Business Turnaround 101 – Let’s Be Honest

“My business is in trouble. We are losing money. Customers are not buying. Morale is low. And we cannot seem to do anything right.”

What then must be done? You have to turn around your business. But, how?

On this question, I may even know what I am talking about as I have been involved in successful turnarounds at three different money-losing companies.

As always, I start with my three keys. The three keys to turn a troubled business around:

  1. Understand Reality, Face Reality
  2. Focus, Prioritize, Plan (Less is More)
  3. Right People Doing the Right Job

In this blog and the two following, we will discuss each these three keys. Today, we start with “Understand Reality, Face Reality.”

STOP!! First, I must apologize again; there is a prerequisite before getting started. Please correctly answer the following question:

  1. True or False: It is not my fault that my business is in trouble. There are many reasons: the economy stinks; the weather was unseasonably bad; customers are not smart enough to realize how good my company is; my employees do not work hard enough; my employees make too many mistakes.

And your answer is….FALSE (of course)

As written in The Oz Principle,

Most companies fail because of managerial error, but not many senior executives involved will admit that fact.

You are the leader of your organization. As such, you are accountable for the success of the business. As such, you are accountable to improve the business.

If you agree with your accountability as a leader, then you satisfy the prerequisites for the blog. Congratulations!! Now we can move on to “Understand Reality, Face Reality.”

Understand Reality, Face Reality

Let’s start with another quote from The Oz Principle:

Most companies explain away the brutal facts rather than having to confront the brutal facts head-on.

Ouch!!!

Business turnarounds are really just problems, albeit very complex problems, that need to be solved. In solving a problem, the crucial determinant is… defining the problem. The purpose of understanding and facing reality is to define the 2 – 3 key root causes that will need to be solved to make an immediate and substantive improvement in the business. To define the problem requires you to do three things:

  1. Get Fresh Eyes
  2. Dig Deep to Get the Facts
  3. Analyze

Get Fresh Eyes

Your business is struggling and you need to do something to turn it around. My first piece of advice to you is…

… take a 1 – 2 week vacation away from the office (no contact or checking up allowed).

WHAT?!? HUH?!?

Yep!!! Take a vacation!

The biggest challenge in any turn-around is seeing the reality as it is really is. By starting out with a vacation, you do four things:

  1. Store up the mental, physical and emotional reserves that you will need when you come back
  2. You see your team in action without you
    1. Is your team strong enough to handle the business while you are gone? If so, who steps up while you are gone to lead the business?
    2. Or are you so important to the business that the business begins to fail without you?
    3. Are you the problem in the business (dictator, micro-manager, etc.)?
  3. You gain a perspective on the business that you will likely have missed while fighting the daily battles. Instead of operating at 10,000 feet, you get the chance to fly up and see the business at 35,000 feet.
  4. Finally, you vacate, thus getting some fresh air to evaluate your life and direction.

Now that you are back in the office, spend one week and only one week getting caught up. Pay particular attention to the fires that you are putting out. Where are they coming from? Why were they not resolved while you were gone?

After the one week, do not go back into your routine. Go digging.

Dig Deep to Get the Facts

The next step is to get the data to fully understand the state of the company and the reality of the markets that the company competes in. Some things to do:

  1. Go start listening to stakeholders you normally may not deal with:
    1. Employees down in the trenches
    2. Managers in the level below your direct reports
    3. Suppliers
    4. Customers
    5. Bankers
  2. Follow your company on Social Media – Facebook, Twitter, Google – to see what is being written or said about the company, if anything.
  3. Get the viewpoint of your board or your boss.
  4. Invite a trusted mentor, confidant, or business associate to come in and see the business and give their views
  5. Get a number of key individuals in the company to do a modified Porter Five Forces analysis of the business, evaluating
    1. Strength and growth potential of customers
    2. Nature of competition and the company’s competitive position in the market (leader, follower, me too)
    3. Competitive strength / weaknesses of company
    4. Strength of suppliers
    5. Possibility of new entrants and/or substitute products or technological leapfrogs (Are you in danger of becoming a Blockbuster in a Video-on-Demand world?)
  6. If you can, “eat your own dog food.”
    1. Be a customer and see what the customer experience is like
    2. Be a customer (or get an associate to be a customer) of the top competitor to see what that customer experience is like
  7. Ask key questions at all levels of the organization and listen to see if there is any congruence in the answer between people at the different levels.
    1. What is the brand?
    2. What makes your company and its products and services better than the competition?
    3. What are your three key priorities and the three key priorities of the company?
  8. Ask individual salespeople how they sell their product and services against the competition. Better yet, ask each of your salespeople to give you their 60 second “elevator speech.”

The key word in all of these points is “listening”. By making a concentrated effort to get out of the office, interact with, and listen to employees throughout the company, you will learn more about the company, the individual employees, and the employees’ capabilities. In addition, you will likely increase morale because people suddenly feel as if they are being heard. Finally, you will know where key people stand on the problems in the company and the possible solutions. Later, if you can attribute your turn-around solution as the idea of a key influencer in the company, you will more easily build support for that solution.

Analyze:

At this stage you have most of the key facts in front of you and you will feel confident that you better understand the reality. Now, it is time to analyze the data and determine the 2 – 3 key problems.

But, first you need one more piece of data.

  1. Write down the three most significant “Mokita’s” in your company.

What?!? Huh?!? What the $*#)% is a Mokita? According to Wikipedia, Mokita is a term from New Guinea which describes the concept of “the truth we all know but agree not to talk about.” It is the dirty little secret or secrets in your company that are really not so secret. Some possible examples:

  1. “I am the ‘Genius with a Thousand Helpers.’ I am so important to the company. They could not do anything without me.”
  2. “My heart is just not in the business any more, but I do not know what else to do. But, I do a good job of keeping this fact secret from everybody.”
  3. “Our customers think we are arrogant and hate us. But, they buy from us only because everyone else is worse.”
  4. “My son or daughter or brother or sister-in-law is in an important role, but really does not know what he is doing.”
  5. “In order to get ahead in this company, you have to have the right last name.”
  6. “My plant manager makes his numbers, but he is really a jerk and everyone hates him.”
  7. “My sales manager really wants to do sales and does not know how to manage; he took the management job just to get a promotion and more money.”
  8. “For the past several years, we have needed to focus on sales, but everybody in the organization came up through finance and operations. And nobody wants or even likes to do sales.”

Every business has at least three Mokita’s. Find yours as it is a vitally important piece of data that needs to be analyzed.

Some keys on analyzing all the data:

  1. Spend the time to define the problem. Defining the problem is vital.
    1. “In general, people spend too much time on determining the solution and not enough time on defining the problem.” (Toyota)
    2. “A problem well stated is a problem well solved.” (John Dewey, American educator)
  2. Use the “Five Whys” to ensure that you are defining the root cause of the problems
    1. Start with a why question, to every answer ask a why question, repeat five times and you will usually come to the underlying cause of the problem which is what needs to be solved
  3. Ensure that you are defining the 2 – 3 key problems by questioning and considering
    1. If we solved this problem, how would the business be different and better?
    2. Are these the 2 – 3 most important problems?
    3. Or are these the 2 – 3 important problems that we know how to solve and that we like to solve?

The more honest you are with yourself, the more you understand and face reality, the more likely that you will determine the 2 – 3 most important business problems that the company need to solve to turn-around the business.

As an example, in one of the turn-arounds that my team and I accomplished, we were hurting and had lots of problems, such as:

  1. Internal dissatisfaction and low morale
  2. Top performers wanting to quit
  3. Poor quality
  4. Tremendous waste and inefficiency
  5. High costs all around
  6. Too much bureaucracy with too many required checks and approvals that were never really checked and approved
  7. Dissatisfied customers looking for suppliers elsewhere
  8. Inability to charge a premium since there was no premium product or service being offered

That is a good description of the reality at the time. And these are all problems. But, they are not the root cause; they are the symptoms.

After a lot of “five whys” and questioning we came to the 3 root causes. If we could solve these root causes, then the business would markedly improve:

  1. There was no accountability
  2. There was no consideration for cost
  3. There was no respect for the customer and no appreciation of customer service

As we will see next time in “Business Turnarounds 201 – Focus”, the power of this turn-around methodology comes from focusing the entire company on solving just these three problems.

Until Then.


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About David Shedd

David has been a President - CEO - COO of an up to $350M group of manufacturing, distribution, specialty retail and services companies, having led 22 different businesses from turnarounds to start-ups to fast growth companies.
This entry was posted in Improve / Turnaround, Leadership. Bookmark the permalink.

One Response to Business Turnaround 101 – Let’s Be Honest

  1. Pingback: Turnaround 101 – Key Item # 1 of 3 « Verto Laurus Consulting

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