My 12 Principles of Successful Company Turnarounds

My 12 Principles of Successful Company Turnarounds (I think J)

Background to this post.

For 10 years, I spent my professional life turning high-tech companies around. I did not specifically decide to get into this line of work. It just happened. Over my early business career, as a product line manager in California, I had been given “fix it” assignments, had liked it, and did well at it. Somewhat naturally, I ended up getting “fix this company” mandates. A couple of tongue-in-cheek notes:

• Downside — People hated to see me show up and were glad to see me leave :-(

• Upside — Win-win situation. If it worked, I could take all the credit. If it did not, I could blame it on the guys who screwed it up in the first place. J [Just kidding…]

• Side benefit — It is the ultimate form of procrastination (while I fixed other people’s problems, I could always argue that I did not have time to fix mine…) [Not kidding…]

I did 3 turnarounds in 10 years (they usually are multi-year projects). The first part of any turnaround is about “stop the bleeding”. It is intense and clearly stressful. Usually involves some kind of reduction in payroll. But that is NOT the most important phase of a turnaround. What really matters is to set a company, who has gotten into trouble, back onto a growing and healthy path. The 1st phase lasts a few months (at most), the 2nd phase may last years.

Ten years ago, I gave a presentation on my experiences as a turnaround executive to the Molson School of Business of Concordia University. I recently found that presentation in my archives. I think it still relevant. Here are the main points I tried to make then.

Turnaround Executive…what exactly does it mean?

• Lots of excitement (especially when you don’t know how you are going to make the payroll a couple of days away)…

• Perfect camouflage job for grumpy managers. And initially there is a lot to be grumpy about.

• There is nothing more rewarding, and more stressful, than to save a distressed company. Remember it’s not about the jobs lost…it’s about the jobs saved and created later on!

Like I said, I did not pick this line of work. It kind of picked me. But I must say that fixing things, dealing with desperate situations, making the “impossible” happen, fits well with my own attitude towards life. That being said, I declined a lot of turnaround assignments. My benchmarks were simple: is there a market? If so, is there a product? If so, is the only issue the execution of a plan?

Beyond management 1 on 1

• Turnarounds are very traumatic times for a company and worse for the people involved.

• Beyond market, products and failed strategies, you have…people to manage.

• Companies do not fail or succeed by themselves. People make them succeed or fail.

• So it’s all about people!!! Not necessarily new but worth a reminder!

The companies I turnaround were “small”. From 50 to 250 employees. The first thing I did at each of these companies was to meet with every single employee for about an hour [yes, do the math and understand the time and energy commitment it involved]. I just wanted to get an intimate understanding of what I was dealing with. I would ask “If I say the name of your company, what is the 1st thing that comes to your mind?” Simple, open ended questions to let the people talk. I learned most of what I needed to learn during these meetings.

Turnaround Executive…what do you need?

• Doing this job is very stressful.

• Doing this job may be rewarding…

To do this kind of job, you need a map and stars to guide you through the journey. Here are my guiding stars…My 12 principle of successful turnarounds.

None of them are about market, products, finances, competition or whatever. They are all about PEOPLE. I hope it will become clear as you read along.

1 — Make people face & accept reality!

• Failure is not an easy thing to accept. Individually or collectively.

• As a turnaround executive, your first task is to make people understand that:

a) There is a problem — a very serious, may be terminal, problem.

b) Failure is part of life. It can be overcome.

c) You can only solve the problems you recognize you have (like alcoholism or drug addiction).

That part of the job requires an insane amount of energy! I remember taking over a software company as CEO and discussing the situation with the founder. There was two weeks of cash left. Yet, this otherwise smart fellow kept trying to convince me that “things will work out OK”. Well, they may be but that’s going to take someone like me for it to happen!

I mentioned the interviews I conducted with all the employees. Sometimes I would ask: “Why am I here?” After some back and forth about the actual meaning of my question, the person would say: “I think we are not doing that well so they brought a consultant to look at it”. And I had to tell them that when people like me showed up at some place a — they were not “consultants” and b — you were in real real deep trouble.

2 — Identify and fix the most urgent issues!

• Sounds pretty corny, doesn’t it?

• Unfortunately, it is typical of failing enterprises to spend vast amounts of resources, time and energy fixing “problems” that are inconsequential. (i.e. re-arranging the chairs on the deck of the Titanic).

• Success of the turnaround will come from identifying what needs to be done NOW. As in today! Right this minute! Right now!

You would not believe the “initiatives” the companies I saved were working on when I showed up. Imagine you have two weeks of cash left and some folks are discussing the new office sitting arrangement. One thing I can tell you what was not discussed much was: sales, and the other: expenses. The difference between the two being the difference between life and death!

3 — Make decisions. Fast!!

• It is not because you don’t make decisions, that decisions are not been made. Regardless of your inability or unwillingness to act, decisions will be made by others — your customers, employees, partners, suppliers and competitors.

• You can always revert or fix a bad decision. You can never make up for lost time.

• As a rule of thumb: whatever is decided during the first 90 days of a turnaround is always what has the most impact (good or bad).

Here is an amazing (to me) fact. I believe I made some very significant “strategic” contribution to the 2nd phases of my turnaround projects (revival and growth). However, for the 1st phase, in every single case, the solutions to the corporation’s problems were known internally. Always! I would ask: “Why is this not working?” Answer: “Well, this is because X Y and Z”. Question: “How do you fix it?” Answer: “This is the way you fix it”. Question: “So why are you not fixing it now?” Answer: “Because it’s complicated, bla bla bla”…No it is not complicated (in most cases) but this is the result of organizational paralysis: a state where lots of people understand that things are not right but don’t want to make waves or take initiatives. One of my most impactful contribution was to make sure people understand two things about how the place was going to be run:

a) If you do not make decisions when you role requires you to do so, then we have no use for you.

b) If you make a decision to move the ball forward and it fails, we will fix it. Because trying and failing is 10 times better than not trying at all.

4 — You never get what you don’t ask for!

• The worst thing that can happen if you ask for something is to be told “no”. That, in and of itself, has never gotten anybody in trouble.

• On the other hand, not asking for help when you are in trouble has only one consequence: ignoring the fact that some people may actually want to help (and help themselves at the same time).

• So, ask for help from your shareholders, bankers, partners, customers, suppliers and employees. They might use the magic word: “yes”.

I have asked for what appeared to be the most “outrageous” favors during those assignments. But always did it by providing two key data points: a — why I was asking for the favor? And b — what I was going to commit to do in return. It usually works!

5 — Ask the “impossible”!

• Enterprises and their people usually fail because they successfully convince themselves that the number of things they cannot do is far greater than the number of things they can do.

• As a turnaround agent, your job is to reverse that trend and thinking by a wide margin! I have always thought that “impossible” was really two words: “im” and “possible”. I would rather focus on the second word! There is no downside to it.

Suffice to say that, as a turnaround agent, you need to make people “believe”. In themselves, in some form of success, and in the future (which is the most difficult thing to achieve).

6 — People 1st. People 2nd. People 3rd!

• At the root of each problem, you will find an individual or a group of individuals. At the root of each solution, you will find the same.

• Building a business is 99% related to people. Forget that and you will fail. Make people understand that and there is hope.

• There are no “good” or “bad” employees. There are only those who perform and those who do not within a specific context. Performance can be influenced by a lot of factors. As a turnaround agent, your job is to maximize those factors for everybody in the organization.

But here is another thought. You cannot turn a company around by firing everybody and starting from scratch. Nope! When you show up as the coach of a professional sport franchise who has not been doing well, you cannot ask the owner “Give me all new players and we will win!” Won’t happen. You job is to take that losing team and make a winning one out of it. Mostly same players. You can change their assignments. Give them a new strategy. A new attitude. A killer instinct. And make them (the same one who were losing before) win. This is what I have found, in my 10 years of turning companies around, to be the most difficult, the most exciting, the most stressful and the most rewarding.

7 — Be tough but be fair!

• Tough times call for tough measures. That may include laying people off or firing them. If you are not willing and able to make the tough calls, then don’t do this job.

• Fairness is the most precious quality when dealing with tough situations. People will understand your need to be tough but they will never forgive or forget your lack of fairness. You know the expression “We are all in the same boat”. Well, as a turnaround agent, it starts with you!

The minute you take over as the CEO of a distressed company, there is no more “them” and “I”. There is only “us”. Again, it may sound corny but you must make sure people understand you are not some kind of corporate “bystander” who will preside to some workforce cuts and strategy changes from a corner office without any real “stake in the game”. I used to tell the employees: “I just got helicoptered down on the deck of the Titanic that you call your company. Either I am crazy or I think we can still salvage this ship. In either cases, the helicopter isn’t coming back to pick me up. Let’s get to work!”

8 — Communicate — Again and again!

• Information is power…only if you use it. Trust your team with information. Good decisions requires good and complete information, even the scary stuff.

• Lack of information generates anxiety, rumors and lack of commitment. Beside, you are dealing with adults that have the right to make their own decisions about their own life!

• There is no such thing as “too much communication”.

• Tell them. Tell them again. And then, tell them you just told them.

In most, if not all, companies getting in trouble, the flow of information gets distorted. Folks know that things are not going well. But management does not come forward to share the truth. That is a recipe for disaster. I have never understood C-Executives who think people are too dumb to not know what is going on? If you want people to trust you, tell them the truth. It is that simple.

That reminds me of the question I was the most frequently asked at the beginning of those assignments: “Are we going to make it?” It is not a question you can simply dismiss because, behind the question, you have mortgages to pay, kids at school, monthly bills, and career aspirations. Yet, my answer (in the very early stages) was: “I do not know. If I knew, then I would be able to read the future. If I could read the future, I would buy the winning lottery ticket every week. All I can tell you is that I am going to try as hard as I can so we do make it!”

9 — Clearly define: progress, success, failure and their consequences.

• Clearly identify and celebrate each sign of progress. And celebrate the “champions” of success, even small ones! Reward the achievers of the “impossible”.

• Clearly identify what success is, even if it seems, at first, unreachable.

• Don’t be afraid to clearly spell out what failure means (the death of the enterprise, the destruction of shareholder value and the loss of jobs).

• Put everybody in front of their responsibilities. That may require firing those who do not care.

In the “fog of war” that a distressed company goes through, it is often hard to identify signs of progress. Yet, those signs are extremely important. They may be small and they may not change the fate of the company but they do something much more important: they change the internal dynamics. The difference between a winning team and a losing team is, most often, “in the head” of the team. And when a team start losing, inept management has a tendency to prevent team members to try things out. As a turnaround agent, you need to foster a “permissive” attitude: if you have an idea, try it out! When it works, celebrate.

The other thing about distressed enterprises is that the path back to health always seems out of reach because people focused on the “here and now”. You need to provide a step by step plan to recovery. Small steps. Steps that every employee can make their own. “If I do that, then I will contribute to our getting back on track”. It is not YOUR turnaround. It is the COMPANY turnaround…as in everybody in the company. Consequently, if some folks don’t care or don’t try, fire them!

10 — Put things in perspective!

• It could always be worse. Until ALL is lost, we should keep trying.

• AIDS, cancer, earthquakes, etc. Use these words to remind people that they could be faced with problems with much more severe consequences and over which they could have much less control.

• As a corollary, remind the team that they can actually do something about the situation. And if you can do something about it, then do it!

I recall one day, a senior executive of one of the companies I turned around, stormed in my office and said: “Philippe, we are f…d”. Now understand that when you do this kind of work, you become used to “catastrophes”, to the point where your own reaction may seem uncaring. That being said, it also provides you with a healthy dose of “cold blood”…So I looked at that executive and asked: “Did someone just die?” There were a few seconds of incomprehension in his eyes and then the light came on. We could then proceed to have a reasonable discussion.

Remember that the most important assets you are managing and trying to turnaround are NOT the finances of the company. It is the emotions and attitudes of the employees.

11 — Never give up. Never let them give up!

• Success may take some time to materialize. Yet, the expectations will be high for very quick results. Don’t give up!

• Actually, things may get worse before they get better. Don’t give up!

• Some may actually wish for your failure. Don’t give up!

• As a turnaround agent, your primary function is to provide infinite supply of energy, determination and resilience. Don’t give up!

I did 3 turnaround in 10 years. Each of them was absolutely exhausting. As a turnaround executive, you are the recipient of just about all that is negative in the past and current life of a company. At times, the temptation to just walk away may be great. And I certainly felt that temptation, at times. That being said, and that is only my own credo, once you sign up for a job, you need to see it thru. You just can’t quit. You cannot give up. And you cannot let anybody quit or give up. Be prepared that this credo will take a huge toll on your life. I can recall many stories about how many people, not only wanted to make the company’s revival harder, but wanted to make the company’s failure easier. That is par for the course. As THE turnaround executive, you are the anchor. Period.

12 — Be humble. Especially if you succeed!

• You are only as good as your last at bat.

• In the end, as a turnaround agent, you make things happen. Never forget that others do the real work.

• Success is 50% talent and 50% luck. So if you succeed, it might be because you are good. And it might also be because you are (very, darn) lucky.

• There are folks who handle tougher jobs: surgeons, firefighters, relief workers, etc.

No comment J

Conclusions

• When a corporation falters, it is mostly because of people (a company does not miss a market threat, people in the company do). Turning the corporation around will be mostly about people. And mostly the same people.

• As a turnaround executive, your role is to make sure people face reality and start doing something about it (something they were paralyzed to do before you showed up.

• These guiding stars can be followed even in a healthy enterprise.

So there you have it. My modest contribution to what it takes to turnaround a company. No fancy financial schemes. No out of this world “disruptive” product strategy. No strategic alliances. Nope. Just dealing with people and real, every day stuff. That’s my own recipe. I made it work and, come to think of it, it may only work for me because of who I am and the way I approach this type of situation. So take as much or as little as you wish.

Happy trails!