Bailout ignores major segment

This week, I met with a potential client--clearly a really nice guy--who has run an exceptionally successful business for over twenty years. His company is widely recognized as the industry leader in its segment. The facilities are clean and well-run, and the workforce is loyal because the owner has always treated them well.

His market has suddenly declined by 50% because of "the economy;" i.e., forces totally out of his control.

Don't we all wonder why companies that have been mismanaged are getting "bailed out" while those that have earned the right to be saved are hanging by a thread with no government help in sight?

Something is wrong with this picture!

Distressed Investing Conference #3

During one of the most interesting panels of the conference, Mike Heisley, a self-made billionaire according to Forbes, made an incredibly important point about the management skills required of a CEO running a distressed businesses.

He said that there is a huge difference between "managing" and "managing a distressed business" and that the latter requires a

• Different psychology
• Different temperament
• Different experience

I could not agree more. Why?

• In my experience, leading a turnaround requires being a combination of general on the battlefield, teacher, psychologist, negotiator and camp counselor. Being able to make on-the-spot decisions and to "rally the troops" may spell the difference between success and failure.
• Decision-making time lines are dramatically compressed. Decisions that would take weeks, months or years in a "normal" company may have to be made in minutes, hours or weeks in a troubled company. There simply is no time to do otherwise.
  
• The patient is in the emergency room, so saving the company takes priority over everything else other than legal and ethical considerations--because most stakeholders will be worse off if the company folds. As a result, the turnaround CEO has to make tough calls--quickly.

I've seen managers who think that they have "turned around" a division fail spectacularly when they find themselves running troubled companies because

• They were used to having effective systems and procedures in place rather than having to create them
  
• They were used to being able to have HR recruit the creme de la creme at competitive salaries rather than having to work with most of the people who were already in place, regardless of their skill sets
  
• They didn't have to worry about whether they would be able to pay payroll or vendors--They knew that cash would be available
  
• They did not have to worry about being placed on credit hold or C.O.D. and facing the possibility of not having materials necessary to production
  

Do you remember the opening scene in Saving Private Ryan? That's exactly how it feels in the early days of a "real" turnaround, but without the physical danger (although I have had nails put into tires and had an employee try to attack me physically). If you don't remember the scene, rent the movie. It will be an eye-opener.

Firms and individuals investing in distressed companies will be well served by following Heisley's admonition.

Distressed Investing Conference #2

One of the most interesting--and telling--observations at the conference came from David Shapiro, KPS Capital Partners, who said that the one investment of theirs that is doing well offers "adult incontinence" products.

Not surprising, is it? After all, this product is offered to a real market with a real need. Given the current state of the economy, those are the only kinds of products and services likely to succeed. Will we finally get back to basics?

Distressed Investing Conference #1

Tomorrow, I'll be leaving for the TMA's (Turnaround Management Association's) Distressed Investing Conference. http://www.turnaround.org/Events/Calendar.aspx?objectId=9313

When I first joined TMA approximately 15 years ago, the members were mostly other turnaround experts, like me, and the sessions focused primarily on turnaround issues. The sessions were filled with practical advice for people who actually turned around troubled companies. Not only did I always leave with valuable tips, but I also identified people who might help my clients survive. For example, Biff Rutenberg, Atlas Partners, was a panelist at one of the first conferences I attended. A couple of years later, when a client with over 60 locations needed to shed some properties and leases, Atlas Partners was a great help to them. http://www.atlaspartners.com/ap/

Today, TMA feels very different to me. Both the industry and the organization have matured. In addition to turnaround experts, the organization now has many lenders, attorneys, accountants, and other service providers, and the emergence of the mega-turnaround firms has changed the landscape.

The changes have expanded the spectrum of resources available to members; however, the Turnaround Management Association today might more appropriately be called the "Restructuring Management Association" because so much of the educational content focuses on transactions and Chapter 11 rather than on the nuts and bolts of actually fixing distressed companies.

I am looking forward to the case studies which promise "operational" content and to seeing people I haven't seen in years.....

Turnarounds and political appointments

I am watching with interest the controversy swirling around the proposed appointments of Leon Panetta and Sanjay Gupta. Although I do not have enough information to know whether either man is actually right for his proposed job, one thing I know with certainty is that when a dramatic turnaround is needed, that turnaround is almost always best achieved by bringing in a new, effective leader from outside the organization.

In my experience, people within the organization who are capable, competent, and eager for constructive change will welcome and support the efforts of the new leader; those who are not, will not. A strong leader, with the support of the entity's board of directors can deal with both effectively.

Of course, implementing change within the federal bureaucracy is incredibly challenging. (For a humorous but insightful take on this topic, read Locked in the Cabinet, by Robert Reich.)

Introduction

"These are the times that try men's souls" (Thomas Paine, The Crisis, 1776)

As financial troubles roll through the economy, many--possibly, most--companies are seeking ways to ensure their survival. The purpose of this blog is to provide helpful information to

• Businesses, whether they are publicly held or owned by private equity, family, or employees
• Boards of Directors
• Trusted business advisors to whom businesses and their owners turn in times of trouble; e.g., accountants, attorneys, bankers, insurance agents, financial advisors, investment bankers

Based upon my experience as an award-winning turnaround expert, I plan to provide practical advice, comments, and tools that readers can use to improve their business prospects both now and in the future.