Successful Turnarounds

Turnaround Success – “A Worm Under Every Rock”  

By Jim Bartlett

Inside any troubled company, the spotlight is typically laser-focused on the financials, and on cash flow in particular because cash pays the bills: Cash is King. But when it comes to locating inefficiencies in the corporate budget and orchestrating a successful turnaround, finding the true leaks can often be like discerning the culprit behind excessive water usage at a 2,000-room hotel.

Several years ago, I arrived to fill the COO role for a small publicly traded company whose negative cash flow was burning over $1 million a month on only $40 million a year in revenues. The existing management team had worked diligently on the problem, but the company was still hemorrhaging badly following 20 hasty acquisitions in previous years. My employer immediately started having me approve every legal document, review every purchase order and sign every check over $5000. Drilling into the details, I found myself asking a lot of “dumb” questions — “Why are we doing this?” As I studied hundreds of purchasing decisions, it became evident that there was a serious lack of management controls, or documented processes, being applied to everyday activities.

For example, sales commission check requests weren’t accompanied by supporting documentation. Once I demanded and began receiving detailed backup, I next discovered we’d been paying sales commissions on “comp” (non-revenue) accounts. Furthermore, I found my regional sales vice presidents weren’t submitting detailed backup supporting their 90-day pipeline projections. Their projections weren’t a roll-up of individual sales plans from field sales people; they were swags, plain and simple. I began to feel like the fisherman who finds a juicy worm underneath every rock turned over — a good feeling, but only for a moment.

We rapidly turned the company around, growing revenues nearly 75 percent while moving the company to cash-flow positive, all in just six months. The keys to the turnaround included 11 simple concepts, which I highly recommend to any incoming executive:

  1. Get immediate control of all outgoing cash. Determine when you’ll be at risk of “running dry” at the current burn rate. Be sure your CFO is focused on finding the dripping spigots and turning them off, while identifying potential sources of additional capital.
  2. A new set of eyes (yours) is often very helpful in identifying leaky faucets. Start off reviewing every purchase order, every line-item expenditure; question anything that’s not immediately obvious, especially any inconsistencies observed between regional offices or manufacturing facilities. Establish new procedures and management controls, as necessary to reduce waste, and standardize on how, what and when the company pays for anything. Look not only for line items that make significant financial impact, but also for small items with high visibility — ones that can change perceptions, particularly where senior management may be seen as wasteful.  Example: Is the company paying for Danish or fruit plates to be brought into senior staff meetings? If so, kill it. Nothing should be considered off-limits.
  3. Negotiate payment schedules with vendors to give yourself more runway. Rank vendors based on your strategic and/or operational needs for their continued products/services, and put your money on the highest values. In a crisis everyone can’t be paid on time — pay your employees, pay your key vendors, and make the others wait.
  4. People almost always constitute the largest line item in the budget, and the most important asset. It starts with management. A colleague of mine with deep roots in HR says, “Management doesn’t make a difference … it makes the difference.” Ensure you have the right people in place in all leadership positions. Next, look hard at headcount. Have your HR exec or an outside consultant help you develop a ranking system to determine which employees (if any) are most expendable, based on their lack of unique/critical skills, level of contribution, etc. Look especially hard at corporate staff roles that could be outsourced; e.g. benefits, payroll, advertising, etc.  Cut deep and fast. Nibbling away a little at a time usually takes a serious toll on employee morale.
  5. Get frequent input from those around you before making sweeping decisions, but make difficult decisions crisply — don’t delay. Not deciding to pull the trigger on a difficult call is still making a decision — it’s just a different one than you probably intended. In fact, by delaying, you may find your original choice no longer available. People want to feel as though someone (hopefully the person in charge) knows where the company’s going and how it will turn the corner. Don’t disappoint them.
  6. Focus on increasing revenues (and profits), both organically and via acquisition or merger, if appropriate. Drill deep into sales pipeline numbers to understand any assumptions driving sales-team projections, where they came from, and their validity. Evaluate the competitive environment and your company’s realistic ability to grow revenue according to stated plans. Can anticipated growth be achieved based on target market expansion, or does it require stealing market share? If the latter, which competitor(s) does your team believe is willing to give up share without a serious fight? (Fights are expensive.) Are losses from certain product lines draining company coffers? If so, consider cutting unprofitable lines and reallocating resources to areas that deliver greater return.
  7. Avoid the temptation to cut reasonable marketing expenses. Marketing may seem like an expendable line item; cutting it probably won’t negatively impact the current quarter’s results — it may even improve them. However, if you stop the marketing engine now, you’ll likely see undesirable results in the form of dramatically reduced sales leads and revenues six to nine months downstream. The key is to ensure all marketing activities are tracked, so you’re able to tie them to results delivered.
  8. Reserve time to review and revise strategy and long-range plans. Is your current value proposition still compelling — does it still “resonate” with today’s target market? How about next year? In a crisis, it’s easy for the urgency of “fire drills” to consume all available bandwidth, such that there’s no time to: a) develop better firefighting equipment, or b) design fireproof environments. Companies who fail to invest in long-term planning (by default) plan to fail.
  9. Maintain your integrity and candor in all situations, and look for opportunities to “catch people doing something right.” If investors, employees and customers know you value hard work, honesty and solid performance, and can count on you to tell them the unadulterated facts (and not “shade the truth”) in all situations, you’ll engender loyalty and commitment in those around you, regardless of how bleak things look.
  10. Communicate! Create an open communication pathway in both directions. Use “town hall” meetings and “flash” emails to keep your team informed and motivated. It’s almost impossible to over communicate on the outbound side. At the same time, create an environment that encourages all employees to tell you what’s going on, so you’re in touch with the reality of corporate operations, shifts in morale, etc. It’s amazing what you can learn from the average individual contributor who feels it worthwhile to share his/her candid impressions with you. Just be sure to sanitize everything to protect anonymity.
  11. Remain “human” — assume innocence in all situations (until compelling proof shows otherwise). Taking this type of stance will pay big dividends in all your relationships.

There are many aspects involved in leadership, too many to cover is this space. However, most of what’s truly required isn’t rocket science. Rather, it’s largely common sense for those executives who stop to consider what’s really important. So, stop and consider what’s really important, particularly if you’re in a turnaround situation.

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