Turning around turnaround
A decade ago, a visit from a turnaround expert was akin to the arrival of the grim reaper.
The perception used to be that they had been dispatched by the bank to protect their exposure and had little or no interest in the long-term viability of the business.
Two recessions later and the picture is quite different – not quite the arrival of the ice-cream van, but certainly nowhere near as ominous.
It is now generally accepted that it is better to send in a doctor to a sick patient, than an undertaker and that the benefits of a more empathetic approach far outweigh the risks.
This trend towards earlier, less punitive intervention is witnessed by the reduction in numbers of insolvency specialists in accountancy firms as they respond to declining numbers of company insolvencies which have dramatically declined since the peak of around 6,500 in 2008. Furthermore, the banks have transformed the way they handle struggling clients with a far more structured recovery process which is benefiting both sides.
Like other good turnaround professionals, Accelerus starts all assignments with the belief that positive change is achievable and that it is only a matter of hard work and time that stand in our way.
culture of the possible
Our first task in any turnaround situation is to create a culture of the possible – to encourage those around us that the organisation will survive and re-emerge as a stronger and more stable business. Working closely with the existing leadership we aim to create a problem-solving climate under which everyone contributes to increasing the probability of success.
If you examine some of history’s bigger scale corporate turnarounds from the likes of Apple, General Motors and Nintendo, you will discover that they all share the common theme of positive thinking.
Henry Ford put it well: "Whether you think you can, or you think you can't -- you're right."
You can’t write about turnarounds without mentioning Apple. In 1997, when Steve Jobs returned to the company he had founded, it was seemingly on its last legs, having suffered 12 years of losses. But a $150 million investment by Microsoft and the creative energies Jobs inspired in the staff started to turn things around.
Within two years the stock was back at $99. In 2001 the iPod made its debut, and the rest was history. In its most recent earnings announcement, Apple posted earnings of $14.50 a share on sales of $57.59 billion. It has a current market cap of more than $473 billion.
Another big change on the world of recovery is the shift from being a numbers-based exercise to a practical one. The problems facing a struggling business cannot be solved on paper - it demands far more than spreadsheet manipulation. Our approach at Accelerus is unashamedly intrusive and hands-on.
One typical assignment was our role in rescuing an ailing automotive supply business, run on the back of a fag packet.
When Accelerus partner Chris Rhodes arrived at the business soon after the death of the founding managing director, he discovered that the absence of records was just one shocking item in a catalogue of business management disasters.
“The first thing I discovered when going through the supply chain records was an email to a supplier which simply said: send more stuff,” recalls Chris.
The more he investigated, the more alarmed Chris became about the business. Virtually nothing was committed to paper, everything they sold was on a sale or return basis and their warehouse was piled high with over-valued products that people no longer wanted to buy.
Chris, who had previous experience of running businesses in the automotive sector, said: “I have seen some pretty bad cases in my time, but this was in another league.”
One of his first tasks was to release cash by selling off the mountain of stock returned to the company by retailers taking advantage of their sale or return agreements.
To raise much-needed cash, Chris dispatched the salesforce to successfully sell £11m worth of stock to market traders, automotive retailers, supermarket chains and hundreds of private individuals keen to snap up a bargain.
His next step was to reduce staff numbers dramatically to reflect the poor trading conditions, broker high level talks with the bank and anxious investors and, most importantly, re-engineer the entire business. The final act of re-financing the business was to convince an existing shareholder to invest more to pay off the remaining debt.
“We needed to source better quality products and find more reliable suppliers to buy from,” said Chris. He continues, “We also needed to attract qualified engineers and programme managers who could design and develop products and systems that were capable of meeting the exacting standards of the automotive sector.”
He then approached the big-name car manufacturers who placed larger contracts for the supply of the newly design components.
Some three years after calling in Accelerus, the business was enjoying a new lease of life with proper records; a quality management system and a sound customer base helping them deliver sustainable profits.
In conclusion, successful turnaround in 2017 comes with earlier intervention, a more optimistic mind set and far more hands-on operational involvement.