The first job of a “real CEO” is to complete their company. The results of ChannelCorp’s research on top performing partners 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, partners 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 sales.
The purpose of this article is to highlight the problem of incomplete companies and to review the Functional Underpinnings that top quality CEOs make sure are in place. Incomplete companies are problems Ten to twenty percent of North American partners 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 partner business. Long term, businesses at the bottom 50 per cent are at high risk of failure, especially in a tough economy.
Growth before Functional Underpinnings incompleteness – in many partner 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” 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” partner 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 effect of the collapse can be catastrophic. Too little too late incompleteness – many CEOs of partners seriously underestimate the time and money required to complete their organizations. Some partners are “light on marketing” or “light on finance and financial controls”.
Other partners 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 organizations are works-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 vendor partnerships have emerged as key performance drivers in the IT industry. The successful management of alliances and vendor partnerships has emerged as a core skill of the best partners in the business. This is no accident. The best CEOs are very clear on how alliances and vendor partnerships can build their organization and help their businesses. They are proactive and use alliances and vendor partnerships skillfully in both offensive and defensive strategies. They have put other Functional Underpinnings in place to support their alliance/partnership activities. (See Corporate Governance, Finance, Marketing, Organizational Strength) Corporate Governance in a partner 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 partners have different financial structures than low/average performance partners. High performance partners 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 percent of North American partners do not have anyone dedicated to the Marketing function. Is it a coincidence that up to 50 per cent of partners 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 partners. 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 partners. 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 partners. In addition, sales performance is a key driver of profit plan achievement. As a result, the sales function of the partner 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.
Questions for contemplation
1 Is your company complete?
2 What category does your incompleteness fall into?
3 How focused are you and your organization on the Functional Underpinnings?
4 What Functional Underpinnings do you need in place to perform right now?
5 What Functional Underpinnings will you need to perform in the future?
6 What happened when you did the Completion Worksheet exercise?
Bruce R. Stuart, CMC is the President of ChannelCorp Management Consultants Inc. ChannelCorp has provided channel education and consulting services to hundreds of vendor and partner personnel around the world.This article has been excerpted from the May/June issue of ChannelCorp Intelligence, a regular newsletter on channel issues and insights available by request from email@example.com.