CEO Survival Guide

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CEO SURVIVAL GUIDE

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Contents

OEC LAVIVRUS EDIUG 1 2 6 9 11 12 13

Introduction Strategy People Financials Conclusion ELP Our Sponsors

Copyright © European Leadership Programme July 2008 – ALL RIGHTS RESERVED

Introduction

1 Introduction

The reality of running a business is very different to the image portrayed in television shows. In fact, around half of all start-up businesses fail in their first four years.

This is not an encouraging statistic & with the economic downturn, the start up success rates could fall further.

But macro market factors are only part of the pressures facing CEOs. Everyday, CEOs are confronted with difficult situations either related to strategy, people or finances that if not addressed properly, could be the start of their business’s failure.

Most CEOs and entrepreneurs have no regrets starting and running a business. But in order to be successful in business, they must always look to learn new skills and hone those that they already possess. This guide has been designed to be a ‘helping hand’ to CEOs and entrepreneurs to enable them to survive in today’s business jungle. The guide will outline the most common problems faced by CEOs and entrepreneurs, each followed by advice and guidance to find the shortcuts to success and avoid the pitfalls.

Ashley Ward Chairman, European Leadership Programme

2 Strategy

Strategy Timing is everything; you should not leave things to chance, especially if you are an entrepreneur.

A smart entrepreneur understands the fundamental steps to turn ideas into a successful reality. To this end, they understand that the business must survive to be in the market when the market is ready.

Understand the market

“Don’t sell ice to Eskimos”

You’ve got your idea and you’re excited about taking it to market. But have you understood or even asked what the market’s motivations are for buying it?

It was once said that “the business didn’t fail, we just ran out of cash before we had a chance”. Can you fund a business for survival by leaving events to chance?

Sales

“It’s not a dirty word”

An entrepreneur once said: “I can buy, hire, outsource and manage with some certainty everything....except the decision mindset of my customers”. This is because persuading customers to buy is a largely uncontrollable Before building a business, it is vital to understand what issue and one that money cannot fix. Despite being one the market wants to buy or, in some cases, where the of the most challenging facets of business, lack of sales pain points are. If you have passion and conviction for is usually the root cause of any business failure. Indeed, a product or service but no one else ‘gets’ it, you should sales performance to customers is the pillar that keeps ask yourself some serious questions. the entire business structure up; no new product or strategy matters without it.

Great entrepreneurs often have exceptional vision… but this has to be articulated in a logical sequence for Putting sales at the epicentre of your business involves others to buy into it and for it to stand a chance going beyond your comfort boundaries. For example, of getting funded. Once the market needs have been if you have estimated that you need to reach 1,000 researched and established, the ideas need to be tested people to sell 10 products, you should push yourself and as part of the product management process. your team to reach 10,000 people to sell just 5 products.

A fundamental error is to assume a 1% penetration A good example is Nintendo, the maker of console games. of an identified market when what is needed is an Several years ago, it needed to regain its leadership understanding into how many people are going to have position, find new ways to delight gamers and reach to take how many decisions and in what sequence for new audiences. To do that, it went straight to the your plan to succeed. Even brutally cynical observers source - gamers themselves. Through a community of markets rarely underestimate market success. of experienced gamers, Nintendo gained valuable Early stage companies that succeed in their selling insights into marketing needs and preferences. This has strategy usually have the CEO being a top salesman influenced everything from actual game offerings - like spending as much as 70% of his/her time market-facing. an online library of “nostalgic” games that appeal to older gamers - to new product design such as the intuitive controls of the new Wii system. The collaboration seems Survival tip: Treat sales as an extreme sport – it’s about energy and to have paid off: Nintendo is once again ahead of the focus rather than taking risks. Push the boundaries way competition with 44% market share. beyond what you first thought possible.

Survival tip: Back evidence, not gut feelings. Because 99% of the time, the gut feeling is wrong.

Don’t sell ice to Eskimos

3 Strategy

Organisational structure

“Who cares what it looks like so long as it works”

Building a trading business is different to creating a corporation. In the early part of the dot com era when money seemed to grow on trees, many businesses received large amounts of venture funding. Greed was of course the primary driver and the trend was to “think big” with infrastructures built to support global scale success. But times have changed and today’s serious business builder should only have the infrastructure in place to support excellence and drive the company forward.

Brand-building

“Punch above your weight”

In recent years, businesses have become household names even before announcing significant revenues because they positioned themselves as innovators.

Social networking sites such as Facebook are good examples. Although not every business can or should try this approach, there is no doubt that a greater perceived presence in the market promises a greater chance of financial success.

Every company or product is a brand, and the bigger the brand, the more value is attached to it. More often than not, companies that get bought have created more ‘noise’ than their competitors, firmly putting them on the acquirer’s radar. Being perceived as a winner is one of the key components to actually being a financial winner.

In the first few years of business, an organisational chart is less important than having a business full of people that understand what needs to be done and by whom.

All that needs to be defined is what roles and responsibilities each person has and who they It only takes a small investment to get to know people communicate with. Indeed, a business won’t establish its credentials in the market via its organisation structure. who write about the market and to appear as a conference speaker.

However, what an organisational structure should These activities can help CEOs be seen as innovators deliver is scalability as and when the business grows, and position their company as one to follow. and the ultimate ability to refine profitability. Too often, organisation structures are changed to fix a problem but this is rarely the right solution. What is needed Survival tip: is a strategic or tactical rethinking.

Don’t just claim leadership, everyone does that.

Aim to be seen as the great innovator in your field.

Survival tip: If a business starts to underperform, look at the attitude and values of the people in the underperforming area to address the root of the problem.

“Punch above your weight“

4 Strategy

Change and growth “This might sting a little”

Partnerships and alliances

“Make friends and influence people”

Running a fast growing business has been likened to driving fast on an unknown, winding road in the dead of night on a low beam. As the driver, the CEO can’t see much of what is ahead. The only certainty is that nothing is expected and there can’t be any guessing. CEOs have to stay wide awake to survive and learn to react quickly to what happens.

Who you know rather than what you know is important in today’s business. A partnership is an environment of shared risk and shared reward. While so-called ‘partnerships’ with global giants are desirable and sometimes essential, they should only be put in place for sound business reasons.

As companies grow, they need to change. Sometimes, they grow out of balance and the CEO has to recalibrate the business back to what you know is going to work.

The best approach to managing change and growth is keeping the infrastructure under stress. By not building fixed overheads before you need them, a business can be flexible enough to scale when required.

Successful partnerships are when both sides benefit from the relationship. However, the reality for entrepreneurs is that they need to get the ball rolling to ensure they get what they want from the arrangement. This involves becoming part of the partners’ core business.

For example, if you make consumer electronics gadgets for sale in retailers, you should go to all your retailers and be among the shop floor assistants to help make the first few sales. This will help pave the way to a bright future together.

If the infrastructure that has been built is wrong, it must be changed and the lessons must be learnt from how it went wrong. The safe bet is to have the capability to discard as much cost as possible from a business for the least cost. In short, if it’s a ‘buy or build’ decision, buy until you know the exact formula for the build.

Outsourcing could be a welcome option to some small businesses because it provides the flexibility to scale up or down at an affordable cost.

Survival tip: Keep your infrastructure under stress at all times.

“Make friends and influence people”

Survival tip: Invest in relationships that bring tangible and measurable strategic value to your business.

5 Strategy

International

“Howdy, Aloha, Sala’am Aleikum!”

“We need to penetrate the US market because if we could get just 1% of the market…” - we’ve all heard this before! But what of international expansion? CEOs need to build a business before building a global corporation because once they go beyond their own shores, doing business becomes much harder.

Too often, CEOs dive into international waters without dipping their toes in the water first. If you are intent on selling a product in another territory, go and sell it - don’t go and open an office first. One approach is to find a local partner or travel there frequently because air fares are cheaper than setting up an office in a foreign country. The message behind HSBC’s “the world’s local bank” adverts can be applied to the internationalisation of your business. It is important to understand the various nuances of doing business in different countries, even those that speak the same language as you.

One final point to make is that if the formula is not yet right at home, you can be quite sure that it won’t work in another country.

Survival tip: Only fools rush in. Take the time to find the right local contact to help grow your business.

Exit

“Let’s get outta here”

Not long ago, if a business owner admitted that a business was for sale, it would be tantamount to a mass betrayal of employees. Today in the high growth sector of angel and venture funded businesses, a business is born to be sold.

From the outset of any technology or high growth sector business, the exit requirement should remain omnipresent. It is important to landscape who potential buyers are going to be and understand their buying metrics. Do they look at the number of clicks to your website? Do they attach strong value to sales figures or brand value? Are they buyers of revenue or profits?

Experience has shown that most businesses that are acquired had a pre-exiting relationship.

A key point for a successful (and profitable!) exit is not to let greed get in the way. Continuously turning down offers waiting for a better deal is a pipe dream. In reality, it could be better to sell your business earlier for a decent price rather than waiting too long, especially if markets change… for the worse.

Survival tip: Keep the end in sight but remember that greed equals regret.

“Let’s get outta here”

6 People

People In businesses, the most valuable asset is human capital.

Happy workers are better workers, and better workers mean a more successful (and profitable) business.

Creating Culture “Who do you want to work for?”

From the beginning of a CEOs leadership either as a founder or hired gun, it is important to determine how you want the business to be perceived by its most critical market – the employees. This is because business culture flows from the top down. While programmes of change, training and coaching can help communicate & promulgate a desired culture, they cannot create it.

An engaging, charismatic and energetic leader will determine the culture and style of business that will be adopted by the employees. This involves not being afraid of talking about your culture externally as well as internally and it involves massive empowering of employees to give their best and forgive their mistakes.

For example, the culture at Virgin Atlantic is markedly different to that at British Airways because every employee embodies the culture cascading from the group founder Sir Richard Branson. For a consumerfacing organisation like the airline industry, the happy faces of the cabin crew convey a mood of well being to the passengers and enhances the customer experience, encouraging repeat purchases. Ironically in the early 1980s British Airways invested massively in ‘Putting People First’ but inconsistent leadership styles have left a residual mediocrity.

Survival tip: Ditch the mission statement. Culture is a reflection of leadership.

“Free pizzas are not enough”

Leading and motivating

“Free pizzas are not enough”

There are two camps of people: those that are motivated and those that can’t be motivated. But even the most motivated people can easily be de-motivated by an uninspiring leader. As such, team or company drinks in the presence of the uninspiring leader will do little to re-motivate employees. Providing rewards for continued performance and positive attitude with thoughtful initiatives that cost little work wonderfully. By showing your strong positive leadership and having a good time everyday, employees will find contentment and stay motivated.

Survival tip: Look in the mirror and see if you like the boss you see.

7 People

Hiring and firing

“Quality not quantity”

Coping with being a CEO “It can be lonely at the top”

There are three simple rules to hiring: quality, attitude and integrity. Sticking to these rules at every level will ensure you are hiring for business success. When hiring, think about surrounding yourself with people that are better than you. This will ensure that you have the best workforce.

Almost every CEO describes their role as lonely in some ways with the main reason being that they feel they cannot share all their fears with their colleagues or their board members. But if that is the case, they may not have hired sufficient quality colleagues nor have the right board members. By involving colleagues in the decisionmaking process, decisions are of better quality and are If a CEO has cause to think about firing someone because implemented with greater commitment and passion. of attitude, they probably should have done it yesterday.

However, if the attitude is right but the performance Survival tip: under par it may be worth looking at other factors prior to making the decision. Some leaders have delayed firing Be open - a problem shared is a problem halved…. and it earns trust and respect. because of the risk of costly legal action. In such cases, you need to compare the cost of delaying versus the cost to the business. Perhaps leaving the individual in place could have worse financial implications than firing.

However, this does not give you licence to fire people in an unpleasant or insensitive way as this will only create an enemy in the market for you and your company.

Survival tip: Think whether you would want to have dinner with a person – if the answer is no, your employees probably won’t work with them either.

“It can be lonely at the top”

8 People

Staying Focused “How to keep your head when everyone

Dealing with the board

“That’s board with an a-r-d”

else around you is losing theirs”

With large, inefficient corporations, 80 per cent of what people think about is inward looking such as organisational structure. However, such issues do not make an impact in the market and rarely improve commercial prospects. Before doing anything, employees should ask themselves: is this going to make a difference to the business or is it just noise?

Boards of directors in venture-funded businesses have changed over the past 20 years. They have moved away from largely operational executive members to being predominantly non executive member with the CEO and CFO being the only executives on the Board.

As such, the role of the Board has moved from defining strategy to implementing corporate governance.

Only in such an environment will each individual focus on the performance parameters.

A Board should consist of an independent chairperson who supports the CEO rather than supporting his or her personal desire to ingratiate themself with investors in the hope of being offered other nonSurvival tip: Set the measurement parameters and the rest will follow. executive appointments. The Board should also have directors with relevant and current experience.

The chances are that a senior executive from Global Corporation X, while having had an illustrious corporate branded career, may not know too much about, for example, building an internet dating site for teenagers and perhaps have even less experience of how to run a small high growth business. Board members need to have knowledge, be current and be able to advise from relevant experience. For the CEO, an important aspect is transparency because if you can’t comfortably share bad news with the Board, then the Board can’t support you or help in quality decision taking.

Survival tip: Get a Board you can respect and trust.

“How to keep your head when everyone else around you is losing theirs”

Financials There is nothing more important than the numbers for the ultimate survival and prosperity of the business. If a business decides to use other people’s money to fuel growth, it is reasonable that the providers of that capital should know very clearly how their investment is doing today, and how it is looking for the future. So apart from quality historic reporting against agreed budgets and milestones, the CEO needs to continually update the forecast. In many early stage businesses though there is a conundrum.

Forecasting

“You only get one chance”

9 To establish valuation for funding, budgets and forecasts were provided to maximise the ‘pre money’ valuation. More often than not however this proves to be wildly overoptimistic. For financiers to forecast their own return on the capital, they take a cynical view of the numbers provided by the company. On the whole, venture capitalists are knowledgeable and definitely not naïve. But the CEO is then often measured against numbers that are too optimistic even though neither party really believes them.

Managing Cashflow

“A stitch in time saves nine”

Over optimistic forecasting is the most common reason that a CEO will get fired. It is therefore the most important thing to get right. Forecasting is important not least because it dictates how to grow the business, it states an intention, and it is the basis on which funding is decided. It has to be got right and therefore has to continually be updated.

Businesses don’t go bust, they run out of cash.

“Cash is king” must be one of the oldest and truest business clichés. There are many aspects to cash management and the handling of the receivables is critical as the business scales. The golden rule is that when a customer doesn’t pay, it’s a customer that you don’t want because that customer is a threat to your business. You’ll never lose a good customer by asking The CEOs biggest problem is that the forecast inevitably for prompt payment of money that you are properly looks different to the business plan. Remember that a owed. Ask sooner rather than later, never forget that business plan and a budget are based on hope; a forecast you’re in business to make money, not to help other is based on reality. Too many optimistic entrepreneurs businesses with their cashflow issues. do not make the distinction and continue to fail against an over optimistic budget. Inevitably this leads to shareholder disappointment, premature calls for further Survival tip: cash and in the majority of cases - the scalp of the CEO. Ask for your money early – if there’s a problem, What is needed is better transparency to show re-forecasting when performance falls below the optimistic budget, and to do this as early as possible with a fully informed and involved board.

better to know sooner than later.

Survival tip: If you have to downgrade the numbers – get the pain over with as soon as you can and share your thoughts with your board at every step. Surprise equals disappointment equals another quality CEO unnecessarily sitting out the remainder of the match.

“You only get one chance”

Financials

10 Financials

Shares

“Keep it simple....... stupid!”

Regulation and compliance “How not to end up in jail”

The Enron collapse has now become a by-word for poor corporate governance – and in turn has sparked new waves of compliance legislation around the world.

At the heart of the energy trading giant’s demise were improper accounting practices that defrauded businesses and individuals investing in the company – At the time of the investment round, ideally there should and have left Enron executives involved in the scandal be more willing investors than you require and then the facing huge lawsuits and imprisonment. company’s lawyers can help you construct a fair structure Regulation may feel like a pain at times, but we all have for the investment. Capital structures become overly to do it. It requires the values of openness, integrity and complicated because new shareholders usually want honesty so good corporate governance should really be preferential treatment to those that have gone before, part of your business’s DNA whether it is legislated for or whereas if there is healthy competition to get into your not. Build in reporting and governance into the core of deal you are in a better position to dictate the structure your business processes, as well as allowing for related to be used. expenses in your budgets. You may also want to consider hiring staff with specific compliance experience or That old ‘keep it simple’ principle is as true here as anywhere. Raise more than you think you need because training to ensure you remain on the right side of the law. you’ll always find that some aspect of even the best plan The best approach is to be over–cautious - if you think that something isn’t quite right, assume it’s illegal and will go wrong. you should be able to avoid problems.

More and more small companies have complicated capital structures when in reality, CEOs should drive and strive for simplicity. Complexity makes every future transaction harder, especially the ultimate sale of the business.

Bear in mind also that it’s not just about protecting Survival tip: your business – compliance can be a great competitive Raise enough to achieve what you claim without further differentiator, and many of the processes that the law injections of cash. If you don’t like the people – don’t take requires can equally have a significant business value if their money! approached in the right way.

Survival tip: Involve your board as the quality assurance officers of good governance – but don’t rely on them or the rest of the organisation to keep the business and the CEO compliant.

“How not to end up in jail”

Conclusion

11 Conclusion

While the world of the CEO may seem fraught with danger, there are lessons to be learnt from those who’ve fallen and those who’ve come out the other side, albeit a bit battered and bruised. Of course entrepreneurs that have had glittering successes have much to pass on.

But even though writing books or giving seminars on “How I built a billion dollar company” is often inspirational, it does not provide life saving lessons to entrepreneurs or CEOs. A lot of the advice you’ll receive is commonsense; but there’s no replacement for experience, and one of the most important things to remember as a CEO is that while it may feel desperately lonely at the top, there are plenty of other people out there who have been and are going through the same ups and downs.

Drawing on support from others in the same position can be the most valuable survival tool you have.

“Keep it SImple”

12 ELP

The European Leadership Programme (ELP) is a high Chairman: Ashley Ward impact personal and professional development programme for Founders and CEOs of high growth companies in Europe. It combines Ashley Ward is Chairman of the European Leadership advanced personal development training with structured and a Partner in Nexec, a tech focused head hunter workshops facilitated by subject specialists, as well as where he uses his skills to help clients build the quality group debate and peer-group support and coaching. into their teams essential for success.

Like top athletes attending an academy, ELP is the place where talented, open-minded CEOs go to raise their game within a stimulating, powerful and confidential environment.

As a serial CEO for 26 years Ashley led several businesses to sale or IPO including Wharfedale Loudspeakers, Anite Networks and Orchestream which became a FTSE 250 company with a capitalisation of almost £1b.

If you are interested in joining ELP as a member, or are an investor looking to find out more for one of your portfolio company CEOs, we’d love to hear from you.

Ashley is passionate about helping leaders of entrepreneurial ventures maximize their chances and has developed a formula that he calls ‘Thrive and survive in the hot seat’.

Similarly if you would like to discuss sponsorship opportunities or feel you can contribute to the In addition to his role as a head hunter and leader of ELP developmental side of the programming, do get in touch. he sits on the board of various VC backed businesses.

Call us on: tel: +44 20 7038 3832 fax: +44 20 7038 3831 Or email: contact@european-leaders.com

“Thrive and survive in the hot seat“

Find us on the web: www.european-leaders.com Our offices are located at: European Leadership Programme Linen Hall 162-168 Regent Street London W1B 5TG

Our Sponsors

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Entheo

Hotwire

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Within ENTHEO, the often conflicting worlds of marketing and organisational change meet. Their combination is the fuel that enables the sparks to create powerful and successful customer centred innovation.

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Since its foundation, Hotwire has won a number of prestigious awards across Europe including Best PanEuropean Programme at the 2007 Sabre Awards, and International Consultancy of The Year and Best Technology Campaign at the 2007 PR Week Awards.

GP Bullhound is Europe’s leading investment bank focused on providing advice on mergers & acquisition and institutional capital raising in the technology sector. The firm For more information please visit: www.hotwirepr.com. was established in 1999 and has completed over 60 M&A and Private Placement transactions in the technology sector Nexec Partners since. With dedicated sector teams in Internet, Software and Semiconductors and with offices in London and San Nexec is an executive search practice specializing in meeting Francisco, GP Bullhound aim to provide the preeminent the exacting executive staffing needs of TMT sector clients advisory service to entrepreneurs in Europe. demanding more from a search than candidates with a safe, big brand CV. The combination of our senior level For more information please visit: www.gpbullhound.com. experience in industry, as well as search, combined with truly value adding post appointment services ensures that Kemp Little LLP new members of client teams are both an ideal fit and have an agreed mandate along with the support infrastructure to Kemp Little is recognised as the UK’s leading technologysucceed. focused law firm. They act for leading organisations across the range of technology and communications industries Nexec’s clients range from venture capital and private equity and in sectors where technology transforms how business backed companies through to technology multi nationals operates like financial services, media, professional services, – all sharing a common desire for a different, more effective the public sector, retail and travel. Clients range from the search process. largest global public companies and organisations to early stage ventures with exciting new technologies.

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Our Sponsors

14 Our Sponsors

OEC LAVIVRUS EDIUG