Tag Archives: Protect

How Do You Grow Business in China? Four Perspectives

Situation: A company has established a foothold in China. Their objective is to grow that business. The CEO is curious about the lessons that others have learned while doing business in China. How do you grow business in China?

Advice from the CEOs:

  • There continues to be ambivalence about the legal challenges of doing business in China. Primary concerns include both protection of IP and corporate / securities law. Become the firm that lifts the fog and charge a premium for this talent. Play off of corporate fear factors about doing business in China.
  • Networks in China look much different from networks in the US.
    • In China there is the government, and then there is the Communist Party which really runs things.
    • Particularly on a regional basis, the Chinese Communist Party has both formal, informal, and “nonaffiliated” branches and activities. All of these may be controlled by local or regional officials with little or no oversight by Beijing. Much depends upon shifts in the political climate.
    • Contacts within Chinese companies and law firms will be critical to understanding how to negotiate these networks on behalf of the company’s Chinese and American clients.
  • China has been big in the press for several years but may not be center of focus of all large firms yet. They may be waiting for additional clarity before making a significant investment China. Be a pioneer who points the way for corporations that feel that they have to be part of the China game.
    • As you develop expertise in China, this may generate opportunities to become the service bridge for other firms who find it more efficient to rely on others’ specialized expertise rather than build their own expertise in China.
  • Use the Blue Ocean Strategy techniques that are used by large corporations to create differential advantages for the company’s China presence.

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How Do You Change the Culture of a Company? Five Points

Situation: A newly hired CEO finds that the company is struggling. Employees are not responsive to customer queries. Calls aren’t being returned on a timely basis. Employees are reactive instead of proactive. There is a “just getting by” mentality. How do you change the culture of a company?

Advice from the CEOs:

  • The CEO is the culture of the company.
    • Bring the company together – show them the numbers. Let them know what’s going on. Ask for their help after sharing information.
    • Bring a vision for the company – what it can be – and put it on the table.
    • Daily, walk around with a cup of coffee. Talk to people. Ask questions and encourage their input.
  • The CEO must set the vision / mission for the company and be the evangelist supporting this vision.
    • Until this is done, employees have no reason to change.
    • It is critical to build a strong culture that people want to be a part of.
    • Culture change may require replacement of some of the staff – over time.
  • The cultural problems that are being described are symptomatic of a deeper problem.
    • The current situation grew from the values of the founder. The founder hired people who supported his vision. Fortunately, he hired people who created much of the unique value that is in the company today. Something was being done right. The challenge is to shift the culture without losing that value.
  • Consider “divisionalizing” the company.
    • Create an R&D division under the Founder / CTO. This will give him his own sandbox and may enable the company to save what was being done right.
    • At the same time, protect the rest of the company from day-to-day interference.
    • Dividing the company into divisions under strong leaders can help to shield the rest of the company from the source of the issues.
  • Another CEO was in the same place that is being described. He had a vision that he thought was shared by the company. In reality there was none. Establishing a vision and enlisting the company in the vision takes work. The CEO as evangelist must continually repeat the message of the vision.
  • Change in a manufacturing environment starts from the floor. Get the operators and technicians involved in the process of changing the culture. Look for “secret champions” who are responsive to these efforts. Create teams (with the secret champions as leaders or key players) and let them champion improvements.

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How Do You Respond to a Purchase Offer? Five Thoughts

Situation: A company has been approached by a larger company that is interested in purchasing it. The purchaser wants to fill a niche that they don’t currently serve, but which is important to their growth. The CEO is concerned about what will happen to employees following sale of the company. How do you respond to a purchase offer?

Advice from the CEOs:

  • Questions for Preliminary Stage Research:
    • What valuation is the tipping point for an attractive offer by the buyer?
    • Determine the nature of the purchaser’s interest in the company and how it fits into their broader strategic picture. If their plan will dramatically change the market the company’s current market value may go down later relative to doing a deal with them today.
    • If the acquirer has a history of buying other companies, look at who they’ve recently bought, what they paid, and what kind of impact they had on the staff and culture of the companies purchased.
    • Check out the purchaser’s P/E ratio. If it is in the range the company’s desired multiple on EBITDA, a good deal is possible.
  • Temper the company’s response and approach to get the most from this experience.
    • Currently, assumptions about the acquirer make the offer appear unappealing. Ask questions to validate or challenge these assumptions.
    • Be open-minded so that the purchaser reveals more about themselves and the market than they would if they sensed a lack of interest in an acquisition.
  • How does the company protect itself during the inquiry and due diligence process?
    • Keep staff numbers and individuals, and customer lists close to the chest.
    • Have an LOI and ask for a breakaway clause before sharing significant information. 
      • Breakaway clause: if the two companies get into discussions and the potential acquirer decides to abandon the discussions, it will cost them $1M.
      • The potential acquirer may not agree to this, but it demonstrates that the company is serious both about the discussions and about preserving the confidentiality of its business information.
  • More Advanced Stage Questions and Research:
    • This looks like a strategic interest. If so:
      • Get assistance from an investment banker.
      • Look at what other alternatives may be available to the acquirer to assess the company’s potential value.
      • Any offer other than a high-multiple strategic valuation and offer should not be of interest to the company.
    • What restrictions will the acquirer put on the company? 
      • For example, if there is an earn-out value, will they give the company the freedom to operate to maximize this value?
    • Be careful with employee communications and how employees are informed of an outside interest. This can be difficult during due diligence.
    • If the founder remains with the company post-sale this could help lock in the value of the exit and assure the employees’ future.
  • Make the most of this opportunity.
    • Are there ways that the company can become better and smarter working with the acquirer?
    • Is there a relationship short of acquisition than would benefit the company like a collaboration or partnership?
    • Can a relationship short of sale enhance the company’s market presence and help the company to achieve national status more quickly?

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How Do You Optimize Your Business Model? Six Points

Situation:  A company is in the process of shifting their business model to better address customer needs. They have three different models under consideration. Management is split between these models, but must arrive at a consensus. How do you optimize your business model?

Advice from the CEOs:

  • Right now, you are considering three different potential models:
    • Tools – your old model
    • Data – produced by your old model
    • Service – your new model
    • These are different models with different prospects.
  • The money makers in marketing focus on data, not tools. Data is information, and this is what is valuable to clients. If you want to focus on the data component of your offering.
  • Currently, you are scraping data from social media and matching this to your client’s database on a real-time basis. There’s a model and value here because you are enhancing your client’s current database by making it more useful and actionable to them.
  • You have tools to enable and add value to existing client databases by allowing them to better segment their database. Again, there is value here.
  • Your core IP is the ability to correlate diverse data sources. Have you protected this IP? If not, this needs to be a top priority.
  • How much information that you scrape from social media sources can you share without violating privacy? This is something to think about because people are becoming increasingly sensitive about companies collecting their private information.

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What Are The Best Ways to Create a Presence in China? Six Suggestions

Situation: A company’s major customers are expanding their manufacturing in China. They want the company to be able to service their Chinese locations. If you don’t already have a presence in China, what are the best ways to create a presence in China? In addition, how do you get the cash produced by these operations out of China?

Advice from the CEOs:

  • Increasingly, multinational businesses with operations in China seek vendors who can seamlessly handle all of their domestic and international needs. In China, the objective is to be able to translate service output into English so that US managers can monitor the output and assure that Chinese operations are meeting the same or similar basic standards as their domestic and other foreign operations. If your company can’t do this large contracts are at risk.
  • Look for local partners, including partners located in Hong Kong or Japan who can deliver service in China to your standards. You want partners who you can risk-manage.
  • It is interesting to look at the Japanese approach to China. Japanese concerns known to CEOs around the table only transfer highly developed, late stage manufacturing projects to China.
  • As you look at partners who have capabilities in China there are a number of qualities that you want to investigate:
    • Competence and honesty.
    • Loyalty – a partner who will stick with your company and not just take the new knowledge and start to compete with you.
    • Absence of graft and record of compliance with the Foreign Corrupt Practices regulations.
  • If you work with Chinese partners, work with two of them. Do not give them exclusive agreements, and do not tell them about one-another. This is critical to protecting any IP that you will be using in China.
  • We’ve learned over the past year that taking cash from your Chinese operations out of China is difficult. The Chinese government imposes heavy fees and levies on companies exporting earned capital because they want this capital to remain in China. Given this, you must ask yourself whether this is important to you. [like]

What is Your Experience Outsourcing to Eastern Europe? Five Factors

Situation: A company is in contact with an Eastern European company that seeks outsourced business from the US. The CEO seeks guidance on challenges managing as well as formalizing this relationship. What is your experience outsourcing to Eastern Europe?

Advice from the CEOs:

  • Location in Eastern Europe is important. There have been concerns with both corruption and IP protection in Russia. Some other Eastern European are more aligned with US/European values and farther up the ramp as outsource partners.
  • Experience of other US companies suggests that your spec must be written much more tightly than if you were doing the work here. If you can’t write a tight spec on the work, don’t outsource it!
  • Contract outsourced work on a fixed fee basis with the bulk of payment due on completion. This helps to assure that you receive timely delivery and the quality of work required.
  • Set up thresholds for the circumstances to engage an outsource partner.
    • Say one US worker is economically worth 5 foreign workers in your domain. Do you have enough work to support this?
    • Determine who will manage the outsourced work. A European is fine, as long as they have experience managing outsourced work.
    • Someone on your team will become their Project Manager. This can be VERY time consuming.
  • Consider setting up an offshore company to shelter some of the revenue from the outsourced work.
    • You want to locate the offshore company in a tax-free country, and to have them handle the funds connected with the outsourced work.
    • The contact in the tax-free country will likely be an accountant, lawyer or both. There are many reputable individuals who do this in tax-free countries, but be sure to check references and background carefully.

Key Words: Outsource, Eastern Europe, Challenges, Manage, Relationship, Experience, Concerns, Alignment, IP, Corruption, Contract, Protect, Spec, Fee Basis, Delivery, Quality, Parameters, Tax Shelter

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