After months of looking you think you have found the perfect executive opportunity. The company is young, but not too young, well financed, and fast growing with several large customers. At least this is the impression you get from your recruiter and several of the interviews you have at the company.

How do you find out if all of this is just “too good to be true?” That process is called due diligence. Venture capitalists and other investors do it all the time. Performing due diligence on a prospective-company/employer entails really nothing more than taking surface perceptions and digging toward a much deeper level of detail including learning where the company stands financially and what its prospects are for the future.

If the company you are considering is a public company, there are incredible amounts of data available for your review. This information is contained in the company’s annual and quarterly reports that are filed with the SEC. These reports (10-Ks and 10-Qs) are available online through the SEC (www.sec.gov) and through almost all of the securities markets websites (e.g. Yahoo’s finance siteMarketwatch; or the New York Times site). Do not assume that because the company you are considering is a public company, it is financially stable. Many so you found the perfect job, or did you?public companies have as uncertain a financial future as similarly-sized private companies. When reviewing your prospective employer’s reports, pay attention not just to the description of the company’s operations, but to management’s discussion of the company’s historical operating results, as well as the notes to the company’s financial statements. Often this data can serve as good indicators of growth trends, revenue troubles or potentially precarious financial structure.

Additionally, a public company must meet all of the requirements of the new Sarbanes-Oxley legislation. This legislation means that, as a senior executive, you will probably be asked to certify the accuracy of the company’s SEC filings. You should review the company’s financial information (either on your own or with the assistance of a trusted financial advisor) so that you may get a sense of their financial stability for the longer term. Also, in evaluating the value of the company’s publicly traded stock, you should understand that a “thinly traded” stock is often inaccurately over- or under-valued by the marketplace.

If the company you are considering is a private company, it is frequently much more difficult to obtain information. The focus of your due diligence should be on 1) the financial performance and viability of the company and 2) the value of the company’s common stock which may be a contemplated part of your compensation package.

On the financial side, it is crucial to review recent financial information. You will want to see the company’s cash position and whether it is being operated on a cash flow positive basis. If the company is operating on a cash flow positive basis, it is not dependent on outside investors to fund day to day operations (although there still may be a variety of reasons why additional outside funding may be necessary for the company’s long term growth and survival). If the company you are considering must raise financing before its operations become cash-flow neutral, be wary, because in the current financing environment it is becoming increasingly difficult to ensure that any company will be able to successfully obtain adequate financing from venture or other institutional investors.

The value of common stock in a private entity is difficult to determine, but the value of your compensation package may depend on it. Because many private companies have done one or more financings with venture or other institutional investors in the last several years while the market has been down, it is exceedingly important that you understand whether the venture investors have negotiated significant liquidation preferences. These preferences must be paid before any payments are received by common stockholders if the company is sold. This may mean that unless the company is sold for a very large amount, there won’t be anything left for the common stockholders after the venture investors are paid their preferences. You can determine the amount of liquidation preference ahead of the common stockholders by reviewing the company’s Articles of Incorporation and a capitalization table, or you can pose the question directly to the management team. If they don’t know the answer, you should be concerned.

The last bit of due diligence has to do with people. It is invaluable for new executives to check-in with their contacts and perform some background research on the management team with whom they may be working. Try to get beyond general reputations in the community and get information from people who have worked with, or had business dealings with, your future compatriots. Your reputation will be tied to theirs, so it is important!

So, remember it’s a simple exercise in doing your homework, and getting the facts in order to make a good decision on your next executive position.

Introduction

Reaching agreement on major lease terms

A well-prepared letter of intent (LOI) speeds up the preparation and negotiation of the lease. Make sure to understand the lease agreement. The LOI outlines the major negotiable business points in a lease between the landlord and prospective tenant, prior to legal review. Careful attention to this stage of the leasing process will help alleviate future disagreements.

Tip: The tenant can expect some “back and forth” on the LOI before both sides agree on all points.

Tip: The final LOI should be a clean, legible document, signed by both parties, containing all the clauses agreed to by both tenant and landlord prior to the actual lease negotiation.

Tip: LOI clauses are similar those used in a request for proposal. However, the LOI results in an agreement between the parties, while an RFP results in a proposal to the tenant.

Contents and structure of the LOI

Prospective tenants usually prepare the LOI. It should clearly identify the major business points of the lease. The length of the LOI ranges anywhere from one to several pages and is usually non-binding on the parties.

Tip: Because the LOI is non-binding, the tenant may lease other space and the landlord may lease the space to another tenant.

Tip: A tenant representative can help structure the LOI and guide negotiation strategy. Legal counsel is sometimes involved because the parties are agreeing in good faith to terms that will later become binding.

Tip: Keep the LOI short by avoiding business points of little consequence.

Typical LOI clauses

Below are typical letter of intent clauses organized by category. Pick and choose those clauses that are most applicable to your unique situation and use them to prepare your LOI.

Major lease terms

  • Parties and property location – Identifies the tenant and landlord, and provides the building location.
  • Area – Identifies the square footage of the space to be leased and may confirm how the space is to be measured.
  • Use – Describes the intended use of the space.
  • Lease term – Identifies the length of the lease and provides a lease start date.
  • Annual rental rate – Identifies the rent, including escalations over the lease term.
  • Additional rent/operating costs – Identifies any costs in addition to the base rent.
  • Operating cost exclusions – Lists operating costs that the tenant is not responsible for paying.
  • Building hours – Defines the building’s hours of operation and its accessibility.
  • Parking – Identifies the number of parking stalls available for the tenant’s use.

Tenant options

  • Option to expand – Identifies the availability of space for tenant’s expansion.
  • Option to terminate – Identifies the tenant’s right to end the lease at a specific date prior to the natural end of the term, possibly with penalties.
  • Option to renew – Identifies the tenant’s right to renew the lease on specific dates or after a specific period of time.
  • Assignment and subletting – Identifies the tenant’s rights to assign the lease or rent the space to another tenant during the lease term.

Lease incentives

  • Tenant improvement allowance Identifies the amount of money that will be provided by the landlord to make construction improvements to the space, and how that money will be allocated.
  • Rental abatement – Identifies a rent-free period, which usually comes at the beginning of the lease term.

Additional clauses

  • Signage – Defines the tenant’s rights to put signs on or near the space or building.
  • Inspection of premises – States the tenant’s right to inspect the space and building prior to signing a lease.
  • Security deposit – States the amount of money the tenant will provide as security in the event of default.
  • Landlord maintenance duties – Defines the maintenance responsibilities of the landlord.
  • Environmental – Identifies the parties’ rights and obligations regarding the use and storage of hazardous materials.
  • Compliance with laws – Confirms that the building and space is in compliance with applicable laws and regulations.
  • Confidentiality – Confirms that the parties will not disclose the terms of the letter of intent without the other party’s permission.
  • Real estate commissions – Defines the leasing commissions that will be paid by the landlord.
  • Non-binding agreement – Confirms that the letter of intent is not a legally binding document.

Whether you already operate a going business or are still trying to attract angel investors, the most important question any firm must face is “Why would someone do business with our company? Why would they choose us instead of one of the dozens/hundreds/thousands of other firms that sound (at least from their descriptions) just like ours?”

Unfortunately, when asked how they are different from their competition, many business owners answer, “We do pretty much what they do, but we do it better”. In the Puget Sound high-tech arena, this often comes out something like “we provide state-of-the-art e-commerce solutions”, or “we provide integrated Internet solutions”. The problem with this is the competition likely answers the question in much the same way. So what happens? Without a real differentiator the business ends up trying to do just what everyone else does, play by someone else’s rules, and often has to keep cutting its price to get business. The result: An increasing spiral of reduced profits.

To be really successful, a business must find a way to stand out from the crowd. Whether you call it a competitive advantage, a market driver, or a strategic differentiator, it is a way that helps a company be seen as different from its competitors. It is the primary reason customers will choose that firm instead of another providing similar goods or services.

There are many ways to differentiate a business. Price and quality are the two that most frequently come to mind. But there are other effective ways to stand out as well. Here are some examples of the ways successful firms have adopted to truly stand out from the crowd:

Market intimacy – These firms provide services or products geared to a very specific market segment. They know the needs of the segment extremely well, and may even develop products or services for the market before the market has recognized the need itself. CCH Publishing, for example, provides tax guides and other information for accountants and other finance professionals. They know this market segment so well that they often begin providing tools and information even before their customers realize there is a need.

Product or service superiority – These companies produce services or products that are widely accepted as among the best in their class, even at higher prices. They focus their efforts on continually improving the quality and reputation of a limited line of products. If you think of who makes the best automobiles or watches, it’s a good bet Rolls Royce and Rolex will be at the top of the list.

Operational efficiency – It’s not enough to be a low-cost provider: anyone can cut prices. The trick is to be a low-cost provider and still make a respectable profit. Firms like McDonalds and Costco focus on operational efficiency, and are able to produce and distribute their products at a substantially lower cost than their competition for comparable quality.

Natural Resources – Some businesses take advantage of a particular location or natural resource that is difficult to duplicate. This might be a place, a view, or something related to a specific activity that can only happen in this place. How successful would Weyerhauser be if they didn’t own or lease their vast tracts of timberland? Would the restaurant at the top of the Space Needle be nearly as successful if it were on the ground? Obviously not. It is the natural resources they control that make them successful.

Human resources – There are also firms that base their competitive advantage on a human resource: Often the reputation of a specific person or persons. Customers are drawn by the name of someone associated with the firm. Many law firms base their competitive advantage on the name of the person at the top of the letterhead. Wolfgang Puck’s restaurants and Paul Newman’s Own foods both capitalize on the names of their founders. And a golf course designed by Arnold Palmer may attract customers just because of his reputation.

Market dominance – Some companies are the largest in their field and set the standards in their industry. People do business with them simply because they are the industry standard. They often gain customers because of their size and ubiquitousness. Question: What Redmond-based software company might fall into this category?

Sales method – To get their product into their customers’ hands, these companies use unique or original sales processes. Years ago it was Tupperware and Avon that pioneered some of the house party selling approaches that became so successful. More recently, Amazon.com became a leader in on-line Internet sales.

Distribution method – This involves providing a variety of products or services through a distribution channel to the same or similar markets. Once you’ve opened up a channel, it’s all about getting more products or services to your customers. Amazon is also very good at this, and Amway made it into something of an art form.

Technological superiority – These companies continue to develop break-through advances for technology in their industry. They define “state-of-the-art”. Intel, for example, is consistently developing new technological approaches to computing. 3M is a leader because of its constant re-defining of technology in industries ranging from abrasives to medical imaging.

In finding its own way to be unique, a company obviously has to look at its potential market and identify possible needs. But then, it has to look carefully at its competition and not ask “what are they doing that we should also be doing”, but rather “what is the competition NOT doing that might provide an opportunity for us? Which of these areas of differentiation are not being used that we can capitalize on?” The company can then identify its own differentiator that will bring people to its door, and develop the specific actions throughout the firm (from production, marketing, and planning to human resources and accounting) that will reinforce the competitive advantage in the minds of its employees and customers.

In growing a business, you’re always searching for The Path to the Revenue Stream. How do you find the initial ramp….or grow further from the initial foundation? How do you grow a business with both a direct sales and marketing effort and/or with Partners? Who are the right partners? The Path has some very clear milestones that show the way.

First, clearly define the problem your company solves for its customer. Directly address the prospect’s “pain”. Markets move faster when addressing acute vs. chronic pain because a company in acute pain is prepared to make buying decisions now. In today’s tough economy, lowering costs, driving revenues and improving retention are the keys to relieving pain and closing a sale. If your company can lower costs, then clearly demonstrate the fast ROI you provide. Note that a pricing structure of expenses vs. capital budget is likely to be more successful right now.

Next, discover the particular pain-causing attributes of the company with the problem; it could be high labor costs in a particular area, long wait times at customer care or high churn rates. Then, determine the attributes associated with companies suffering acute vs. chronic pain. This analysis reveals your priorities for sales and marketing efforts.

Third, test drive in your own market. Select no more than a dozen vertical markets in acute pain to initially approach. (If you have already entered the market, select the next dozen.) The goal is to identify early adopters and cull out the laggards. Talking to a laggard-phase buyer will not move them up the adoption curve – it will just cost you in unproductive sales and marketing dollars. As you locate the winning vertical markets, focus on and grab very deep share in them. Building market share within a vertical market is much easier, and likely to be successful sooner because people within a vertical market watch their competitors. And competitors will quickly imitate successful leaders within the market.

Fourth, monitor your customer acquisition costs through a number of factors. Cost per sale, cost per sale within a vertical market, etc. Be a student of what is working – and what is not. This approach will help you let go of preconceived notions about what “should” work, what is working and, very importantly, what is not.

Fifth, clearly identify your target prospect. This will change as you move through the adoption curve. Avoid spending any dollars on non-prospects. This may seem obvious, but a number of companies continually try to be all things to all people. Their distribution efforts become too unfocused – and thinly spread – to effectively drive market share.

Finally, qualifying companies for partnerships is vital. The selection of partners is not just about reach, but also about reaching out to your target audience only. Too often, companies go for big name partners without understanding this key element. Be prepared to work closely with your partners to specifically determine target prospects. The more successful the partner’s sales force is at launch, the more likely it is you will gain sustainable traction in the market.

The great fallacy about distribution partners is that they will bring large numbers of sales to your doorstep without much effort on your part. Successful partnerships are those that you drive, and your team needs to be very involved in the sales training, initial sales calls, follow-up support and closing of initial sales. Distribution partners can be very successful if they are managed as a sales force, and the care and feeding of their sales force is just as important as your own. You will save on expenses vs. hiring your own direct sales force, but be sure to budget and plan with the partner’s sales force just as you would with your own.

It is a tough economy these days. Staying focused on, or realigning with the aim of prospecting is the clear path to continued growth, and following the fundamentals listed above will place you on your own Path to the Revenue Stream.

7 steps to a customer community

Everyday you work hard and smart. You put a lot out for your customers. Is it time to expect something back? Do you dare to entertain expectations beyond the basic transaction covenant?

They Volunteered

Your customers are volunteers. They want to do business with you. They do business with you because, on an elemental level, they like you. If you give your customers compelling reasons, they will turn themselves into a customer force that helps you in meaningful ways.

With these seven steps, you can initiate the building of a strong, mutually supporting customer community.

Step 1: Make a Network

The force that binds people together is knowledge, respect, and interdependence. Networking allows your customers to meet one another. You create an environment that helps your customers share information, technologies, and keep abreast of changes. Your customers will find powerful motivations for cooperation. For example, a company that has an orphaned project can transfer it to another company in your community for the mutual benefit of all.

Step 2: Remove Barriers

Remove the barriers that keep your customers isolated from you and each other. The primary barrier is the illusion that they have little in common. When you lead the way to piercing the barriers, you position yourself an integral to the community.

Step 3: Provide Higher Value

Your value is your understanding what they bring to others. For example, if one of your customers places large amounts of resources in research and development while another is particularly adept at new-product launches, your ability to bring these two companies together epitomizes your higher value.

Step 4: Give Them Recognition

Everyone in your community desires to be recognized. Most people go unrecognized for their achievements. These achievements can be technical, professional, charitable, or personal. Ensure that specific achievements are recognized and honored within your community.

Step 5: Provide Information

Up-to-date information, including research breakthroughs, marketing techniques, and pure ideas, always gives value. For example, in the medical research field, the successful, sustaining research organizations are linked to others in their field, and beyond their field. A minor discovery in homology by a cardiac research team might provide a breakthrough in cancer. Without this, a key bit of knowledge would be missed. The same holds true in all business.

Step 6: Reveal the Future

Show what is coming from you. Being open with your customers gives them confidence in you. When they know what the future brings, they will embrace it. The entire community will participate in revealing what will be next. It does not matter what the foreseeable future holds. The ability to prepare for it holds the value.

Step 7: Share the Wealth

Ultimately, the reason for the community is to share the wealth. Like your network, wealth is built. It does not survive in a vacuum. By joining together, you and your customers expand alliances, share knowledge, and create more than exists today. Customers may embark on joint ventures with each other and with you. When people understand how their businesses can work together, they begin to establish relationships never before considered.

What You Create is up to You

How modest or elaborate you make your community is irrelevant. The only important issue is creating a community in which your customers want to participate. As the center of influence, your company will benefit. The key is to make the context clear to your customer, make it easy to join, and keep it exciting. If you are truly committed to a viable community, they will join you and bring more people with them.

At first glance, it is tempting for a CEO to try sell his or her own company. After all, he knows the company and the market very well. A CEO’s mindset can often be characterized as: “I know the industry; I know how to negotiate; I’m a smart guy – I can do this. Plus, we will save a fee.” 18 reasons not to sell your company as a CEO

However, a CEO should spend his time where he can create the most value — running the company, setting goals, monitoring progress, and executing the business plan.

Over the years we have observed many CEOs attempting to sell their own companies. What follows are 18 common mistakes that CEOs make when trying to undertake this task.

#1 “This Will be Easy”

Many CEOs think selling a company is easy. The process seems very straightforward: find a buyer and agree on the price.

Sometimes CEOs think they have a head start because the company currently has licensing deals with several firms that might be potential acquirers.

What they fail to take into consideration is the tremendous amount of time and effort to do the job right. Without significant experience in M&A, they miss the subtleties that can lead to a higher price, more favorable terms and a smoother process.

The situation is analogous to taking on your own home remodeling project. On the surface, it looks fairly straightforward. However, halfway through the project you uncover some unforeseen problems that are beyond your expertise. In hindsight you would have been better off bringing in a professional, saving both time and money with a better end result.

#2 Too Narrow a Search

CEOs tend to pick the low hanging fruit. Their search process is not thorough. Once a CEO begins discussions, she or he stops looking for additional prospects. He is content to engage one or two potential buyers. In addition, CEOs rarely seek out the tangential and fringe companies that often can be very qualified buyers.

Deals can fall apart. Get multiple offers; create some competitive bidding. However, creating competitive bidding involves too much work for the CEO.

Many CEOs tacitly assume that the incremental price will not be worth the incremental effort. This is simply not true. They fool themselves into thinking that the buyer in hand will pay the highest price.

#3 No Full-Time Commitment

Identifying and contacting candidates is a full time task that can last for several months. This process can be very tedious – something that an executive level person may not want to undertake.

A CEO who is running a business cannot possibly give his full attention to a comprehensive search process.

#4 Ignoring Opportunity Cost

Where can the CEO add the most value? Trying to sell the company or continuing to build it? The CEO creates more value by continuing to increase traction in the market and growing revenues than the amount of the fee saved. The CEO should spend his time growing the business.

#5 Selling the Future

Most CEOs are accustomed to raising capital and they see the process of selling a company as very similar to raising capital. They think this experience is transferable to selling a company.

When trying to sell the business, they paint the same picture. They sell their vision — large markets, rapidly growing revenues and substantial profits. They focus on where they are going, not where they are. In other words, they are selling the future.

A business plan is forward looking — it’s about growth. It is about the future. A selling memorandum, on the other hand, focuses on the present. It is a coherent snapshot of the current situation. This is where the company is today. This is the technology that is complete today.

#6 Presenting the Wrong Information

CEOs don’t take the time to develop the proper documentation to promote the sale. Most fail to draft a selling memorandum or even a one-page summary of the acquisition opportunity.

Most CEOs just send out a business plan, not a selling memorandum, without realizing that there is a difference.

Since they are not well versed in the process, CEOs are not usually aware of what information should be communicated at different stages of the M&A process. They give the wrong depth of detail — too much information too soon or too little information too late.

#7 Poor Positioning

CEOs generally are not skilled at positioning the company to potential buyers. How should the company be presented? What technology should be emphasized? Which assets have the most value in the marketplace?

Technology assets may carry a different weight in the market than they do internally. Assets should be viewed from an external perspective, not from management’s internal perspective.

Since value is extrinsic, buyers will view value differently from each other and differently from the CEO. One buyer may want to add the seller’s products to its product line; another may embed the seller’s core technology inside the buyer’s technology.

#8 Glossing over the Negatives

CEOs love to portray their company in a good light. “Everything is going great. We have great marketing, great technology, great people.”

CEOs are so close to the situation that it is difficult for them to view the transaction from the buyers’ eyes.

When a serious buyer completes their due diligence, they will know almost everything about the company, warts and all. It does no good to start off by saying the company has no warts; it just wastes everyone’s time.

CEOs rarely admit that they have done a poor job in marketing or sales. However, a company with excellent technology that has not had the time or capital to make a serious marketing effort can be positioned as an opportunity for the buyer.

#9 Representation without Representation

Third party representation signals that the seller is serious. Buyers have some assurance that they are not wasting their time with a tire kicker. If a potential buyer receives an inquiry from an investment bank, it means the company is being represented professionally. Plus, the deal has been screened; it has passed the muster of the investment-banking firm. Buyers don’t want to waste time with a company that is not serious about selling.

#10 Unable to Ramrod the Transaction

The CEO cannot push the transaction without appearing somewhat desperate. He cannot call the buyer every other day. An intermediary, however, can ramrod the transaction. They can call the buyer three times a week to keep the deal moving forward. This is the advantage of being a third party; they are just doing their job. Buyers expect them to be aggressive.

#11 Setting the Wrong Price

A CEO’s own prejudices can cloud the value issue. Unrealistic value expectations can be deadly. What the market is willing to pay may be very different than what the CEO thinks his company is worth or ought to be worth.

CEOs may want to sell only if the price is over a certain threshold where his stock options are in the money. This may put strains on pricing the deal and may not be in the best interests of shareholders. Unrealistic value expectations can be deadly.

#12 The Fallacy of a Narrow Value Range

This is a subtle mistake, but a common one. CEOs assume that value falls within a narrow range and that an interested buyer will pay them what their company is worth. This presupposes, of course, that they know what their company is worth.

In most areas of our lives where we sell big-ticket items, value falls within a fairly narrow range. A house may range between $725,000 and $875,000 — plus or minus 20% — depending on market conditions and timing. It does not swing from $725,000 to $8.5 million.

A technology company, however, can range quite widely in value. The same company could be worth $2.5 million, $6 million, or $11 million depending on the strategic fit with the buyer. How does this affect the process of selling of a company? Don’t assume that buyers will pay similar prices. Offers may vary dramatically, so go get as many offers as possible and take the highest one.

#13 Failure to Manage the Process

The sale of a company involves many detailed activities. Time lines must be met and one of the tasks an investment banker performs is to manage this process. You don’t just locate a buyer and then have a few meetings. Many tasks need to be accomplished along the way.

A professional intermediary can make sure the deal moves along in a timely manner, activities are coordinated among the parties, and the inevitable obstacles that occur in every transaction are overcome.

#14 Not Listening

A CEO often focuses on what points he or she wants to make and what he or she wants to say. One must listen with big ears. What is the buyer saying between the lines? What are they really after? What is the feeling you get from them? A good negotiator is really a professional listener.

Buyers tell a third party things they would never tell the CEO. A third party can pick up many clues along the way about how strategic the technology is to the buyer, how the buyer perceives value and how much they might be willing to pay.

The negotiator’s job is to figure out the other side’s motivations and how to get to the next step. There are many ways to solve the problems that inevitably pop up. The biggest danger is not being aware of a problem before it becomes full-blown. You can’t head it off if you don’t know it’s there.

#15 Uncreative Structuring

There are so many ways to structure a deal, so many ways to be paid; it is not just stock or cash. Since they are not professional dealmakers, CEOs are generally not very imaginative in coming up with creative structuring ideas where both parties might be better off. The key to good structuring is to fully understand the objectives of each party and have an open, creative mindset.

#16 Adversarial Beginnings

Sometimes things can get a little heated, with friction developing between the buyer and seller. To avoid an adversarial relationship between the parties going forward, it is best to have an intermediary handle the negotiations. An experienced third party will be more adept at knowing what paths not to take and what conversations not to have.

A case in point is negotiating the president’s salary and option package. Who can best negotiate these items — the CEO or an independent third party? Let the third party be the bad guy.

#17 Incorrectly Valuing the Buyer’s Stock

If the seller receives stock from the buyer, what is the value of that stock? A private firm’s last VC valuation may be totally arbitrary and a public company’s stock price may not be representative. Most investment bankers are experienced at valuing companies and can be very helpful in negotiating a value that is real.

#18 The Fallacy of Saving a Fee

Everyone loves to save a fee. Is trying to save a fee really worth it?

CEOs must ask two questions regarding saving fees. First, is the amount of the fee saved greater than the incremental value that the CEO could create by focusing on building the business? Second, is the amount of the fee saved greater than the incremental price paid by having several bidders?

Rarely is the amount of a fee saved greater than the opportunity cost of the president’s time, nor is it greater than the value derived from competitive bidding.

Most CEOs underestimate the time & effort to do a thorough job selling a company. The right thing for the shareholders is to have a professional intermediary sell the company, not the CEO or his team.

I have seen so many companies waste money on marketing because their view of marketing is visibility and stroking egos (“We have to be at Comdex,” or whatever X show is in your industry) rather than driving qualified leads into sales people’s hands. How does one find effective ways to generate leads and sales through marketing? Hire extremely experienced people who have a demonstrated track record of doing this.

marketing

There are several types of marketers, those who are all about brand and image but not about demand generation and those who are all about driving demand (and they may or not also be brand/image oriented as well). As an early-stage company needing demand creation, it pays to hire a seasoned person rather than someone who is just learning about marketing or to use a marketing consultant who routinely launches new companies’ sales pipeline formation. Having tried a lot of techniques on someone else’s nickel means that you won’t be paying to learn what works and what doesn’t work.

Marketing does not need to cost an arm and a leg, but it does need to pay for itself and show results. Anyone who tells you that marketing can’t be measured is probably the wrong marketing resource for a cash-strapped company. I once ran a company where the owner had hired a consumer marketing person to drive direct marketing for a business-to-business market. He thought every direct mail campaign needed to be 200,000 names when there were often 30,000 or 50,000 names in the entire universe of our target market. This individual wasted a large amount of printing and postage before I put a stop to the nonsense. This was a sinkhole. Then I hired a seasoned ROI-driven direct marketing person with B2B experience and she made us a lot of money and was our salvation.

Once again, good marketing is about good people….

I often hear entrepreneurs talk about maintaining control of their company. I worry when this comes up, as oftentimes it seems to be a code for, “I want to keep my job no matter what.” Why should anyone get to stay in control if they are not delivering the results their shareholders expect and deserve? Would you keep any of your employees in their jobs if they were not performing up to your expectations? I believe that maintaining control is all about creating a sustainable business and building corporate value, which boils business executiondown to ability to execute.

If you and your team are executing well, firing on all cylinders, making or exceeding your plan or revamping as necessary and communicating your changes to your shareholders, then you will have what I call “operating excellence control.” Having this type of control (the “velvet glove” approach) is much more powerful and satisfying than having shareholder control (the “sledgehammer” approach). Shareholder control is much more about 51 percent than about creating value for everyone concerned.

Execution is not an easy thing for startups to achieve. I am not trying to make light of this. Engineers are often late getting product out (count on it!), sales cycles are usually longer than the VP sales tells you they will be (count on it!), and it typically takes two to three times the amount of money you think it will to grow your company. How you treat your milestones and think about funding events related to milestones will keep you focused on creating value and making your enterprise worth more at each step of the way. Companies who experience today’s “down” rounds are those who did not bring in sales revenue as projected, who built a lesser product than promised to the customer, and who make audacious claims to investors and find that there is a penalty for not executing to a plan. Think conservatively in picking your milestones, communicate effectively with your shareholders, redirect resources as blind alleys occur, and your business will be worth more tomorrow than it is today. Oh, yeah — be sure you have a readily addressable market that is growing. And where there is market need, that seems to help too!

POINT

I have a $110,000 T-shirt. I came across it the other day while looking for something to wear while cleaning out my garage. Having never worn my $110,000 T-shirt, I have to say that it has not represented a very good “Value Proposition” thus far. I decided to wear it while sorting through several years worth of grimy, used Porsche parts.

The reader might well sense a story afoot here. The reader would be correct.

Some time in mid-1998, I made the curious but interesting decision to abandon my traditional line of work, in order to jump head, feet and heart first, into the wireless Internet arena.

Even though I owned and operated numerous restaurants, serving tens of thousands of people each month, I found that I did not possess the vocabulary required to compete in my new world.

Words like value proposition, enabler, brick and mortar, value chain (and the monetization thereof), alliance, and our word du jour, Strategic Partner, were tossed off like bad chardonnay at a location-based services conference.

I was at first confused by the new jargon, but in the end I was able to gain the appropriate understanding by reading the trade press associated with the dot bomb era.

While I am certain there is a difference between a strategic partnership and strategic alliance, I cannot tell you what that difference amounts to, even though I am a signatory on several of each of such agreements. Be cautious about assuming that all involved understand the terms. The word Partnership has legal implications and, to my mind, the current trend to use the term cavalierly is a bad idea. Indeed, once you begin reading the contract language, you will find that the other side will go to great lengths to disclaim any actual partnership, joint venture, or other, similar undertaking.

I began to pursue strategic partnerships and alliances with a fervor usually associated with college freshmen becoming newly acquainted with keg parties.

Things have changed.

A wise person once wrote that all generalizations are false, including this one. I therefore risk running afoul of this dictum by holding forth the opinion that strategic partnerships are generally bad for business. While I’m sure there have been successful strategic partnerships and alliances, for the most part I believe that they are a haven for those who wish not to compete. Faced with the prospect of a bloody competition in the market place on one’s own, it can look tempting to retreat to the kinder and gentler world of strategic partnerships. One very large partner that wishes to suck the life out of a very small partner with better ideas or a better product, however, dominates most strategic partnerships. The very large partner almost never does anything substantive with the ideas once it pirates them, but in today’s enterprise world, talking and posturing about doing a thing are almost always preferable to risking one’s career by actually attempting a thing.

While this outlook on strategic partnerships may strike the reader as being jaded, I submit that a rational inventory of well-known strategic partnerships supports my conclusion.

The Northwest Entrepreneur Network is an entrepreneurial organization. Entrepreneurs tend not to be “enterprise” employees, but rather small to medium sized employers. My own entrepreneurial experiences may therefore be instructive.

Over the past several years, I have chased very large, multinational corporations with big ideas concerning strategic partnerships that would yield significant positive results, make us each a market leader, and so on. In numerous instances, I met with success. Having signed a strategic partnership with a multinational enterprise, I often found that the challenging work had just begun. In several instances, I found that although I had signed a legally binding contract with a well-known American company, that company’s unilateral act could render my contract worthless. Strictly speaking, my legally binding agreement was with a corporation. But since that corporation had undergone a restructuring and in the process eliminated entire divisions, one of which was a division that my strategic partnership concerned, my agreement was worth less a bag of popcorn. I could, however, elect to pursue litigation…

Which brings me to my $110,000 T-shirt.

I once worked on a strategic partnership with a publicly traded “enterprise” for about 14 months. There were meetings, trade shows and conferences, product demos, travel, dinners, Flash and PowerPoint presentations. White papers. More travel. Strategy sessions. Market analyses, negotiations, and go-to-market plans filled weeks of time. Contract language negotiations ensued with the requisite lawyers to review it all. In the end, we found that, as the smaller (much) organization, we had spent about $110,000 on the entire process. There were press releases and other niceties. And then, six weeks later, our “partner”, who was not a partner at all, according to the “Partnership” documents, changed strategy, restructured, and laid off an entire building full of people, our “guys” among them.

Suddenly, no one who knew anything at all about our deal was around. The press releases were old news.

I had been given a T-shirt during one of the trade shows that my “partner” company had made for the occasion. For some reason, I kept the thing and it ended up neatly folded in a drawer at home. That T-shirt was the only tangible thing I had to show for my company’s $110,000 expenditure.

I recently read a statement from the Chairman of my erstwhile “Partner” – a statement about his company’s dogged devotion to ethical conduct. Don’t assume that your definition of ethical conduct is the same as theirs.

With the foregoing in mind as a barometer of what “ethics” means to an “enterprise”, I offer these rules for the smaller company contemplating a strategic partnership with a larger enterprise: NOTE: This is not legal advice.

First, DON’T DO IT! But, if you must, and I suspect you will, then:

1. Make certain the executives you are dealing with are seriously at risk within their organization as a result of your partnership. What I mean by this is that you should make sure that this person’s career could be seriously impacted by the outcome of the partnership.

2. Make certain that your agreement is between your firm and the legal entity that is the employer of your counterpart. I have seen draft “agreements” where their side was defined as “the so and so division” – don’t fall for that one.

3. In the agreement, cover what happens if there is a restructuring or other “event” within your would be partner’s organization. Don’t rely on standard “material breach” language to cover you on this as proving that point will most likely take the entire net worth of your company. Write as plainly as it can be written that if event X happens, then result Y occurs – you get the intellectual property, a sizable cash payment – whatever makes sense for the deal at hand.

4. Make sure you find a way to get them to pay you something upon execution of the document. Start very, very high and concede in tiny increments. Within an enterprise, it’s one thing to get a contract signed, and another thing completely to get a check signed. I have found that once the deal requires a check to be issued, all manner of people high-ranking people become involved. Plus, that check will have to be coded to someone’s budget – this is his or her “skin” in the game and it is essential.

5. Remember that you have the power. You must forget that your company is tiny when compared to theirs. This thinking is a major concession that you cannot afford to make chiefly because there is no offsetting thing you can get back for making it. If the relative size of the two organizations were at issue, you wouldn’t be in the room with them. There is a reason you are discussing a strategic partnership – and it is most likely that they need something you have. Your counterparts are most likely constrained by an entire novella of managerial, approval and accounting rules together with the inevitable internal political process of the enterprise. On the other hand, you probably make many corporate decisions on your own. You have the power to act, and this is a powerful force. Use it.

Oh, and one more rule. Don’t bring home any T-shirts.

all about strategic partnerships

COUNTERPOINT

The illustration presented in the preceding prose is quite amusing and realistic. The writer has extensive experience in business with a very pragmatic approach to developing key relationships. The author articulates the fundamental principal of risk versus reward and the necessity of having ‘skin’ in the game by both parties. What then, is the counterpoint?

The counterpoint is that there is a fundamental error in communication as people start throwing around strategic partners and alliances. Unlike the story illustrated above, I do not believe that this should prevent people from pursuing a strategic partnership or alliance. Rather, as a company ventures out to develop its market and sales channels, the company should develop a strategic partner plan that clearly identifies what a strategic partner is and what it is not.

What is not a strategic partner?

  • A strategic partnership is not merely an agreement signed by both parties
  • It is not about some partner program that offers a cool API or user conference once a year
  • It is not about fun tradeshows and partner parties
  • It is not about who has the most partner logos on their website

What is a strategic partner?

  • A strategic partnership is a relationship between two parties where there is a real revenue stream based on that relationship
  • A strategic partner is another company whose core competency has synergy with your core competency
  • A strategic partner is someone who is not afraid to put ‘skin’ in the game

The strategic partner plan should clearly articulate ideas and technologies that can be used in creating additional revenue channels. The plan should include key elements of any partner engagement as illustrated in the aforementioned article, goals of the relationship and at what point is the relationship no longer viable — an exit strategy.

Why should someone venture into a strategic relationship with another?

For one reason, and one reason only, positive cash flow. This may sound crass and ridiculous to others. But, regardless of how you slice it, a strategic relationship is worth nothing more than a T-Shirt unless there is a meaningful way to monetize the relationship. Businesses are in business to make money, period. If we begin filling our precious time with processes and relationships that look good but are not creating cash flow, then our businesses will suffer.

Creatively structured strategic relationships can assist a company in speeding up their time to market, reducing costs, opening up new sales channels, creating revenue based projects in new vertical markets—all of which impact cash flow.

To summarize, if you take the advice of the preceding author, mix in a little juice from this counterpoint and beat until smooth, you may have just the right mix for a successful strategic partnership.

One thing common to all companies from start up to Fortune 500 is that they have (or will) have employees. But, the myriad of federal, state, and local laws relating to employees together with recommended human relations policies could easily drown a start up. This “HR Lifecycle” outlines a generic timetable for developing HR policies, procedures and agreements over the life of a company. Its purpose is to help companies balance an interest in legal compliance with the practical reality that early stage companies mayhr life cycle decide that they have better things to do with their money than pay employment lawyers for advice that, while legally valid, relates only to a limited number of employees.

Please understand that this article does not necessarily track all legal requirements (it would take a book to cover everything). For example, you are legally required to accomplish some of the steps detailed in later phases right away. Instead, this “Lifecycle” represents an acknowledgement that despite their best intentions, many companies are unable to comply with all legal requirements when they start out, resulting in a technical violation. This lifecycle provides a framework for planning a phased approach to assuring compliance with the many applicable laws governing the employment relationship.

Phase I — Start-up (1-7 employees)

In this phase local (city and county) anti-discrimination laws probably apply, some aspects of WISHA/OSHA apply, and you may have to comply with state anti-discrimination laws.

  1. Make sure you have a good offer letter. These letters may be legally binding employment “contracts.”
  2. If you are using an application form, make sure that it complies with the law.
  3. Consider employment agreements with key management personnel.
  4. Evaluate the need for protection of the company’s intellectual property (such as confidentiality, non-competition, and invention assignment agreements).
  5. Evaluate whether stock options (or other equity) needs to be given to attract high quality talent (if yes, develop a stock option plan).
  6. Obtain worker’s compensation insurance.
  7. Set up systems to pay employment-related taxes (or outsource the task).
  8. Determine employment benefits (such as vacation, sick leave, holidays, maternity/paternity leave, insurance, 401(k), etc.). If you want to provide monetary benefits, either hire outsourced HR or set up your own welfare and/or pension benefit plans (e.g., arrange for medical insurance, set up a 401(k) plan, etc.).
  9. Make sure that you are properly classifying new hires as “exempt” or “non-exempt.” Don’t fall into trap of believing all highly compensated individuals or salaried employees must be exempt. If you are hiring minors, be familiar with those laws/regulations.
  10. Either (1) check with legal counsel to determine what discrimination laws will likely apply to you or (2) issue some key employment policies. These could include:
    1. Equal employment opportunity policy.
    2. Harassment policy
    3. Computer/email usage.
    4. Employee conduct and work rules.
    5. Conflicts of interest.
    6. Disclaimer regarding at will employment.
    7. Family care leave.
    8. Overtime.
    9. Benefits.
    10. Parental Leave.
  11. Become familiar with OSHA/WISHA requirements.
  12. Make sure that you are complying with Immigration Reform and Control Act (ICRA) (i.e. I-9’s).
  13. Evaluate whether you need to do any background checks (for example, driving record, credit, or criminal record). If yes, ensure that you are complying with the Fair Credit Reporting Act (which applies to many background checks).
  14. Evaluate whether you need post-offer, pre-employment medical inquiries/physical exams.
  15. Do not try to hire temporary or part-time employees as independent contractors. Be aware of the different legal tests that must be satisfied for someone to be considered an independent contractor.
Phase II– Wow, we are still in business (8-14 Employees)

In this phase, Washington’s Anti-Discrimination Law for sure applies (RCW 49.60).

  1. Have a discussion with managers on basic rules regarding hiring/discipline and discharge.
  2. Establish more formal HR systems:
    a) Draft checklist for new hires.
    b) Make sure application forms are useful and comply with law.
    c) Become familiar with and comply with record-keeping requirements.
    d) Make sure that you have all legally required posters.
  3. Still ensure that you are properly classifying new hires as “exempt” or “non-exempt.” More people may fit within the “Executive” exemption.
  4. Evaluate your need for more specialized HR policies:
    a) Telecommuting policy (if you have individuals working at home).
    b) Outside employment (do you want employee’s moonlighting?).
    c) Workplace violence prevention
    d) Alcohol, drugs and controlled substances.
    e) Selling and solicitation.
    f) Security inspections.
    g) Safety.
    h) Open Door Policy.
    i) Attendance, absenteeism, punctuality.
    j) Expense reimbursements.
  5. Consider putting all the above policies and more into a written personnel policy manual.
  6. Take all Phase I steps that you did not get around to doing.

Phase III — We are getting bigger (15-49 Employees)
.

In this phase the federal anti-discrimination laws and the Americans with Disabilities Act apply (Title VII). If you have not already done so,

  1. You may need a person dedicated to HR matters.
  2. Initiate formal training:
    a) For your managers on hiring/discipline and discharge.
    b) For managers on harassment/discrimination.
    c) Consider training for HR/Managers on ADA/RCW 49.60 Compliance.
    d) Consider training for employees on harassment/discrimination.
  3. Consider drafting detailed job descriptions.
  4. Consider the development of formal compensation and incentive systems (executive and sales incentives, for instance), review internal/external equity, and quality job descriptions for all jobs.
  5. Develop performance assessment tools (performance appraisal forms, performance management programs) policies and formal policies to handle compensation matters (such as promotions, merit pay, performance appraisal, etc.).
  6. Go one step further on your HR systems:
    a) Personnel change forms.
    b) Forms to authorize pay deductions for advances/loans.
    c) Exit interview checklist (you are probably ready to fire someone).
  7. Take a more serious effort at compliance with OSHA/WISHA if you have not already done so:
    a) Establish a safety committee.
    b) Establish emergency evacuation plans (fire and otherwise).
    c) Address any other OSHA/WISHA compliance issues.
  8. Do all the steps discussed above (for Phase II) that you meant to do, but did not get around to doing.
Phase IV – Now it is getting seriously complicated (50-100 Employees)

In this phase, the Family and Medical Leave Act applies and the WARN Act may apply. If you are a government contractor, you may have affirmative action and other obligations.

  1. You probably need in-house HR.
  2. Institute more formal training.
    a) Train HR (and managers) on FMLA obligations.
    b) Train Managers on ADA and state law disability accommodation requirements.
    c) Train employees on harassment discrimination.
    d) Train new managers on harassment/discrimination.
    e) Train new managers on hiring/discipline and discharge.
  3. Make sure you have analyzed your vulnerability to union organizing efforts and implemented a proactive planning process.
  4. Familiarize yourself with some of the more obscure HR-related laws:
    a) Employment and reemployment rights of members of the uniformed services.
    b) Jury System Improvement Act.
    c) Employee Polygraph Protection Act.
    d) Drug-Free Workplace Act of 1988.
    e) Fair Credit Reporting Act (FCRA).
    f) Worker Adjustment and Retraining Notification Act (WARN).
  5. Set up systems to address the issue of inquiries/reference requests by current and former employees and prospective employers.
  6. Set up a system for dealing with employees with injuries/illnesses/medical conditions which accounts for overlap between FMLA/ADA/workers compensation.
  7. If you don’t already have one, draft a formal Employee Handbook/Personnel Policy Manual (if manual has not already been drafted). This manual should contain a complete set of personnel policies tailored to your company.
  8. Issue a written FMLA policy (as part of the handbook).
  9. Do all the steps discussed above (for Phase III) that you meant to do, but did not get around to doing.
Phase V – Now we’re getting big (100 or more Employees).
  1. You’ll definitely need a periodic audit of your operations to make sure that you are still complying with the items mentioned above.
  2. Go beyond compliance to address issues of optimizing employee efficiency/productivity; minimizing employee turnover; improve your competitiveness.
  3. Make sure that you give periodic training “refreshers” for your managers.