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.
Situation: A small company is growing nicely and needs more people. However, the CEO is struggling to find the time to properly interview and hire additional people. In addition, he is not comfortable in this role. Hiring the right people will be critical to the future success of the company. How do you get the right people on the bus?
Advice from the CEOs:
Particularly if the CEO does not feel that hiring is a strength, hire an outside HR firm or consultant to screen and select candidates for interviews.
It is critical to decide, in advance of any search, exactly what the company needs in the individuals that are hired. A good HR consultant can help the company work through this.
Structure the agreement with the HR professional so that they are paid based on successful integration of the individual into the company. It may cost more on the back end for this type of agreement, however, it will save the CEO and the company valuable time and money far in excess of what the company will pay for this assurance.
Plan to only see the final candidates.
What does the company look for in an HR consultant relationship?
Generation of a job description and the key traits of the individual that the company seeks. This helps the HR consultant to select the right candidates for the business and situation.
Candidate recruitment, screening, and selection of final candidate(s) for company review.
The HR consultant will also prep the candidates to succeed in the company’s environment.
Assistance in identifying the key objectives and metrics that will be used to assess the success of the individuals hired during the first quarters or year in the company. If the HR consultant’s compensation is structured so that they are paid well for long-term success, it may cost the company more for the successful hires, however the company will only pay for success and will save considerable cash by averting failures.
In addition to making sure that the right people are put on the bus, work diligently to assure that they are also in the right seats, and that they change seats as necessary to complement the company’s growth.
Situation: A CEO has a staffing issue. The company has four product areas but only three strong leads. There are no back-ups for these leads. The CEO feels that the company can’t afford full-time back-ups and is concerned that the presence of back-ups may threaten the leads. How do you create an effective staff back-up system?
Advice from the CEOs:
There are two problems, not one.
The leads may not be great managers and may not even like managerial responsibility.
The company has one administrator with support from the leads.
The company’s vulnerability is having an effective lead leave and taking their key core team members with them. This would create a significant hole in the company’s offering.
Change the structure – put manager administrators at top and let the leads do what they love to do. Fit the jobs of the leads to their skills and talents.
Hire the best #2s that can be found to back up the effective leads. Replace the less effective lead with a new lead.
Replace current team members who aren’t as good with new staff. This will provide the funding for the new people.
Then separate managers from architects in terms of role. This does not mean a change of compensation, or necessarily even titles. It means aligning roles with talents. It will also mean that individuals will be happier in their roles and will be less likely to leave.
Don’t do this all at once, but in gradual stages to avoid panic and allow individuals the time to adapt to their new roles. Act as a coach adjusting the whole team to a new playbook.
Consider adjusting the compensation structure to retain the key leads.
Situation: The CEO of a small but profitable company has a promising employee who she wants to promote to a supervisor role. The challenge is that this employee has limited English. Promoting this individual may upset the current supervisor. Do you promote an employee with limited English?
Advice from the CEOs:
Before making any decisions consider taking the “lead” position in manufacturing short-term instead of promoting or hiring a supervisor.
This will allow you to fully understand the manufacturing operations, as well as any points of art in the operation that can serve as the company’s foundation IP.
To think about the role of supervisor or Plant Manager, visit a Starbuck’s for an hour and watch the Starbucks Manager. This individual will, over the course of the hour, perform all functions within the establishment. This is a good model for a hands-on supervisor for a small operation.
Given the small size of the current operation, look for a more modest role for the position. Instead of Operations Manager perhaps Plant Manager. This will allow the individual time to grow into a larger role as the company grows.
How should the message be delivered to the promising employee with limited English as well as to the current supervisor?
Tell the employee “We like you and think that you have real potential. Would you be interested in an English as a second language course to build your English skills? We’ll pay for the course.” It is important to be enthusiastic and positive with the individual as you have this conversation.
A supplemental alternative is to reimburse the individual’s use of one of the online programs like Babbel or Duolingo that enables learning or improvement of language skills using a mobile phone. These programs are inexpensive and highly effective with diligent practice.
Promoting this individual above the current supervisor may generate a problem. This doesn’t prevent the promotion. Just assure that it is done carefully and be prepared for the current supervisor’s reaction.
When it is timely, instead of promoting this individual immediately, consider offering a temporary lead role for key tasks of increasing levels of responsibility. This will allow time for the individual to prove their merit and capabilities to others over 2-3 months.
Situation: A CEO is concerned that her #2 is being challenged by others in the company. An option is to hire a technical project manager; someone who carries the CEO’s authority and who can get things done. What are the obstacles to achieving this? How do you boost company morale?
Advice from the CEOs:
The technical project manager must have a non-threatening role – they shouldn’t challenge the technical skills of the developers. The role is to oversee schedules, progress, and to resolve barriers – both technical and personal. The job is to get things back into shape.
While the business involves highly technical software, operationally it is people centered, not software centered. People centered means a team that collaborates and supports one-another. The important questions are:
Where do the needed people skills come from?
How do the model and reality transition to a people centered business?
Look for someone who can nurture talent. People skills are more important for this role than technical skills, with the caveat that individual must be able to understand technical challenges.
An option is a 3rd party within company to straighten this out.
“COO” Responsible for Technical Direction – title is important because it conveys respect.
The CEO’s voice and ears.
Run weekly meetings and is the go-to person when the CEO us traveling.
The focus is to manage the primadonnas and keep them focused on their jobs instead of on interpersonal conflicts.
This role focuses inwardly on company vs. the CEO who focuses outward on the broader vision, key stakeholders, etc.
The bottom line – this is your company, your vision. Make it work. The task is teaching maturity – learning to give rather than worrying about making a name for themselves.
Have regular lunches with each of the developers and have frank conversations with them. What’s up and what’s wrong? Listen and let them air their concerns. Talk them through these concerns, but make sure that they understand that the CEO sets the direction both for the company and the boundaries of acceptable and unacceptable behavior within the company.
A CEO is considering her exit strategy between five and ten years out. She
wants to do what is best both for her, the company and her employees, assuring
that both personal and company needs are met and the company is ready for
transition. What are your five- and ten-year plans?
from the CEOs:
personal side and the company’s future are closely linked. The solutions and
strategy must fit both the CEO’s priorities as well as those of the company. By
looking at the CEO’s role, the current and future needs of the company, and any
changes that need to be made, the CEO is preparing for an eventual exit.
CEO must decide what lifestyle she wants – both as she prepares for eventual
exit and as she prepares the company to continue under new leadership.
must decide what she wants to do with her time in an ideal world. What will
make her happy as she prepares for the future?
must be considered both for herself and her business partners. Have conversations
to align both business and personal expectations.
a strategic planning retreat on the future of the company as well as the
transition of leadership.
a talk with significant others to align personal expectations.
changes in leadership are necessary to implement the plan? What are the key
roles and who will fill them? What is the succession plan for each key role?
Are current personnel in place to fill these roles, or is additional hiring and
an ESOP or a virtual stock program to enhance employee incentives and sense of ownership
in the company’s future.
what exit means on a personal level.
from founder to leader gets the CEO more involved in the company.
on priorities and engage in ongoing discussions with key personnel to jointly
plan the future.
A company delivers specialized consulting services. The founder CEO is also a
lead consultant. As the company has grown, the CEO has struggled to prioritize
her time as she shifts from consultant to leader. How do you reprioritize your
from the CEOs:
at the skill sets required to run the company and compare this with the skills
of current staff. While the company has excellent consultants, do some of these
people also have experience in business development or management?
the skill sets needed and focus hiring efforts on those that can’t be filled by
the CEO is also the chief rainmaker, then a top priority is hiring a manager/leader.
The next level of development within the company will require a level of
that the company can’t get an A+ grade on every project or detail. Learn to
accept a B when this is enough. It will do.
that as priorities shift, vacuums will develop. Identify what will be missing. For
job descriptions for the roles.
the leader’s roles with flexible teams instead of individuals.
financial resources to fund the transition as incentives for individuals to take
on new work and responsibilities.
at profit-sharing models. Use profit sharing to facilitate the shift in priorities
by adjusting payout incentives.
the risks within the plan. Think through these thoroughly and develop
CEO, you will not be able to do everything that you do now. In your new role you
won’t want to do everything you do now. Your view and responsibilities will
Situation: A company is at a crossroads. They are no longer growing as they have in past years. The CEO is assessing alternatives including a merger, selling the company or restructuring. What are the essential questions to determine whether you merge, sell or revive a business?
Advice from the CEOs:
Do you really have the information to determine whether it makes sense to merge, sell or revive the business? The questions to ask are:
Is your core competency important?
Do you have the talent required to revive the business?
How much of your business is from repeat customers?
Is your platform still being used by a significant number of companies, and are they likely to shift their software soon?
If the answers are favorable, then the only remaining question is whether you have the energy and inclination to continue.
Having developed a profitable business model, why would you give up control or ownership?
Tighten up the business by focusing on the basics and turn the company around.
Identify where you can make money, and
Determine which portions of the business need to be restructured or eliminated.
Essential questions are:
Do you have a clear picture of where the profitability lies within the business?
Do you have a clear statement of your key competitive advantage – your “Main Thing”?
Can you establish a pricing strategy that pays you fairly for the value you provide?
Look at bench time among current employees.
Identify, and fully utilize the most important contributors, perhaps by giving them additional responsibilities in other areas.
See that all retained employees are fully utilized.
Eliminate those who are on the bench the most, or transform them into contractors so that you only pay for active time.
Utilize contractors to fill the “full service” slots that are important to your service offering but which do not contribute significantly to your bottom line.
Most importantly, reformat your role so that you are doing that which you truly enjoy. Your own enthusiasm and passion are the most important long-term drivers for your business, and will be the most important motivators to your staff.
Situation: A company has contracted with a broker to sell the company. At the minimum acceptable sale price to the founder, the commission would be 2.5%. Is this reasonable? How should the founder think about earn-outs, residual payments, and role post-sale? What is a reasonable broker commission?
Advice from the CEOs:
The proposed commission structure looks reasonable. To validate this, ask merger and acquisition experts what they think reasonable commission rates on a sale of this size looks like in the current market.
Beware of earn-outs – don’t take them if offered, at least not without a fight. The challenge with earn-outs is that it may tempt the buyer to report the books in a way that minimizes your share. This will depend upon the terms, but experience advises against this alternative.
Similarly, you don’t want a residual payment conditioned upon your remaining with the company for a period following the sale. The buyer will ask because they see you as important. Counter with an employment agreement at twice your current salary.
Your job following the sale is assuring a smooth transition, not company growth. Growth is the new owner’s responsibility. They wouldn’t be talking to you if they didn’t see a growth opportunity.
Understand that their vision for the company is not yours. Accept this gracefully. Once the company is sold it is no longer your company.
Situation: An early stage company is wrestling with team dynamics and coordinating the achievement of critical milestones. The strategic picture seems to change on almost a daily basis. New employees who have big company experience want to see formal job descriptions and role definition. Older employees are jealous of the attention that newer, more highly qualified employees are receiving. Where should the CEO be focusing. How should she be handling these challenges? Should a start-up focus on team dynamics?
Advice from the CEOs:
At this point, the company is in start-up stage. The most critical issue isn’t team dynamics, it’s getting a product to market and demonstrating that you can sell it. If you don’t have a product, you don’t have a company.
Your top 4 areas of focus for the next 3-6 months should be:
Get the product out.
Close 3-4 good customers – preferably customers that you can reference.
Securing the funding – partnership or investor – that will get you to your next key milestones or to positive cash flow.
Build your organization and keep planning.
As an early stage company, distinct roles and job definitions make no sense. Your strategic picture is currently very dynamic. You need good people who can flexibly wear several hats and fill diverse roles.
If employees with big company backgrounds press you on job descriptions and role definitions, tell them that as a small company you must be quick on your feet, and that you need them to fill flexible roles. As you grow beyond 35 employees then roles will start to become more clarified. Ask for their patience.
If they continue to struggle with loose role definitions, then they aren’t the right people for an early stage company.
Employees who started with you early were great for the beginning. However, they may not be the best for you long-term. They may feel hurt as newer employees with deeper expertise and resumes start to replace them. In the interests of the company, the game is not longevity with the company; it’s about quality and putting the most competent people in the most critical roles.
If you are playing pick-up basketball, you play with whoever comes along.
If you decide to form a team and to compete, you need quality players. Some of your pick-up players won’t make the cut and need to go find another pick-up game.