The Key to Surviving Hard Times

Chainsaw Dunlap was a workout guy twenty years ago, who would go into companies, slicing and dicing, laying people off, cutting product lines, and selling off assets as fast as he could. As his name suggests, he took the chainsaw approach.

Chainsaw was a pro at Turnaround 101, but he did it with no finesse. After the slash and burn lay-offs and asset sales, there’s still a company at which you don’t want everyone to be demoralized and miserable.

Not So Chainsaw

I do it slower – more sensually, shall we say, because I like to talk during.

I always make an effort to educate a company’s personnel throughout the process and solicit their buy-in for what I’m doing. This kind of interaction and buy-in doesn’t just need to happen during a turnaround – it should happen all the time.

I suggest that you regularly sit down with your team(s) and have them understand your solutions and decisions – something Chainsaw never did. I’m hardly suggesting that your team gets to vote – a business is not a democracy – but you do need to get buy-in for big ideas and especially to get through hard times or a turnaround.

Buy-in is Key

The reason you need this kind of buy-in is because, as president of a company, it’s unlikely that you’re out there day to day screwing on the wheels of a car, fixing machinery, bolting your widget together, etc. You can’t assuage the negative feelings running through a company when you don’t have access to everyone in the day to day. When you get the buy-in of your team and allow them to understand what you’re doing and why, they will help educate the survivors of the turnaround process to know that they’re going to be better off after the turnaround.

I was taking my son to school years ago, and he asked me, “What are you doing today?” I told him that I had a rough day in store because I was going to Philadelphia to layoff 200 people and close a division of the company I was turning around.

He looked at me like I was on ogre, and asked how the kids of those laid off would be able to afford camp, get baseball gloves and enjoy candy. I told him that I understood his questions and concerns, but by laying off 200 people and closing one plant, I was saving 600 jobs and keeping the company alive. It’s not that what I had to do didn’t stink for some, but it was for the greater good.

The challenge at that moment is to ensure that the 600 employees remaining are reenergized, reengaged and brought into the process of what comes next. That is, you’ve got to communicate and get buy-in.

Communicate Fully

If you go through a rough patch at your business and the people there really hate you then they will cease to fully contribute, leave, cripple your company and make you conclude that you shouldn’t have spent money on a turnaround in the first place. You should have resigned to call it a day and get on with your life because everyone else will have, too.

Companies – like militaries, countries, families and people – face hard times. As your company’s leader, it’s your job to get everybody through the hard times and make sure that they are prepared to see the good ones again.

Only the best innovators, products, companies and employees will survive a turnaround. If you insist on every social program that keeps everyone around, no one will have enough. It’s better that some do, and it’s best that they understand what’s happening and why. Open communication and buy-in will steer your company through hard times.

Is Your Ego Still in the Way of Your Success?

One of my secrets to success is my ability to set aside my ego when I go into a new company. It’s true that I do have an ego. I couldn’t be the Turnaround Authority without one. But it’s my ability to check that ego at the door when I start a new job that lends to my success.

The first thing I do when I get into a new company is sit down and talk to my team. I tell them that I’m not going to come into their company and pretend like I understand what they do better than they do. I tell them that I’m going to need their help. I have no pride of authorship.

The overall message is that we need to be a team, and that I need them to question me and talk to me about everything they do and know. I have an open door policy, and my team gets full access.

If they don’t tell me what they know when I take a particular direction with the business, then we could lose the company. I need to know everything that they know.

There are a lot of CEOs who can’t just set their egos aside to successfully run their businesses. Half the time that’s why I end up running their businesses in place of them (read #3 on my list of 5 Foolish Faux Pas CEOs Make in Crisis).

The Lake at Rotama Park

For example, at Rotama Park, a horse-racing track that I turned around, there was a big lake in the middle of the track. When I got there the lake was empty.

As it happens, they’d already spent a quarter million dollars filling it up with millions of gallons of water – but it all leaked out. The problem was that during simulcast racing, when our track was being broadcast into every betting parlor in the country, our track looked terrible. There was a big, empty hole in the middle of it!

I needed to fill up the lake.

One guy said that there was an aquifer nearby, and we could fill the lake up and it would all be good. I couldn’t see a reason not to, so I got ready to do just that.

Boy was it a good thing I had my open door policy in place.

Someone else came sheepishly into my office and, scared of my reaction, said if I filled the lake up, all the water would leak out again. He said the wrong type of clay had been used on the base of the lake. Because I had two people with a difference of opinion, I brought in an engineering firm to assess the situation. They confirmed that the base had been laid incorrectly, and that I’d need to redo it for a half million dollars.

If the second guy hadn’t told me that I was wrong to fill the lake up, I would have wasted another $250,000. My team had to know that I had an open door policy and to challenge me at all times if they thought I was wrong. You have to set your ego aside to do that successfully.

The Gyroscopes in South GA

Another time I had a manufacturing company in south Georgia that made gyroscopes for missiles and rocket ships. The company was running three shifts, yet the cost of goods was going up, prices were staying steady, and we couldn’t figure out why. Where was the profit going?

Somebody came to me, again because of my open door policy, and shared with me that there was a new competitor that had bid on a government contract, and the government had awarded that company 25% of its gyroscope needs. Apparently, the nightshift manager on the third shift was a silent partner in this other company, and as it happens he was stealing from us and giving the “scraps” to his other company.

He could compete because his stuff was free and our costs were going up because a higher percentage of our supplies was scrap. I would never have known this without an open door policy.

Make sure to set aside your ego and let people know that you want to know what they know – even if that information is bad news. I say it’s a secret to success, but on some level it’s also just common sense.

Is your ego still holding you up? Why or why not?

Be Fair But Beware: The Spectre of Self-Dealing & In/Solvency

In some cases that I’ve worked, the officers or owners are working against me – and their creditors – by self-dealing.

What is Self-Dealing?

For the record, self-dealing is not necessarily stealing but it is fraudulent. For example, self-dealing can be when an officer of a company tries to gain an unfair tactical advantage on the creditors or bank, so that he can do something like buy the assets at a reduced cost or own the company some other way.

When trying to understand self-dealing, it is important to know that when a company is in “the zone” of insolvency the fiduciary responsibilities of the officers and directors of that company shift from a duty to the shareholders to a duty to the creditors. Though “the zone” of insolvency can be  difficult to prove, presumably when I’m brought in to a company, insolvency is already roosting or on the horizon. Thus, if any officer is creating value for himself or the shareholders instead of the creditors, he is automatically self-dealing even though it might not have been considered thus had the company been solvent at the time of his actions.

I could devise a strategy for a client because I believe he is in the “zone of” insolvency, but he could say that his definition of insolvency is different and that he is going to continue acting in the interest of himself and his shareholders. Obviously, there are a lot of interpretations of insolvency which makes this legal concept very difficult to understand or litigate.

Self-Dealing or Not

In one huge turnaround case, I was blind-sided by an officer of the company who was trying to buy the assets of the business through a shell company. He obviously wasn’t acting in the best interests of the creditors because he was trying to drive down the price of assets to purchase them himself.

With proper disclosure to the creditors and without other credible purchasers in the game, self-dealing could possibly be approved by the creditors, but it’s a very fine line that requires a lot of honesty. By creating a process that inserts a turnaround person in the company, self-dealing will not occur.

Though I’d had an early gut-feeling that someone was self-dealing, I wasn’t able to uncover what was happening before I had to speak with the creditors. Therefore, despite my promising the creditors that there was no self-dealing, as I’ve already said, this officer was doing exactly that.

This undermined my credibility with the creditors and created a conflict between me and the officer, which delayed the resolution of the case. Though I regained my credibility, these actions behind my back created unnecessary hurdles for the company and case.

Trust Your Gut

When I have to give expert testimony, like in this case, I have to know the truth, and I pride myself on my ability to find the truth when I’m working a case.

I had a valuable lesson emphasized for me during this case: trust my gut.

If you don’t trust someone, keep an eye on him. Ask lots of questions. Don’t feel bad about mistrust; if that person does nothing wrong then you will find nothing wrong and be pleasantly surprised.

Have you ever seen a case of self-dealing? Tell us about it.

5 Big Blunders CEO’s Make That Lead to Crises

My last white paper was about the faux pas of CEOs in crisis, but in writing that paper I started thinking about some of the biggest mistakes CEOs, presidents and business owners make that result in crises. Since you may not be facing a crisis right now – and I hope you never are – I wanted to share these blunders with you so that you could either avoid them or start rectifying them.

1. Growing a Business Without Proper Equity or the Right Financial Structure

It’s never wise to try to grow your business without enough money. I once carved an injected molding company in Toledo, OH like a Thanksgiving turkey because the president sunk $2.5 million into his pet project: making the perfect bottle-cap. He effectively leveraged the entire company by borrowing against it to pursue this dream. Not only did he bet the ranch, but he tried to grow and evolve his business without sufficient funding to keep it running. Let that be the first lesson: make sure you have enough capital before making any big moves.

2. Growing a Business Without a Sufficient or Competent Management Team

The corollary to having enough capital to grow your business is having the right management team to do so as well. I’ve run Ocean Pacific twice. The first time was because they were expanding overseas without the proper personnel who understood sourcing and distribution in international markets. Though they lost a ton of money before we arrived, we were able to scale back to domestic manufacturing and refocus the company on design and licensing.

Many years later we were brought back in for a similar reason. Not only had the company lost control of its brand, entered into poor licensing arrangements and become embroiled in trademark issues, but they had accumulated a ton of debt. Once again, the management team couldn’t handle its responsibilities. The company was restructured through bankruptcy, selling its licenses to a private equity firm. Learn from Ocean Pacific and don’t embark on new strategies for growth without acquiring the right management team first.

3. They Allow Idiot Family Members to Run Key Divisions of the Business

Putting family members in key positions of your business can be dangerous without written expectations and a timeline for control, advancement and responsibilities. It takes a unique father and CEO to balance the intersection of a family and a business. Problems arise in many places, but particularly as it comes to entitlements, compensation and selling the business.

I had a mechanical engineering company in New York that was in the middle of a restructure that included a large union shop. The father had died and put his wife in charge as CEO. The son, resentful of his diminutive role due to a lack of delineated expectations and a board-approved succession plan, and, in his eyes, inadequate compensation, was stealing a lot of money. When we confronted good ol’ Charlie, he took a kitchen knife to his mother. Fortunately, she lived, got a restraining order, and kicked him out of the company.

Mixing business and family is not easy. Be careful and have the sense to know when someone is incapable of doing the job he feels entitled to do, family or not. Always manage expectations by putting everything in writing.

4. They Skew the Facts to Boards, Creditors and Constituents to “Sell the Deal”

As I’ve discussed before, honesty really is the best policy. The CEO of a hard drive manufacturer in California desperately wanted a line of credit from his bank for $60 million, so he stuffed the channel in order to make his company appear worthy.

Stuffing the channel is when a manufacturer oversells product to put sales on the books, despite knowing that much of the merchandise will come back unsold; this inflates the books by overstating the top line, thereby improving the bottom line. This strategy led to the loan, but when the company repurchased the inventory on the channel within 60 days, it became out of compliance on the line of credit. Once the bank defaulted the company I was brought in to salvage what I could and to hopefully restructure the company. The company survived thanks to some hedge fund loans, but the CEO lost his job because he skewed the facts.

Not bending the facts is so important that it deserves a second story. Before the technology was so ubiquitous, lazer-tag equipment had a very high value, and a Texas-based company seeking a large loan claimed it had more inventory on its books than it did; the company added the inventory in its Ireland-based location to the US books. The US auditors never verified the inventory and granted the company a far larger loan than it could handle. When the company filed for Chapter 11, I was brought in as CEO; within weeks of my new position I discovered we were $75 million short in inventory. I immediately went to the judge to convert the case to a Chapter 7 rather than try to bring the company through the bankruptcy and be embarrassed by the fraud. The creditors ultimately sued the accounting firm and made millions of dollars from faulty accounting, once again highlighting the blunder of skewing facts.

5. The President/CEO/Owner Can’t Keep It in His Pants

I have more examples for this one than any other lesson I know, but I’ll highlight this case with two basic stories to indicate how easy it is to get caught and how ruinous it always is. The president of an apparel manufacturer had other interests: he wanted to design the perfect yacht. He certainly succeeded in making a great one, such that he ended up in a prestigious yachting magazine. However, when he and his innovative yacht were photographed for the cover shoot, he failed to ask his girlfriend to get off the yacht or at least cover up her delightfully revealing bikini. When his wife saw the cover of the magazine, she filed for divorce and he lost control of the company.

In another case I was brought in to resolve as president, the CEO and Chairman of the Board of a retail establishment was caught with his kids’ babysitter while his company was going through a Chapter 11 restructuring. Once the matter became public, he lost focus on the business and the employees and the creditors lost faith in him. Ultimately, the business was sold off in pieces.

Gentlemen: keep it in your pants. Not doing so can be very expensive. For the record, I have similar stories about the other gender, but I’ll save them for another time.

A Lesson in Forests and Trees as Told about a Mobile Home

I’ve been working as a Federal Receiver for quite a while now. We’ve overcome most of our issues and problems – including scaling back the operations, collecting receivables, and selling fixed assets – and we’re starting to wind this thing down by selling the three manufacturing plants through a court-approved Asset Purchase Agreement (APA).

Well, almost.

The almost is due to a modular home sitting on this sizable piece of property, which had been used as an office in one of the Idaho locations. In Idaho, one can’t sell a modular home without a title (similar to an automobile title), and in our case the former owners haven’t proven cooperative about getting a title to us. The title company’s lawyers were questioning the transaction, and it would have taken an extra 30 day extension to the closing date in order to acquire a duplicate title through the proper governmental agencies.

This, as you can imagine, leaves me with an issue: the title company would not close the real estate transaction and the sale of the plant equipment without this last piece of the puzzle. That is, I’m trying to sell a $3 million manufacturing plant and equipment, and I have a $3000 modular home sitting on it that is preventing the entire transaction.

So the title company’s lawyers called me, and I told them to slow down and explain the problem in detail based on Idaho law. I thought about it for 3 minutes and suggested that we just remove the modular home from the APA. This wasn’t nuclear fission in action, but it certainly got the job done.

Then the title company lawyers objected on the grounds that the personal property taxes on the modular home were due in order to close the sale because in a transaction you have to pay all the past due personal property and real estate taxes. Now $100 in taxes was holding up our $3 million sale.

I suggested that we pay the tax on the modular home but exclude the item from the transaction. This made the title company’s lawyers happy, and allowed us to move forward and close the sale.

Great! they cried. But will the buyer be okay with this?

I contacted the purchaser and in 45 seconds he agreed to the whole thing.

This is a case of not seeing the forest through the trees. You cannot let a $3000 modular home ruin a $3 million APA. That’s ludicrous. There is always a way to work it out – and that’s why they call me a workout guy. I figure out how to get the deal done.

When you find yourself confronted with a seemingly insurmountable detail always try to see the forest through the trees.

Have you ever noticed people unable to get something done because of a myopic fixation on a seemingly overwhelming detail? Tell us about it in the comments below.

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?

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.

Living the Lessons of Turnaround Success

Cash is King – Living the Lesson

In 2007, a large Southeast-based contractor called us at GGG for the usual reason: they were having a crisis. This call marked the beginning of an 18-month turnaround, during which the company regained its financial health to continue operating profitably.

For decades prior to 2007, business was booming. After many years of profitability, and coinciding with the broader economic decline in the USA, unprofitable long-term contracts with major customers resulted in severe declines in cash flow and ultimately the business overall. Its unsustainable position also put the operations of the utility company’s customers in jeopardy.

Business Facts, Not Beliefs – To the Bank, It’s All About the Money

Anxious about these alarming trends, the bank cut back on the company’s availability (they decreased the amount the company could borrow against their receivables), shrinking the cash available to operate. When we arrived, we were asked to act as advisors to find new financing opportunities, to streamline operations and to act as interim CFO.

Besides the unprofitable contracts and unfavorable cost structure, the company was operating in a saturated and highly competitive market. It therefore had limited ability to raise prices despite improved operations.

Banks, naturally, like to rely on numbers rather than hopes and promises. Thus, in order for any troubled company to get financing, the company needed to be fixed first. When it was clear to the bank through facts and data that the company has regained its stability and had long-term growth potential, the bank was more likely to provide additional funding.

What We Did

First thing was first – and I recommend this for you and your business – we renegotiated contracts that were generating losses and reengineered the cost structure to accommodate prevailing economic conditions. We worked with the company leadership to eliminate unprofitable product lines, renegotiated vendor debt, and executed on a forbearance agreement with the senior lender. We also solidified a long-term contract with a key customer.

You should always have controls to monitor your product lines, so as to avoid losing money (or too much money) in the first place. Don’t assume because something worked once it will continue to work.

One of our largest vendors (Big Gorilla) was paying every 90 days which was creating huge cash-flow problems. Implementing tighter credit criteria was a must. Consider your credit risk based on who you offer terms to and consider overhauling your system and reducing your risk. We introduced the requirement of collaterals or guarantees when necessary and shortened payment terms for the company’s customers across the board. Though most of our efforts with the company were geared towards creating cash flow, each of the above actions was necessary to ensure the company’s survival.

The Hard Part and the Happily Ever After

Despite the turnaround success and the awards and accolades GGG received for it, there were some expected difficulties. We had to lay off some people, remembering that despite being a tough thing to do, letting some workers go saved the jobs of many others.

As a result of our efforts, the company shifted from a significant loss to positive cash flow after 16 months. The bank debt was significantly reduced, and a new two-year bank loan was executed.

Due to the speed of the turnaround, the bank elected to extend the company’s credit. An important factor in the bank’s continued partnership was that we educated our banker about our turnaround efforts and successes. The bank was happy to maintain a client when it could see the signs of a positive transformation and have open lines of communication. Always make sure you communicate with your bank by following The CEO’s 10 C’s of Borrowing.

Currently the company has an excellent relationship with the bank that includes ongoing and honest communication. In fact, the company completed an acquisition in 2011 and its employees received raises across the board.

Lessons Transcending Industries

This case reinforced for me that 95% of any turnaround is not about specific knowledge regarding any particular widget or industry.

GGG had a lot of construction experience by this time, but only about 5% of the turnaround had to do with construction company issues. The rest had to do with basic blocking and tackling issues: watch your contracts, watch your cost, watch your headcount, negotiate with the bank.

You can hardly learn these important business lessons from a textbook – you learn them from getting the bloody noses that my partners and I got throughout our decades of experience.

How can we learn from this case?

When your numbers start getting soft or you start losing money, be proactive. If the company is highly leveraged, has a decreasing cash cushion and is maxed out on its credit, these are among the signs that it’s time to take more serious action.

None of us has a crystal ball to know exactly how long this current economic downturn will last. If you are seeing problems and intend to survive, restructure sooner.

Be proactive. Be decisive.

If you must let people go, do it in one confident move. If you have multiple layoff weeks or even months apart, you will demoralize your employees who will feel insecure in their positions. As CEO or leader, you need to be aware of the economic reality and act decisively based on them.

Whatever your business, face your harsh reality and be proactive.

5 Foolish Faux Pas of CEOs in Crisis

While preparing for my speech on “How Not to Hire a Guy Like Me: Lessons from Past CEOs’ Mistakes,” I realized that it was worth sharing a few of the biggest faux pas CEOs make along with a few of my more colorful anecdotes.

What follows are the 5 things CEOs in crisis do that you want to avoid as the leader of your company or organization.

1. They Act Like Deer in the Headlights

In crisis situations, it’s amazing how many CEOs and company leaders act like deer in the headlights. They just freeze up and wait for the impending SMACK!

I was working with a guy whose company had entered a crisis. In the midst of this crisis, his very time-sensitive catalog that directly generates 80% of his 65 million dollar annual revenue within 90 days had to go out. It was hours before the catalogs had to be postmarked and mailed, but in order for this to happen we had to have $10,000 – immediately. In a cash crisis, this guy, worth a few million, wouldn’t take $10,000 out of his own pocket to pay the postage. If anything went wrong, he was personally guaranteed on 40 million dollars. He would have been totally wiped out had he defaulted, and all he had to do was personally put up $10,000.

I was brought in within hours of the deadline and convinced him to put up the cash. This was the first of many critical decisions amongst endemic problems, but thankfully, this incident established trust and a working relationship that led to a successful restructuring plan.

2. They’re Only as Smart as the Last person They Talked to

Many CEOs (and people for that matter) are only as smart as the last person they talked to – especially in a crisis. They cease being able to think for themselves, whether out of the hope of being able to pass the buck or because anything and everything sounds better than what they’re doing.

At a non-profit educational institution, the president was kicked out of office for various well-deserved reasons, resulting in a crisis of leadership, and the interim president kept changing the restructuring plan with every person to whom he spoke. He’d announce firings and closings almost daily, and then backtrack when someone objected, subsequently calling those he’d fired to tell them to disregard the two week notice they’d received. Back and forth he’d go like this, only spouting the last thing someone else said to him.

The only smart thing he did without changing his mind was hire me – and I fired him six weeks later. In restructuring, you generally get one plan to move forward with – it’s a house of cards and you don’t want it to fall from a lot of movement. Keep your plan conservative and reasonable, and don’t be as smart as the last guy you talked to.

3. They Can’t Check Their Egos at the Door to Admit Mistakes

The president at an electronics parts manufacturer found some cost accounting discrepancies that meant he was selling products under cost. Though he didn’t tell the bank, perhaps thinking that his Ivy League Ph.D.s would save him, the truth emerged a year later when his cash flow continued to deteriorate until the bank noticed. If he’d set his ego aside, spoken to the bank and brought in a professional early, he’d still be president, but the bank gave him the boot and brought me in. He lost everything because his ego got in the way.

Queue the Dragon Lady of El Paso: his wife and executive VP. Upon arrival, my first goal was to build loyalty and get buy in, and an opportunity dropped into my lap. The assistant immediately asked for twenty bucks to buy coffee and toilet paper. “Huh?” I asked. Apparently, in the interest of the budget, the company was rationing coffee and toilet paper. The Dragon Lady was losing millions on her left side while hoping to limit enough toilet paper and coffee for 60 people on her right side to balance out the equation. I gave the assistant $100 and told her to buy the biggest can of coffee and pack of toilet paper she could find, telling the other employees, “compliments of Lee.” From then on, they loved me. I had full buy-in, no one lost his job and we sold the company in full six months later.

4. They Don’t Depend on Their Key Subordinates

I hire people who are smarter than I am. I have no problem with people making more money than I do or being smarter. I view myself as a catalyst for positive change. However, I was brought into a company at which the CEO did not share this sentiment.

The CEO had created a generous sales commission structure, and the Sales Manager did a great job  for the company, meeting and exceeding goals. Resultantly, he made twice as much as the CEO in his first year on the job. When the board refused to give the CEO a raise to exceed the Sales Manager’s salary, the CEO attempted to lower the sales team’s commission structure, thereby dis-incentivizing them, even though they had been very successful on behalf of the company.

After the CEO forced a changed pay structure, the Sales Manager quit and went to work for a competitor. The board of directors found out and fired the CEO. While this echoes the sentiment of the ego problem, it also highlights the issue that CEOs fail to utilize good talent and rely on key subordinates.

5. They Don’t Get Buy-In

Buy-in is so important, and the CEO who isn’t getting it is looking for trouble because nothing goes forward for long without buy-in. At WYNCOM the CEO didn’t want any bad news, and he never wanted to hear what anybody had to say. He therefore didn’t have 100% of his team’s focus to make his wishes a reality. Subsequently, he lost 8 million dollars in 2 years.

As a CEO it’s important to know which way you want to go, and though a business is no voting democracy, you shouldn’t be handing down dictates from on high either. Have a conversation with your people, and let them tell you what they think. Even if they disagree and you still go the way you want to go, you can incorporate their feedback and by doing so, get their buy-in and support.

All I did when I became CEO of WYNCOM was act as a catalyst and seek others’ input, Thus, we went from an EBITDA of negative four million to positive four million in 12 months. In fact, we saved a half million dollars in postage just because I listened to someone.

The Regrets of “Too Late,” Managing a Company in Crisis, Part III

Similar to last time, I’ll happily wait while you read and enjoy parts One and Two of this series.

Consider All Your Options Before Making a Decision

I find that in a crisis, some leaders often accept bad advice without thinking through their options (I’ll address the issue of mistakes leaders make in crisis more thoroughly in my upcoming White Paper).

In the case of our bankrupt restaurant, the Board of Directors got bad advice to file for Chapter 11 Bankruptcy. It’s not that they shouldn’t have filed at some point, but their timing was terrible.

To survive a Chapter 11 you have to prepare properly, and by filing without making the appropriate preparations, the company created more problems than they already had. With more time, we could have found a better DIP lender and/or located a purchaser for the entire company.

But what can you learn from this?

Don’t Wait Too Long to Ask for Help

It can be difficult to know when you need professional, outside help. For 5 signs on when it’s time to call a turnaround professional, read Vic’s guest post.

Generally, when you’re either panicking or deferring to unqualified people for advice, it’s wise to consult an outside professional. Don’t worry too much about whether or not you think you don’t need help, as turnaround managers with integrity will tell you honestly if you don’t need their help. Better safe than sorry.

I have many meetings with business leaders who, being proactive, invite me in to discuss how GGG can help them and their businesses, but at which I tell people that they can solve their problems on their own. Knowing that I’ll tell it to them straight establishes trust, a key to success in this business, and ensures that I’ll hear from them (or their friends) when there really is a matter that requires my involvement.

Whether or not GGG is hired, CEOs who speak with me early are confident in their abilities to face their companies’ challenges. It is always better to know that you are okay than to ask for help too late.

If Only

In the case of this malfunctioning restaurant, we were needed – but sooner than when we were called.

If we had . . . 

. . .  arrived when emergency mode kicked in, we would have advised against filing for bankruptcy when they did and salvaged more of the business as a result.

. . . been involved before the large judgement against this company, I could have negotiated their crippling settlement down and mitigated its demoralizing impact on the team.

. . . been brought in at the beginning of the crisis we could have saved the whole company. In fact, the bankruptcy could have been avoided altogether, but it was done before we were consulted.

Let this echo the lesson that you ought to bring in the professionals before it’s too late.

Our Expertise is Fixing Problems

There are a lot of talented people in the midst of a crisis like this, but they’re not looking at the big picture the way a turnaround professional worth his salt is. Lawyers are looking one way. Accountants are looking another. But we have an overall grasp of all the legal, accounting and business angles, and we’re the perfect catalysts to see a turnaround through. After all, that’s why they call us turnaround professionals.

One of our key objectives in crisis situations is to empower the company leader by acting as his sounding board and instilling a sense of confidence while recommending creative and unique solutions based on our experience saving companies. This works no matter the company’s widget and ensures future potential crises are managed with greater success and poise.

Lesson Learned

The probability of successfully reorganizing in a Chapter 11 is statistically less than 25%. Without proper planning, reasonable terms for a DIP loan, and a focused Board and management, the probability of a successful reorganization is NIL.

Have you ever waited until it was too late to take action? What happened and how will you behave differently next time?