Tag Archives: Portfolio

How Do You Add a New Capability? Four Approaches

Situation: A CEO reports that customers frequently ask whether the company can deliver a service that isn’t current in their portfolio of capabilities. In a substantial number of cases, the ability to offer this service is a key factor in their choice of vendors. The company’s experience with outside consultants offering this capacity has been disappointing. How do you add a new capability?

Advice from the CEOs:

  • Reevaluate the company’s needs and assess whether these can be better meet by bringing this capability in-house, or by restructuring how the company works with contractors. Determine whether the latter is just a negotiation and contract / payment problem.
  • Take a closer look at how the company contracts and creates incentives for outside contractors. Do they have performance objectives written into their contracts that reward them for meeting contract commitments? Can they earn bonuses for beating contract deadlines or exceeding design requirements? Are there penalties them for missing key deadlines?
    • Is it clear whether contractors are missing deadlines because of the “creative process,” because they don’t use their time efficiently, or because they have other commitments that take precedence at the company’s expense?
    • If the answer is either of the two latter situations, then contract adjustments may work. Similarly, if they have an incentive to be more creative faster to meet a bonus deadline a contract adjustment could also work to the company’s benefit.
    • Another option in working with independents is to make it clear that the company is generous, but if the contractor does not meet deadlines, they go to the bottom of the list for future opportunities.
  • An option is to hire one specialist and challenge them to grow a practice within the company. This may mean that they have to do all tasks early on, but the potential win will be the opportunity to grow a significant business and hire a team to do the lower-level work under their direction.
  • Another option – bring on a creative problem solver with appropriate experience who can support the existing team, but who will have more flexibility than a pure specialist.

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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 Balance Core and New Businesses? Five Guidelines

Situation: A company has built a solid core business and wants to expand its product portfolio by adding new business. Core functions can serve both existing and new business, reducing overhead on individual businesses. What pitfalls must the company avoid? How do you balance core and new businesses?

Advice from the CEOs:

  • New business activity cannot impact core business. The core business is the company’s bread and butter. It is important to make this clear to both employees and clients and to structure the handling of new business opportunities accordingly.
  • From a staffing standpoint, new business opportunities cannot impact marketing, service and operations staff supporting the core business. New business development activity and operations cannot result in a pull from their focus on the core business. This separation may be facilitated by placing the staff supporting new business in separate facilities, or in an area separate from the staff supporting core business.
  • In the case of support functions that will serve both existing and new business, recruit and hire staff to support the new business to assure that both existing and new business receive proper support.
  • Hire a new person, one with experience and contacts, to develop the new business opportunities. Look for a sales person who can bring in significant new business. This will pay for the individual quickly.
  • How does leadership communicate these changes to staff?
    • Meet with key managers to identify potential concerns. These may include impact on company culture and client focus. Use the responses gathered to develop a communication plan to allay employee concerns.
    • As new business opportunities are added, it will be necessary to bring in new, experienced personnel. Previously, the company brought in experienced personnel to build the current business. Be open and up-front about this and explain that as the company grows there will be new opportunities for existing employees.
    • The company’s objective is to improve the quality of the organization and to raise the boat for all. Current owners and managers will automatically benefit from the efforts of new people to expand the business.
    • Building new business opportunities as separate businesses diversifies the company and reduces the risk of overdependence on existing clients and key vendor relationships. This enhances the job security of current employees.

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How Do You Finance a Ramp-up? Five Suggestions

Situation: A company has been growing within budget. In the near-term they anticipate an opportunity for significant growth. The challenge of this ramp-up is that it will sap existing financial resources as expenses associated with the ramp outpace revenues. In growth terms this challenge is known as financing the inflection point of the hockey stick. How do you finance a ramp-up?

Advice from the CEOs:

  • Investigate a number of different financing options and combinations of options. While historically the company has been financed by venture capital, as you finance your ramp think beyond venture capital as the sole source of funds.
  • Investigate corporate partners who would consider the company a strategic investment. This creates a higher valuation for the company than you will find with VCs alone.
  • Within the VC community, to raise a modest level of funds focus on 2nd and 3rd tier funds – particularly those who specialize in the company’s technology and market and who will see this opportunity as fitting their portfolio strategy.
  • Outside of the VC community, look at banking and fund options that offer creative ways of using both investment and debt to fund the company through the inflection until you are again cash positive. Examples are Comerica Bank that has been building its position among Silicon Valley start-ups and venture capital firms, and Paradigm Capital that will provide loans by collateralizing your IP.
  • Look closely at your IP portfolio to maximize IP value to either VCs or other funding sources. If your IP position is strong it boosts your ability to attract funding.

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