The first job of a “real CEO” is to complete their company. The results of ChannelCorp’s research on top performing Solution Providers is clear: the key characteristic of mediocre businesses is that they are missing key Functional Underpinnings necessary for a business to grow profitably.
More specifically, solution providers that are not run by “real CEOs” tend to be incomplete in some or all of the following Functional Underpinnings:
- alliance/partnership strategy;
- corporate governance;
- finance, financial structure and financial strategy;
- marketing — account retention and acquisition;
- service creation;
- organizational structure; and
Incomplete companies are problems
Ten to twenty percent of North American solution providers are complete or substantially complete. The rest, 80—90 per cent of the businesses, are not. Those that are incomplete fall into one of three categories:
Denial-driven incompleteness — these businesses are run by “CEOs” who either deny that their businesses are incomplete, or are not aware that their businesses are incomplete. Both situations can be rectified if the CEO takes the time to understand the magnitude of incompleteness and begins to fix the gaps. Businesses that are allowed to remain incomplete end up in the bottom 50 per cent of financial performance in the solution provider business. Long term, businesses at the bottom 50 per cent are at high risk of failure, especially in a flat economy.
Growth before Functional Underpinnings incompleteness — in many solution provider businesses growth has taken place at a more rapid rate than the development of the organization’s Functional Underpinnings. The dot.com venture capital bonfire of the last two years was a classic example of capital before controls. Money was raised without proper controls being in place to spend it. Insufficient attention was put toward alliances, or partnerships with others that influenced or controlled revenue flows. Inferior people were added to service or technical groups because “the work had to be done”. Marketing resources never got hired. Unless rectified, the CEO driving the “too late” solution provider risks the business collapsing as a result of one or more crisis occurring at the same time: client defections, share price collapses, accounts receivable problems, revenue generation problems. Without a complete business with solid Functional Underpinnings, the net affect of the collapse can be catastrophic.
Too little too late incompleteness — many CEOs of solution providers seriously underestimate the time and money required to complete their organizations. Some solution providers are “light on marketing” or “light on finance and financial controls”. Other solution providers are simply “light on management”. In some situations, the CEO has created a complete organization only to have dramatic growth or dramatic reductions in workforce force render the organization incomplete again. The best CEOs realize that their organization is a work-in-process. Their organizations are never actually complete. The key completeness question that “real CEOs” ask is “what does my organization need to be complete right now and what does my organization need to be complete in the next 12— 24 months?” The best CEOs focus on making sure the Functional Underpinnings of their organization are in place.
Functional focus of the best
If the best CEOs focus on having Functional Underpinnings in place, then what are the Functional Underpinnings that the best CEOs focus on?
Alliances and partnerships have emerged as key performance drivers in the IT industry. The successful management of alliances and partnerships has emerged as a core skill of the best solution providers in the business. This is no accident. The best CEOs are very clear on how alliances and partnerships can build their organization and help their businesses. They are proactive and use alliances and partnerships skillfully in both offensive and defensive strategies. They have put other Functional Underpinnings in place to support their alliance/partnership activities. Corporate Governance in a solution provider deals with the relationship between the CEO, Management, the Board of Directors and Shareholders. The best CEOs create Advisory Boards or Legal Boards. They use the Boards that they create to help ensure that they are building complete organizations. The best CEOs use Boards strategically. If the CEO plans to go public, there is a Board Member with going public experience on the Board. If the CEO plans to grow by way of mergers and acquisitions (M&A), there is an experienced M&A person on the Board. If alliances and partnerships are part of the future, there is a Board Member with appropriate experience. The best CEOs use their Boards and their Board Members as part of their strategic advantage. They build strong active Boards, not weak passive Boards.
Finance, Financial Structure and Financial Strategy are critical focuses of top quality CEOs. High performance solution providers have different financial structures than low/average performance solution providers. High performance solution providers have larger amounts of permanent (equity) and semipermanent (long term debt arrangements) capital in their capital structure. This is no accident. The best CEOs build businesses that investors want to invest in. They build businesses that lenders want to lend to. Top quality CEOs hire top quality Chief Financial Officers or Controllers to handle the financial side of the business. They make sure that they have appropriate financial controls in place. They use their Boards and Board Members to help them get the capital that they need to grow. They make the calls to capital providers themselves.
Marketing, focused on account retention and account acquisition, is seen as a key Functional Underpinning by top quality CEOs. Even if these CEOs are not “marketing people”, they take prime responsibility for making sure that appropriate marketing resources are in place to meet the present and future business plans. Fifty to sixty per cent of North American solution providers do not have anyone dedicated to the Marketing function. Is it a coincidence that up to 50 per cent of solution providers are technically insolvent?
Service Creation and the service creation strategy is a critical Functional Underpinning.
The best CEOs know that the key source of gross margin dollars in the business is the service business. The cross-selling of service, support, training and consulting is seen as a major profit improvement opportunity. It is no accident that the best CEOs have clear plans in place to determine when they should create services themselves, when they should partner with the service organizations of vendors, and when they should partner with other solution providers. The best CEOs also know that the other Functional Underpinnings that they have focused on completing will strengthen their services businesses and overall profits.
Organizational structure and systems, and the ability to get and keep it right, is a key concern of the best CEOs. The tension between flexibility (low structure) and efficiency (high structure) is constant in high performance solution providers. The best CEOs know that too much structure, too soon, can cause organizations that need to be nimble to slow down. Too little structure, or appropriate structure too late, can cause organizations to go out of control leaving behind dissatisfied clients, uncollectible fees, and unpaid creditors. Issues such as formal systems, culture, transition to scale problems and talent acquisition and retention are just some of the organizational structure challenges that top CEOs address head on.
Sales and sales-related expenses are major components of the cost structures of most solution providers. In addition, sales performance is a key driver of profit plan achievement. As a result, the sales function of the solution provider is a major focus of the attention of top quality CEOs. Areas of specific interest for the best CEOs include salesforce productivity and capability enhancement, the development of world class salesforces (skills/training/systems), the acquisition and retention of top quality sales management talent, and the development of high quality revenue through product, service, solution cross-selling.
“Real CEOs” complete companies. They understand what Functional Underpinnings their companies require to perform in the here and now. They know what Functional Underpinnings they will need to perform in the future. They systematically complete their organization and continue to complete it as the world changes around them.
Bruce R. Stuart is the President of ChannelCorp. He is the author of the recently released books Reseller Management Handbook — 7th edition and Channels Handbook — 2nd edition. Both books can be perused at http:// www.channelcorp.com/products.htm.
Bruce Stuart is one of the world’s foremost experts on solution provider profitability, business model transformation and vendor channel strategy improvement. He has educated and consulted with channel and channel partner executives from more than 40 countries over the last 15 years. He is a frequent speaker at vendor events worldwide. Mr. Stuart can be reached at [email protected] The corporate website is www.channelcorp