Tag Archives: Single

How Do You Frame a Make Versus Buy Decision? Two Thoughts

Situation: A CEO is facing a decision whether to make or buy key technology frequently used by the company. What have others done when faced by similar decisions? What are the most important factors that impacted those decisions? How do you frame a make versus buy decision?

Advice from the CEOs:

  • In considering either option evaluate the opportunity by asking whether the technology:
    • Complements the company’s core strategic focus – the company’s “Main Thing” – what you are passionate about, what drives your key economic denominator, and what can you be best at in your market.
    • Supports the key economic denominator – the single factor that has the greatest impact on the company’s profitability and growth.
    • Complements the best use of the company’s critical resources.
    • Protects the company’s process secrets.
    • Feeds your passion as CEO.
  • In evaluating a buy decision look at the strengths of the people who come along with the opportunity.
    • Do they complement the company’s strengths or not?
    • Will they fit the company’s ecology and culture?

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How Do You Find and Train Staff for Satellite Offices? Five Points

Situation: A company plans to grow from a single site to additional distant sites. The CEO has two concerns: how to bring in the new people, and how to preserve the culture that they have developed as they build new sites. How do you find and train staff for satellite offices?

Advice from the CEOs:

  • First, how does the company currently identify customer targets?
    • Typically the company targets specific personnel within a potential client who will be decision makers or influencers on the company’s projects. Market developers then build relationships with these individuals.
  • Points of focus in selecting employees in other geographic areas.
    • What will be the office configuration? Likely 3-4 individuals, including an engineer, office manager and project manager.
    • Promote the company as the preferred place to work in the new locations. Offer signing bonuses for employees who identify and bring in new people, as well as for the new employees.
  • Does the company anticipate that maintaining company culture will be a challenge as the company expands? Yes.
    • Train new employees in the home office for one month to help them understand the culture. Immerse them in a project so that they experience the work ethic.
    • Have current personnel serve short term stints in the new offices. This will help to build consistency of service and delivery between the offices.
  • What is the best way to recover from a service challenge?
    • Occasionally we all make mistakes. Don’t miss the opportunity that “service recovery” presents to strengthen relationships with clients.
    • A competent and timely response to a problem situation can create an indelible impression on the client.
  • What else can the company do to improve its marketing?
    • Assure that there is an existing cost calculator in each remote site. This speeds response without having to wait for decisions from the main office.
    • Install a traffic plug-in on the webpage for each remote site and feature this on the site webpage. This allows current and potential customers to schedule their visits to their convenience.

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How Do You Position a Company for Value and Growth? Six Points

Situation: A CEO wants to set up her company for long-term growth in value. The business has favorable margins relative to competitors and high cash flow. It is currently single-site but has a good model that could be expanded to multiple sites. How do you position a company for value and growth?

Advice from the CEOs:

  • Paint a picture of growth and cash flow. Use this picture to inspire both the home site and remote sites as they are developed.
  • Develop and demonstrate a Growth Model. It is important to demonstrate the success of the model so that it can be replicated in remote locations.
  • Get multiple sites up and running as proof of a profitable growth model.
  • As the company moves to a multi-site model, assure that each site manager has a financial interest in the success of the site. Develop a compensation system that rewards the manager for both growth and profitability. Develop a complimentary system that rewards key site personnel.
  • Develop additional products and accompanying services. These can be sold to current customers as well as new customers at the home and remote sites to boost growth.
  • As the model grows use the improved cash flow to buy other companies that are complimentary or expand the capacity of the existing company.

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What Is a Favorable Exit Strategy? Three Points

Situation: A CEO is contemplating retiring in the next two years. The company is profitable but is primarily dependent upon a single large client for whom the CEO is the primary contact. Compared to national averages the company’s profitability is very favorable. The CEO questions whether his valuation of the company is reasonable. What is a favorable exit strategy?

Advice from the CEOs:

  • The principal question from the group is whether the anticipated valuation on exit will yield the financial rewards that the CEO requires.
    • The buyer will discount the value of the current business because the CEO is too important to the business, and because they will not assume that there is ongoing value to the current business beyond 2-3 years.
    • The best option is to sell to a buyer who wants entry into the key client. They will have reasons beyond the value of the company to pay a premium for this access.
    • For planning purposes put the value at 2-3 years of the cash that the CEO takes out of the company, discounted to present value plus some premium for the entry that the buyer seeks. Look at the dollars that this will yield and decide whether this sum is a satisfactory payment.
  • Concerning the company’s relationship with the key client:
    • The company’s reliance on the key client is two-fold – they are the key customer, and they drive the market which yields a premium price for the company’s products.
    • Purchasers do not like to be dependent on a single supplier. Their purchasing department will always be looking for alternative sources.
    • During the exit window it is critical to develop new customer relationships to sustain the company’s growth and reduce reliance on the single key customer.
  • If the key client is #1, who is developing technologies that will compete with the key client?
    • What are their markets?
    • Where are they going?
    • How are they trying to exploit the chinks in key client’s armor?
    • What can the company do to secure a vendor relationship with the companies who may replace the key client?

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How Do You Plan for Business Expansion? Five Factors

Situation: A company has built a very successful single site business, and wants to expand geographically. They are investigating where it makes sense to duplicate operations in new sites and where it makes sense to consolidate operations. The company’s secret sauce is in their system and procedures. How do you plan for business expansion?

Advice from the CEOs:

  • Look at the shared services piece and the cost/benefit tradeoffs. What services are best centralized, and what are the critical on-site services that you want duplicate in remote sites?
  • Other companies use remote offices for field personnel, but centralize all shared services. Centralized shared services include invoicing and collections, financial reporting, telemarketing, anything dealing with trade names and print or trade-marked collateral, and an array of other services which would be too expensive for individual sites to duplicate, or where leaving things to the individual sites might result in inconsistency of service and erosion of the brand.
  • How do you replicate key talent? Consider whether key talent can be retained in the shared services side of the business, not the cloneable service delivery sites. Typical franchise operations have people who are difficult to replace or replicate so most do not try to include these roles in the service delivery operations.
  • You will need to provide for a sales role in your remote offices as business development will be critical to early success of new sites.
  • In the transition from “successful small” to “successful large” most businesses find that the medium stage is the most difficult. Issues to consider include:
    • Does your direction match your expertise – do you have support of individuals knowledgeable about franchising?
    • What are the margin differentials within the business? Do you want to clone the high or low-margin areas of the business? Develop profitability models for your central and remote sites, and assure that the sites will have sufficient profitability to assure their short-term success. This will make it easier to proliferate the remote sites.

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How Do You Change Suppliers for a Key Product? Four Thoughts

Situation: A company buys several important components from a single US supplier. They are considering an offshore source for one of these components which makes up a large portion of what they purchase from the supplier. Does off-shoring make sense in this case, and how do they mitigate the risk? How do you change suppliers for a key product?

Advice from the CEOs:

  • The key consideration is the off-shore partner’s ability to reliably make the component at the price promised. If they can, why not outsource offshore?
  • The decision depends upon two additional factors: the amount that you stand to save by off-shoring your source, and the potential cost to you of inconsistent or unreliable components from the off-shore supplier.
    • If the cost of failure is high, a modest savings is less valuable. You may want to wait until you have higher volume and higher potential savings before looking at off-shore sources.
    • In the US, we assume – with some security – that a pilot run predicts a large run. Historically this has not been shown to consistently apply to offshore suppliers.
  • Can you afford to invest and potentially lose the amount that it would cost you to secure your first production order from the off-shore source?
    • If the answer is yes, invest the time and effort to visit the supplier, and secure resources to monitor their production – your own or a trusted partner’s. Your presence and interest are very important.
    • The principal challenge will be quality and consistency of raw materials, and varying age of production equipment used to produce your components.
  • Are you concerned that your current supplier might cut you off?
    • The CEO is not sure, but has identified this as a risk.
    • If this is the case, start now identifying second sources for other components made by this supplier – if only to keep them honest in price, quality and delivery.

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How Do You Identify New Customers? Four Alternatives

Situation: A company wants to expand its markets and customer base. Currently their business is dominated by a single customer. What best practices have you developed for identifying new customers and markets?

  • The key to getting new customers is to devote dedicated time to this task.
    • If your company is populated by engineer or software specialists, consider hiring a sales professional – a commission based hunter sales person who has experience landing big accounts in markets similar to yours. You may pay this person a good percentage of sales for brining in this business, but gaining the additional business can be worth it.
  • Much depends upon your relationship with your large customer. When a single client has rights over or ownership of the technology of the company but is not pursuing broader markets that the company is interested in, is it feasible to negotiate rights to pursue this business?
    • The larger client will pursue their own interests, not those of the smaller vendor. Perhaps a win-win deal can be worked out, but it may be difficult – particularly if the larger client is concerned that use of the technology in other markets could affect its interests in their primary markets.
    • Be very careful in this situation. The easiest tactic for the larger company to defend itself from a perceived threat is to sue and simply bury the smaller vendor through legal expenses. While the smaller company may be legally within its rights, deep pockets can beat shallow pockets through attrition.
  • In the case that the larger client simply continues to buy all capacity of the smaller company, an alternative is to raise rates, or perhaps to just say no.
  • Consider recreating the opportunity – create your own adjunct proprietary product with your own software or design talent and expand your horizons with this product.
    • Be aware, the large client can still sue if there is any appearance that your proprietary product impinges on their product rights. As in the case above, the larger company has the resources to bury the smaller company in legal expenses regardless of who is legally correct.

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What Do You Do When A Strategic Partner Changes The Game? Two Options

Situation: A membership association’s revenue is largely tied to its annual conference. The primary sponsor of the conference has decided to host their own annual conference. This will disrupt the association’s access to both conference attendees and vendors. The sponsor has offered terms of collaboration; however, the conditions are unfavorable to the association. What are the best alternatives available to the association and how should they pursue them?

Advice from the CEOs:

  • Are the association’s mission and vision are tied to or independent of the sponsor? If there is an ongoing reason for the association to continue without the sponsor then it is reasonable to pursue alternatives.
  • There are at least two options available to the association:
    • Accept the partner’s offer of collaboration, provided that this can be done under conditions that will allow the association to survive short-term. If the partner stumbles hosting its own conference this may allow the association to recover ownership of the annual conference. The danger is that this may lead to a slow death if the sponsor further cuts revenue to the association or a fast death if the sponsor decides to abandon the association.
    • Shift the focus of the conference and ancillary services under a new branding scheme. A survey of the membership indicates that the majority favor a mixed-platform solution, and may welcome a mixed-platform approach. You may need to rethink and rework your model but this may offer the best chance for ongoing survival.
  • What steps should be taken to pursue the second option?
    • Conduct a second survey of the membership to evaluate their preferences on platform focus, what they want to see in a multi-platform conference, and what platforms should be included.
    • Shift focus of the association to multi-platform as a response to members’ priorities and desires. Court the majority of the membership that favor a mixed-platform focus and de-emphasize those who favor the single platform solution.
    • Develop an alternate roster of sponsors including all competitive platforms. If this model succeeds, your current primary sponsor may find participation imperative.

Key Words: Association, Conference, Sponsor, Conflict, Conditions, Collaborate, Vision, Mission, Participation, Competitor, Single, Mixed, Platform, Survey, Focus

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