“President” and “CEO” are just titles. The words don’t convey what the leader of a company actually does that determines the venture’s ultimate success or failure. There are only three specific CEO actions that ultimately matter. If these actions are in place and working, the company will grow and prosper. If any of these actions fall short, the business will founder or fail completely.
According to Helow and Schleckser, very few CEOs are aware of these actions or their implications. They usually realize these things are important, but they almost never believe that these three actions should occupy 80% of their focus and attention. Yet, instead of spending the bulk of their time on these critical actions, time spent usually equates to less than 10%. A shift in focus and competence in these critical actions will substantially alter the destiny of the venture.
The three CEO actions that separate the winners from losers are:
- Picking the right business/profit model
- Putting “A” players in key positions
- Implementing “A” processes in customer service and sales
Picking the right business (model)
Some businesses are good, others aren’t. A mediocre home builder in Washington, D.C. will be more successful than a great home builder in Altoona, Pennsylvania. Market demand always wins. Picking the business, designing it correctly and modifying it to meet changing conditions are the CEO’s most important acts.
What are the elements of a great business?
- Demand exists—or you can create demand—that consistently exceeds supply. It helps to have a product that customers love, has recurring revenue and is a non-discretionary purchase.
- You have a sustainable advantage that is difficult to duplicate. With this advantage often comes unique vertical knowledge, which deepens over time.
- The economic characteristics (gross margin, return on invested capital, etc.) are favorable.
In the wake of the dot.com bust, for example, The CEO Project found some interesting islands of success. ATX Forms in Caribou, Maine, is a classic example. ATX develops software that small, private accounting firms use for their clients’ tax returns. Their product is essential for their customers—accountants can’t do tax returns without this type of software, the product is sold on an annual basis every year because the tax code changes annually, and ATX focuses its product on the small practitioner. There are other large competitors, but ATX has the advantage of focusing on the needs of the small practitioner. Their sales and profits have grown over 50% in each of the last two years.What do you do if you’re in the wrong business? You have two choices. One choice is to take your existing assets (customer relationships, product knowledge) and reconfigure the assets to support a higher value business proposition. A CEO in the paper cup business—think commodity—invented and patented the big cups with the narrow bottoms to fit into vehicle cup holders. His business took off.
The second choice, and the hardest for entrepreneurs, is to sell or close the business and do something else that creates more value. For most entrepreneurs, it would be easier to cut off a limb than lose their baby. But often, it’s better to surrender and look for a better opportunity.
Selecting “A” players in key positions
Sometimes one person can be the missing link. Helow says he frequently hears “we were growing slowly and then we added ‘x,’ and that was the missing piece.” Often, this function is sales because most companies have sales as their limiting constraint. Sometimes it is a technical skill and other times it’s the addition of a great operations person that can bring all the pieces together. Sometimes it is replacing the CEO.
Player definitions are:
- An “A” player regularly excels and goes beyond expectations, reinvents and improves new situations and is a shining example for others and forwards company values. Ask the question: If you could hire anyone in the world to do this job, would it be that person? If the answer is no, then the person is likely not an “A.”
- A “B” player consistently meets expectations and supports others and company values.
- A “C” player is neither an “A” nor a “B.”
Most CEOs give their people “A” ratings when they really should be a “B.” But the difference between an “A” or a “B” can make the crucial difference in a critical position. That said, “B”s are essential to a company’s success. Companies are built on “B”s. You can’t have all “A”s. But you need to have them in the top positions of your company.Who are the most important people in your company? It’s always 1) the CEO and 2) the manager at the company’s point of constraint. Since most companies can usually handle more sales, the point of constraint is usually sales and marketing.
“A” processes in sales and customer service
If a company can systematically delight its customers, that leads to a series of good things. Existing customers don’t leave, they buy more stuff, and they frequently refer others. Being able to do this every time is a key ingredient in company success.
Several CEOs have used an innovative approach for keeping customer delight front and center in their organizations. Instead of complicated and arbitrary numerical customer surveys (one person’s “3” is another person’s “4”), they would ask their customers if they were 1) Delighted, 2) Satisfied or 3) Not satisfied. This made the customer data much more real. The next question was usually “why?” This opened up a customer dialogue, which frequently led to significant improvement in customer delight and revenue. A unanimous conclusion from this approach was that there was much greater economic value turning a “satisfied” customer into a “delighted” customer than trying to convert a “not satisfied” customer into “satisfied.”
Another catalytic event for many companies is when they find the keys to unlock their sales and marketing process. Orange Glo International manufactures Orange Clean and OxiClean. In the beginning, these products were sold mostly through craft shows. The product would sell itself in live demonstrations, but obviously the company would stay very small relying on craft shows and live demonstrations. Then came the Home Shopping Network test. The product was demonstrated live to millions and it sold very successfully. Users began telling their friends and the company was on its way. OxiClean became so popular that it eventually became one of the top-selling items for Wal-Mart on a worldwide basis, and the company is now over $300 million in sales.
CEO focus and skill along three critical dimensions will determine the ultimate success of the enterprise. The overwhelming tendency is for the CEO to spend time in other places—some good, some bad. A total commitment to building skill in these three areas will have a geometrically positive effect on business performance.