What Comes Around…Sometimes Needs A Turnaround
You have a lot of blood, sweat and tears in your business, don’t you? And maybe your head’s spinning after COVID, inflation, supply chain issues, labor challenges, increased costs…the list goes on and on.
Things just keep coming around.
Speaking of Blood, Sweat and Tears, their 1968 song “Spinning Wheel” makes me think about how the stubbornness of managers who don’t dig into their businesses can put them in a precarious position.
What goes up must come down
Spinning Wheel got to go ‘round
Talkin’ ‘bout your troubles
It’s a cryin’ sin
Ride a painted pony
Let the Spinning Wheel spin
You got no money, you got no home
Spinning Wheel all alone
Talkin’ ‘bout your troubles and you
You never learn
Ride a painted pony
Let the Spinning Wheel turn
Did you find your directing sign
On the straight and narrow highway
Would you mind a reflecting sign?
Just let it shine within your mind
And show you the colors that are real
Someone is waiting just for you
Spinning Wheel spinning true
Drop all you troubles by the river side
(Source: Musixmatch/Songwriters: David Clayton Thomas)
What Comes Around
We’re all familiar with the expression, “what comes around, goes around.”
While that can be interpreted in varied ways, one thing is for sure, change is the only constant, and change comes around and it goes around. When it comes around, it might not be embraced.
Change, or more specifically, the need to change, often comes around again.
Change is hard.
Change isn’t for everyone.
Turnarounds and restructurings are rooted in change.
Change brings challenges.
Challenges bring opportunities, though.
Turnarounds and transformations of organizations are very challenging, and while it’s great to return the P&L back to black, and keep the fatigued lender at bay, get investor capital, or, orchestrate a strategic or financial exit and successfully close the sale of the enterprise, sometimes the greatest obstacle to a positive outcome is reticent management or ownership, or worse, bad governance.
In short, the critical failure point for many businesses is often a bitter cocktail of ego, apathy and denial.
What is necessary for managers/owners to successfully improve their operating results, or avoid complete disaster — is simply taking a step back and opening oneself (or your entire key team) to the world around, and to the possibility that you, and your behavior as a manager, owner, executive, director, or other stakeholder, may be some combination of right, wrong, open, closed, in, out, engaged, disengaged, up, down, blind, visionary, receptive, stubborn, or just plain, you.
Sometimes managers fail because they are blind; Why? because often they choose to be blind. I’ve seen various sources and forms of myopia that have created struggles for organizations, sometimes it’s the owners. Sometimes it’s the management. Sometimes it’s the workers. Sometimes it’s supply chain. Sometimes it’s the union. Sometimes it’s the board or even an individual director. Sometimes it’s even the customer or client.
Ok so nobody anticipated all of the supply chain related problems. Guess what, you can be assured of three things, 1. someone’s going to need to own it and fix it, 2. someone’s going to get blamed, and 3. it’s probably going to need outside help to come up with a solution.
Those of us who grow and fix businesses for a living have heard all of the negative associations about C-level people brought in to make change — or, of consultants, advisors, finance and accounting experts, operational fix-it pros, restructuring and turnaround professionals — “they borrow your watch and tell you what time it is,” or, “they make science out of the obvious,” “they tell you what you already know,” yes, heard them all. To those critics, we’ve said, “Well since you have all the answers, why do you need me?” It’s your watch, after all, and you should know it’s about “half past” the time where your bank is going to move into forbearance or liquidation, or it’s a “quarter to” when your employees and customers go elsewhere.
People often place higher priority on the need to be “right” than the need to be effective. Being “right” is relative and subjective. Being effective is generally more absolute and objective. If the organization has true and meaningful KPI’s, then that’s how to keep score.
Even a stopped clock or watch is right twice a day.
We’ve also given some pretty blunt and direct advice which has grown, fixed, saved and sold companies, and have had some direct advice ignored which has ultimately liquidated them. There’s a time and place to charter a private plane, but traveling via G6 to ask your bank or bailout suitor for more money isn’t one of them. Hint: check for a cheap coach ticket. Save the trip on Diddy’s jet for when you sell the company at 9X EBITDA or after you’ve won American Idol, Survivor or you’ve been drafted by the Lakers. Slow it down, maybe you’re really not a rock star.
Again, change comes in many sources and in many forms. Not always when you want it to, and not always on your terms.
Here are some examples.
COMING AROUND. There was the “industry expert” who didn’t understand that having your weekly sales equal your weekly payroll was a ticking time bomb with his cash flow, and ultimately, his bank. “So, I’m billing $800,000 a week; and my payroll is $790,000 a week. So, it’s a people business. As long as I’m covering my payroll.” (General rule: try to keep your payroll at 30–35% of your weekly billings). This business grew because the company was awarded work at 35% below what competitors typically bid. It took a few years for the accounting to be cleaned up so it was evident they were losing money on everything they touched. The profit would “come around.”
There was the “serial entrepreneur” who shuttered five businesses and was on the cusp of losing everything and his taking partners down in the process. He had the good sense to hire someone to do his job for him. Maybe you’re not running the company, you’re just “hanging around.”
There was the niche market company CEO who decided one day he simply didn’t like one of his key employees who’d been loyal to him, and had grown the US operations of this business by a sizeable multiple. His plan was to find a “lower cost replacement” and he put a bullseye on his number one salesperson and nit picked every single thing he did until finally firing him. The sales went into a slide and every other key employee left as well. He showed them. The $20,000 in salary he saved cost him $6,000,000 in sales. Maybe the reason your star sales guy “wasn’t around” was because he was bringing the money in.
There was the company with an “expert CFO” seven months behind closing the books who was “being picked on.” I guess no one noticed at months 3,4,5 and 6 that there were no income statements, balance sheets and statements of cash flows. Problem solved: top notch HR attorney and the mother of all settlement and release documents. The CFO said “I was working on the close, I just didn’t get around to it.” What doesn’t “come around” needs to be send around reception and out the front door.
There was the company with a team of “crackerjack” accountants who completely missed $1,600,000 in billings. Maybe having five people “around” in accounting isn’t enough? Maybe the missed billing was thought to be “included in a round number.” Rounding error. One of the few days I saw the workout banker smile was when we told him we found $1,600,000 the company didn’t know it had.
There was the equipment rental company leasing equipment for $15,000 a month whose capital lease payment was $19,000 a month. “Don’t worry, the utilization is high.” We will commit to acquiring millions of dollars in equipment we don’t need, hope we can deploy it, and lose money, but this is a wise move “because there just isn’t any equipment around.”
There was the business owner with a $6,000,000 line of credit backed by shrinking receivables and the personal guaranty of everyone in the household except his dog. That owner decided to go to war with his bank over some holdover technicalities even though a pending deal for the sale of the company would get them nearly debt free and a multi- year employment contract. “Look around and take the deal — what are your other options?”
A $300 million a year in sales/manufacturer which lost $30 million a year for four years and had a $12 million NEGATIVE EBITDA (earnings before interest, taxes, depreciation and amortization). The top heavy management group couldn’t produce the information to answer two basic questions — what their product cost to make ($191) and what they could sell it for ($175). (Oops. Maybe they were planning to make it up in volume. I guess the plan to run three shifts, two of which were unnecessary, stack up excess inventory, and “keep people around in case we need them when business picks up” won’t work.)
(That “order fairy” is going to drop that huge PO under your pillow soon, you just keep praying)
You don’t need an MBA or a Ph.D. in finance, organizational behavior or rocket science to embrace the “belonging” of common sense. You just have to be aware of the “AROUNDS” of a turnaround and aware of your limitations if you aren’t the person to make the necessary changes.
Yes, to quote Gandhi, “you must be the change you want to see (or at least hire it)…” and Sun Tzu, “Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” But thinking you can run a sophisticated business through a layer cake of challenges and crises, because you have a nice suit, can spew a few buzzwords from your downloaded podcasts and watched a few episodes of Shark Tank is soon going to turn you into chum.
THINKING AROUND. The brilliant management guru Peter Drucker so wisely observed: “Management by objectives works if you first think through your objectives. Ninety percent of the time you haven’t.” Have you thought through your business as a concept? As a clean sheet of paper? Do you understand the relationship between the inputs (independent variables) and the outcomes (dependent variables)? Before you get into the chic ideas of “ blue sky,” “greenfielding,” “paradigm shifting” and “value proposition,” just think about the people, products, processes, priorities, pathways (and any other word beginning with P) involved in doing what you do. How can it be fixed? What can be improved? What costs can be eliminated or reduced?
LOOKING AROUND. What are your customers doing? What are they buying? What are they saying? What are they asking for? What are your employees doing? What are YOU doing? Do you see what’s happening before your eyes? Maybe your purchasing guy isn’t buying inventory on his personal credit card solely to help the company’s cash flow. Who are your competitors? What are they up to? Are you losing employees? Where are they going?
WALKING AROUND. Have you taken the time to stick around a bit later, to wander into the manufacturing facility to see the employees on second shift reading supermarket tabloids because there isn’t enough production to keep them occupied? Do you view the org chart as a fluid snapshot, evolving with the ebbs and flows of the business cycle, or as a civil service-type template with lifetime tenure? Where is the waste? Why not hire an expert on LEAN to walk your warehouse, your office, your manufacturing floor, your suppliers’ facilities, to figure out what’s bogging down the efficient delivery of product and service to your customers. So you can’t spare $10,000 for some objective analysis? or $100,000 of professional time to get someone who can turn your $5,000,000 loss into a $2,000,000 profit? What’s the cost of repeating your mistakes?
DRIVING AROUND. Have you mystery shopped your work sites? Your plants? Your satellite stores? Are you aware that 1/3 of your field staff can’t pass a drug screen? While you’re out there, keep your own vendors honest by price-shopping them. Is your insurance package competitively priced and do you have the proper coverages in place? Do you need environmental liability? Pollution? Umbrella of $10 million? Should you have Directors and Officers liability insurance? What is your EMR mod rating? Do you have a Safety plan? Are you one cyber hack away from disaster?
BEING AROUND. Owners and managers that don’t make being there and being engaged every day their first priority are on the proverbial slippery slope. Some of the hardest working owners I’ve seen and had the good fortune to work with have been the most engaged, passionate and successful. Some of the leastengaged ultimately lost their companies to competition, their lender, a forced sale to an acquirer or the business simply became a casualty of their own apathy. Working from home might work for your employees, but as an owner or manager, you might need to be engaged, on site, more than you have been.
CIRCLING AROUND. Gather your customers, gather your prospects, gather your managers, gather your employees and get the blunt truth from them. Circle around the issues you need to fix and if you don’t have the right people with the experience, skills, knowledge and contacts to make magic and change happen, then get them. Circle the risks to the business. Circle the markets of opportunity you’re missing.
FOLLOWING AROUND. Where does the money come from? (Dollar Sources = Revenues) Where does the money go? (Dollar Uses = Expenses). How well are you following the flow of money around your business? How do you follow the money trail and figure out ways to bring more in and have less go out? Many middle-market businesses with $10, 12, 25, 35, 50 million run rates on annual revenues are making little or no net income after a whole bunch of people made a whole bunch of commitments and did a bunch of things and worked hard for a year. That’s just wrong. Are you running a 13-week rolling cash flow? Tracking inflows, outflows?
Many businesses can be turned around, improved, refocused, renewed and saved. Some can’t. Failure factors and success factors are the inverse of each other. It’s simply a matter of avoiding the need to turn things around because the AROUNDS haven’t been addressed and managed. Reminds me of the famous Red Adair quote: “If you think it’s expensive to hire a professional, wait until you see what it costs to hire an amateur.” If you are a manager or owner and you’re not feeling confident in the current state of your business, it is without doubt more cost effective to look around and get professional support as early as you can and avoid needing to turn things around and upside down when it’s just too late.
Get your head around the issues and the barriers preventing your company from maximizing profit and growth.
Let us know if we can help you grow it, fix it, exit.
Or maybe just turn it around.
Copyright, 2022, QORVAL Partners, LLC and/or Paul Fioravanti, MBA, MPA, CTP. No part of this article may be reproduced, shared or distributed or posted in any form without the express written consent of the author. All rights reserved.