Every so often we do some analytics within the firm just to level-set on where we are.  OK, in all honesty, we’re very metrics-driven so it’s probably more than “even so often,” and it’s also not a casual, anecdotal assemblage of loose stories and vignettes.

One of the topics we wanted to  give greater scrutiny was how much of our practice in the last 18 months or so was for portfolio companies of private equity firms.  And not only how much, but while we were at it, what geographies, and why not look at size of those private equity portfolio companies’ revenues, and the industries in which they clustered?

That set us off to “cypherin’” as they say.  Below are some of the results.  Given that our roots 15+ years ago were in earlier-stage, venture-backed companies, it’s an interesting diversification.  For some, this may be intuitive. For others, they may wonder about whether leadership talent for venture capital is completely different than those executives we recruit for our private equity clients.  The answer to that?  It is still apples to apples, and not apples to oranges.  Just a broader spectrum of apple varietals.   When thinking about venture capital portfolio leaders versus private equity portfolio leaders, at their core (couldn’t help the pun) they are still builder-leaders, which is the mantra for the type of talent we’ve specialized in a decade-and-a-half after founding the firm back in 1997.

While much has changed, this has remained a constant.

Stats below are based on some 40+ searches.

Enjoy.

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Our sweet spot over the last few years has been in the growth equity segment of the private equity investing thesis.  That means more than half of all searches we’ve performed for private-equity backed clients have been for companies with revenues in the $25 million  to $250 million range.  The balance–about a third of private equity-backed company search work–was for companies with revenues about $250 million.   These were sprinkled evenly across the $250 million – $500 milllion, $500 million to $1 billion, and great-than-$1 billion slices.

When we looked at the executive levels we had executed on behalf of our private equity-backed clients, a third of searches were for CFOs, 40% were for CEOs and COOs, and the balance of our search work was at the VP level, across the functional spectrum (see next graph for more detail on the VP-level exploded pie analysis).

 

 

Search work for private equity-backed clients at the Vice President level distributed nicely over the organizational functional spectrum, including VP Sales, VP Manufacturing, VP Engineering, VP Marketing, VP Operations, VP Content (most in the education industry sector), and VP Human Resources.

Finally, we looked at what party of the country (or globe) these searches clustered within, and the above graph portrays the distribution.  Even we were surprised at this chart, as it shows an almost geographic-blind distribution–searches executed in all 7 regions in the U.S. (Northeast, MidAtlantic, Southeast, Midwest, Rocky Mountain, West & Northwest), along with an equal slice representing private equity-backed companies for whom we had done searches that were based in Europe (United Kingdom, France, and rest of West Europe).

The Company

Global leader in broadcasting technology

Harris Broadcast Communications, Inc. (www.harrisbroadcast.com) is a pioneer in the broadcast technology industry.  Anywhere broadcasters are making media moments — from the family room to the road, over the air or over the web, on a television or a tablet — Harris Broadcast is there.  Harris Broadcast is delivering innovative, end-to-end solutions to customers in more than 150 countries, including the top broadcast facilities and the most technologically advanced sports and live-event venues. Harris is also investing deeply in the next generation of technologies to expand their leadership into even more markets, geographies and applications.

At its core, Harris Broadcast Communications offers solutions that support the digital delivery, automation, and management of audio, video, and data. It offers radio and television products, systems, and services for broadcasters. Harris has an integrated, high-performance technology solution that makes video production, transmission and distribution providers do it more easily, reliably and profitably.  The company was founded in 1922 and is based in Englewood, Colorado.

In February 2013, Harris Broadcast was purchased from Harris Corporation (NYSE: HRS) by Gores Group, a leading global private equity firm headquartered in Los Angeles.  Gores Group, LLC specializes in acquiring and partnering with businesses that can benefit from their operating experience and flexible capital base.  Gores Group has become a leading investor, having demonstrated a reliable track record of creating value in its portfolio companies alongside management.

Products, Platform & Technology

Media delivery isn’t a one-size-fits-all kind of business.  Neither is Harris Broadcast.  Flexible and future-ready, Harris solutions allow customers the ability to quickly add revenue-generating services today, and affordably move to wherever those customers are headed in the future.  To achieve this, Harris Broadcast has a rich intellectual property portfolio of 241 patents held, with more than 150 patents pending.

Harris is divided into three divisions.

Media Management Solutions

MMS products and services manage digital media workflow, including sales, traffic, billing, scheduling, video asset management, and play-out automation.

Transmission Systems

This division develops hardware, firmware, and software for over-the-air TV and radio station broadcasting

 

Workflow, Infrastructure & Networking

The WIN division develops products and services that include routing, master control, networking, test and measurement, multi-image processing, graphics, news editing and servers.

 

The Position

Detail of Responsibilities

The VP Engineering will carry primary responsibilities for the following:

• Manage multiple complex projects with an emphasis on providing quality products on schedule, at or below budget, and achieving stated financial objectives.
• Oversee the design, development, testing, and documentation of all products and solutions to meet product line requirements and product development roadmap strategy.
  • Serve as primary visionary for the development and deployment of hardware and software solutions that are secure, scalable, extensible and maintainable.
  • Lead research efforts for new architectural innovations, frameworks, and techniques with close collaboration with Product Management to optimally support and align with Harris Broadcast’s sales & marketing efforts.
  • Identify, evaluate and select new and emerging technologies that can be assimilated within the company and significantly improve competitiveness.
  • Author white papers, analysis of recent technology; contribute articles and presentations which position the company as a technology leader in the space. Present papers and support company speaking opportunities at tradeshows, customer events and other external facing events.
  • Drive technology for global execution of product, platform and customer solution initiatives.
  • Develop and manage a multi-year technology roadmap, working with the business leader to link market opportunities and industry trends to specific development efforts.
• Manage multiple complex projects with an emphasis on providing quality products on schedule, at or below budget, and achieving stated financial objectives.
• Manage, evaluate, assist in developing, and implementing technical processes, disciplines, policies, and procedures in support of established product and business strategies.
• Responsible for identifying and interpreting trends in technology. Participate in business planning and communicate technical knowledge and vision of both current and future technology related to company’s competitive position.
• Responsible for the development and implementation of engineering activities to create new and improved products and solutions.
• Mentor technical management and staff to ensure continual professional growth and improvement and ensure that technical development resources support the technology vision of the company.
• Monitor industry market trends and competitors and providing intelligence on the competitive landscape and key trends occurring in the industry.
• Know and identify all internal and external technology and resources to leverage and maximize product development capabilities.
• Collaborate with Product Management/Marketing, sales and other functional areas to ensure alignment.
• Develop, track, report, and manage R&D Metrics. Develop R&D Productivity measurement strategy to optimize cost per employee and determine best locale for R&D projects, e.g. North America or lower cost geography.
• Lead Quality efforts, including Companywide QA/Test strategy.  Lead Interoperability initiatives.
• Drive productivity improvements via:
  • IP sharing and reutilization
  • Eliminating redundancies and developing Centers of Excellence
  • Moving to lower cost geographies
• Support sales pursuits via customer engagement, proof-of-concept solution demonstrations.
• Align organization to support Service via escalation methodologies.

 

click the more button below to see rest of blog post, including the full position description

More…

This executive search is for a private equity-backed, revenue-generating, 7-year-old high-growth company that represents the next generation in healthcare innovation—PatientsLikeMe brings together patients in e-communities who create insights on their diseases and treatments by sharing information that improve their conditions.  At the same time, these insights bring value to large pharma and biotech companies, influencing the way they develop and deploy drugs.  With more than 100,000 registered consumer patients, PatientsLikeMe re-balances the healthcare system, ultimately returning power to the patient.

BSG Team Ventures is  retained to identify the VP of Client Services.

Reporting directly to the CEO, the Vice President of Client Services will play a senior leadership role within the management team, overseeing all client project scoping, management and delivery.

MORE COMPANY DETAIL:

The roots of the company are anchored in one of three brothers who developed ALS, a neuromuscular disease that ultimately proves fatal.  Ben and Jamie wanted to do all they could to help their brother Stephen, and—leveraging their prior career experience and entrepreneurial leanings—decided to try to help their brother gain insights from other patients with ALS in order to improve the understanding of how the disease progresses and what might be done to ease and improve one’s condition.  And so was born PatientsLikeMe, a health data-sharing platform.  The Heywood family’s fight to save Stephen has been chronicled in the book His Brother’s Keeper as well as the documentary “So Much So Fast.”  For more, preview an interesting short video piece on their story athttp://www.patientslikeme.com/about.

THE ROLE

This position will be responsible for the overall success of all commercial client engagements including those with pharma, payers, providers, and other related healthcare NGOs.

In addition, as the key liaison between PatientsLikeMe and the business customer,  the VP of Client Services will be responsible for driving key account relationship development, deepening the understanding of the customer’s needs with an eye to expanding PatientsLikeMe’s strategic role in providing data and analytics to further the customer’s knowledge of patients, conditions, outcomes, and insights.

Below is a bubble diagram outlining  key career & functional attributes critical to success for this role:

Specific responsibilities:

Drive PatientsLikeMe project scoping during project definition and contract development and execution phases.

Manage the engagement estimating function in order to drive , pricing consistency, accuracy, and profitability from engagement to engagement.

Coordinate overall internal project management across R&D, analytics, and technology development

Create and manage internal and external delivery timelines.

Communicate, in tandem with PatientsLikeMe business development staff, project progress against timeline, scope changes, and other periodic updates.

As necessary, build and lead client services function by hiring, motivating, and managing internal teams assigned to specific projects.

Lead the budgeting and execution of all client services-related activities.

Manage external third-party partnerships engaged to help deliver on PatientsLikeMe client related projects, including consulting firms, valued-added resellers, or other strategic engagement or delivery partners.

Work closely with internal business development, leadership & engineering resources, knitting together collaborative and energized cross-functional project teams.

Qualifications & Experience

Prior successful experience in a client engagement and delivery leadership role in the broadly defined healthcare consulting and/or healthcare data & analytics industry.

A strong understanding of the overall business frameworks of PatientsLikeMe customers, including pharma, biotech, healthcare payers & providers, and government & medical & health research and academic organizations.

Successful experience in an entrepreneurial, growth-stage corporate environment of less than 100 employees.

Success in scaling organizational and functional processes related to client engagement management that balance the drive for efficiency, innovation and creativity.

An unusual combination of proven analytical ability with strategic business savvy

B.A. or B.S. required; M.B.A. or other advanced degree strongly preferred

Skills & Personal Characteristics

Defined by others as smart, capable, hands-on, energetic, and someone who possess a strong entrepreneurial spirit.

A client ombudsman with outstanding strategic and conceptual thinking skills. Someone who is able to adjust rapidly to changing market conditions and new opportunities.

A strong, assertive personality, able to make a creative contribution and build buy-in for ideas, as well as integrating with the ideas of others

[This is part 1 of a 3 part series on the evolution of leadership theory—the history, most recent thinking on the topic, and what to look for when trying to identify it, including a look at charisma, executive presence and their contributing roles to successful leadership]

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As retained executive search consultants, we are constantly interviewing and assessing executive talent for our clients.  After interviewing these candidates, our clients often reference key characteristics they found (or didn’t) in an executive that are not found in their resumes—charisma, executive presence, or other purported leadership behaviors that are generally thought to be important to success.

But clients continue to ask questions about these traits that sit in the invisible spectrum.  Is charisma an essential ingredient to leadership? If so, for all sizes and types of companies?  Are there other types of leadership where charisma isn’t present and are they successful and in what types of circumstances? What about management versus leadership?  How do we define the differences, and when is a manager better suited than a leader?  And what’s up with “executive presence”? Is that just another term for leadership, or is it different? How? Are these differences important?

All great questions.   And—although we won’t be able to answer them all here in appropriate depth and breadth—we’re going to try to lift the curtain a bit.

With the book and now movie, “Moneyball,” the question of what to look for and what to measure in picking leaders for organizations should be rethought.  In “Moneyball,” the fulcrum of the book is based on a different way of measuring the potential and future performance of pro baseball players.  In the book, the Oakland A’s general manager turned upside down what had been considered the gold standard for sports talent assessment by baseball scouts in favor of a much less obvious and intuitive set of statistics.   Pro baseball would never be the same.

So, adapting this concept, it’s worth reviewing some popular (mis)perceptions of what makes a leader.

First principles—What does an organization need: Leaders or Managers?

Leaders/leadership by its own definition indicates the following situational characteristics—

Where one is now is not where one should be.  Rather

1) One should “follow” someone or something to another place, in theory a “better place”

2) This “better place” is both NOT self-evident (convincing is required), AND

3) It requires effort to get there, and is not frictionless, calorie-free, or zero-cost.

Managers, on the other hand, are most often those who create efficient operating systems once the “better place” has been reached.

Charisma as an essential ingredient to successful leadership—True or False?

The world “charisma” comes from the Greek word for “gift.”  Charisma is better thought of as a skill that enhances leadership effectiveness by dint of a superior ability to influence others to change their initial positions, perspectives, or opinions.

I was first offered a deeper insight into the concept of charisma in leadership by the teachings of Rakesh Khurana, a professor at Harvard Business School.  Dr. Khurana has done extensive research and writing on the topic, from articles in Harvard Business Review (“Curse of the Superstar CEO”, HBR 2002, http://hbr.org/2002/09/the-curse-of-the-superstar-ceo/ar/1) to complete books on the topic (Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs http://www.amazon.com/Searching-Corporate-Savior-Irrational-Charismatic/dp/0691074372).  More popular business authors like Jim Collins, author of Good to Great, wrote about “Level 5 Leadership” and addressed charisma in relation to this “top leadership level.”  Collins has been quoted as saying, “Being charismatic and wrong is a bad combination,” and “I’d go so far as to say that [The Level 5 leaders Collins chronicled in the good-to-great success case studies in his book] were uncharismatic for the most part.”  (http://www.amazon.com/Good-Great-Companies-Leap-Others/dp/0066620996/ref=pd_sxp_grid_pt_0_0)

Regardless of good or bad use of charisma, there is still a great deal of additional research and writing on the topic.  Clearly we associate the effects of charisma with enhanced motivation, inspiration and intellectual stimulation it engenders in the listener.  But can it be taught?  One branch of research surrounds this argument.   If you read the works of Professor Robert House at University of Pennsylvania’s Wharton School, he deconstructs “how” charisma works.  From House’s work, one could infer that charismatic behavior may be both “born in,” but also taught with enough study and practice (http://knowledge.wharton.upenn.edu/papers/674.pdf).

The Dangers of Charisma

What are the pitfalls of charisma in the corporate context?

• Charismatic executives tend to suppress individual thinking and leadership development in subordinate teams.  Leaders with charisma can create a culture of “followers,” rather than young, budding leaders and the next generation of a company’s executive team.  Narcissistic tendencies don’t allow others to flourish instead creating dominant monolithic thinking, “I don’t even argue with him anymore because I always lose.”

• This in turn leads to challenges for succession planning.  Often charismatic leaders leave a vacuum of next generation leaders, having created instead a strong set of followers.

• Life of the party isn’t always “engine of achievement.”  Charisma can be used to achieve personal goals as the primary objective, at the expense of organizational goals.  There is no question it is always best to have alignment of personal and organizational goals so that by achieving one, the other is also achieved.  However, this mandates that the charismatic leader be programmed to strive for a “win-win,” vs. a “win-lose.”   In fancy organizational behaviorist language, this ends up being the difference between those leaders who have “higher activity inhibition” and those who have lower levels.  If a leader has lower activity inhibition, they tend to seek win-lose outcomes with the “win” side being the individual over the organization.

What can the charismatic leader do to counteract negative repercussions?

The charismatic leader needs to ensure that they either surrounds themselves with others who have strong self-confidence and ideation, or that the charismatic leader makes a great deal of effort to cultivate an environment open to sharing other opinions, perspectives, and ideas rather than defaulting to “the charismatic boss.”

As referenced earlier, charisma is really more situationally valuable.  Typically, charisma is most valuable when change is the goal.  Innovation, revolution, new paradigm adoptions are the best projects for the charismatic toolbox.

Some popular examples of positively and negatively directed charisma include the following:

Good = Sir Ernest Shackleton, and the failed Antarctica expedition he saved | John F. Kennedy | Martin Luther King

Bad = Hitler |Jim Jones and the 909 deaths in the Jonestown massacre in 1978 where Jones as dogmatic cult leader got all his followers to commit mass suicide

A few additional interesting links to resources on charisma and leadership

http://money.cnn.com/magazines/fortune/fortune_archive/1996/01/15/207161/index.htm [lighter reading]

http://www.aom.pace.edu/amj/february2001/waldman.pdf [heavier reading]

Each quarter we survey growth stage CEOs who are running innovation driven companies.  This quarter,  we had more than 60 CEOs responding.  CEOs were running companies in broadly defined technology (software, hardware, semiconductor, telecom), Internet (e-commerce, media, social, entertainment), medical devices, biotech, and cleantech / renewable energy sectors.

A note on methodology.  We send these surveys only to those who fit the category (in this case, sitting CEOs or board member/founders of technology/science-driven growth-stage companies).    All responses were anonymous due to the web-based survey technology employed. The majority of respondents were in the United States, with the highest concentration on the East and West coasts (New York, Boston, and San Francisco/Silicon Valley areas).

For prior survey results from Q2 2010, titled “Impact of Economy and Renewed Growth”, go to http://www.bostonsearchgroup.com/blog/ceo-survey-results-q2-2010-%e2%80%93-impact-of-economy-renewed-growth/ .

ECONOMIC CLIMATE

The first set of questions was around the economic conditions in which each CEO felt s/he was operating.    One question we continue to ask and re-ask over the last six quarters or so targets the turbulence in the macro- economic climate.  It is interesting to compare CEO responses to the same question, “Do you anticipate a double dip in the near term future?”

* In Q3 2009, more than half  (54%) of CEOs polled were expecting a double dip, and planning accordingly

* In our Q2 2010 survey,  again 50% felt a second economic correction was likely, the biggest percentage of those CEOs believing it would be in either Q3 2010 or sometime in 2011.  The other half  of CEOs felt the specter of recession was behind them

* Currently in Q4 CEOs were consistent with prior quarters with a bit more than 50% indicating they didn’t feel a double dip was likely, and the other half of the CEOs saying either a 50/50 probability or greater (16% feeling more likely than not)

So less than 1 in 5 CEOs feel another economic dip is likely.  No CEOs selected the ” greater than 75%” probability.

It’s interesting to do a meta graph of the changing CEO sentiment on this question.  Surprisingly, the graph would be sloping downward, but not as much as many would hope.  The high point was certainly back in Q3 2009, but even throughout 2010, as many CEOs were fearful of a negative correction as those who felt it was behind us.  No doubt this “lack of confidence” index doesn’t inspire the CEO with a swashbuckling, damn-the-torpedoes-full-speed-ahead attitude toward growing their companies.  Rather, it makes CEOs think in short-term windows, perhaps 3 months at a time, with little appetite to make medium or long-term bets.

Those CEOs who felt another downturn was likey referenced several factors that might tip the scales negative–  gridlock in Congress due to midterm elections and likelihood that Democrats lose congressional majority, a belief that a bad Q4 holiday retail shopping was likely, and the persistent overhang of ongoing commercial and residential loan defaults.

As for when another economic dip might occur if it were to occur, the vast majority of CEOs pointed to Q1, 2011, with Q4 of this year and Q2 2011 tying for second at 18% each.

STRATEGY

Almost 50% of CEOs polled said that they had either made a shift in strategy in 2010, or were planning to in the near future.  Granted, growth-stage companies are prone to shifting strategy until they land upon the best formula for significant and sustainable growth.  However ~50% is a big number, and clearly a chunk of those companies have been driven to rethink their strategies because of the challenging economic climate, the concern over the future, and the possibility that 2010 might represent “the new normal” where with no economic “rising tide” no help generated to float all company boats as in periods of economic expansion in the past (1997-2000, 2005-2008, etc).

CASH FLOW

The majority of CEO survey respondents (49%) indicated that they were still planning on burning cash over the next 2 quarters.  24% indicated they would be profitable.  CEO comments regarding this question indicated an overwhelming drive toward cash flow break even.  That was the big push and focus for their companies in 2010, and if they hadn’t achieved it yet, they were gunning to by end of the first quarter of 2011.  CEOs also commented that they were trying to run their companies at break even, with any extra EBIT being reinvested back into the company for additional growth.

COST REDUCTION PLANS

When asked what were the top 3 areas CEOs were targeting for cost reduction, the following table summarizes their responses, representing a combination of spend reduction and staff reduction in non-core areas.  There was a preference by CEOs to favor non-staff cuts over cutting headcount if at all possible, but many acknowledged that in order to make meaningful cuts, staff had  to be considered in the equation.

CEO responses when asked about increasesin spend were logical.  The top three in order were sales, marketing, and R&D.  Many of the comments about this question noted the fact that outside of directly growing revenues, additional spend was hard to build in when many CEOs are driving toward a minimum cash-neutral mandate and economic uncertainties are driving CEOs to think conservatively rather than expansively.

[Click on "more" below for remaining 8 slides and narrative from Q4 2010 CEO survey]

More…

OK, admit it.  As CEO of a growth stage technology company, when it comes to your sales team, they all have “happy ears.”  Joyce Durst, former CEO of Infraworks, an enterprise security software company in Austin, TX, used the phrase in describing the eternal sales optimism she and her VP Sales have to counterbalance every week during their Monday morning sales pipeline meetings with their sales team.  You know, this is the optimism that insists that the prospect call that just took place the week before is not only a “sure thing,” but is also a particularly big sized deal, and will surely close before the end of the quarter, with room to spare.   Unfortunately, “happy ears” are the occupational hazard of a good sales person.  These are the ones that as often as not has to take a partially completed beta product, dress it up, sell it into a market where no other solution like it has ever existed, persuade someone that the solution is a “must have,” and then also persuade the other buying influencers within the customer that doing business with an underfunded start-up with perhaps less than 12 months of cash in the bank is a capital idea.

Working with growth-stage CEOs as executive recruiters, we’re often helping to hire sales VPs that will be able to build and manage a company’s sales pipeline.  Certainly hiring the right VP Sales is an important first step in sales pipeline management.  However, once you’ve gotten the right person in the seat, we asked a dozen or so early-stage technology CEOs what other tools, processes, and mistakes they’ve used or made that have led to their “best practices” for effective sales pipeline management.

TOOLS (technology)

Regardless of which tools were the favorites of each CEO, there was agreement that data hygiene was critical

Chuck Dornbush, CEO of Athenium Software, put it succinctly, saying, “Make sure the data is well organized, and frequently reviewed.”  Another location-based services CEO added, “no matter what CRM tool you use, as CEO you need to make sure every sales person is using it, and using it the same way.” Vinit Nijhawan, former CEO of Taral Networks, emphasized that sales people hate to use a system at all; you’re lucky to get them to enter the data once, and you’ll never get them to double enter for forecasting purposes.  So you need to use the same system for lead tracking and reporting/forecasting.”

PROCESS BEST PRACTICES

Meetings 1x-week—sales people defend their new pipeline additions

One of the above CEOs stated simply– “Know the basics, and do the basics.”  In more detail, he and several others sketched the basics out.   Have a weekly sales meeting.  For sales people to have a prospect “make the pipeline report,” they need to defend their putting the prospect into the pipeline, akin to a team interrogation.

7 categories involved in qualifying additions to the pipeline

Many of the CEOs talked about the minimum information requirements for a prospect to be added to the pipeline report.  Although some CEOs had four steps, and others had up to 40, the core must-haves most often included the following 7:

1. Budget—– Is there an earmarked budget set-aside for this category of expenditure?

2. Need –Is there a compelling need driving the prospect to make this purchase?

3. Time urgency—–Is there something that creates a sense of time-bound decisioning, or is this an important-but-non-urgent agenda item?

4. Internal champion—–Is there an individual inside the prospect who’s willing to go the extra mile and spend the political capital required to “fight the good fight” internally within their own organization?

5. Decision making power–—Who holds the real “power” to make the decision?  Can a clear decision-making organization path be mapped?

6. Clear ROI—–How is the prospective customer going to measure “success” for this product or solution?

7. Trust– Both in the relationship between the individual sales person and the individual representing the prospective customer company, and the prospect’s relationship with you as a company with whom to do business… do they trust your products, your company, and your sales people?

Tim Butler, former CEO at SiteScape and now CEO of growing RFID company Tego, said that as a reminder for his sales force, they have adopted a pneumonic, BUTANE–—budget, urgency, timing, authority, need & event.

Stages of the sales pipeline

Joyce Durst has her sales team and VP Sales apply a ranking/scoring system for each sales prospect.  If the customer is 50 points or less, they remain on the prospects list only, and don’t move onto pipeline report; if more than that, 50-70, they’re pipelined for NEXT quarter; if 70-90, they’re qualified as “committed;” If 90-100, the prospect is considered “ready to close.”

Athenium CEO Chuck Dornbush finds that it’s critical to “set entry/exit rules litmus tests for each stage.”  One CEO established the rule that “you couldn’t allow a prospect into the pipeline until at least their forth stage–qualified, demonstrated, formal price quote, and funds allocated. “

Other critical ingredients

Categorize every lead as “hot, warm, cold”

In addition to assigning probabilities as a percentage, try using some sort of ranking system.  Tim Butler uses another version– possible, likely, & probable

Add non-sales peers to pipeline meetings…

One of the CEOs stated  that it was very valuable to bring non-sales functions into sales pipeline meetings.  He added that personal accountability generated by sales people committing to forecasts in front of non-sales peers in a weekly/monthly meeting environment can do a lot to reduce the “fudge factor.”

Get the customer prospect to serve as proxy VP Sales for you…

Former Pantero CEO Pano Anthos who now is CEO of Hangout added a trick of the pipeline trade he’s found very useful– —“The customer needs to sign OFF on moving from one step to another.  Have the CUSTOMER via email play a proxy VP Sales role for you.”  Do this by having your sales person ask for a confirmation by email that the prospect has indeed passed from one stage of the sales pipeline to the next, whether confirming the ROI value proposition, or the budget allocation, or any of the other stages listed earlier.

If no date for next prospect action step, off it goes…

“Every prospect has to have an action item by date, or qualify it as ‘dead,’” another CEO offered up.

Kill the bad deals early…

Many CEOs listed this as critical to effective sales pipeline management.  Slow prospects should be turned over to the inside sales team.  Prospects that are particularly non-committal should get put in direct mail “tickler” mode.   “Stop spending the time on them, trying to actively manage them to close,” Marc Tremblay states, and adds that, “if feasible, you want to focus your sales team more on hunting than farming if you can.  You can get tied into prospects who may take two years to close… “  They may close, but “I always get my man” isn’t the most efficient proverb for sales.

Expect the unexpected…

When ending the quarter and/or the year there will be sales people who will say, “we’ll absolutely close these deals….” Even when all indications say they’re done, assume that some percentage will fall out, no matter HOW good they look.  Jim Lawton,  a veteran VP Marketing at a number of venture-backed growth-stage software companies who has seen a lot of sales pipeline management approaches states the reasons can include someone at the prospect company “getting sick, leaving the position, dog ate my homework… expect just about anything.”

“3x coverage” to mitigate the unexpected …

Continuing, Jim Lawton added, “If I’m trying to hit 3 million in quarterly sales, I want to have 9 million in the pipe.  Living on luck is tough, and you might hit a quarter or two with a thin pipe where you muscle the prospects and get a blue bird or two, but you’ll never make this repeatable.”

Consider having TWO sales pipelines

No, this isn’t two separate sets of books, nor is this a tool meant to be used deceitfully.  However, one of the CEOs offered up the fact that—–early on at least–there was a pipeline they kept internal, and one the executive team shared with investors that better illustrated the potential traction of their products.  The internal pipeline was more conservative.  As they grew the business, there was a natural convergence of the two into one.  Controversial, yes.  However, in order to manage burn-rates, and make sure you live to fight another day, it’s a survival tactic that no doubt many CEOs use, whether they admit to it or not.

Other Considerations

When to begin trying to do sales forecasting

Once you’re at what’s often referred to by venture capitalists as the “scaling stage,” most CEOs list their pipeline out and begin assigning probabilities.  However, Vinit Nijhawan cautioned that, “You rarely ever hit the forecast you set up.  After you get your 3 or 4 customers, you feel there is a market for your product, but actually what you’ve done is gotten the really early adopters.  And CEOs then start to scale too early, hiring resources, and making decisions that are difficult to undo.  Instead, you need to be in that strategic marketing role in sales longer than most start-ups might think.  Don’t even OFFER sales pipeline reports.  It’s not an issue with the start-up’s products, it’s the market.  Quarter-over-quarter projections are almost impossible.”  So where is the line, and where do you know that you have a product that the market is ready for?  “THAT is the art in sales pipeline management,” says Anthos.  “It’s definitely not a science.”

Strategic consideration in building the sales pipeline–—proper reference customer sequencing

Another wrinkle in building an early-stage sales pipeline CEOs mentioned was the proper ordering of reference customers.  There is a step before managing the pipeline process or implementing some tool to help in pipeline forecasting.  This is determining what is the optimal sequencing of customers you go to in order to create proof points and references to scale customer acquisition most efficiently and effectively. Do you sell big customers first, then the small customers, or smaller customers and build up to bigger ones?  CEOs concurred, —“It depends on capital resources available.”

MISTAKES & LEARNINGS

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We’re often asked how to establish fair market compensation when it comes to CEOs of privately held companies, often with venture capital or private equity backing.

Below is one method that can be employed as a jumping off point for this calculus:

1)     “De-risked,” how much is a CEO worth?  Is  $500 -$1M a year too much?  For our purposes here, we’re talking about a talented CEO.  Not someone below average, but above the average, one that a retained executive search firm, venture or private equity investor, or board of directors would be proud to put in the role.   Rather than pick some arbitrary number, this should be  ”market set,” by looking at what someone working for any global 2000 company (i.e. General Electric or other similar) earns annually.  From our executive search experience and database of compensation comparables in these companies, base salary is usually between 250K and 400K, depending upon how big the divisional P&L responsibility is, there is usually a bonus that is between 50-100% of base, and an LTIP (long term incentive plan) that-once partial vesting begins-can generate from 100K up to 250K or more a year in cash.

2)     So, the cash component of a comparable, including average base, annual average bonus, and yearly LTIP pay-out looks something like this:

Base ~ 300K

Bonus ~250K

LTIP (cash only) ~ 200K

TOTAL: 750K

* This does not include any meaningful RSUs (restricted stock units) that are usually also part of that package, which could add another 200K or more per year in value to a general manager’s package with true P&L responsibility for their division, group, or sector/segment.

* This is also not indexed to geography/cost of living.  If the position is in New York City tri-state area (New York, northern New Jersey, southern Connecticut), San Francisco, Boston, London, Singapore, Hong Kong, or Tokyo, a multiplier factor needs to be used to level-set for cost of living increase required for those metropolitan areas.

3)      Now, back out the cash portion of a CEO’s compensation for the company that they’re stepping into (say 250K a year in cash in smaller companies as all base, or combination of base + cash bonus).  So you’re left with say 500K that needs to be made up in equity, on a per anum basis.

4)      Over how many years is the liquidity horizon (and/or vesting rate, 3, 4 ,5 years)? Let’s say it’s 4 years, at net 500K, equals ~$2 million

5)      Now, this is with ZERO beta risk factor.  Add back the beta risk of an earlier stage company.  Let’s assume a global 200 company equals “1.”  A CEO role in a privately held, externally backed company is not “1″.  It’s probably a multiplier of 1.5, or 2.  For a pre-revenue, VC-backed company with high burn rate, it could be as much as in the 3 to 5 range.  Note that any illiquid company is inherently risky in terms of cashing in any equity at a reasonable price.  Let’s pick a beta risk multiplier of 2.5 times riskier than “average.” So, 2M * 2.5 = 5M.  Note that when there are preferences for the investors that create an exit hurdle rate before any common shareholders get paid, beta risk goes up accordingly unless the CEO participates in any exit event via cash carve out or other instrument.   As mentioned above, a recent IPO that represents a reasonable market comparable netted a CEO who joined the company 4 years ago $20M.  Using this number, the CEO’s compensation was $5M a year, or a beta multiplier of approximately 5.

6)     Then, are there any combat pay provisions you need to add in (warts that a CEO or executive team member is required to overcome and vanquish in their role that are above and beyond the normal call of duty)-reconstituting the executive team, or raising an outside round of capital because existing investors are tapped out, or starting up an Asia manufacturing capability that will require the CEO to take a dozen 15-hour flights one-way to get up and running.

7)      Finally, you have to look at what likely dilution there is going to be to an initial options grant for the CEO.  If you start with a 6% stake in an early stage company in a Series A funding, and you then raise a series B and C, depending upon valuation for those rounds, the CEO will likely end up below 3% as a “fully diluted” stakeholder.  There is an argument to be made that any of the management team critical to the success of the company will be “topped off” at later funding events in order to keep them motivated.  However, there is no guarantee that this happens.  It’s only good business sense to do it.  For the CEO, it is more important what s/he ends up with, not how much with which they start.

8)     Add water, and stir…

Notes & disclaimers:

• * This is not intended to be biased in any direction, to any party, neither CEO candidate, nor company and/or investor.
• * This is only one way of calculating compensation, indeed there are many others.
• * There is no way an earl- stage emerging/growth company will be able to compensate a CEO in all cash, nor truly be able to offset the risks inherent in this stage of venture.  The CEO either accepts this, or is not truly capable of working successfully in this milieu.
• * Other than the impact of cost of living  adjustments to base compensation, each CEO candidate comes with what we refer to as their own subjective “keep the lights on” cash needs.  We calculate this simply as the amount of cash required on a yearly basis to cover their living/family obligations without having to write checks out of savings to cover it.  Some CEO candidates may have 3 children in private school or college, while others may have no children and no mortgage.  Cash needs therefore may range widely, and need to be adjusted for using equity as a “leveler” (less cash-needy, higher the equity, and vice versa)
• * Alternatives to paying bonuses in cash might be to pay bonuses in equity, upon achievement of key milestones for the company
• * This same calculus can be applied to the Vice President level as well, subject to appropriate adjustments downward in cash and equity
• * In a circumstance where there is a “turn-around” required, equity may not be enough of a certainly to attract a competent CEO for the challenge ahead.  In these circumstances, a cash carve-out may be warranted in addition and/or in substitution for a stakeholder role.  The cash carve-out may be just for the CEO, or for the key management team required to achieve the turn-around.  Often, the cash-carve out structure is a percentage of total sale price over a certain amount, with the possibility for an accelerator depending upon exit/liquidity circumstances/outcome.
• * Often the question of anti-dilution comes up in an effort to assure a CEO of a certain percentage of equity upon liquidity.  Granting 5% equity to a CEO at a Series A financing with anti-dilution would ensure that the CEO retained his or her stake across the growth and additional funding needs of the company.  However, this is rarely a good mechanism, as the CEO becomes less interested in new company valuations at subsequent funding events, and becomes misaligned with the company’s investors.

Below is the hyperlink to our latest CEO peers “speed-survey,” exclusively for growth-stage CEOs.  Topic– “Preparing for Recovery?”

http://surveys.polldaddy.com/s/D3642F14267CCC14/

We at BSG Team Ventures periodically take the temperature of the markets we serve. This speed survey is no more than 10 questions, simple multiple-choice.

Knowledge is power.  Aggregated peer-provided knowledge is “actionable power.”

We make an effort to survey only those who fit the category (in this case, sitting CEOs or board member/founders of technology/science-driven growth-stage companies). [Note, if you don't fit the aforementioned description, please refrain from responding.]

Feel free to forward to the qualified CEOs in your sphere of influence.  The more data generated, the more accurate the trend lines.

All responses are anonymous due to the web-based survey technology employed.

We will forward the survey results within the next two weeks to the email address on file.  Please let us know if there is another email address you wish us to send the results to as well.