Month: April 2013

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Who Will Stay and Who Will Go?

In this second of a series on the initial steps of a turnaround, the topic is how we decide who stays with the company and who will be let go.

In last week’s column, “The Initial Steps of a Turnaround: Nothing is Sacred,” I wrote that even if Grandpa Joe invented the rocking widget that started the company, if it’s no longer profitable that product line will be shut down. And if Grandpa Joe is still around and collecting a hefty salary while he spends the day perfecting his fly-fishing technique, he has to go as well.

In previous columns I’ve written about how I’ve had to fire business owners’ relatives and favorite long-time employees. It’s never an easy or enjoyable task but often has to be done to salvage the company.

300px-Blank_org_chart2So how do I decide who continues to collect a paycheck and attend the annual company picnic and who needs to pack up their things and go?

In an ideal situation, we will have time to assess the company’s situation, create a realistic budget, and then turn to the issue of downsizing staff if necessary.

I ask for the organizational chart and then take all the names off of the chart. I take the name of every person on that chart and put it on a separate piece of paper. Then I ask the senior management, “If you could start over again, how would you arrange the company? What positions are needed today to run the company?”

In good times companies tend to get fat. They add assistants, cars, desks, sometimes even buildings. Then as times get tough these positions and assets often remain even as the company’s financial situation begins to deteriorate. It’s a vital step to review the company’s organization in a fresh way.

That process may involve eliminating some positions, consolidating three jobs into two, or having people report in a different manner. Once we rearrange the organizational chart, we go through the names of the people on the pieces of paper and place them in the positions on the chart according to which person is the best one to handle that job, keeping in mind that we need the company’s best performers, its superstars, in the most challenging positions.

When that exercise is completed there will be names left that are not on the chart. And these are the ones we have to get rid of. They no longer have a role in the restructured company.

As for those superstars. In a number of situations the best employees have already left and those superstar performers are not available within the current pool of employees. So once we have stabilized the personnel that are remaining, provided new opportunities for some of the current people and gotten the company on the correct financial path, we need to conduct a search to find those key people.

We can’t run a company with all average people. We need to create a “Lake Wobegone” situation, where like the children there, all the workers are above average.

In the next post I’ll discuss how to search for superstars.

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Initial Steps of a Turnaround: Nothing is Sacred

Sometimes people ask me what prompts a business to hire me as a Turnaround Authority. At what point does a business decide it needs some outside person to come in and tell them how to run their own company?

Sometimes I am hired by a bank to assess a company’s viability prior to it making a loan. However, the primary way I am hired is at a bank’s request when a company is in default. Generally there are provisions in the loan documents from banks or bondholders that upon a default, a financial advisor will be retained by the borrower.

In the absence of such provisions in the loan documents, the bank can still “strongly suggest” that the borrower hire someone either in the case of default or because the bankers have become concerned that the company has lost money over the past few years. They are worried about its long-term survivability.

The Board of Directors may also be concerned about whether management has been evolving and changing in response to its customers and market trends. Senior management may be starting to worry whether their jobs are secure.

As the situation becomes more unstable, all this negativism starts to infect the entire company and flows through other key employees. They in turn then become less efficient and the downward spiral starts.

Everyone is feeling under pressure and often the CEO or business owner has become so overwhelmed he or she doesn’t know where to start and sometimes has pretty much given up on making any decisions at all.

That’s often when I am called in and am hired as a consultant or interim CEO. Now their problems become my problems. So how I do I get started to turn this business around?

For the next few posts, I’ll discuss the initial steps I take when I am hired to turnaround a company. Let’s start with what I look at.

Everything.

I want to look at everything that happens in that company, between the front door and the back. I want to look at all their vendor relationships. I was to see an organization chart of all the people at the top. I want to see all contracts, personal guarantees of senior personnel and loan docs.

I want to know about all the assets the company owns, information about all its products lines or services, what distribution channels are set up and how much is spent on shipping and freight. If the business generates scrap, where does that scrap go?

I always ask to see the current business plan. I’ve long since given up being surprised when I find out that when the “current” business plan was last reviewed, we were all listening to “Thriller” on cassette tapes, talking about Reaganomics and trying to solve Rubik’s Cubes. (I’ll write more on the necessity of having an updated business plan later.)

I tell the senior management that nothing that is in place is sacred. Nothing is untouchable, not even the idiot son with the big corner office whose interest in the company doesn’t extend past the big numbers on his paycheck. I will be looking at every aspect of the company.

We may need to shut down product lines. I don’t care if Grandpa Joe invented that rocking widget when he was down to his last dime and there’s a bronze cast of it proudly displayed in the lobby. It hasn’t made money since the Carter administration. It’s going to be retired.

We may need to change facilities, order inventory differently and collect receivables faster.

The point is to throw away all the old assumptions so we can begin to look at operations in a new, fresh way that may generate ideas to cut out the fat to operate more efficiently and discover ways to become profitable.

Next week I’ll write about how I determine which key personnel will stay in the new company, and which ones will go.

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He Who Burns Bridges Better Be a Good Swimmer

The son of a good friend of mine was working his first job, for a bank. He had problems with his new boss and finally decided to leave. He apparently did so in a rather ungracious manner with a few choice remarks to his boss.

Five years later, his former bank bought the bank where he then worked. His boss still worked there. Guess who was the first to lose his job?

burning-bridge-570x234We all remember the story of Steven Slater, the JetBlue flight attendant who dramatically burnt his bridge. He lost his patience one day, cursed out the passenger who bonked him on the head with a suitcase over the plane’s PA system, grabbed two beers and escaped down the inflatable slide he had released. Those were the last two beers he ever enjoyed as a flight attendant.

The saying, “Don’t burn your bridges behind you” is believed to be from the military originally. When heading into battle, an army needs to leave a way to retreat if necessary.

In the business world, it means leave every situation in good standing. This is good advice not only because it’s the right thing to do, but also for pragmatic reasons, you never know when that burnt bridge can get you in trouble. As the poet, Dylan Thomas wrote, “When one burns one’s bridges, what a nice fire it makes.”

I know how tempting it can be. You’ve been miserable in a job for years, overworked, underpaid and unappreciated by a horrible boss. You finally land a new job and boy, wouldn’t it feel fantastic to tell your soon-to-be-former-boss exactly what you think of him?

Yes, it would feel fantastic. For a few minutes. Then you are left with possible repercussions you can’t even foresee that could happen months or even years down the road, like my son’s friend.

One mistake I’ve seen young people in particular make is believing that if they live in a large city they can get away with burning a few bridges along the way. In a city of several million, no one will know, right?

Wrong. Although a city may be huge, the people involved in a particular industry run in a much smaller circle. You never know who knows whom and when your name might come up.

On the plus side, if you do maintain a good reputation and leave previous jobs on good terms, that could also benefit you in ways you don’t anticipate. When many business owners are looking to fill jobs in their companies they often ask their peers if they know of anyone looking for work.

As I taught my children and tell young people I work with, the business world runs on relationships — they are the fuel that feeds your business. If possible, maintain good relationships with everyone you work with.

As one anonymous person said, “Burning bridges only makes it harder to get around and cover more ground.”

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Leverage Technology to Look Smarter Than You Are

It was a great “gotcha” moment. I had been negotiating the sale of all of the assets on a receivership in another state for a month. The deal was pending in a motion filed with the court. The attorney for the other side had been dragging his heels over every development. But of course, when I go on vacation, he goes to court and tells the judge that he needs a change and that I’m not a professional receiver because we’ll have to delay the change for a week while I’m gone.

iPad-explainer-video-NEW--007So I get an email from my counsel, who is in Boston, telling me the other side wants to amend a document and they need my signature. Not such a big deal, right? Well, it is if you’re on a boat traveling from Sweden to Russian and just after I received the email, the Internet and all of the electronics on the boat, including printers, stopped working.

All technology was dead in the water – no pun intended.

I figured there must be some Internet available somewhere on the ship, and sure enough, turns out the Captain has his own proprietary system that they use for navigation.

Now I had access but how to get a document signed from onboard? Fortunately, I had an app called SignEasy that allows you to legally sign documents from smartphones and tablets. I had the attorney send me a PDF of the document I needed to sign, inserted my signature and sent it back.

Yes, it cost me $150, the minimum the Captain wanted to access his Internet, for a job that took less than five minutes. But in my clients’ eyes I need to be seen as a guy who gets things done and is accessible to them, no matter what the circumstances. The attorney in Boston was so impressed with how fast I turned that document around (and that he could tell the other side to stuff it), he referred another piece of business to me. “If you can get stuff done like that, I want you on my team,” he said.

I’ve learned that using the right technology can make you look smarter than you are. Before I had gone on a previous cruise I took some computer classes at Apple, then hired the teacher for an additional two hours to sit with me and educate me on the best iPad applications for my business. It was well worth the investment. I wanted to be able to conduct business from anywhere in the world, whether I was on land or at sea, with just my iPad.

Another app he told me about that I now use daily is called Evernote. I can make notes, take photos, create to-do lists on any of my devices and they are updated on all of them. These notes are also completely searchable so I don’t waste time hunting down a phone number or note I’ve made. I can share notes with friends on social media and record voice and audio notes, perfect for when I’m traveling.

Some people seem to pride themselves on not owning a smartphone or don’t see the use for an iPad. I would just say this, if you’re not using the latest technology, you can bet your competition or the guys on the other side of the negotiating table are. If you want to compete in today’s world, you need to use every tool available to you. And that includes the latest in technology.

Don’t you want to have your own gotcha moment?

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Etiquette Observed During Masters Good Lessons for Business

As the eyes of the sports world turn to the perfectly manicured green course at Augusta National as the annual Masters Golf Tournament begins, I thought about how some of the etiquette of golf can be applied to lessons in the corporate world.

As one of the only sports where there are no referees or umpires to enforce rules, golf relies on players observing the traditional rules. Attendees at the Masters must observe certain rules as well, including absolute silence during play. (Just try yelling out, “Way to go, Bubba!” after last year’s champion makes a challenging putt and find out just how seriously these rules are observed.)

Here are just a few of the rules of golf that you can apply in a business setting:

Masters_Logo_040509• Be prepared to hit your shot when it is your turn.

When you’re playing a round of golf, you’ve got to keep your group moving in consideration of those behind you. In the business world, when you are charged with responsibilities for a project or a big deal, you have to meet your commitments and deadlines to keep the deal on track.

I’ve worked with several companies where key employees just didn’t seem to understand that if their work wasn’t completed in time, the whole project could derail. One of the ways I deal with this, as I mention in my new book, “How Not to Hire a Guy Like Me,” is by using a whiteboard. With everyone involved in attendance, we outline the entire process and place goals at appropriate intervals. Not only do I get buy-in from the entire group this way, they also see that if they don’t meet their deadlines, it affects everyone else.

• Don’t spend too much time looking for a lost ball, especially if there is a group behind you.

When something goes wrong in a company, it is important to figure out what happened so the mistake isn’t repeated. But spending a lot of time looking for people to blame and generating massive reports after the fact can keep a company from moving forward.

Accept the loss, take action or put policies in place so it’s not repeated and move on.

• Keep carts away from greens and hazards.

A business leader needs to maintain focus on the path ahead and keep his company nimble enough to respond to any potential obstacles. Take a look at Kodak, once the standard for photography. Everyone had Kodak moments. Even though Kodak actually invented the first digital camera in 1975, the company failed to foresee that the rise of the popularity of digital photography would decimate its market. After 131 years being a pioneer in the industry, Kodak filed for bankruptcy last year.

• Rake sand bunkers after hitting to erase footprints. Replace divots.

Always rake sand bunkers after hitting your ball to erase your footprints and damage to the area where your ball was. If a business owner or CEO makes a mistake, I always urge him or her to correct the error and also to admit it. They may have ended up in the sand bunker of the business world but there are lessons to be learned while you’re there.

• If you hit a hole in one, buy everyone a drink.

Okay, so this one isn’t really a rule but it’s a nice tradition. If your company lands a big account, meets an aggressive deadline or completes a large and challenging project, celebrate together. It’s a way to recognize your employees’ efforts, build morale, and encourage them to work hard on the next opportunity.

When I was successful in helping a company I call Cheerleader Supply emerge from bankruptcy, I bought the judge and everyone in the courtroom a set of pom-poms. They are a reminder that even when things appear most bleak, it’s important to keep a positive attitude and keep on trying. There’s always a chance you’ll come back.

Just ask Tiger Woods.

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“Nice People” Commit Fraud

“Bernie would never do that. He’s my friend,” said one potential investor who lost everything.

“He seemed like a nice person and not concerned about answering my questions at all,” said the reporter.

These were a few comments made about Bernie Madoff in the movie “Chasing Madoff” that I saw recently. It’s a documentary about whistle blower Harry Markopolos, who spent 10 years trying to get action taken on what he had quickly recognized was a massive fraud when his company asked him to come up with a competitive product and he ran the numbers.

Those comments struck me because that is often the case when I’ve uncovered fraud at my clients’ companies. Management and co-workers say, “Why, he is the nicest person in the office.”

He was such a nice guy, some people commented about Bernie Madoff. He would never steal money.

He was such a nice guy, some people commented about Bernie Madoff. He would never steal money.

I’ve seen everyone from owners’ best friends to grandmothers to the kindly old lady in the church office commit fraud. It’s been my experience that most of these people have no prior offenses, which was backed up by a report generated by the Association of Certified Fraud Examiners (ACFE) a few years ago. Here were a few other key findings from that report.

• More than half of the offenders were between 31-45 and slightly more likely to be male. The older the offender is, the bigger the loss.

• More than 80 percent of offenders work in one of six departments: accounting, sales, operations, sales, executive/upper management, customer service or purchasing. No big surprise there — these are the people that have access to money, can write off on purchases or have expense accounts.

• Only seven percent had been previously convicted of a fraud offense. I believe that low percentage is partly because most fraud offenders are let go from previous companies and never prosecuted. This is just one of the reasons I always advise my clients to prosecute those who commit fraud.

In the ACFE’s 2012 Report to The Nations on Occupational Fraud and Abuse, it was reported that the median loss suffered from fraud cases was $140,000. But more than 20 percent of the cases involved losses of more than $1 million.

Small business owners especially need to be concerned as they are more likely to be hit, primarily because they have fewer internal controls.

Want to take a guess how long the fraud goes on before it was detected? A median of 18 months.

Most people don’t go to work for a company with the idea of stealing from it. Most of them see an opportunity and then seize it. And that person is often the nicest person in the office.

I write a lot about fraud and how to prevent it in this blog and also in my new book, “How Not to Hire a Guy Like Me.” I tell the story of sweet Aunt Tess, a payroll clerk that everyone at the office loved. And she was so dedicated she had never missed a payroll in 25 years, even dragging herself to the office hours after an appendectomy. Bless her heart!

Well, old Aunt Tess was there, fresh surgical bandages and all, because she had a whole army of fictitious employees that allowed her to steal up to $100,000 a years.

Fraud does, and can happen to anyone. If you don’t have fraud controls in place in your office, make it a number one priority to do so. Maybe the nicest person in the office can stay that way.