future line-by -line negotiations for cost reduction. Those with whom your company negotiates will be acting in their company’s interests, not yours.
  • The key is to optimizing pricing is to identify and sell a solution to the customer’s pain. If you do your homework well, and the customer is the right prospect, the price that you charge will pale in comparison to the costs that the customer seeks to avoid.
  • In your first negotiation, make sure that you have identified the customer’s pain and are presenting a value that addresses this pain. Only after you set expectations and have assured balance of effort do you go into more detail about your cost structure. Even here, only share detailed cost information if you deem this critical to the sale.
  • Look at it this way – price is not the key issue. The key issue is whether you can solve the customer’s problem and do so while providing an appropriate return on investment for the customer.

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How do You Manage a Key Partner Relationship? Five Points

Situation: A company was created from IP originally developed by the founder at a large corporation that was not interested in commercializing it. The new company has now become successful and visible, with the large corporation as an important partner. The CEO wants to make sure that she has all bases covered to secure the future of the new company. How do you manage a key partner relationship?

Advice from the CEOs:

  • There must be clear agreement between the company and partner on ownership of the original IP – a legal document signed by both parties. You can bet that should a conflict arise, the lawyers representing the larger company will argue that their client owns the IP. Once this is secured, focus on developing and licensing software that you clearly own.
  • Develop contingency plans should the key partner decide to exit the business on which your relationship is based. Identify what other companies could replace lost revenue. Start to build these relationships.
  • If the partner helps to fund current development, take the money that you save and develop your own IP, independent of the partner relationship. As an alternative, at least develop critical components of the software as your own IP, without using the partner’s funding.
    • This will free you to develop other customer segments to broaden your business base.
  • What concerns does the partner have? Strategically, large corporations can be uncomfortable if they feel dependent upon a much smaller company. There are two things that you do:
    • Makes a concerted effort to assure that you are essential to the large corporation’s overall business.
    • Make change as painful as possible.
  • How would you get paid if the large partner exited the relationship?
    • Negotiate a contract with a 2-year window to any change that partner wants to make. This will provide you with the room to develop new clientele should the partner exit.
    • Have contingency plans to rebuild capabilities that might be lost and sell it to other clients.
    • Customize your software by client. In the process, you will develop new methods to keep your edge over competitors.
    • Keep critical parts of your processes “manual” so that they are essentially trade secrets and not easily replicable if the partner were to try to take over the IP.

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How Do You Facilitate Management Change? Four Suggestions

Situation: Historically the management of a company has been family and a few long-term managers who’ve grown with the company. Some of these managers have reached their limit. Over the last couple of years, the company has added new, high capacity management. Who do they do with existing managers who can’t keep up? How do you facilitate management change?

Advice from the CEOs:

  • This is why packages exist. Employees, even key managers are not forever. As a company grows both its needs and culture must grow. There comes the time in the life and growth of most every company when certain managers are unable to accommodate this growth or adapt to the changing culture. You may well find that these managers are not very happy and no longer feel at home. Whatever the case, it is better that they move on.
  • Who creates the package?
    • You or your HR manager come up with the outline.
    • Get professional advice if you have none in-house.
  • Is there a moral issue – our commitment to our employees?
    • If an individual is demotivated, they are not contributing – this solves the moral issue.
    • If the individual is terminated amicably this can be for the best – for both parties.
  • How do you ease the pain of separation, both for the individual and the company?
    • Packages can be adapted to the situation.
    • Take the example of a manager who has made important contributions in the past, and who has good relations with others in the company, but doesn’t have the skills to adapt to the next level. Include a generous term of job search assistance. If the separation is amicable, offer them space, computer and a telephone to facilitate their job search. This can ease the separation.

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