How to Turn Around a Failing Business
NEW YORK (TheStreet) -- Over the last 20 years, I have been the leader or the No. 2 person in four companies that needed to be resurrected. The skills needed to turn around a company are similar to those needed to build a start-up, but they're not identical. Unlike at a start-up -- where people are jacked up on caffeine and the high of starting something new -- people working in a floundering company look like survivors of war.
At the first turnaround I worked on, I was the 24-year-old COO of a mom-and-pop mall. I worked for a 31-year-old entrepreneur who was a cross between Tony Soprano and P.T. Barnum. The mall, which was outside Philadelphia, had been written up in The New York Times in the 1950s as the eighth wonder of the world, but by the '80s it had fallen on hard times. My boss was a genius at coming up with attractions and selling people on the future, but he was not a good manager, he had no ethics and he spent money like a rapper in a bling store.
For my second turnaround, I was head of a trade association that acquired a sister organization. The founder of the acquired organization was a visionary with good sales skills; he also had poor people-management skills, paid no attention to detail and had no understanding of how to roll out new products and services.
The third turnaround, I was an investor in a group of magazines whose board was made of big-league business leaders. I made the grave mistake of letting everyone know that I had run newspapers and could, without a doubt, fix the problems of the magazine. I had visions of being Caesar returning home after conquering another country, foreseeing the board and staff showering me with flowers and coin of the realm.I thought that with my past successes, with my contacts, creativity and leadership style, I couldn't miss. A lot of people thought that, because one of the leaders of one of the magazines I was about to take over said having me join the team was like getting the first pick in the NBA draft. Although I shook things up and improved the situation by getting us back to profitability, I didn't come close to meeting my own expectations or those of the board and employees. By my fourth turnaround, I was a humbled, methodical, process-oriented leader who had no illusions or delusions of grandeur. A visionary entrepreneur with the scruples of a con man targeting the elderly and widows brought me in to "grow" the company. The truth was that there were two sets of financials records, one telling the truth and one perpetuating the lies of the founder and a distrusting, but talented, group of people. What I am going to share with you is what I learned from these experiences that led me to write a book called Small Business Turnaround, published by Adams Media. The reason I am writing this column is because all business leaders go from hero to clown if they manage for any length of time. If your company is being rocked by storms, here are 10 steps to take so you can safely land on the beach. 1. Trim the fat. Take all of the company's expenses and create a spreadsheet to show how you are spending your money. Determine what you absolutely don't need -- then get rid of it. When I ran the magazines, I found out that we spent $5,000 in magazine subscriptions for 30 people. I reduced that to $250. The magazine used heavy paper like Business 2.0; I reduced it to Time magazine thickness, which saved $100,000 a year. 2. Get the word out. Develop a new business plan and give copies to everyone in the company. I mean everyone: from the janitor to the top leadership. Ask for their thoughts in writing. People want to know they have some control over their own destinies, so allowing them to provide input is important. One of our janitors in the mall I was running came up with an idea that saved us more than $100,000, and for a $2 million business, that was significant. 3. Cull your workforce. Make a list of the people you want to keep, and immediately let go of those who don't fit. A common mistake is to let people go in waves. When you do that, the best people leave because they don't want to be the last person in a game of musical chairs, and the worst people stay because they are either complacent or have no confidence that anyone else would want them. Every time I had to let people go, I assessed their skills and capabilities and contacted business associates to see if I could arrange an interview. You can't imagine what an enormous difference this makes to how employees perceive management. 4. Open the books. Anyone could see any financial information, except other people's salaries. I used to have a standing companywide meeting every Friday where I discussed our financial picture. One day, one of the employees stood up and said they all trusted me and that their time was better served improving and selling the product. Not only did this create great trust, but employees started recruiting other quality people. 5. Assuage clients' fears. Meet with all of your top clients to reassure them that you are not going out of business. Admit there is a problem, but let them know that you have developed a plan to fix it. This is critical because your competition smells blood and is whispering in your clients' ears that you are not long for this world. 6. Be honest with your vendors. When I took over one company, we owed 60 vendors and a lot of taxes. I received 12 valentines from law firms threatening to shut us down. I wrote a nice letter inviting each firm to the company, where I handed over a copy of our business plan and offered access to our financials. Each one advised the client to trust me because I was totally open. 7. Embrace alternative financing. As everyone knows, the banks only lend money when you don't need it, and factors lend money when you absolutely need it and can't get it from anyone else. We had terrific receivables, so I sold them. Factors are invaluable in turning around a company, because they typically don't require personal guarantees and are more flexible. 8. Get rid of the least-profitable clients. One of the companies I ran had some major contracts with the entertainment industry. That is an industry that thinks working with it is such a privilege that vendors don't need to make a profit. I prefer dull, boring clients that pay on time and allow me to make a profit. 9. Never take your eye off the cash. Every day I asked my controller how much cash we had in the bank, and I made sure we parceled out the money. Employees and taxing authorities are paid in total; everyone else receives something so they know they won't be stiffed. 10. Encourage risk. Now is the time to be daring and encourage employees to come up with new ideas for products and services. This reinvigorates the company, creates positive buzz with clients and prospects and repels competitors. The long-term key to success is to stay calm and levelheaded. Like the commercial says, "Never let them see you sweat."
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV