Bill Corbin - Entrepreneurial Turnaround - Surviving Crisis

8/7/2019 Bill Corbin - Entrepreneurial Turnaround - Surviving Crisis

1/94

Entrepreneurial Turnaround:

Surviving Crisis

by Bill Corbin


2/94

2000 by Bill Corbin

All rights reserved. Except for brief review excerpts or quotations, no

part of this book may be reproduced in any form without written

consent from the author or an authorized representative of

CorbinGroup.com

Printed and bound in USAby UN Printing, Division of UN Communications, Inc.

Cover Design: Tim Tobias

ISBN #: 189345605-6

First Printing: March 2000

For Information:

Bill Corbin CorbinGroup.com.1429 Chase Court Carmel, IN 46032 317 800 222 0590 x330

http://www.CorbinGroup.comemail: [email protected]

LEGAL DISCLAIMER

An entrepreneur is a risk taker. The purpose of this book is to help the readertoward a positive outcome. However, there are no words or ideas in this book

powerful enough to guarantee success. Therefore, Bill Corbin accepts nopersonal liability should your business results be unsatisfactory (nor will he

claim any credit for your success).


3/94

iii

Table of ContentsEntrepreneurial Turnaround

Introduction...................................................................................1

We often think of turnaround as a large-business concept, but there are

thousands of small businesses struggling for survival. The entrepreneur

can, and likely must, become the turnaround artist.

1. Is Turnaround the Answer? ..............................................5

It is important to know the difference between crisis and normalfluctuation. We must also be sure that our business concept is

fundamentally sound. Turnaround is called for if our business faces a

life-threatening illness. Causes may be internal or external but will be

reflected in key trends.

2. You and Your Frame of Mind .......................................19

The turnaround process requires clear-headed analysis and effective

leadership. The entrepreneur must face and overcome emotions such as

fear, guilt, and doubt, then prepare to lead the counterattack.

3. Your Role in the Turnaround .........................................25The entrepreneur must objectively analyze the personal role needed in

turnaround. The effort may need more of you, less of you, or a

different you. Willingness to adapt, even if outside the comfort zone,

is crucial.

4. Analysis: Whats Wrong?.................................................30

We must carefully analyze the symptoms of problems. Are we facing

revenue problems, cost problems, or both? We must develop a

comprehensive plan for seeking information and analyzing that

information. When complete, we must understand the root causes of the

problems we must address.


4/94

Turnaround!

iv

5. Preparing for Battle ............................................................48We must prepare ourselves and key groups for the process. This will

involve employees and may involve investors, bankers, customers,

vendors, even employees families. Effective communication and

steady leadership are the key. Dealing forcefully with problem

employees is difficult but necessary.

6. Developing the Action Plan ..............................................55

The action plan includes specific objectives and is developed from

alternatives that address root causes of problems. The plan must be

carefully aimed at root causes rather than shot-gunned at the host of

problems and alternatives that could be included.

7. Prioritizing the Action Plan .............................................65

The most important action in terms of long-term impact may not be

addressed first. The first goal is stop the bleeding. Later action will

be prioritized based on total impact, potential speed of implementation,

and short-term contribution to shoring up the company.

8. Summary: Corbin Turnarounds....................................72

A step by step summary of two actual turnarounds; in one case a

marketing related set of actions; in the other, retreat to the core business

followed by aggressive efficiency improvement.

9. Other Strategic Possibilities .............................................81

An overview of other approaches to turnaround in the broader

definition of entrepreneurial survival including bankruptcy.

10. Avoiding a Recurrence ....................................................86

Action steps and attitude steps aimed at avoiding crisis recurrence.


5/94

1

INTRODUCTION

There is no business story like a good turnaround

story. Lee Iaccoco defies all odds and achieves a

remarkable turnaround at Chrysler! Gerstner helps IBM

find its footing. Gil Amelio tries valiantly to turn Apple

around, but cant get it done. Steve Jobs returns and

performs another magic act. There are hundreds of stories,

but they are usually told about giant businesses.

The subject of turnaround management should not

be limited to big business for two reasons:

For every giant business struggling for survival

and growth, there are probably a thousand small ones.

The American economy is alive with small business

activity. New startups are in the range of one million

annually, and the rate is accelerating. It is widely

recognized that small business is driving much of the

economys growth.

The failure rate for small business is painfullyhigh. A widely accepted statistic puts the odds of five-year

survival at well less than 50%. Using the cool detachment

of statistics, we simply observe that over half of new

business start-ups wont last five years. But behind that

statistic lies enormous personal pain. There are shattered

dreams, lost jobs, lost life-savings, and immense stress on

marriages and other personal relationships.

Turnaround management does not apply to the

small businesses that never get off the ground. But many

carve a niche in the competitive marketplace, make

substantial progress, and achieve a degree of financial


6/94

Turnaround!

2

success. They then flounder, starting down the path towardfailure. So, decidedly, the concept of turnaround is not

limited to giant enterprise. At any point between the first

shudder and the last gasp, a struggling small business is a

perfect candidate for turnaround management. But theres a

practical problem. Giant companies typically have the

resources to hire a turnaround artist who can bring in a new

team of managers and controllers to aid in the rescue. Small

businesses are often started on a shoestring, and that

shoestring is likely to be frayed or broken by the time

turnaround begins.

The grim reality is simply this: If a small business

owner is going to see a turnaround, the likely turnaround

artist is probably right in front of youeasily spotted

tomorrow morning in the bathroom mirror. This book is

about the process. Its not easy, but it is possible.

Your author humbly suggests that his credentials for

this book are substantial. I became an entrepreneur in 1972

as founder of Concepts 4, Inc. Unless you have read otherCorbin books, you have not heard of Concepts 4, Inc.,

because by 1973 it had failed miserably. Well talk later of

that failurea failure so complete that Concepts 4 never

became a turnaround candidate. While traumatic, it was

highly educational and highly motivational. I vowed to

never be there again.

In 1974, I started a local consumer newsmagazine

called Unified Neighbors. By 1979, I owned a freestanding

printing company, originally started to print the magazine.

In 1984, the printing operation, then grossing about

$300,000 per year, began taking water and was listing


7/94

Intro

3

badly. I personally took over the duties of my formermanager and got the ship aright.

By 1996, my overall business had grown to about

$3 million, operating in printing, mailing, product

fulfillment and book publishing. Again, it floundered badly,

and in mid-1996 I launched a vigorous turnaround effort.

The results were dramatic. It can be done!

(Please allow me to pause for an important thank

you. The pronoun I appearsat various points in this

book, including the previous paragraph. But Iknow that the

success of these turnarounds was based on what we

accomplished as a team. So to the UN employees who

made both turnarounds possible, a very sincere

thank you!)

As you read this book, youll find many differences

between my business operation and yours. Youre probably

in a different field. Your size of operation and combination

of problems is different from mine. But in many ways,

turnaround is a process. It includes a business assessment,

a self-assessment, and a prioritizing process that isessentially universal. It includes issues of commitment and

leadership that are universal. And it includes concepts of

tough decision-making and aggressive action that are

involved in any dramatic business change.

The style of this book is blunt. Most successful

entrepreneurs are common-sense, no-nonsense types who

deal directly and speak directly. Ill try to write that way

and will trust youll take no offense.

If you face the need to turn around your own

business, I truly wish you the very best. I wish I could

guarantee that the steps in this book assure success. Of


8/94

Turnaround!

4

course they dont. You proved youre a risk-taker when youbecame an entrepreneur. Youve got to risk again as you

undertake the steps necessary to redirect your enterprise. So

good luck. But more importantly, good analysis, good

leadership, and hard work!

Lets dive in.


9/94

5

Chapter 1

Is Turnaround the Answer?

There are three possible reasons that turnaround

management does not apply to your business situation:

1.Perceived crisis actually reflects normal businessfluctuation.

2.Your business has not succeeded in firmlyestablishing a profitable niche in the marketplace.

3.The crisis you face reflects the kind ofoverwhelming odds that call for reluctant

acceptance.

Normal Fluctuation

Businesses are like sports teams and personal

relationships. There are ups and downs, good times, great

times, not-so-good times, and bad times. This kind of ebband flow is normal if not pleasant.

This book is not aimed at normal fluctuations, but it

is useful to comment briefly on the entrepreneurs attitude

and leadership role as the tides come in and go back out.

First, we must know the difference between normal

ups and downs and the kind of life-threatening crisis this

book targets. If you become frenzied at every blip on the

sales chart or dip on the P&L, you and/or your employees

will soon be buying Maalox by the carton.

You should view your job during normal dips asvery similar to the role of an effective coach: building


10/94

Turnaround!

6

morale, stressing the fundamentals, encouraging focus andconcentrationthe kind of effort necessary to get back in

front on the scoreboard.

It is possible to address normal fluctuations at a

strategic level as well. For example, you may be able to add

products or services that fill valleys in your seasonal

pattern. You may be able to carefully time promotional

efforts to increase revenues in down cycles. On the cost

side, you may be able to shift costs from fixed to

variable with steps such as increased use of temporary

employees.

At some point in your entrepreneurial career, you

will hopefully address fluctuations at a lifestyle

levelsmiling serenely and saying something like, Well,

its our slow period; Im off to the mountaintop retreat.

Unfortunately, that kind of serenity is elusive. We

entrepreneurs (often called Es in this book, in the interest of

brevity) tend to be a nervous group who continuously

worry that it could all come crashing down. But careful

study of your own business patterns, coupled with a bit oftime in the saddle, helps provide the wisdom necessary to

distinguish fluctuation from crisis.

Have We Reached Critical Mass?

Turnaround suggests that we are losing ground.

But did we ever have any ground in the first place? Big

businesses, almost by definition, have the potential to be

turned around. They areor at least werebig. They have

climbed the mountain, stumbled and fallen back, but they

have seen the mountaintop.


11/94

Necessary?

7

The basic purpose of this book is comparable.Turnaround means you have enjoyed successat least for

awhilebut things have deteriorated and you intend to take

the action necessary to return to sound profitability. It is

very important to test your business against this

assumption. The Corbin turnarounds of 1984 and 1996 took

place within a company that had enjoyed very good years.

Lets back up to 1973 to see a different situation.

Here is an abbreviated retelling of the story of

Concepts 4, Inc. (those who have suffered through this in

another Corbin book will want to quickly skip to the next

section!).

I had learned that large-company research and

development departments generate inventions that arent

suitable for their distribution channel. RCA, for example,

had developed a wristwatch with a built-in television in the

early 1970s. They also had a TV-calculator combination

that looked amazingly like early personal computers. But

RCA correctly analyzed that their dealer organization

wasnt geared to sell or repair watches or calculators. Sothe products (along with others) gathered dust on R&Ds

shelf.

I talked to friends in other industries and learned

this mismatch of product and established distribution

channels is a typical big-company dilemma. I was a

restless entrepreneurial spirit at the time and assumed,

almost certainly correctly, that there were thousands like

me around the country. Eureka! Well build a national

network of aggressive entrepreneurs and make ourselves

available to RCA, other large companies and smaller

inventors. Well become the distribution system they need


12/94

Turnaround!

8

to exploit new inventions. Still sounds pretty good when Iwrite it, but I totally missed its chicken-egg problem. I

couldnt interest RCA if I didnt have a network. I couldnt

interest entrepreneurs if I didnt have products. After a

forlorn 15 monthsthe highlights of which were a weak

novelty greeting card line and a $49.95 grandfather clock

made of cardboard (that could be crumpled by any passing

three-year-old on a Big Wheel)Concepts 4 shut its doors.

Obviously, despite my furious efforts, Concepts 4

never reached critical mass. Critical mass is that difficult-

to-define business phenomenon when an enterprise

achieves enough momentum that good things begin to

happen: You have happy customers, theyre telling other

people about you, your employee team knows what its

doing, the cash is flowing in faster than its flowing out.

Critical mass is a great thing, but until it is reached, the E

feels like a little guy pushing a big rock up a steep hill.

If critical mass has neverbeen reached, the E has

challenges that involve the same kind of analysis, decision-

making and high-energy action that this book covers. Butthere is a vital first question: Am I gaining ground?

If the answer is yes, then fight on! (assuming that

you are gaining ground fast enough to give you a fighting

chance of reaching critical mass before the money runs

out). If the answer is no, Im realistically not gaining

ground, there are two possible reasons:

1.You havent yet climbed high enough on the E-learning curve. (In that case, this book may help;

other books will help; classes, networks, or a

mentor may help. Fight on!)

2.You have a bad idea.


13/94

Necessary?

9

Many factors contributed to the collapse of

Concepts 4 (including the inexperience, arrogance and

stupidity of its founder), but the root cause was simply bad

idea. The idea may have made sense at some theoretical

level, but there was no realistic chance that Bill Corbin had

the skill, connections and financial backing to pull it off. In

hindsight, this painful truth was probably evident after

about nine months. I invested another six months, not to

mention my second-mortgaged house, in a forlorn effort to

pump air into a balloon shot full of holes. In blunt terms, a

turnaround book doesnt apply to a business that has

never attained legitimate market acceptance and some

financial success.

It is extremely difficult to be objective about your

fundamental business concept, but it is vitally important.

Find ways to test that validity. If the basic concept is

hopelessly flawed, change it quickly or exit as gracefully as

possible. (Book 2 of the Entrepreneurial Five

SetEntrepreneurial Failure: How I Started a Businessand Lost My Shirthas a strong chapter on the validity of

business ideas.)

Overwhelming Odds

The possibility of overwhelming odds is relevant

because, sadly, there are business situations similar to the

Battle of Little Big Horn. Custer and his 200ish troops did

their best, but the other side had something like 5,000.

Among related possibilities for Es:


14/94

Turnaround!

10

A giant competitor comes to town who sells stufffor the same price at which you buy.

The only major employer in your town leaves. Thepopulation plummets from 10,000 to 3,000.

Expensive new technology becomes critical toserving customers in your industry. You cant

afford the transition to the new technology.

Your market is fashion-based, and everything yousell is suddenly out of style.

There are other possibilities, of course, but the

turnaround implications are clear. You cant save the ship

by a bit of minor patching and tweaking. You have a

gaping hole and are listing at about 30 degrees. In some

cases, regrettably, the prudent business course is the

equivalent of deploying the lifeboats. In other cases,

turnaround may be possible but will almost certainly

require a massive change in strategic direction.

My grandfather ran a very successful small-town

grocery store from about 1910 to about 1950. Then Krogerand A&P came to town offering better selection and lower

prices than Corbins Grocery could hope to provide.

Grandpapa downsized the store, shifted to a combination of

seed, garden supplies and farm supplies, and survived. Had

he stood toe-to-toe with Kroger, he would have been

snuffed like thousands of small independents based on the

unfortunate but straightforward concept of overwhelming

odds.

The Granddad Corbin story allows early

introduction of two entrepreneurial qualities that are vital

throughout the turnaround process: awareness and


15/94

Necessary?

11

objectivity. Granddad Corbin was well aware of theimpending possibility of chain-store invasion. He observed

its impact on grocers in other towns. He closely monitored

the timing of their arrival in Union City. And he was ready

with his plan in time to implement it from strength. It is

imperative that all Es be students of their industry and be

prepared for strategic events as they unfold. Granddad

Corbin probably spent a few angry moments about the

unfairness of being attacked by a giant competitor, but he

did not dwell there. His business plan was based on solid,

objective analysis and preparation.

A final overwhelming-odds possibility must be

realistically appraised. There is a chance that the E has

waited too long to begin the turnaround process.

Turnarounds typically require an infusion of money. In

many cases, the efforts of a dedicated employee team are

crucial. If funds sources have dried up and the team has

already fled the battlefield, the remaining resource base

may not support a legitimate turnaround effort. The Corbin

Grocery transformation began early while strengthremained. Thousands of the failed grocers waited far too

long to read the clear writing on the wall, and did not have

the resources to finance a strategic transformation.

The analysis called for in the preceding paragraph

needs to be included in this book but should not be a cause

of unnecessary fear or presumption of defeat. There are

absolutely incredible turnaround stories involving small

businesses that were declared terminal by everyone but a

very determined entrepreneur.


16/94

Turnaround!

12

Knowing That Turnaround Is the AnswerIf youre still on your feet after facing normal

fluctuations,failure to reach critical mass, and

overwhelming odds, lets begin the process of determining

whether turnaround thinking applies to your business.

Turnaround is necessary when a business has a life-

threatening illness; something is happening that, if allowed

to continue, will kill the business. Here is an absolutely

crucial concept: In every meaningful sense, life

threatening can be likened to a dread disease. The issue is

not whether your business is already on life support and

anxious doctors are watching heart monitors. The issue is

whether your business has contracted a disease that is life

threatening. Turnaround, like medical treatment, should

start at the first moment of diagnosis.

An amazing number of business failures, large and

small, involve the business equivalent of the optimist

hurtling through the air after falling off the Empire State

Building: Im not hurt yet! Im not hurt yet! Things are

going on inside the business or in the marketplace that areclearly life threatening, but action is not taken until far too

late to save the patient.

My early business career (circa 1968) included a

classic example. I was working in the marketing

department at the Frigidaire Division of General Motors

Corporation. Frigidaire had pioneered home refrigeration

and enjoyed a powerful brand name in the appliance

industry. But the competition included some serious

players General Electric, Whirlpool, Sears Roebuck,

Maytag, and others. Frigidaires labor union noticed that

wages were significantly higher in the automobile industry


17/94

Necessary?

13

than in the appliance field. They insisted, and GeneralMotors astonishingly agreed, that Frigidaires workers

would receive the same pay levels negotiated by the UAW

for Chevy, Buick, Pontiac, Oldsmobile and Cadillac.

Through time, the wage difference created a huge cost

disadvantage versus competitors. Frigidaires market share

began to drop. The management information system was

excellent, spotting early and tracking accurately the

deterioration of market share. But nothing was ever done to

solve the fundamental issue, and a once-proud logo was

sold to White Consolidated Industries.

A situation is life threatening at the moment we can

accurately project our demise if key trends are allowed to

continue. An important concept is the power of the trend.

An early business mentor of mine preached this sermon: A

trend, once in place, will continue in the absence of

powerful countervailing action. This means that a steady

loss of customers will continue; the steady gain of a

competitor will continue; the steady deterioration of quality

control will continueunless we take powerful action toreverse the trend.

Turnaround shares another similarity to serious

disease. The longer it is ignored, the harder it is to treat.

Youve heard people say, I dont want to go to the doctor

because Im afraid shell find something terribly wrong.

We all understand the human emotion involved, but the

logic flaw is gargantuan. If we go and there is nothing

wrong, whats to worry? If something is wrong, it is wrong.

It will stay wrong until we get it fixed. The best day to

begin diagnosis and treatment is today.


18/94

Turnaround!

14

At the risk of pushing our medical analogy past itsbreaking point, note one more thing: In turnaround

diagnosis, you are both doctor and patient. It is important

that your finger is on the pulse of your business. This may

mean studying numbers, studying competitors, talking with

customers, or having frank dialog with employees.

Whatever it means, you must be keenly aware of the health

of your business and be prepared to operate as necessary.

An advantage of small business is the relative ease

of diagnosis. Big businesses, by contrast, can go for years

without figuring out theyve got major problems. As an ex-

GM employee, I well remember when General Motors and

other U.S. automakers laughed at those pitiful little

imports...that real Americans would never drive on an

extended vacation. After several years and a bunch of

market share points, they awakened from the snooze and

realized that Honda, Toyota, Datsun (now Nissan) and a

few others were systematically eating the U.S. auto

industrys lunch. The reason for the long slumber was a

combination of corporate arrogance, substantial cash horde,and major misread of emerging consumer tastes. Once

awakened, it took the industry years to achieve import

quality and begin turning the tide of lost market share.

Fortunately, though, if your cash pile is high enough, you

can survive a few years of strategic stupidity.

In small business, the clues are clearer and the time

frame for action is much shorter. Almost every start-up

entrepreneur knows the feeling of wondering whether there

will be enough cash on Friday to make payroll and, if so,

whether there will be anything left for the E to take home.

Chronic inability to make payroll (in addition to being


19/94

Necessary?

15

major-league stressful) is a pretty clear sign of a problem.My two turnaround experiences involved clear signals and

included businesss two main categories of misery:

Revenue-Based Problems1984

Sales levels versus historical sales were down. Established customers were being lost. New customers were not being added at previous

levels.

Cost-Based Problems1996

Profit & loss numbers were unacceptable. Production efficiency was poor. Spoilage and waste was high. Overhead was excessive as a percentage of sales. Morale was poor.

In both cases, the need for turnaround action was

clear, in the numbers. In May of 1983, the printing

company had gross sales of $38,000. In May of 1984, thenumber was $21,000. There had been signs of deterioration

in the months leading up to May, so it didnt take rocket

science to determine we were in trouble.

In 1995, my company was thinly profitable on $2.5

million in sales. By early 1996, we were losing money on

an annualized $3.0 million in sales. All P&L trends were

heading south. The bank was very concerned. Again,

straightforward analysis of the numbers suggested major

problems.

Each business has its own set of key statistics that

can signal problems. Possibilities include


20/94

Turnaround!

16

Month-to-month sales vs. previous years Sales by major category within the business Sales to key customers by month Lost and gained customers by month Project proposals made/won/lost by month Employee productivity (output and/or sales per

employee)

Dollars lost through errors, spoilage, inventoryshrinkage, etc.

Employee turnover rates (or other indications ofmorale problems such as grievance count)

Financial statement deterioration such as cashdecline, inventory run-up unaccompanied by sales

increases, asset vs. liability deterioration, etc.

It is equally important to know key statistics within

your industry, often available through trade magazines,

trade associations, library or Internet research.

As Ill confess in a few pages, my business statisticswere relatively strong on the sales side and relatively weak

on the cost side. This weakness helped generate the crisis

of 1996.

Every business, regardless its size, must have good

numbers.

One final thought on knowing theres a problem.

Even small businesses can behave like ostriches. Lets say

sales are down a bit. We look at the records and trace the

problem to two lost customers. Not much problem, we

might say. Its only two customers, and well surely

replace them soon. Maybe so, but the crucial issue may be


21/94

Necessary?

17

Why did we lose the two key customers? If theyrepresent the first two of a major wave, perhaps because

our quality or service has slipped, perhaps because a new

competitor is nibbling at us, the seed of disaster may have

been planted.

The key is solid analysis: clear-headed, ego-free

objective analysis of good numbers. If they show real

problems, those problems will get worse unless we act.

(Each chapter includes a set of Ponder and Discuss issues.

See next page for Chapter 1.)


22/94

Turnaround!

18

To Ponder & Discuss

1. What are the normal fluctuations in your business? Is there a

chance that present problems are based on normal fluctuations

rather than crisis? If so, what steps can you take to cushion the

impact of fluctuations?

2. Has your business reached critical massthat point where

you feel it is clearly established in the marketplace with real

forward momentum? If critical mass has not been reached, is

your idea definitely sound? Are you making progress?

3. May you be facing overwhelming odds from competitive

activity, market conditions or inadequate resource base? If so, is

the answer strategic redirection or graceful exit?

4. What are the key trends affecting your business and the key

trends within your actual operation? Do one or more of these

key trends involve a life-threatening condition for yourbusinesslong term or short term?

5. If the business is in crisis, is the cause internal (operational

issues) or external (market conditions or industry trends) or

both? Identify the key symptoms that indicate crisis.


23/94

19

Chapter Two

You and Your Frame of Mind

The road aheadin this book and in your

turnaround processincludes some classical business

steps: solid analysis, decision-making, prioritizing and

aggressive action. However, there is an important first step.

The cornerstone on which everything is built is you. The

process depends on yourclear-headed analysis, your

willingness to make hard decisions, and yourreadiness to

execute the changes that are necessary.

So, the entrepreneur must take a momentmaybe

several momentsto self-assess. Where am I physically,

mentally and emotionally? In my personal case, it wasnt a

pretty sight in either 1984 or 1995+.

Lets leave our medical analogy and return to

sports. Its halftime of an important game, and were in the

locker room. Our team is behind. In fact, our team is way

behind. Part of the reason were behind is errors made by

the coach (thats us, fellow E!). At least right now, the

coach in the other locker room is just plain doing a better

job. Our assistant coaches have screwed up several times.

The players have made a bunch of stupid mistakes. It was

an ugly first half! But now its halftime and its time for the

head coach to turn things around. There are several

elephant-sized problems:


24/94

Turnaround!

20

Deep down, the head coach may feelapproximately as confident as a wayward turtle on

Interstate 94 during rush hour. We thought we were

ready for the game. We thought we could handle the

opposing teams game plan. We prepared hard and worked

hard, and now were getting clobbered. The coach has to

reach deep inside to find another reserve of courage,

commitment and confidence.

There are a hundred reasons we might look

backward,pointing fingers, laying blame. But halftime is

only 15 minutes long. We must use the precious time

available to look forward.

There is a clear need to cooly and objectively

analyze the game plan. We must decide whether we can

get back in the game by more intense execution of the

present game plan. Or must we come up with a new plan

that gives us a chance to be competitive? Clear-headed

decision making is crucial.

We must swiftly agree on the plan and then rally

the troops. The coach has two jobs: to communicate thenew plan and to rebuild the teams confidence. Then, as the

second half unfolds, the coach must do one heckuva job

making sure the plan is flawlessly executed.

An E in crisis must go through a very similar

process. The issue ofpersonal confidence is crucial.

Almost by definition, the E has taken several ego shots.

Plans we made are looking unsound. Customers are

deciding not to buy our goods. People we hired arent

doing the job. Decisions we made have backfired.

Competitors are eating our lunch. There is no way for the

objective E to avoid a pretty large helping of humble pie.


25/94

Your Mindset

21

The real key is our response to the ego shots weve taken.Some Es go into denial, ignoring the problems or blaming

others. Some go become the business equivalent of a beaten

boxer, back against the ropes, hands only partially up,

waiting for the knockout blow. The only useful frame of

mind, as you look into the mirror, is to deliver a pep talk

something like this: Well, ol buddy, were in a bit of a

pickle. Obviously Im part of the problem, so Ill work hard

to figure out what Im doing wrong and how I need to

improve. Ill dig deep to figure out what else is wrong. Ill

make a game plan for improvement. Ill fiercely execute

that game plan. And Ill be a positive, dynamic leader as I

do it.

A related leadership issue is fear. Many Es will confide

that fear is a near constant companion. During start-up we

worry that our idea wont work. During growth, we worry

that we cant reach and maintain critical mass. When times

are good, we worry that bad times are ahead. If you have a

tendency toward fear, its safe to say that facing the

potential collapse of your business will bring the fearmonster roaring to life. Again, the only useful attitude is

Sure, Im feeling some fear right now. Who wouldnt be?

Ill use the fear to motivate me, and the adrenaline to

energize me. And we will move forward. Failing to

successfully address fear can leave the E mentally

paralyzed, curled up in a figurative fetal position.

The issues of blame and finger-pointing must be

carefully handled. For the E, the most useful starting point

is probably this: Im the leader, whatever is wrong is

ultimately my fault. Even if my employees have let me

down, Im the one who hired and trained them. So Ill start


26/94

Turnaround!

22

this process without laying blame on anyone else. Thisattitude is helpful for several reasons:

To the extent that anger or desire to protect our ownegos motivates laying blame, it takes time and

mental energy that we should expend elsewhere.

We must set the stage for forward-looking analysis.Dwelling on past problems is useful only to the

extent that we identify action we must take in the

future. This process must be clear-headed and

objective, not mired in fear, guilt or anger.

The notion of clear-headed, objective analysis is

crucial. We must look at ourselves, our strategy, our

decisions, our peopleevery aspect of the businessto

identify what is wrong and to prepare ourselves for action.

We must be committed to victory. Some decisions

will be difficult. There may be shake-ups in the team

lineup. Some favorite ideas and programs may need to be

scrapped. But we must be mentally and emotionallyprepared for the decisive action necessary to win.

It is very likely that we must be prepared for bold

action. If the game plan isnt working and we cant find a

way to get it working, well need to change the game plan.

If its late in the fourth quarter, we may need to throw a

Hail-Mary pass or two. These steps will involve risk. They

may not work at all. But if we fail to act boldly, we have no

chance at all.

Another element of turnaround commitment likely

includes time and energy. In my case, periods of

turnaround involved intense concentration and hard work.


27/94

Your Mindset

23

There will probably be extra hours involved because youhave three key challenges rather than one:

1.Keep the present business afloat.2.Do the analysis and planning necessary to plan for

change.

3.Execute the new plans.Because the situation involves an element of crisis,

the emotional pressure can be intense. It is wise to secure in

advance the support of family and loved ones. It is

probably wise to beef up the physical fitness program a bit.

It may be necessary to curtail some outside activities,

especially if any of them relate to your levels of energy and

alertness.

Finally, when were ready personally and our plans

are ready, we must provide positive leadership. We must

articulate the new plan, build morale, secure full

involvement, and attack!

Whenever things seem difficult, I think back to oneof my favorite stories of adversity: Revolutionary War hero

John Paul Jones is engaging the mighty British warship

Serapis. John Paul has some real problems. The condition

of his aging ship, Bon Homme Richard, was pretty sad

before the battle started. She was slow with dubiously

reliable old guns. Now shes in really bad shape, having

been pounded by superior British cannon fire for several

hours. So (as everyone surely knows), the British admiral

suggests that our hero strike his colors (the naval

equivalent of issuing mass pink slips, locking the doors and

heading for the nearest pub). Above the din, J.P. roars, I


28/94

Turnaround!

24

have not yet begun to fight! I imagine that several of hissurviving sailors mumbled, You may not have begun to

fight, but we have, and were getting our fannies kicked.

But somehow they rallied, found a way to approach the

Serapis, lashed the Bon Homme Richardto Serapis long

enough to storm aboard, and captured the British ship.

They then untied BHR (which promptly sank) and headed

home in their new, improved model. THAT, my friend, is a

turnaround story.

------------------------------

To Ponder & Discuss

1. Have you worked through the negatives of fear, guilt anddoubt, and have you emotionally prepared for the turnaroundeffort?

2. What is the constructive role of fear in turnaround? What isthe negative role?

3. Are you prepared physically for the effort ahead? Have yousecured the support of loved ones who will be impacted?

4. Is your attitude toward employees positive enough to beginworking constructively on the turnaround effort?

5. Are you prepared mentally and emotionally to make trulydifficult decisions and to aggressively implement those decisionseven if extremely uncomfortable?


29/94


30/94

Turnaround!

26

There was a clear need for Bill Corbin to return to sales andcustomer service.

Entrepreneurial life seems to constantly involve

trips into or outside the comfort zone. In 1984, more

salesmanship was certainly outside my desire zone if not

my comfort zone, but the need was clear. When your

business needs more of you in areas outside your comfort

zone, the only sound alternative is to take a deep breath and

dive in. Many Es are not oriented to detail work,

preferring to work with ideas or customers. Not

surprisingly, many small-business problems occur because

of sloppy execution of detail. If execution problems are

killing an Es business, it may become necessary, even if

uncomfortable, to become more detail oriented.

The possibility of the need for less of you can be a

bit hurtful but must be addressed objectively. It has two

aspects: skill and style.

Skill: Entrepreneurs often wear many hats in thebusiness. Unfortunately, some of the hats may not fit all

that well. In 1996, I assumed temporary management of

our entire production facility. As well discuss, this step

was an important element in our turnaround, but by

1997, it was clear that I was way over my head

technically. My staff team recommended that we fire

Bill Corbin from production management and bring in

a real pro. You must objectively analyze the possibility

that your personal skill-base is not sufficient to handle

key parts of your business.


31/94

Your Role

27

Style: Book 2 of the Entrepreneurial Five Set presentsthis case study in the chapter on Excessive Ego:

Case #18: Phyllis opened a small manufacturing

facility to produce a line of craft products. Phyllis

background was wholesale marketing for a large craft

distributor. She carefully defined a market niche and

invested in the right equipment and people to produce her

product line. Phyllis personal style was very hands on

in every part of her business. She was abrupt, some said

downright abrasive. She also had high regard for her own

capabilities.

Phyllis clashed constantly with her original

production manager who brought strong credentials to the

business but was also a very strong personality. After four

months, this manager resigned and Phyllis brought in a

more agreeable person. Similar problems were occurring

in Phyllis'administrative department. Her manager was

disagreeable, constantly arguing when Phyllis attempted to

implement systems and procedures. Soon this positionturned over as well.

The business was soon known in the industry as

very strong in sales but weak in manufacturing and

administration. It eventually floundered and failed because

of poor delivery and quality control.

Note that Phyllisas an issue ofstyle not

skillwas driving off the people necessary for solid

business success. There is a printing company owner in our

marketplace who enjoys the dubious reputation of having

fired every small press operator in town at least once. Both


32/94

Turnaround!

28

Phyllis and the printer have a style problem. If they cantchange, as discussed below, they need to move to a part of

the business where their abrasive styles are not in direct

conflict with key people.

Finally, lets look at the concept ofa different you.

It is extremely difficult to change fundamental issues of

personality or style, but it is possible. As an example, if

your business has major morale problems created by your

tendency to criticize too much and praise too little, it is

possible to work on old habits and create new ones that can

help. If your style has been so hands-on that key people

simply wont work with you, you can talk to yourself along

these lines: My business is in trouble because I apparently

reallyirritate skilled employees with my style. I have a

choice: either continue going down the tubeswhich is

whats happening now because I have fools at key

positionsor force myself to get out of peoples hair so

good employees can do their jobs. It is definitely not easy,

but it is possible.

OK, now that were personally prepared for the

turnaround process, lets go to work. Heres what well be

doing:

Figuring out whats really wrong Preparing your army for the battle Defining specific action steps Prioritizing action Implementing aggressively


33/94

Your Role

29

To Ponder & Discuss

1. Being as objective as possible, are you part of the problem

that will need to be addressed in turnaround? If so, what are the

areas of difficulty?

2. Will your plan likely include more of your involvement in

certain areas? Which areas?

3. Will your plan likely include less involvement in certain

areas? Which areas?

4. How should you change your personal leadership style to

improve the odds of successful turnaround? What are areas in

which you should be more forceful? Areas in which you should

back off?


34/94


35/94

Whats Wrong?

31

company policies. Another possibility is poorly maintainedequipment. Yet another possibility is inferior raw materials

caused by a vendors quality collapse or our own poor

purchasing techniques. We must accurately understand

Whats wrong? before we devote resources to specific

solutions.

Whats wrong? analysis often involves peeling

layers. Of course, the top layer is the realization of crisis

that we discussed in Chapter One. Sales numbers are

collapsing. Costs are out of control. The balance sheet is

deteriorating at a frightening clip. Skilled employees are

jumping ship, leaving us competitively vulnerable. Note

that this kind of analysis involves symptoms, not causes.

The next layer hopefully tells us the strategic cause

of the deterioration. For example, a sales decline can have

multiple causes, including lower price levels or lost

accounts.

The final layer involves discovering the root cause

of deterioration. If our sales collapse turns out to involve

lost accounts, why are they leaving?

The Es Mindset During Analysis

Heres another tough challenge. No offense

intended, but we Es tend to be a bit opinionated. Theres

also a good chance were intensely involved in the business

operation and that weve been thinking nonstop about

Whats going wrong here? All these possibilities lead in

the direction of closed-minded analysis. Theres a

possibility that weve already figured things out correctly,

but trees have blocked clear view of the forest for centuries.

It is important to gather facts and analyze Whats


36/94

Turnaround!

32

wrong? as if you may discover something that neveroccurred to you before.

Gathering Necessary Data for Whats Wrong?

Analysis

Note that the E can probably peel a layer or two in

private or with the consultation of outside professionals.

Just as Granddad Corbin didnt need to consult his clerks or

customers to recognize the immense threat of chain-store

competition, you likely have the information necessary to

identify big-picture strategic issues impacting your

business. If your financial statements are solid and your

underlying records are complete, you can probably

determine the strategic cause of sales declines and/or cost

increases. But at the root cause level, there is high

probability that youll need information from sources such

as individual employees and customers.

As soon as employee input becomes necessary, we

face an oft-debated issue in turnaround management: How

truthful should I be with the troops? In my experience, theanswer is Close to 100% truthful. You may not want to

reveal that your grandmother loaned you payroll money last

week, so presenting the situation as positively as possible is

important. But heres a near certainty: Your organizational

rumor mill knows whats going on and likely has painted

the picture even blacker than reality. Your key people are

somewhere between concerned and terrified. There are

already resumes being printed down at Kinkos. In my

opinion, the best chance of holding things together,

including keeping key employees on board, is honesty.


37/94

Whats Wrong?

33

It is very helpful to solicit at least oneorganizational confidante. This is likely a senior employee

already involved in leadership. In 1984, I had 11 printing

employees. One became a confidante. In 1996, we had 48

employees, and my senior staff team of four filled this role.

The hoped-for contributions are

Helpers in the process of gathering importantinformation

A source of honest, even if negative, inputregarding the situation A sounding board for controversial ideas A place where its relatively safe to vent a bit of

frustration and even display some emotional

vulnerability (since leaders remain human)

A team that will almost certainly be with you as youcharge up the hillmeaning people who can absorb

the news that turnaround is necessary and fight with

you rather than flee in fright

Well talk later about the process of forming and

utilizing your confidante teama process that is certainly

one of this books several tests of leadership skill.

A Framework for Determining Causes

Every analysis process is unique, but heres a try at

a framework that may be helpful. The bottom line in all

turnarounds is the bottom line. Profitability is either gone

or going. A very basic P&L statement shows the

components that affect our bottom line:


38/94

Turnaround!

34

SALESLess COST OF GOODS SOLD

Equals GROSS MARGIN

Less OVERHEAD

(general, sales and administration costs)

Equals PROFIT/(LOSS)

If your entire management information system is a

yearly P&L statement, you can help identify turnaround

issues by asking, Which components of my P&L are most

impacting profitability? Lets look at the four elements.

(The commentary includes both strategic causes and some

potential root causes. The notes in parentheses indicate the

causes of problems in the two Corbin turnarounds.)

Sales: If your revenues are down and other

components of the P&L are steady (Corbin 1984), the

fundamental issue is marketing. You must dive into the

potential reasons including these possibilities:

Decrease in new prospect count caused by advertisingor sales efforts that are not effective

Deterioration of sales effectiveness once prospects areidentified (Corbin 1984)

Deterioration in quality or timeliness of quotations orproject proposals (Corbin 1984)

Price decrease, perhaps caused by competitive pressure,despite the fact that sales transactions have remained

steady

Reduction in price caused by improperpricing/estimating procedures or unqualifiedpricing/estimators (Corbin 1984)


39/94

Whats Wrong?

35

Deterioration in customer satisfaction that iscausing lost accounts and a drop in repeat business

(Corbin 1984)

Effective price drop caused by a customer shifttoward less expensive parts of our product line

Market share grabbed by new competitor(s) Overall sales drop caused by trends in the

marketplace such as fashion shifts or economic

factors

There may be other issues, and you may be facing a

combination of issues, but this kind of process helps

identify the causes of a revenue drop.

Cost of Goods Sold: Of course, COGS is your cost

to create the goods or services you sell. In many businesses,

it is a combination of the raw material and labor required to

create a product. In service businesses, it is labor plus the

infrastructure necessary to provide the service. When

COGS increases without corresponding price increases, weface a margin squeeze and downward pressure on the

bottom line. Potential reasons for COGS increases

include

Supplier price increases Upward wage pressure Excessive overtime costs (Corbin 1996) Ineffective or dishonest purchasing

(Corbin 1996)

Failure to secure best pricing (Corbin 1996) Purchases in excess of real project need Purchases of non-saleable inventory


40/94

Turnaround!

36

Shrinkage due to theft or poor inventory control Spoilage of perishable inventory Production inefficiency (Corbin 1996) Excessive headcount (1996) Poorly coordinated processes (1996) Obsolete or inadequate equipment base (1996) Excessive cost due to errors and redos (1996)

Gross Margin: Gross margin is the mathematical

result of the SALES and COGS issues; so gross margin can

be improved only when sales increases or COGS decreases.

Its purpose in turnaround analysis is to raise this question:

Can my gross margin be improved? If a business faces a

margin squeeze that can be addressed and improved, the

turnaround job should vigorously attack that opportunity. If

the margin squeeze cannot be addressed in time to save the

ship, the only remaining option is attacking overhead. If,

for example, a business is embattled because low-cost

competitors have trashed pricing levels in the marketplace,

there may be no short-term opportunity to improvemargins. We would be forced to look at overhead.

Overhead: Overhead is something like

infrastructure cost. The person who makes the product is

part ofcost of goods sold. The person who arranges for the

paycheck on Friday is part ofoverhead. Obviously

elimination of unnecessary overhead provides direct

positive impact on the bottom line. Elements of overhead

include


41/94

Whats Wrong?

37

The management team, including the Es wage Owner perks such as automobiles, travel,

entertainment and marginally contributing family

members on payroll

Supporting cast such as accounting, human resources,and other administrative people (Corbin 1996)

Selling expenses, including advertising and marketing Benefits Various taxes Non-production facility costs (Corbin 1996) Computer systems and support Telephone and non-production utilities

(Corbin 1996)

Internet activities Legal and accounting costs Other consulting costs

In some turnaround situations, aggressively cutting

overhead is the only alternative. In virtually every

turnaround situation, swift elimination of excess overhead

is a helpful step partly because the cash freed up can bedevoted to other phases of the process. As an obvious

example, if our analysis shows sales deterioration due to a

competitor stealing market share via an aggressive ad

campaign, we may need to increase marketing activity. The

funding for this step may need to come from overhead

items we can do without.

The Role of The Numbers as We Seek Root Causes

Unless you have successfully developed a detailed

management information system, your available numeric

analysis will probably not help determine root causes of


42/94


43/94

Whats Wrong?

39

unpleasant news. But we must know whats wrong. Yourinterview list will be based on the issues you face. Heres

a quick summary of the approach and agenda of my face-

to-face fact finding in 1984:

Key Accounts: Mary, Im digging as hard as I can

into how well UN is serving customers. Would you take a

few minutes to give me feedback on how its going from

your viewpoint? (If necessary, I led the discussion through

the issues of quality, price, reliability and customer

service.)

Lost Accounts: Frank, I would really appreciate a

few minutes of your time. I realize you no longer deal with

UN Printing, and it would be a great help to me if youd

share the reasons. I am dead-set determined to fix anything

thats wrong with the operation, and your input will sure

help. (In several important cases, this phone call also

began a business recovery process that included a price

incentive to give us a try again.)

EmployeeConfidantes: Jane, youve been around

here long enough to know that some things arent runninglike they should be. Lets sit down in private and

brainstorm some of the things that have happened. I think

its time we made some changes but, frankly, I cant figure

out exactly what is causing the problems. Your insight will

be greatly appreciated.

Employees: In both 1984 and 1996, a helpful

source of information was very casual discussion with

individual employees: How do you think things are going,

John? Do you see anything we could be doing better in

your area? There is a chance this kind of discussion will

provide deep insight into root causes. Even if not, it will


44/94

Turnaround!

40

provide operational awareness, allow you to gauge moralelevels, and build a platform for including every employee

in the turnaround process once underway. As youll recall,

team, over the past few weeks Ive chatted with every one

of you, and you really helped me see some things this

company needs to do.

Although the company was larger, my 1996

turnaround required less face-to-face fact finding than in

1984. This was true for three reasons:

1.The 1984 dilemma was a crisis in the sales department.We had lost a great deal of business. The reasons

customers leave often involve a complex tangle of

issues that demand face-to-face dialog.

2.In 1984, I was notworking directly in the day-to-dayprinting operation. My office was in another location,

and I was focused on publishing our magazine. I could

not see what was going on, so I found it necessary to

seek information from those who had been observing.3.The 1996 turnaround was basically strategic. I had

generated a grand(?) plan to position our company in

printing, mailing, publishing and product fulfillment.

We had plants in two locations 50 miles apart.

Although the business was much larger and far more

complex than in 1984, much of the turnaround analysis

could be done in the privacy of my shower. I had

overreached. We were spread too thin. Even my weak

information made clear that the new parts of the

business werent growing. The core business was

embattled partly because of management inattention. It


45/94

Whats Wrong?

41

was necessary for me to set aside some dreams,schemes and ego, but the analysis phase was relatively

straightforward and very solitary. Note also that by

1996, I was a 25-year veteran of the entrepreneurial

wars. My ability to self-analyze was based partly on

this experience. If your core problems are strategic and

the reasons are eluding your self-analysis, it is very

important to seek help from savvy business people who

can help you identify key issues.

Consider the Source of Information: It is

important to realize that some information sources will be

far more reliable than others. The most obvious example

would be an employees attempt to shift blame. Another

example might be a vendors desire to maintain your

business by ducking its share of responsibility for

problems. The wise E carefully considers the motives of

information sources, filters accordingly, and looks deeper

as necessary. As well discuss, a competing PIP shop was

used as an excuse for lost business in 1984. It was just plainnot true.

Zero In on True Root Causes

When your fact-finding phase is concluded, you

may have as many as 4,000 potential issues to address.

Even if not 4,000, a pretty long list usually turns up in a

diligent search for problems. Youll likely have everything

from keen insight into a competitors activities to

complaints about the frequency of no paper towels in the

company washroom. We must now sort through the


46/94

Turnaround!

42

information and ideas to carefully identify the real reasonsfor the key problem we face.

Lets repeat the caution that it is extremely easy to

misread problems and root causes. We talked about the

possibility that our employee error rate was caused by

everything from poor training to resentment that the

company softball team had been disbanded. If our analysis

of lost revenue shows a drop in sales to new accounts, we

must determine whether the sales team is slipping or

whether the advertising campaign is not producing new

prospects. Even if we isolate the problem to reduced

effectiveness of advertising, we might conclude that the

problem was the advertising message when in fact we have

an excellent message being placed in the wrong advertising

media. If we determine that our sales team is failing to turn

prospects into clients, we must correctly identify the root

cause. Has our training slipped? Is our incentive system not

achieving necessary motivation? Is a new competitors

benefit package stronger than we anticipated?

It is impossible to overstate that extreme care andcareful analysis is necessary in root cause analysis because

failure to truly understand root cause will waste precious

time, energy and resources during the turnaround process.

At the end of this process, you will have a list of

problems, overall issues/causes, and root causes. Lets

summarize the Corbin list for both turnarounds:

1984:

Overall Problem

Collapse of profitability due to rapidly eroding

revenue; clearly a sales-related issue


47/94

Whats Wrong?

43

Primary Issues

Loss of existing customers through deterioration incustomer service

Loss of previous advertising momentum that hadbeen based on a strategy of word-of-mouth,

again because of deterioration in customer

service levels

Failure to add new customers because of poorselling and poor estimating Unprofitable projects due to poor project planning

and estimating

Root Cause Analysis

The original success of the printing business had

been based on near-fanatical attention to customer

service. Bill Corbin had been personally involved at

two levels:

Direct customer work, especially with keyaccounts

Setting an example of customer service that wasunderstood and followed by other employees

including the manager who had departed in

1983

The result had been steady growth based on

favorable word-of-mouth advertising from a loyal

customer base.

In terms of customer service philosophy, the hand-

off to the new manager was fumbled. The new manager

did not share the same zeal for customer service.


48/94

Turnaround!

44

Corbin had not made the customer servicephilosophy cultural and had not successfully

trained and motivated the new manager to rise

to previous levels of customer service.

The overall employee attitude toward servicedrifted toward the level of the managers

attitude. Customers were not being treated as

well or served as promptly. The miracles UN

formerly had performed for valued clients now

just couldnt be done, sorry. Project quoting

slowed and became sloppy.

Many key customers were being lost to a PIP shop

located about a quarter-mile away. My manager had

attributed our sales drop to this shop and its intense

marketing efforts. The turnaround analysis showed a far

different root cause. We were actually driving clients

to a shop that was higher priced and no better equipped

than we were.

1996:

Overall Problem

Collapse of profitability due to eroding gross margins

and excess overhead; sales revenue was actually up vs.

previous years, but profitability was gone and all trends

were alarming

Primary Issues

We had acquired a failed commercial printing companyin 1988 with the idea of engineering a turnaround forthat company and adding higher quality capability to


49/94

Whats Wrong?

45

the core business, still primarily a quick printer. Theturnaround was only marginally successful and drained

a great deal of management attention. The logistics of

moving printing jobs up and down I-69, a distance of

about 50 miles, proved expensive and inefficient.

In 1993, Corbin made a strategic miscalculation. Thecommercial printing effort was not proving profitable.

Corbin assessed the reason as competitive: too much

competition, too much pressure on prices and margin.

Based on that analysis, UN decided to diversify into

book publishing. We formed the Beckett-Highland

Publishing Company, self-published a reasonably

successful book called The Edge Resume and Job

Search Strategy, and dove deeper into publishing.

Again, there was significant diversion of management

attention as well as financial resources to develop,

produce and market books. The publishing company

was making slow progress but was definitely not

profitable.

In 1994, at the request of a single real estate client, wedeveloped software and capability to fulfill orders for

various inventoried items. Feeling that fulfillment was a

reasonably close cousin to our already established

mailing operation, Corbin decided to enter the

fulfillment business. By 1996, it was clear that serious

participation in this industry involved warehouse space

and facility investment we did not have. The business

was making slow progress but was also not profitable.

By 1996, our core printing business was in completedisarray on the production side. We were strugglingwith logistics for the satellite plant in Muncie. Our


50/94

Turnaround!

46

headquarters plant was experiencing major problemswith waste and inefficiency.

Loose production management was causing misseddeadlines and was allowing excessive overtime cost.

Our overhead numbers were very high. We had anexpensive headquarters facility and another 5,500-

square-foot facility in Muncie. Our employee count had

reached 48, including some functional overlap in the

two printing plants. We had also added headcount for

the start-up publishing and fulfillment businesses.

There was significant infrastructure cost for both start-

ups.

We were in technical default of the loan provisions atour bank. If the bank had failed to renew our line of

credit or called our primarily equipment loans, the

business would have likely failed immediately.

Root Cause Analysis

Corbin management attention was scattered across toomany operations.

We did not have the management expertise toeffectively run the satellite plant in Muncie.

Start-up and overhead costs were sucking more cashthan we could afford.

Resources had been diverted to the new divisions ratherthan being invested in the core business. Our equipment

base was old and nearly obsolete.

Our headquarters plant was attempting to compete inthe commercial printing business but was managed and

staffed by a team of former quick-printers. Corbins

assessment that commercial printing could not be


51/94

Whats Wrong?

47

profitable was just plain wrong. The root cause waspoor execution of the fundamentals of commercial

printing, especially production scheduling and quality

control.

An effective job of analysis that leads to root

causes of problems should clarify the action steps

necessary to achieve turnaround.

-------------------------------------

To Ponder & Discuss

1. What is your plan for gathering information for analysis?

When and how will you involve employees or others in the

process?

2. Do you have problems on the revenue side? What are the key

symptoms? What issues or causes are creating the problems?

3. Same question as #2, except cost side.

4. Same question as #2, except overhead.

5. Define the process you will use to identify root causes of each

problem.


52/94

48

Chapter Five

Preparing for Battle

In organizing this book, I struggled with the order

of chapters. In this chapter, we discuss organizational

preparationthe leadership steps that prepare the

organization for upcoming decisions and action plans. It

seems important though to acknowledge the obvious: The

turnaround process does not break cleanly into steps we can

number 1-2-3-4.

In order to conduct some of Chapter Fours root

cause analysis, you may need to pre-discuss the need for

turnaround with several key employees. The process of root

cause analysis may reveal some action requirements so

glaring that you will take immediate action before

convening meeting #1 as suggested in this chapter. But

books are divided into chapters numbered 1-2-3-4, so Ill

just do my best and request that you be mentally flexible.Lets start Chapter Five by talking about what we

wontdo as turnaround leaders. Heres a case study

presented inbook 2 of the Five Set:

John operated a commercial printing business for

12 years. He built an employee team that he came to view

as a close-knit family. In a single year, his largest account

opened an in-house print shop, and four other major

accounts were lost for various reasons. Sales dropped over

35% in just a few months. Payroll costs skyrocketed from

about 25% of sales volume to over 45%. Johns


53/94


49

temperament and attitude toward his employees preventedhim from implementing layoffs. He tried several expensive

marketing plans to build sales. They were not successful,

and the company closed.

This sad and true story illustrates the importance of

the Es mindset in the turnaround process. We must say,

I am absolutely committed to making my businessprofitable and successful.

I will do whatever it takes to make it happen. Part of my commitment is personal. I will work ashard as it takes and make the sacrifices that are

necessary.

Part of my commitment is to make the toughdecisions that may be involved, even if the

decisions are very painful.

John knew what he needed to do. There was an

absolutely urgent need to reduce cost to compensate for his

greatly reduced sales volume. But he could not bringhimself to take the only available short-term step: layoffs of

some employees. Instead he spent additional money on

speculative marketing programs, and the business spiraled

downward. Ironically, because John failed to lay off

perhaps three or four employees, all 15 of his employees

lost their jobs. We must be personally ready to do what is

necessary.

In Chapter Two, we discussed the importance of the

Es frame of mind. The reasons for clear-headed, positive

leadership are three:


54/94

Turnaround!

50

1.You must analyze well and make good decisions.2.You must convince others, by attitude and action, that

things will be fine. The army must not panic, flee into

the woods, or desert.

3.You must lead positively through the actual process ofimplementing changes, even when the shells are

exploding all around and there is excellent reason for

fear and anxiety. This leadership must reassure those

who might be frightened. Moreover, it must secure

necessary involvement in the turnaround process.

To this point, weve concentrated most of our

leadership discussion on the impact to your employee

group. It is also likely that calm, reassuring leadership must

be evident to one or more of these groups:

Customers Customers will avoid or flee from a

business that is disarray or seems doomed to fail. One of

Lee Iaccocas key challenges at Chrysler was convincing

prospective new car buyers that the company would be

around to provide parts and service.Vendors Especially if you buy with credit terms,

the confidence and support of vendors is crucial.

Bank, investors, or other funds sources

Maintaining existing financial resources and possibly

acquiring new ones may play a vital part in your

turnaround.

Employees Families and Loved OnesThis

often overlooked group can be key to your turnaround. If

negative, they can increase the odds your employees will

flee. If positive, they can provide important morale support,


55/94


51

especially if occasional sacrifice is necessary fromemployees.

The approach to communicating with these groups

is a matter of personal style. In my experience, the three

key ingredients are

Honesty Appreciation for their role Confidence and determination

A mini-speech in 1984 might have gone something

like this: We need to spend a few minutes discussing the

state of the union at UN Printing. Lets start with the bad

news. Weve got some tough challenges to confront. Our

sales are down substantially from previous years. The

situation is unacceptable and must be addressed

immediately. Heres the good news: Weve studied whats

going on in-depth. We have an excellent handle on the

causes of our sales drop. And weve got steps underway to

turn things around quickly. Here are some key elements of

the plan [The list would be tailored to the audience. Thebanker, for example, would hear more details of cost

cutting, especially if layoffs were involved, than the

employee group.]

We are dead-set determined to get this problem

behind us and get on with building our company. We know

how to run a successful business. We understand the

problems we need to solve. And were going to get them

solved pronto.

Here are the ways you can help [tailored list].


56/94


57/94


53

and build up. Unfortunately, though, a small percentage ofemployees can undermine the entire effort. You must take

the steps necessary to prevent malicious morale destruction

by employees who choose to complain rather than

participate positively.

In my turnarounds, I followed this order of

employee communication:

Individual meetings with confidante(s) Individual meetings with key employees who Ifelt would help lead the turnaround process Management group meeting Departmental meetings Company-wide meetingsThe purpose was communication of commitment to

change; seeking support for the change process; and

seeking new ideas.

Although the challenges are intense, lets exit this

chapter on a positive note. It is possible to communicateeffectively with key people who become key leaders in the

turnaround process. Some of them will contribute by their

skill. Others will contribute by their positive attitude. The

key people can positively influence the marginal group

which might go either way in crisis. And the entire

company can have a resurgence of attitude and work ethic

strong enough to be a key element in your turnaround.


58/94

Turnaround!

54

To Ponder & Discuss

1. Have you prepared yourself for tough decisions and tough

implementation?

2. Have you considered all groups that will be affected by the

process? What is your communication plan for each group?

3. Why is some information more important for one group than

another?

4. Write the basic outline of your speech or conversation with

each group.


59/94

55

Chapter Six

Developing the Action Plan

Your action steps will evolve from three parts of the

turnaround process:

1.The Whats wrong? analysis provides the list ofissues to be addressed.

2.The E, with the assistance of valued employees andadvisors, will generate alternative action steps.

3.The E will then choose from alternatives anddevelop the action plan. (Prioritizing the steps is

discussed in Chapter Seven.)

To illustrate this process, lets look back to 1984.

We had discovered a set of serious problems that related to

the printing company managers lack of customer

orientation. Our objectives were clear:

Stop the bleedingThe revenue trend was in freefall. It was imperative to stop the negative trends

immediately.

Recapture as many lost accounts as possible. Regain positive momentum by again earning

positive word-of-mouth advertising.

The root cause of the crisis was the style and

philosophy of the manager. It was vital to address that

issue.


60/94

Turnaround!

56

Lets pause briefly to again swat the fly of fingerpointing and laying blame. When things have gone badly

wrong, there is a powerful human tendency to look for

someone to blame. Did the human resources team do a

lousy hiring job? Did the training team do a lousy training

job? Depending on the nature of your crisis, there are

probably several people who can be sought out and

whacked for contributing to the situation. But the vast

majority of finger pointing and blame laying is irrelevant to

the turnaround process. Worse, it tends to waste time and

emotional energy and may further beat-up already

demoralized employees.

Heres a very useful frame-of-mind for turnaround:

In crisis, it does not matter how we got into this mess. It

only matters how we get out. All available

resourceswhether time, skill, energy, or moneyshould

be invested in working through the crisis. (Of course, since

I had personally hired and trained our incompetent

manager, I didnt have to look far for the culprit.)

The action step was a choice among thesealternatives:

Quickly improve the performance of the manager. Replace the manager with another manager. Replace the manager myself and reassign my tasks in

the publishing operation.

This set of alternatives illustrates why entrepreneurs

are called risk takers. The easiest answer in terms of

minimizing pain was an attempt to improve the managers


61/94

Action Plan

57

performance. If it worked, there would be no blood on thebattlefield. But there were two major risks:

1.If the manager was showing his true colors and wasnevergoing to become customer oriented, the

fundamental problem would not be addressed and my

business would fail.

2.The training time to effect necessary change might belonger than the time until the business would fail.

I decided that the risks were too high, particularly

because there was strong evidence that the managers

performance was consistent with his personality and

general approach to life. After brief consideration of a

lateral transfer, possibly into a sales position, I decided to

let the manager go.

Now facing a choice between a hiring a replacement

manager and becoming manager myself, I weighed the

risks associated with hiring someone new:

Too much time might be involved in finding a

qualified applicant.

We might introduce a new set of problems at a point

when the business was extremely vulnerable.

An old business adage says, The devil you know is

better than the devil you dont.Taken literally, that

wisdom would prevent an E from ever replacing an

employee. But there is a relevant nugget within the

concept. Every new employee will bring some positives

and some negatives. There will likely be a learning curve


62/94

Turnaround!

58

period. There is at least a chance that the new employeewill fail to perform satisfactorily. Because time is a vital

issue in turnaround, the possibility of a poor hire involves

considerable risk.

After consideration of these alternatives, I decided that

a high-priority action step would be my personal

assumption of the role of manager. Several other action

steps were clear as well (the source of the idea is shown in

parentheses):

Improve the speed and accuracy of our job-estimating(customer input).

Re-establish friendly customer service at our frontcounter (customer and confidante input).

Re-establish the idea of going the extra mile for ourvalued customers (customer input).

Contact lost customers and attempt to win them back(personal).

Be absolutely ready when a customer comes to pick upa job: job finished and boxed; invoice completed andfiled; jobs location noted on invoice by shelf location

code for quick retrieval (customer input).

Deliver large jobs rather than ask clients to loadmultiple heavy cartons into their own vehicles

(customer input).

Clean up the production communication systemincluding timely supply purchasingand the

scheduling communication system (employee input).

[This topic was one I was completely unaware of until

the research phase. We were missing deadlines because

8/7/2019 Bill Corbin - Entrepreneurial Turnaround -

Documents

Bill Corbin - Entrepreneurial Turnaround - Surviving Crisis