Tag Archives: Relationship

How Do You Plan for a Leadership Transition? Four Points

Situation: A CEO is planning a transition to the next phase of his life. This will include resigning as CEO and preparing  the company for this transition. What are the important steps for the transition, and what can he do to best prepare the company for the change? How do you plan for a leadership transition? 

Advice from the CEOs:

  • Prepare a transition plan for the board and set up a meeting to discuss the plan.
    • If the CEO is not the Board Chair, then a preliminary step is a conversation with the Chair about the CEOs plans, timing, and an update on short and long-term issues which must be addressed.
    • Given that the CEO will be leaving, the Board Chair’s responsibilities will include overseeing the transition. Prepare the transition plan with this in mind.
  • By solving the problem of transition for the Board, their task is eased, and opportunities for future relationships and alternatives are created.
    • Update the business plan for the company, including a SWOT analysis.
    • Line up search firms in advance who can assist in finding a replacement if internal candidates are not available.
    • The proper attitude is “my job is to make your job easier.”
  • As to the timing of the transition, 3 months is short notice. If personal needs dictate a transition in this timeframe, develop options to facilitate the transition and offer these as an alternative.
  • If the CEO’s career options for the future include consulting, the company can become an early client.

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How Do You Manage Company and Board Dynamics? Four Points

Situation: A company started as a collaboration of friends. Upon incorporation the leader became the CEO, and some of the original team became members of the Board. The CEO struggles with the responsibilities of being CEO while wishing to maintain the friendships that drive the company. How do you manage company and board dynamics?

Advice from the CEOs:

  • While the company was formed as a collaboration of friends, once it incorporated the nature of the relationships necessarily changed. While away from work the CEO may remain friends and close to the others; however, within the company there must be one CEO who is responsible to the shareholders for operating the company according to that individual’s vision. If the CEO and company are successful, all will be rewarded.
    • Shareholders are not partners – a partnership entity is inherently different from a corporate entity based on share ownership.
  • Within a corporate structure, majority control is critical.
    • While one should never trample on the rights of other shareholders, having 51% is better than having 47% ownership. Majority ownership makes it unnecessary to assemble a majority to drive the company in the direction that the CEO seeks.
    • That said, it is important to encourage the ideas and creativity of minority shareholders who are also employees. There is an art to recognizing and incorporating the ideas of others while the CEO, in the end, maintains final say.
  • The CEO’s job – and preferably within a small company as both Chairman and CEO – is to develop the CEO’s vision of the company and drive this through the organization.
  • Having a key employee report to the Board rather than to the CEO is likely a mistake. Employees do not do well long-term reporting to a committee.

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How Do You Transition to a New CEO? Four Strategies

Situation: A company founder was advised by her Board to help them hire a CEO with more experience to run the company. This new CEO is now in place. As the founder gains more experience, the Board has indicated its willing to consider her as CEO. How do you transition to a new CEO?

Advice from the CEOs:

  • Become the fire hose! Build a tight relationship with the new CEO and together build the future strategy that will enable you both to win.
    • Others will focus on past issues. Keep your approach and advice positive. Position yourself as a partner, not an adversary. Emphasize your supportive and collaborative capacities.
    • Become the new CEO’s go-to person: trustworthy, objective, knowledgeable, reliable. Nurture the development of chemistry with the new CEO.
    • When the new CEO asks what needs to be done, produce the plan. Leverage your knowledge and expertise to become his greatest resource.
  • Enlist the CEO’s support of one or more of the focused strategies that are already in play within the company. Build the support of the Board and focus on boosting company value to 2x sales. The Board won’t forget who produced the original initiatives.
  • You have more power than you imagine – both with the Board and the new CEO – due to your knowledge of the marketplace and the business. Use it wisely.
    • While there is a new CEO, the company has already been profitable and company operations are clean. The Board will remember this.
  • How do you boost the chances to eventually be named CEO by the Board?
    • Tie yourself very closely to the new CEO – be this person’s more important resource. Build and cement your position as his most important ally within the company. It will help you to gain his support for implementing your ideas.
    • Segue your relationship with the Board members to become the company’s next CEO.
    • At the same time, grow your successor within the company so that you will be ready to move up to CEO when the opportunity arises.

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How Do You Create a Chinese Wall Around a Product? Three Points

Situation: A company has a technology that was developed by but not of interest to a major corporation. The company continues to have significant business ties with the corporation, but the corporation wants to be assured that they are never connected to the technology in question. How do you create a Chinese wall around a product?

Advice from the CEOs:

  • The challenge facing the company is this: representatives of the large corporation don’t and can’t sell the services offered by the company, however exclusive clients of the corporation represent 25% of the available market for the services provided by the company. To date the large corporation has been unwilling either to reward the company for selling to these clients or to assist them in the sales process.
    • A solution: show the large corporation that the company provides a higher value or potential value to them than they receive on their existing products.
    • Show them the potential financial value to them of a symbiotic relationship.
  • Does the company develop the capabilities and value of the technology on their own, or do they partner with client companies in the market?
    • Many the potential clients in the market appreciate the technology and want to work with the company in some form so a partnership is possible.
    • The issue is that an open partnership might offend the large corporation who may then perceive the company as taking advantage of their clients.
  • How does the company establish a Chinese wall so that neither the large corporation nor the clients who purchase the company’s product are concerned about any activity that the company undertakes in the market?
    • Set up a separate entity and license the technology to this entity. The company would be an investor and would do some of the work but through a client/service relationship with the separate entity.
    • Get independent M&A advice on how to structure this entity.
    • Investigate other companies that have set up similar structures. Determine how they have addressed concerns such as conflict of interest, and what structures they have set up to avoid this.

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How Do You Construct a Deal to Expand? Three Areas of Focus

Situation: A CEO has an opportunity to combine with another business to expand their market geographically. A lead to work with the current owner to manage the transition has been identified. A second option is to bring in a new manager from the outside to manage the transition and the expanded business. How do you construct a deal to expand?

Advice from the CEOs:

  • Basics that are needed prior to initiating negotiations:
    • Define what the seller wants – both financially from the sale and in terms of ongoing involvement in and support of the business.
      • Without a lengthy transition period, the value of the business is not significant. The value is in the current owner’s relationships – both with clients and his team. It is critical to retain both.
    • The other big question is what the seller wants personally.
      • Is it legacy? Is it the opportunity to transfer knowledge?
      • The seller knows the CEO’s company and approached them about a sale. Play on this.
    • Are there potential complications to the deal?
      • Do any non-compete clauses exist with other companies?
      • Do other agreements exist that impact the value of the acquisition?
  • What other aspects of the deal does the group recommend?
    • Within the new organization, put the current owner under the recommended lead. This gives the lead more prestige and demonstrates trust. It also raises the bar for the lead.
    • A bonus is that the current owner and the lead get along. This will facilitate the current owner’s mentoring of the lead – like the child that he wishes would have taken over the business.
    • The current owner is a savvy businessperson, and the existing relationship between the seller and the lead will facilitate his ability to pass this knowledge on to the lead.
    • The current owner’s key assets are his connections and knowledge of the business. This will include subtle aspects to the business of which only the current owner is aware.
  • The option to bring in an outside office manager potentially complicates the situation.
    • Bringing in an outside office manager to manage both the lead and the current owner is the worst case – the most likely to blow up.
    • This arrangement puts the current owner two reports away from the CEO.
    • With an additional person involved, the personal dynamics become more complex. Keep it simple.

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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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What is the Best Way to Roll out a Business Opportunity? Six Suggestions

Situation: A CEO is reviewing options for introducing a new offering. The target customers are small companies or projects within larger companies. The offering includes both an initial product and follow-on services. Education or training will be a component of the offering. What is the best way to roll out a business opportunity?

Advice from the CEOs:

  • It is best to position the offering as a straightforward proposition at launch and develop proof of concept. This will provide experience and an income stream to fund more complex offerings based on the initial model.
    • It will also provide insight on how to sell the product and service in different markets – manufacturing, service, and software.
    • Leverage this experience to pursue more complex models.
  • Build a portfolio of case studies before pitching to paying companies.
    • Use companies with whom relationships already exist as the proving base. These will become references for new clients.
    • Develop data to show actual cost savings from the use of the product and services.
  • Establish a relationship with an existing company for which the offering is complimentary and cross-offer products and services on an ad hoc basis.
    • Trial the product and service with one of their clients in return for a royalty or share of the profit.
    • Ask that company to make the introduction.
  • Target start-ups – offer an initial package for a low price. Offer the product to start-ups for free and get them hooked as long-term customers.
  • What would be needed to roll the offering through growth equity firms or venture capitalists?
    • This will require some proof that the offering increases the ROI to growth equity and VC portfolio companies and funds.
    • Note that the portfolio companies of growth equity firms are larger and farther up the growth curve
  • In current economy the key message to prospects may be that the offering will help them to “right size” their company.
    • Take a closer look at the offering and determine whether it is configured appropriately for the current environment.

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How Do You Respond to a Price Increase from a Supplier? Six Points

Situation: A small company has a parts supplier for product that they sell to their most important customer. That customer’s specs are “copy exact” on components for existing products; also, their new products are usually based on existing components. The supplier significantly raised prices on the parts supplied to the company. How you respond to a price increase from a supplier?

Advice from the CEOs:

  • This is an extremely sensitive situation. One solution is to not to rock the boat. The reality is that the company needs the parts, and it will take a lot of effort to replace them with parts from an alternate vendor. Just continue the relationship. Quit worrying about it and milk it for as long as it lasts.
  • Find out what caused the supplier to raise prices. The supplier needs to understand that to preserve the company’s margins they may have to raise prices to the final customer. This may threaten both the company’s and the supplier’s business with the customer.
  • Make sure that the supplier understands the company’s costs: office, salaries, equipment, maintenance, and local regulations that are unfriendly to business and difficult to deal with. Ask them to reconsider or reduce the price increase.
  • Assure that the supplier understands the value that the company provides and the importance of this collaboration to the business and profits and bottom lines of both companies. Leverage this value to get the price that the company needs.
  • Renegotiate the relationship to assure that supplier can’t go around go around the company and sell directly to the final customer.
  • Start building relationships with alternate suppliers.

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How Do You Construct a Business Acquisition? Five Essential Points

Situation: A CEO has an option to purchase another company with whom they have a long and good relationship. A smooth transition will be important. The owner’s relationship with their customers is central to their success, as is his employees’ knowledge of their key accounts. How does the CEO assure that these relationships are retained? How do you construct a business acquisition?

Advice from the CEOs:

  • Based on the CEO’s responses to the Forum’s questions, the owner of the other company needs this deal more than the acquiring company needs him. This creates a strong bargaining position.
  • The owner of the business is the business and the key to a smooth transition post acquisition. Retaining his ongoing involvement – at least for a reasonable period – is essential to gaining maximum value from this acquisition.
  • The value of this business is its people: the owner’s relationships, and both the owner’s and his employees’ knowledge of their key accounts. His employees know the inner workings of their customers’ businesses. These are the relationships and the knowledge needed to assure that the acquisition is profitable post-close. Retention clauses and penalties must be part of the agreement.
  • If the owner wants 50% of the net income generated from his piece of the surviving company during a transition period, this is fair. However, the financial and operational details of the transition and his share of the income must be spelled out in the agreement and the agreement must assure that there is proper follow-through to qualify for the payments.
  • The income from the owner’s accounts must support his salary. However, even with this the owner will still cost the acquirer time and energy. Plan for this and budget for it in the agreement.

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How Do You Build International Sales? Five Observations

Situation: A CEO wants to create new markets outside the US. They have investigated options and locations and are starting to plan. One question is how long it will take to start seeing results, so that they budget accordingly. How do you build international sales?

Advice from the CEOs:

  • Decision timelines internationally are longer than they are in the US. For example, in Europe timelines are easily twice as long. This means that new entrants must budget for a sustained effort.
    • It took another company three years to develop traction in Europe. They have an office in Germany, but most new sales are coming from Eastern Europe. After three years their European operation is now break-even.
  • International markets, especially in Europe, can be very conservative. Job security and maintaining cash flow are the focus.
    • Labor laws encourage companies to do things themselves rather than outsource. The result is that a new entrant will face competition from internal departments of potential prospects.
  • In European the emphasis is not growth, but on conservative steady operation. Growth tends to come from acquisition.
    • Sales pitches should be tweaked for international audiences. For example, highlight reduced need for additional personnel to manage the systems, fewer breakdowns and glitches, and the ability to count on seasoned outside expertise to quickly address complications.
  • Relationship selling is very important internationally. Sales and tech support are best provided, and in some cases required to be provided in the local language.
  • In Europe, Italy can be an important lever to sales with the right partner. Italian companies can be excellent at marketing and can jump-start European sales. This will be a very personal relationship.

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