Blog: Turnarounds—Before It Is Too Late!

One of my disappointments being an angel investor for several years, as part of a group, was when I believed there were some occasions, when the group gave up too soon on a company. The action was there was no desire to put more money into the struggling company, and marked off as a loser.

Unfortunately, it was not the norm for investors to worry about taking an active interest after watching the company continue to slide down. What was needed was a turnaround effort.

I have done several turnarounds in my career. By definition, a turnaround situation is a company in trouble, losing money, bleeding cash, and operating under an old strategy with a lost direction. Anyone interested can read on about turnarounds.

I have developed several rules for cleaning up turnarounds. I chose to help some companies by directing their staffs before it was too late and before outside forces were brought in. There are times when a company with great potential has gotten off track by poor cash management. It turns out that 10 to 15 percent of my assignment could have been carried out by Number One, with proper support.

A company in trouble is like a marriage in trouble—it will take just as long to get out as it took to get in. Many married couples do not put the energy to work at resolving problems when they consider the marriage too far gone. An exception can occur if a traumatic situation develops, such as a seriously ill child. The couple may use this occurrence to pull together again.

On more than one occasion, I asked Number One, “Do you want to work at this, and if so, I will help rather than take over.” On most assignments, the company got in trouble from trying to grow too fast, trying to be all things to all people.

The most important initial step is working and changing the top staff. The first step is to create the trauma mentioned above and adhere to the following:

  • A staff that got the company into trouble cannot get it out, or they would not have gotten you into trouble.
  • You need dramatic changes quickly, or like a sour marriage it will take as long to back out as it took to get in.
  • Interview all employees to get a good idea of the basic problems and who are the good people—find the contributors in management and supervision. Employees live with the problems and possibly know better than management about what is broken, and they may even have ideas on how to fix the problems.
  • Don’t expect to change the culture immediately unless you replaced everyone—which is most likely not feasible.
  • A technique I used was to evaluate the staff to identify the six to ten people being paid the top salaries, and let half of the other go immediately. At least it neutralized the culture by bringing in new thinking and by starting to make changes. It forced each company to move faster to solve problems—many times a staff will believe that doing nothing is better than something; therefore, they will have little concern about things getting any worse. Because they were already surviving in the present environment, there was little incentive to change the status quo. The input from the employee interviews can help do the evaluations. This will also be the first step to improving morale.
  • Meet with all the key customers and vendors even though it will be painful—tell them the truth about how it is—after all they probably have been given many unfulfilled promises.
  • Example: after my sales manager was burned out from so many bad calls, I took a call in his office and had the customer tear me up and down for over forty minutes and even called me a couple names I never heard before. My sales manager said, “Wow, I guess we will never see that guy again.” I said, “Wrong. He could have told me in ten seconds, “I never want to see your face.” Forty minutes of his valuable time means he needs us.” In time, the customer turned out to be our second largest customer as we got well.
  • Keep in mind you may only get one more chance to make a new promise or commitment, whether it’s for banks, vendors, customers, or your own sales people.
  • Expect to change most or all of the sales people, because they have become the customers’ saviors and bitter against the company for being let down with too many bad promises and inadequate reactions to their needs.
  • Be wary of the top financial person in the company who has come to believe his loyalty to the bank is more important than the company—he’s thinking ahead about changing his job to the next company. The finance people and sales people are very sensitive to the customers and banks, because they need these relationships when going to their next jobs.
  • Expect to use the word “No” for quite a while, until you get your get your arms around things. Make sure those above understand that the odds are high that things may still get worse before they get better from the cleanup being planned.
  • Consider the staff personnel who keep giving reasons why any change can’t work to be in the first group to go.

Of course Number One has to have some competence and the willingness to make a major change in the direction he or she has been driving the company.

One reason for considering utilizing some of the people in place is because good or bad, they probably know more about the business than a stranger brought in to drive the changes. The trick is to separate the good from the bad.