Valuable Lessons to Help You Thrive
Are you about to undertake a privately held or family owned business turnaround? Congratulations! You’re already part of the elite group of companies who have even the barest potential of survival. That’s because an alarming percentage of companies like yours fail to recognize that there’s even a serious problem until it’s too late to execute a successful business turnaround.
Although it certainly didn’t feel like it at the time, in hindsight, I was incredibly lucky. My youth and inexperience—I took the reins of the family business suddenly, at the tender age of 28—enabled me to realize very quickly that I was out of my depth, and seek guidance from experienced outside sources. And because of that guidance, I was able to not only witness how to execute a successful business turnaround…but learn valuable lessons at every turn. Here are 10 essential tips for surviving (and thriving) yours.
1. It’s Never Just One Problem
While you may be tempted to reduce your company’s diagnosis to a single significant “failure factor,” these situations are rarely simple. In reality, dozens of minor failures can combine to create real critical mass around a business disaster—from financial issues or leadership problems to crises of capital, culture and many more.
Case in point: when I took the helm of my 100-year-old family business, things looked fine from the outside: we boasted $120 million in sales and employed 360 employees across six locations. But behind the scenes, we were losing $3.5M a year, with a $5M overdraft and no sign of significant performance improvement on the horizon. It would be easy to diagnose this a failure of finance—but in truth, it was a failure of transparency.
Why? We didn’t report our shortcomings! The only people who knew the true extent of our dire financial losses were my father and his CFO. And without knowledge of the problem, there was no sense of urgency to fix the situation. This led to department managers underestimating the gravity of their situation, as they were looking at incomplete data.
2. Implement an Action Mindset
“Turnaround” is a nice word, isn’t it? It’s soft and hopeful and totally unthreatening—when, in fact, your business and the livelihoods of your employees are literally hanging in the balance. So, while it’s important to keep your communications upbeat, and your employees hopeful, you must also cultivate what Frank always called an “action mindset.” He was fond of saying “We are going to make decisions every day, and then we are going to execute on those decisions. As long as we get more right than wrong, we will be okay.”
Frank was right! A crisis demands action, along with a willingness to try things that one might not normally consider. Frank’s mindset injected our business turnaround with the sense of urgency we needed to come out on top. Without that, I’m not sure we would have survived; we would have made decisions too slowly and would probably have run out of cash.
3. Objectivity is Absolutely Essential
It can be difficult to look at your own business objectively, and be self-aware enough to analyze exactly where you’re going wrong. When I took over as CEO of the family business,
I knew I needed help quickly if we were going to survive, as I obviously lacked the necessary experience to turn things around.
I needed a candid, impartial third party to help me do it—and luckily, I found Frank! This experienced executive came on board as interim CEO, but ultimately became an invaluable mentor over the next few years. We ended up working together for more than a decade; first, to help the business survive, and then thrive before selling it to a strategic buyer.
4. Get the Right Outside Advisors
A board of directors should have perspective on the day-to-day operations, functioning as an early-warning system when a company is heading in the wrong direction. When I first joined the board of our family business, we had several expensive non-executive directors (i.e. outside advisors) who were along for the ride, but who added no real value; after all, they failed to speak up when things were clearly going south! Replacing them with Frank was one of the first (and best) things I did as CEO. He was also expensive, but worth every penny.
5. Cash Is (and Always Will Be) King
When I was a kid, my great grandfather always told me “cash is king.” This was his number one lesson for building a successful business. “Good businesses don’t go bust because they aren’t making money,” he said often, “they go bust because they run out of cash.” The overall likelihood of you executing a successful business turnaround comes down to how you answer the following question: is your business generating cash…or just burning it?
Furthermore, healthy cash management isn’t just about monitoring the bank balance—it’s about accurate forecasting. In my car dealership business, we had a very specific focus on the new vehicles that were coming off of consignment with the manufacturers, and would therefore soon become payable in full. To stay on top of this potential pitfall, we forecast 90 days ahead. This helped us anticipate upcoming lumped payments and manage our cash flow accordingly, as this meant we could have $500,000 become payable on a single day.
6. Your Story Drives Your Success
When you’re in the middle of a crisis, looking forward to the company’s brighter future (which at this point, might feel like fiction) will NOT seem like a priority. But please trust me on this: it is critical that you not only spend the time to imagine this brighter future and plan out key milestones along the way—but also to craft the story of how each team member contributes.
If everyone understands how they can personally impact the turnaround in their specific role, this helps to generate buy-in, a sense of urgency, and perhaps most importantly: hope. I spent hours briefing small groups of employees in our business. Ultimately, this helped me to create a blueprint for the turnaround—and helped them to better understand our situation, and how they might impact our recovery with cost savings and performance improvement.
7. Build Momentum with Quick Wins
Rather than having one or two big ideas to turn things around, create momentum with lots of quick wins. Not only does this generate momentum and improve your bottom line but it also helps to get your employees on board as they see your progress happening in real time.
In my case, stacking the deck with quick wins convinced our employees that we were serious about making meaningful changes for the good of the business—not just another “project of the month” that we’d all forget in 30 days’ time. This kicks the 80/20 rule into gear: by getting 20% of your top performers on board, their 80% contribution will drive the business forward.
8. Incentivize Creativity and True Grit
In a business turnaround, you are best to throw out your old pay plans—in some way, these helped to get you here, and it’s time for some new thinking. Instead, provide a tactical plan for your team with clear incentives for success. Be prepared NOT to pay bonuses to those who are falling short of their targets, and reward those who are performing beyond expectations with generous pay and recognition. In a turnaround, you want a meritocracy.
During my family business turnaround, I offered my credit control team a 10% bonus on any money they could recover on aged customer debt; this money was about to be written off by our auditors, so counting on its recovery was the financial equivalent of a “hail Mary” pass. They succeeded in collecting $500K in cash that quarter, which added up to $50K in bonuses!
9. Look to the Future of Your Leadership
Sadly, in a business turnaround situation, it is often your managers or senior leaders who got you to this point. Although it’s difficult to let anyone go—let alone, the leaders you had trusted to shepherd your company into a bright future—removing these people sends a powerful message that you are not afraid to make the tough calls when needed.
In my family’s car dealership business, I had one general manager who was operating at a huge, sustained loss. He had been working at that dealership for 30 years, and was stuck in the past—unable to accept that things had to change. Firing him was one of the hardest things I ever had to do, but it sent a powerful signal to our employees, manufacturer and bank that I would do whatever was necessary to get the business back into profitability.
10. Find Transformation in Turmoil
Here in Colorado where I am fortunate enough to live, one has to learn the first rule of snow driving quickly—always turn into the skid—or suffer the consequences. So, even though the prevailing human instinct is to turn AWAY from turmoil, a business turnaround can be a wonderful opportunity to uncover your next generation of leaders…and it might not always be where you’d expect to find it.
I had a sales executive called Louise, who I’d plucked out of a baby stroller shop on pure instinct that her excellent bedside manner would translate well to the automobile sales industry—which they did. During our business turnaround, Louise stepped up to fill a vacant sales manager role—and single-handedly turned around the fortunes of our new car sales.
I also had a financial controller step up to replace an ineffective CFO, who we fired. She was less qualified on paper, but in practice was one of the best finance people I ever worked with.
In both cases, these people had already been doing their best work for our company, and were just waiting for the opportunity to grow into larger roles where they could truly shine.
The fact that they could also be part of something bigger—saving the company—was a huge part of why we were able to promote and ultimately retain them for the longer term. Finding that these gems are already on your team can be a small silver lining in the turnaround cloud.
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