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Not Keeping It in Your Pants can be Very Expensive

Here’s something stupid that CEOs, presidents and business owners do: they fail to keep it in their pants.

The biggest case in recent memory concerned the dear old president of these United States, William Jefferson Clinton – or Ol’ Willy as the stories will one day be told.

His failure to keep it locked down had to do with so many issues: his ego, his self esteem, his power, and the simple urges of simple men – or for short, men. Interestingly enough, it’s these same forces – ego, esteem, power and manly urges – that drive men to start companies and become presidents in the first place (money could be added to the list, too), but that’s no reason to get led around by your lesser brain.

If for no other reason (and when I’m talking about neglecting reasons I include things like the sanctity of marriage, practical morality, metaphysical morality, putting your family or business first, etc.) than to avoid getting caught, do not cheat on your wife or spouse while running a company.

Don’t cheat on them anyway but especially if you’re running a company it’s a bad idea. You will get caught – especially if your company is facing a crisis.

It always comes out . . . and not in the way to which you may have grown accustomed.

What’s worse is that these issues always have a way of arising when things are already headed south . . . and not in the way to which you may have grown accustomed.

I was dealing with a guy who was originally in the business of manufacturing apparel. He couldn’t keep focused on his core business, however, because he had a dream of designing the perfect yacht.

Lucky for him, he succeeded in making such a great yacht that he ended up on the cover of a major yachting magazine for his unbelievable hull design.

Unlucky for him, when he and his yacht were photographed for the cover shoot his scantily clad girlfriend, simply busting with joy and enthusiasm, ended up on the yacht in the background of the photo.

When his wife saw the cover of the magazine, she filed for divorce and took the company with her. After all, the business was started with her daddy’s money.

Another quickie, so to speak. The CEO and Chairman of the Board of a retail establishment – in the middle of his company’s bankruptcy – got caught with his kids’ babysitter. The messiness that ensued caused him to lose focus on the company’s issues, which ultimately had to be sold off in pieces.

Both of these men (and I’ve got 20 more of these stories) lost everything – businesses, money, families, and the lives they had built – because they couldn’t keep it in their pants.

Not keeping it in your pants can be very expensive.

Know anything about this and want to share a story?

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What Ocean Pacific Can Teach us about Growing a Business with the Right Management Team

It’s a fool’s errand to grow a business without a competent or sufficient management team. I’ve seen it tried a thousand times and fail just as many.

The most common example of this is the entrepreneur who’s been successful to a point but grows a business past his capacity to manage.  Growing a business that large is a wonderful accomplishment, don’t get me wrong, but it’s every good entrepreneur’s job to know when he needs to bring in professional management to oversee key aspects of his business.

My case in point for this rule of thumb is Ocean Pacific.

I’m sure many of you recall OP. It was a pretty popular brand back in the day, and it still has a name for itself. Yet Ocean Pacific’s desires repeatedly seemed to outshine the capabilities and strengths of its management team. This is demonstrated by the fact that I’ve had to run Ocean Pacific twice.

The first time I was brought in to change the company because it was in the manufacturing business and expanding overseas without the proper personnel who understood sourcing and distribution in international markets. Though they lost a lot of money before we could reign in the problem, we ultimately got them refocused and left them to it. Had they had the kind of management team in place that understood the nuances of international expansion and management, I don’t think I ever would have gotten involved.

The second time I was brought into Ocean Pacific it was to convert them from a manufacturer to a licensing only company. They had a fantastic design department, but that was about it. They did not have the kinds of managers who could oversee manufacturing, and even though the international issue had been more or less overcome, manufacturing was ultimately not a sustainable model.

But again, the problem was that they lacked the right folks, in this case to manage the brand quality of the licensee’s goods. They just couldn’t deal with worldwide licensing. Once again, this transition sent millions of dollars down the tube, so we were brought back in to properly restructure them and carry out their plan.

So what did we learn. Well, plans are great, but plans only work until you start implementing them. At that point, reality gets in the way. One way to make plans work a bit longer – or at least come out the other side – is to have the right management team in place. You cannot grow or morph a business without a sufficient management team.

Have you ever tried to carry out a large scale plan without the right people in place to help you do it? What were the results?

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I Told the Radio What I Told the Papers: Cut the Burn Rate in Washington

I was recently on WSB radio, and I explained there the same thing I explained in my recent Atlanta Business Chronicle article.

We have to cut the rate of spending – the rate at which we’re burning money – in the government. 10 or 15% across the board – that’s every single department – is what’s going to be the beginning of necessary to start the process of recovery. And the road to recovery will be long, to take a line from someone else’s trite playbook.

The reason I’m bringing this up again is because I want to emphasize what the guys at WSB kept asking me about: the political aspect.

Party Politics is a Debt Party

Is it possible in a Washington as mired in party politics as ours currently is that we could get a sweeping cut in spending like I’m proposing without any exceptions?

Disappointingly, I think the answer is no. Things have become too politicized and though everyone there can say I’ll scratch your back if you scratch mine, nobody can end his own itchy back. That is to say that even when our representatives are not scratching one another’s backs they still want to have their own causes funded – or not defunded as the case may be in my proposal.

But if we don’t start treating the government like a business and money like it’s real and debt like it matters and ultimately do what we do in turnaround – slash spending immediately without question, qualm or hesitation – we’ll be hesitating and backscratching all the way back to a recession.

Blind Man, Dark Room

I don’t want to overplay the recent AA+ downgrade and the impact that it could have – or more importantly the impact that the reasons it occurred is going to have – but at the very least it should serve as a wake-up call that we are not behaving effectively and our policy makers are not taking the appropriate steps.

Stop spending money, now, Washington.

I don’t want excuses, and I don’t want politics.

I don’t want to keep hearing things in the news like the trade deficit unexpectedly widened to 53.1 billion dollars. That just means that once again projections and statistics are off and we need a collectively more conservative approach (and I don’t mean conservative in a political sense – I mean it in a spending sense).

Cut 10-15% of all spending immediately. This is not political. This is personal – 315 million people personal. Let’s fix this before it gets worse.

How would you help cut spending and eliminate waste in government?

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Old Tricks by the Fed and D.C. Don’t Stimulate the Economy

As you may have read, some former Fed Officials are suggesting a new round of securities purchases to spur the economy. They claim that this move is in response to stifled job growth and  continued recession issues.

Shenanigans!

Well, I used a harsher word before, but this time I’m going with shenanigans.

Purchase a new round of securities? Are you kidding me? Are they really shortsighted enough to think that this move will get the economy moving. This is part of the Fed’s old bag of tricks, but as we’ve seen before buying back bonds from the free market does not successfully stimulate the economy.

Speaking of old bags of tricks, lets look at another one that’s equivalent to peeing in the ocean, which is to say that it adds liquid but doesn’t change the levels: stimulus money.

The Fed buys securities and the government provides stimulus money, right? The last round of stimulus money was effectively invested at 1/10th of 1% or used simply to pay down debt. In case I’m being obtuse in my exaggerated implications, I’m saying that people didn’t spend the money, and when they don’t spend money there is no economic spurring. Stimulus money is as effective as buying back securities . . . tinkling in the ocean, remember?

These are just old tricks that don’t work.

Everybody wants to see the economy jogged back into high gear (or gear?), but as the fed said yesterday, it would hold rates for two years. This acknowledges that we’re going to be in a funk of an economy for at least two years.

Rather than spending money buying back securities – old tricks – we need to cut spending in dramatic ways. For instance, end entitlement programs. Did you know that anyone who serves in Congress for any length of time gets health premium insurance forever? I ask again: Are you kidding me? We’re paying for this! This might also be peeing in the ocean but if we all relieve ourselves at once maybe the levels will change.

If the Fed wants to “spur” the economy, then we all need to be patient, tighten our belts, stop government spending, get out of debt and then be led by a solvent, healthy government that can make wise decisions for its people.

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Avoid America’s Bankruptcy by Bringing a Turnaround Guy to Washington and Treating the Country Like a Business

This article was published in its original form in the Atlanta Business Chronicle here.

The United States is a capitalistic society, so I often wonder why the government isn’t run like a business. We had a surplus 12 years ago, but now our debt is astronomical: nearly 14 and a half trillion dollars. This isn’t a political issue. It’s a business one – or at least it should be.

When a business finds itself in this much debt relative to its capacity to repay, the bank, Board of Directors or shareholders say, “No more!” and send in a turnaround professional. We are the shareholders, and it’s time to send a turnaround guy to D.C.

When my clients have problems with cash flow they don’t print money. They raise money, close plants, layoff people or cut spending; they tighten their belts to survive.

Despite insurmountable debt, the U.S. government isn’t doing those things. Businesses with negative cash flow would have been bought, liquidated, merged or otherwise gone at this point, and I don’t want to see us become like Greece or Iceland in five years. Worse still, I don’t want to be a part of the United States of China, since in the business world a company with increasing debt is subject to acquisition or dissolution by a larger and wealthier business.

I always say that 100% of spreadsheets and projections don’t work because the assumptions are wrong, yet people rarely revisit and alter the assumptions regularly to produce more positive results. Even today, the Office of Management and Budget, which hasn’t made an accurate P&L projection in years, thinks that our revenue is going to increase by x if we do a, b and c. But x is an assumption that’s based on the unlikely actualization of a, b and c, possible only if we overcome party politics. And as the deficit skyrockets, the assumptions are increasingly wrong and the parties are increasingly polarized.

The only way we’re going to resolve our financial crisis is by treating the government like a business.

As we repeatedly hear, a balanced budget is the first step. The second step, however, is a repayment plan of our foreign debt. Next, raise taxes. No one likes tax increases – especially me – but it’s part of the solution.

The corporate amnesty program allowed businesses to return profits from foreign soil to the U.S. at lower tax rates, which created more jobs in America. This was a wonderful and creative idea, but it equates to peeing in an ocean: it doesn’t change the levels. While thousands of these ideas will amount to an aggregated long-tail effect, we need to begin with more drastic measures.

Turnaround 101 dictates that we start by slashing all spending by at least 15%. We must tell every division, department and agency that it needs to cut its cash needs – no exceptions. The pain will be shared across the whole country as it would be across an entire business. This kind of mandatory budget cut provides time to fine tune operational requirements based on the improved results.

Before you ask, this 15% cut would affect entitlements, social security, health care, the military, and education – everything.

It’s easy to buck and cry, What about the children? Shouldn’t they be exempt from budgetary cuts? What about the sick and the poor? What about defense?

Here’s what I ask every department at a business: “Do you want your company to survive until tomorrow or do you want to quibble about who’s more deserving of money that doesn’t exist? I don’t care how you do it. Just do it.”

Internal politics kill companies in the private sector because politics and business don’t mix. Similarly, politics has no place in America’s budgetary discussions, and our issues must be addressed by those who can truly set aside political or personal biases and run this country like a turnaround professional in the private sector.

As a turnaround guy, I act like an ER doctor; my first step is to stabilize the patient and prevent shock. As a country, we’re already in shock. Nobody wants to lose an arm or a leg, but if there’s only enough blood for the torso and the leg is gangrenous, you better believe I’ll lop it off to save the body. In five years, the prosthetic surgeon can make us pretty again. I’m in a unique business, but it’s the business of making sure we’re still alive in 2025 with or without a leg.

In addition to the 15% cut, we must freeze all raises and expansions. That means no more foreign aid increases (also subject to the 15% cut), and we put a reasonable mandatory repayment plan in place for foreign aid. We can’t continue to write off receivables and survive. It doesn’t work that way in business, and it can’t work that way in government.

This also means no cost of living increases for government employees, social security beneficiaries and pensioners. In addition, congressmen can enjoy normal health care services – not VIP lifetime benefits for two years of service.

Unfortunately, tenured positions can’t be affected, but we can stop giving tenure. All rules for entitlements (e.g. pensions) must be reviewed. The private sector has largely eliminated pensions because it can’t afford them, and government needs to do the same. In capitalism when you can’t afford something you stop doing it.

I don’t have every last answer for how to save the trillions we need, but by making – and enforcing – these tough moves we can save America from bankruptcy, collapse and ruin. We must empower people to save money, and punish them for spending it needlessly in order to get a line item the following year.

Legislators keep asking that we have faith. Our economic stability has been built on faith: full faith and credit in the U.S. We can’t retain faith after twelve years of increasing debt. We need to deal with hard facts and run America like a business. Business is not about faith. It’s about trusting what works, and what works in business is what I know. Treat America like a business, and we’ll all live to buy another day.

I’m the Turnaround Authority and my bags are packed. Washington D.C., please call!

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This is Dumb. Don’t Do It.

When I go into a failing business and discover a once running enterprise with an idiot at the helm, one of the first questions I ask myself is, “Is this guy family?”

Leaders have a real predilection for putting idiot family members in charge of key parts of their operations.

Napoleon installed his family members as heads of state across Europe, and monarchy for millennia have been based upon familial succession. But there’s a good reason that none of these monarchies still exists (and don’t feed me a line about the royal family of Britain or Monaco – this is just sustained wealth and fairytale fantasy): because at some point every family breeds idiots.

In the rare case that a son is as capable or more so than his father, that rarely lasts for a third or fourth generation. Sure, people can be groomed and educated, but at some point, the son will like other things, be an idiot or plain not care. And when that day comes, down goes the business.

If you want to build a business that is sustainable through the generations, don’t make your offspring a prerequisite of those generations. I’m not saying they can’t be involved, but you better make darn sure that they’re both capable and desirous of the position.

One place that problems tend to arise when fathers and sons do business together is in compensation, especially when selling the business.

I had a mechanical engineering company in New York where the son was stealing from his father’s business because he wasn’t getting a high enough salary. As a family member wouldn’t you believe that the son felt entitled to the business’s money, no matter how much or little he’d worked.

When we confronted good ol’ Charlie, who resented that upon his father’s passing his mom had been made CEO, he took a kitchen knife to his mother. We averted bloodshed and she got a restraining order, subsequently kicking him out of the company.

We were in the middle of trying to sell the company, and you better believe that this charade ruined the sale.

Do not put idiot family members in charge of your company or parts of your company. It takes a unique father and a unique CEO to balance both a family and a business. If you value your business and respect your family, think long and hard before mixing them at the leadership level.

Do you do business with your family? How does that work for you?

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What Wally the Walrus can Teach us about Effective Process Development

Processes. Oh, processes.

How easy they are to ignore. How easy they are to let languish.

But don’t.

If cash is the blood of a business, departments are the organs and personnel are the cells, then processes are the bones. You must build your business on efficient, effective and solid processes.

What do you do when a customer’s order is going to be late? How can you track all of your supply usage and reordering supplies? How do you set a new vendor up in your system?

Your business rests on the foundations of these processes running correctly, and they should be consistently evaluated, adjusted and strengthened. Think of that evaluation as drinking milk and giving your business the calcium it needs.

Hire Someone? Yeah – Hire You!

Many people hire consultants to come in and tell them how to enact more effective processes in their daily business management. Consultants often have great solutions that they’ve designed or a commanding understanding of best practices, but before resorting to this route consider being your own consultant.

As the leader of your business, you should know how things run. You should be in touch with the people who work at your business at every level. You should be asking them questions about the kinds of issues they see or when something seems to consistently work incorrectly. You should find out what they do and how they do it. You should ask them if they think there would be a faster or smarter way of doing something that wouldn’t compromise other important principles (like quality, customer service or another step in the process).

And then you should put that information together and consider a reevaluation and a strengthening of the processes that govern your business. If there’s something happening that doesn’t have a process and keeps occurring in an erratic manner, put a process in place.

Zoey’s Zoo

Let me give you an example. Let’s say you run an online retail store called Zoey’s Zoo in which you sell various animal figurines directly to customers but also to various zoos and theme parks around the country (first, I hope you have separate processes for dealing with your B to B and B to C customers). What do you do when Wally the Walrus figurines are no longer available in the largest size but you get an order for one? Do you pull the product from your website, backorder the item, or contact the customer whose order will most certainly be late? As you bypass the order number and continue fulfilling orders that are in stock do you have a system for returning to this unshipped order?

If you are Zoey, you need to have a process for what happens when a product runs out of stock. You need a pipeline for pulling the product from your website, informing customers with outstanding orders, checking on the status of any incoming inventory, and then making sure that Wally the Walrus is purchasable again when it’s back in stock.

This may seem like a basic example and an easily constructed process, but it’s just one small bone among hundreds that make a body stand tall and a business run efficiently and effectively.

Consider the processes at your business. Evaluate and reevaluate.

Stand Tall.

What do you find to be the most difficult element of process creation and management?

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5 Benefits to Calling an Insolvency Attorney

As managing partner of GGG and the Turnaround Authority, I get the pleasure of providing guest posts by our other partners. The following post is by our newest Partner, Vic Taglia.

We wrote a few weeks ago about when to hire a turnaround consultant.  The same answer applies here:  Sooner, rather than later – and there are good reasons for this.

First of all, a good insolvency attorney has seen it all. In some ways seeing him is like going to confession. You tell him your problems, he says it’s okay, he’s seen this before and he can help you. This only works if you see your financial advisor before your business is dead. You will be surprised how much better you sleep after engaging these experts, just like sleeping with a clear conscience.

On the other hand, if you wait too long, all you will see is St. Peter at the gate directing you to the lower floor.

Here are some key benefits of calling:

1. If you wait too long to see an insolvency attorney, you will only find the bankruptcy judge converting your case to a liquidation. Like St. Peter, bankruptcy judges have a sense of equity, can make quick judgments based on their extensive experience, and are rarely overturned.

2. If you see an insolvency attorney soon enough, he can help you find a financial advisor who can help restructure your business before the situation becomes deadly.  (Of course, I recommend you find a turnaround consultant even earlier than the attorney so you can avoid this problem entirely.)

3. A respected insolvency attorney can help you with your creditors, particularly if the creditors’ lawyers are calling, writing, or threatening you.  The other side recognizes that you have faced the severity of your problems and called in an expert.

A respected turnaround financial consultant can help you here, too. The other side (the bank’s special asset department or the creditors’ lawyer) are specialists, and they recognize your hiring a specialist as a good sign. This can save time, because both sides talk the same talk. Saving time in this situation can help save your business.

4. Engaging an insolvency attorney and financial consultant sooner rather than later can also speed you through a “prepackaged” bankruptcy filing. The Wall Street Journal recently reported that prepackaged filings have become more common in the past few years because they enable the various stakeholders—unsecured lenders, senior lenders, employees, equity holders and other parties—to negotiate early and to see what they will receive. The Bankruptcy Court then applies its imprimatur to the reorganization plan and business goes on, avoiding the significant delay and cost which would stem from settling contested matters in court.

5. Early consultation with expert insolvency counsel can put your mind at ease. Insolvency attorneys can tell you what your creditors can and, just as importantly, cannot do. They might be able to minimize your personal liability to your creditors and help structure your affairs to maximize your control of the future.

Insolvency, bankruptcy and debtor rights form a specialized part of business and law. The most effective lawyers and financial advisors here have become expert in these matters. The people who specialize in this high pressure, high stakes part of American business are generally smart, hard working and relentless. Isn’t that who you want on your team when your very survival is at stake?

Have you ever been through insolvency filings or consulted an insolvency attorney? What were your experiences?

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The Lessons I Learned from Bull Sperm

Did you know that top notch bull sperm is worth in excess of $75,000 a gallon?

This is something I know personally thanks to Fred, the CEO of a refrigerator warehouse company in Texas, who, instead of grabbing the bull by the horns, kept his eye on the ball a little too much.

Fred’s hobby was breeding the perfect bull. He wanted the black spots on one side and the white spots on the other side, but he got it backwards and had to keep working. Thinking that breeding the perfect bull would be the next step in his career, Fred put all of his time and energy into this hobby and none into the “no-ball” endeavor of actually saving his family’s struggling refrigeration business.

Fred bet the ranch.

If Fred had been more concerned about getting busy with his business rather than his bull, he may have saved the company. Unfortunately, though, the core competency of his company was not bull sperm. It was refrigeration.

Thus, Fred’s hobby got in the way, and he stopped paying attention to refrigeration. When the bank realized that Fred was distracted, they defaulted him on his loans and brought me in.

I had a mismanaged and neglected refrigeration company to deal with that was over $500,000 behind in debt to the bank, had maintenance issues that created spoiled product for its clients, and that had a CEO who was focusing on bull balls rather than the family jewels.

Since the company was already being forced into bankruptcy and on the path to being sold, it was my job to recover as many assets for the bank as I could. I fired his 85 year old mother who was on the payroll, and even though the bank thought the bull seed was worthless, I held a little auction at which I sold off bull sperm by the gallon at anywhere from $75,000 – $100,000.

When your company is having difficulties, put your hobbies aside and keep your eye on the prize – not your eye on the ball.

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A Model for Buy-in from Burkina Faso

Diebedo Francis Kere from Gando, Burkina Faso is from one of the world’s poorest countries. His country has few, if any, natural resources, and temperatures regularly rise to over 100 degrees fahrenheit. Needless to say, life wasn’t going to be easy for Biebedo or his compatriots.

But when I read a story about him recently, I thought to myself that this man knows some important things about business, and with that kind of knowledge, he’ll go far.

The Value of a Good Education

As a child, Diebedo was allowed to go to school – a rare privilege for someone in his position – and during his secondary education he showed an early predilection for architecture. Upon receiving a scholarship, Diebedo was sent to Europe where he received a top notch architectural education.

But something was missing. Diebedo wanted to help his people and improve their lives. He had seen so much more of the world than they would ever know, and what brought him all that privilege was education. He wanted to educate the children from his home town.

When we think about education in America, we consider issues like teacher qualifications, violence in public schools and if our children’s school lunches have too many calories. As you can imagine, these are not the problems of schools in Burkina Faso.

In Burkina Faso, there aren’t even enough buildings in which to learn – or enough calories to eat – to even begin thinking about these problems.

School House Rocks

And that’s where Diebedo came in. He wanted to construct a school house. The problem is that he had learned how to build large buildings with the most advanced technology. His village, however, had no technology. They had two things: mud and people.

And it’s with these two things that Diebedo constructed his school. But he was missing the catalyst that would make the mud and people unite: buy-in.

In order to get his village to harness its collective man power in favor of building a school, he had to convince them of the benefits of doing so, both for the education of the children and the future of the village as a model to follow. What’s more, the elders needed to believe that this was the right decision.

Diebedo knew that without their consent – their buy-in – his school wouldn’t go anywhere. It would be a flop. No one would attend. No one would teach there. The architectural nuances he planned would get muddled, and he would be hated for the waste and disappointment he created.

So he got buy-in.

And it worked.

The success has been tremendous thus far, and things are only improving as this model is being exported across Burkina Faso.

Getting buy-in from key stakeholders is supremely important. I do it. Diebedo did it. You should do it.

How do you seek buy-in from key stakeholders?