Preparing to Implement a Turnaround Plan

As mentioned in yesterday’s post, recognizing that you have reached a point where a turnaround is necessary is critical to getting the most out of the effort to reposition the company. By holding out for a better day, the executive team simply prolongs the agony as the business continues to deteriorate. An inability to assess the situation accurately can render the team “unhelpable.” Lifeguards are instructed not to try to rescue a drowning man who is still flailing about in the water and attempting to save himself. Likewise, a savvy turnaround artist will not step into a company until he or she is assured that the executive team is convinced of the trouble and unable to get out of it without outside help. More importantly, the team must want to be helped and willing to accept help. Further, the business must be capable of being saved, and the team must have the ability to make the necessary changes.

Bringing in Help

Unfortunately, the warnings of bankers, attorneys, creditors and accountants are too often ignored. With bankruptcy lurking around the corner, however, the team may finally concede and call in a competent adviser–a strategic thinker with experience in assisting companies survive and prosper. In addition to possessing the right mindset and skills, the adviser can provide needed credibility so vital to stakeholders’ acceptance of the turnaround plan. 

Anyone brought into the company will need the full cooperation–and honesty–of management and key staff during the recovery. Efforts to paint too rosy a picture of the situation will undermine the adviser’s ability to turn the business around. For example, hoping that an industry networking event will suddenly generate enough new prospects to overcome a current cash crisis is another form of avoiding the real issues. Similarly, increasing the stream of revenues alone may make the company appear more profitable for a season, but only internal changes can prepare one to withstand business cycles. An effective turnaround adviser can help create and implement these changes.

Implementing the Turnaround Plan

While decline must be reversed quickly to create the positive cash flow needed to fund operations, turnarounds cannot be accomplished overnight; it took a while to get here, and will take a while to get out. Six months of intensive restructuring is usually necessary to return the business to positive cash flow. A complete turnaround can be accomplished within eighteen months if all goes according to plan.

Gathering Information

Having decided to begin the process of turning the business around, the executive team should be prepared to gather extensive information for analysis. After analysis, meaningful tactical and strategic plans will be developed for immediate implementation. Be careful not to confuse tactics and strategies. Tactics are methods employed in the short-term (six months or less) to reverse decline; they are specifically targeted at crisis-oriented problems. Strategies, on the other hand, are longer in time and scope. Strategies are aimed towards growth goals and objectives.

A turnaround plan is gleaned from information gathered in the financial, marketing, and operations fact-finding process. Like every good plan, it has four main purposes:

  • to provide a standard reference for organizational focus
  • to establish priorities for allocation of capital resources and management effort
  • to identify and quantify objectives (one to three year focus) to encourage and monitor performance
  • to set timetables and goals (three to five year horizon) for achieving objectives

There are two primary areas of information to be gathered for planning and analysis in a turnaround: the internal and the external environments.

Advice For Entrepreneurs RE: Succession

Sometimes, big company practices need to trickle down to the SMB world. Whether the subject is a hot start-up with co-founders who must one day shed decision-making authority or family-owned businesses, the selection of successors is a critical topic. Without true outside boards of directors, these decisions often become volatile and can ruin relationships as well as cause collateral damage to the company and its valuation. Having seen the drama play out more often than I’d like, I read extensively about ways to “head off at the pass” struggles that need not become an entrepreneur’s undoing.

A law firm client of mine has a nice boutique corporate practice with a penchant for corporate governance topics. Though I subscribe to Google alerts on corporate governance, I also rely on content curators like Beverly J. Conquest (@bconquest) to follow feeds that I cannot daily read. Conquest came across an HBR blog post recently, “Advice For Boards in CEO Selection and Succession Planning” that featured some superb insights from David A. Katz and Laura A. McIntosh. Their original work was featured in the New York Law Journal. Certain excerpts are featured below:

Selecting the chief executive officer and planning for CEO succession are among the most important responsibilities of a company’s board of directors. In ideal circumstances, the succession process will be managed by a successful and trusted incumbent CEO, with the board or a board committee overseeing the process, reviewing the candidates and providing advice throughout. However, in exceptional circumstances, such as when the board lacks full confidence in the incumbent CEO or when a crisis occurs and the normal succession process cannot be utilized, the board will need to take the lead in managing this crucial task…In 2011, the CEO turnover rate increased as compared to the previous two years…Directors facing these challenges should keep in mind that the attitude and smooth functioning of the board are crucial to a sound process and good result, and that the fates of the board and its chosen CEO often are inextricably entwined.

Process Is Key

CEO selection is, first and foremost, about the future. As the adage goes, one picks a general for the next war, not for the last one…We advise that there be a comprehensive discussion at least annually regarding internal candidates and planning for emergency circumstances…Breakout sessions of the independent directors should include regular discussions of the succession plan, so that the lead director can hear the views of the other independent directors privately. Boards should be active in identifying talented leaders so that there is a bench of qualified internal and external candidates at the ready. The directors may wish to seek first-hand exposure to the company’s most promising executives at board and company functions and may consider working with the CEO to establish policies and procedures for the development and evaluation of internal candidates…

In order to set priorities and find candidates who meet their requirements, directors must first establish a well-designed selection process, which may include the advice of counsel and other external consultants. A sound process will enable the board to achieve its goals while at the same time providing a roadmap to keep the directors on course through the inevitable difficulties they will encounter. In the event of disagreements, the process stands as the neutral, pre-agreed path to which the directors and any advisors can return in order to continue progress toward the final selection.

An organized, careful process is necessary to undertake the substantive evaluation of candidates’ capabilities. There is no better guide than past performance; however, in many situations, red flags from top executives’ pasts have been ignored by boards in their selection process, and the choice has, to some extent predictably (in hindsight), been a mistake. When boards feel rushed into selecting a new CEO—which can happen when the company faces a crisis or lacks a succession plan—due diligence can suffer. The board should look for examples in each candidate’s past that bear directly on how the candidate will cope with the future challenges identified by the board.

Two Elements to Consider

There are two key corporate-governance related elements that should be near the top of a board’s list for evaluating potential CEO candidates, particularly when the board is not able to rely on the incumbent CEO to lead the succession planning process. The first is that the new CEO should be a good fit culturally with the board and the company…The tone set by the CEO helps to shape corporate culture and permeates the company’s relationships with investors, employees, customers, suppliers, regulators, local communities and other constituents…The second key element is that the CEO should have a long-term vision for the company that accords with that of the board. A crucial aspect of this is the ability to resist the powerful forces of short-termism…

Healthy Board Dynamics

A healthy board dynamic is essential to an effective succession process and positive result…A 2009 working paper published by the Harvard Business School’s Corporate Governance Initiative observed: “As a practical matter it is difficult, if not impossible, to find directors who possess deep knowledge of a company’s process, products and industries but who can also be considered independent.” This lack of deep experience and expertise can make it more difficult to identify and evaluate candidates from other companies in the relevant industry or even from within the company…

CEO selection is one of the most formidable, as well as one of the most consequential, decisions a board must make. Using a thoughtful selection process, a well-functioning board that has taken the time to consider CEO succession on a regular basis will be in a good position to identify its top priorities and the best-suited candidates should a crisis present itself. 

 

Focus, With Help, on Execution, Business Owner!

Turning 40–or any number after 20 and ending in “0”–causes the birthday person to pause and ponder lessons learned up to that point in life. The founder of Contentrix, Alice Seba, shared her list of personal observations (below). Several of them caught my attention for tonight’s blog post.

When Seba makes the point (#2) that entrepreneurs should not try to go it alone, I should a hearty “amen!” The attempt to be a master of everything rather than using outsiders, additional insiders, or advisors/mentors who are a little of both is a huge mistake. Similarly, the isolation exemplified by avoiding friendly relationships with competitors usually is a bad move. Instead, follow the advice to get to know them (#7 & #8) and enjoy the benefits of vicarious growth.

#1.  Working a lot doesn’t necessarily mean working hard…nor does it imply working smart

#2. There is no point in doing things solo

#3. Focus on your talents and your passions, but be realistic

#4. Don’t compare yourself to others

#5. Define success in your own way

#6. You can’t please everyone, nor should you try

#7. Embrace your would be competitors

#8. Making friends in your niche is one of the biggest accelerator to your success

#9. Don’t be a social butterfly

#10. Content has always been what sets long term successful businesses apart from others

#11. Content is one of the simplest, least expensive and most effective ways to generate leads and sales for your business

#12. If you’re not actively building and nurturing your mailing list, you’re stunting your business growth big time

#13. Existing customers are the key to getting more sales

#14. Staying the course will help you get to success much faster

#15. Posting your blog is rarely the most critical activity for a business

#16. SEO was easy in 2002 – It’s like chasing rainbows in 2012

#17. If your children say they need you while you’re on the computer, go to them

#18. If you are just starting out and reek of desperation, scammers will sniff you out a mile away

#19. There comes a point when you have to stop educating yourself and you just have to start doing

#20. I no longer believe in continuously investing in my education to improve my business

#21. It’s okay that a lot of people don’t understand what I do

#22. Technology is my friend, but I don’t mess around with it more than I have to or am capable of

#23. Customer service is a critical part of your business, but it’s a productivity inhibitor

#24. Other people’s blogs can be useful

#25. Nothing on the Internet is private

#26. If you don’t own the site you’re publishing too, you really don’t own that content

#27. Working in batches is great for productivity

#28. I used to think religion and business don’t mix

#29. There is no one quite like you, but you are dispensable…or at least you should be

#30. Tools and Software don’t grow your business, you do

#31. You don’t have to explore everything to diversify

#32. Listen to your audience…they can teach you a ton

#33. There is no shame in selling

#34. If you’re not confident, they’ll know

#35. Knowing the words to use is also important

#36. It’s okay to take a break when you just aren’t into it

#37. To do lists are always meant to be shortened

#38. Use your freedom to do good things

#39. Appreciate and be thankful for what you have

#40. Take care of yourself

The second key theme from the list is the power of focus. Whether choosing to focus on a few strategic relationships (#9), or valuing customers individually (#13), you will find that constantly seeking newness rather than depth will be a distraction that makes success harder to come by. 

Three’s the charm for tonight. In addition to the other two themes, I find it important to mention that there comes a time to just work your business. I am a firm believer in seeking wise counsel and insight but not, as indicated in #20, to the exclusion of executing priorities today.

We’ll attempt to highlight items from the second part of the list tomorrow night!

Execute The Idea

Many businesses start these days by vetting a good idea in front of an audience. We present at conferences, competitions, and events like the IdeaSlam at Cary Innovation Center. For some, the whole process of deciding what idea to pursue can be daunting. (The director of a small business center at a local community college who has been asked to tell an inquirer what kind of business to start validates this fact.) Those who never start a business, but envy those who do, will say that they could have been rich if only they had thought of a concept first. Whichever category above fits you, know this: the initial idea is not the key to success–execution is!

Herein lies the “rub” — that many entrepreneurs expend enormous amounts of energy, financial capital, and (often) human capital in an effort to make an idea work that needs to be rethought. Frequently, we call in favors and have been know to burn bridges in the headlong pursuit of our personal holy grail. Emotionally, it is easy to become consumed with the idea to the point that we are blinded to any and every other thing around us–even important things! Along with the emotional “sunk cost,” we often lose our objectivity because of the amount of money invested in the initial idea.

Far more important is a rock-solid business model that creates value for a customer, especially relative to existing solutions. When the business model is battle tested through the incubation process, it becomes invincible. Very few businesses end up creating billions of dollars of value based on the initial idea – superstars such as Facebook, Apple, and Microsoft changed their business models many times before settling on a scalable solution.

-Karl Stark & Bill Stewart

Stark & Stewart go on to say that too many folks are afraid to share their idea with others for fear it will be stolen/copied. They are quick to point out that the true value lies “not in the idea, but in the execution.” Their approach is to share the idea broadly enough with others with different points of view, more experience, and who can offer healthy skepticism that will help you to re-work the idea. It is the supreme compliment to have your idea “stolen.” But, fear not–you still win the competition with superior execution. Three tips they offer for improving execution:

1. Stop perfecting the idea, and get out in front of customers.

The business you develop through a test and learn approach will be worth multiple times more than your original idea.

2. Don’t focus on things that don’t exist.

Instead, look at existing solutions and figure out ways to create more customer value than what those solutions offer.

3. Positively differentiate yourself from the competition.

Most products can’t be all things to all people. A differentiated product will attract a segment of customers that value different things. An innovative start-up is almost always advantaged when chipping away at a market leader if they can offer something different that appeals to a small group of customers.

What is needed, in the final analysis, is a process to create value. One process that I’ve observed to work is the Six Steps to Success program being used with mentees of EntreDot:

  • Ideation – Determine if the idea has any commercial merit
  • Conceptualization – Complete the concept development and determine market value
  • Creation – Perform R&D and establish proof of concept
  • Evaluation – Complete the business plan and determine business value
  • Preparation – Prepare the launch plan for the business
  • Commercialization –  Commence business operations

As the business owner goes through the steps, sustainable customer and shareholder value is created. When the process is “complete,” it is, in fact, just beginning as entrepreneurs are encouraged to go back to the drawing board with the next idea. The commitment to executing idea after idea creates a strong market position that is hard to duplicate.

Minority Entrepreneurship & Mentoring Needs

Minority entrepreneurs like Rene Diaz are playing a bigger role in America’s growth story. Diaz was featured in a Forbes magazine article last year about the growing impact of minority entrepreneurship. In 2010 immigrants accounted for nearly 30% of new business owners in the United States, versus 13% in 1996, according to the Kauffman Foundation. Nationally, 40% of minority-owned businesses are owned by Hispanics, and about 28% each by Asian- and African-Americans.

Urban futurist Joel Kotkin provides unique insights into what drives the increased rate of entrepreneurship among minorities. Those who are immigrants, he argues, are far more likely to start businesses because they are risk-takers in general, as evidenced by their willingness to pick up and move. Kotkin and a couple of other researchers were asked by Forbes magazine to examine the immigrant entrepreneur phenomena across the top 52 metropolitan areas. Based on rates of self-employment, housing affordability, income growth and migration, immigrant entrepreneurs tend to prefer sprawling, heavily suburbanized regions, many of them clustered in the South and Southwest. Cities in these regions (Raleigh-Cary ranked 22nd on the list) are usually characterized by cheap rents, affordable space, job growth, strong immigration and general economic health. Traditional hotbeds of entrepreneurship have not fared as well among minority entrepreneurs (San Francisco was 35th, Minneapolis, New York #39, Boston#45, San Diego #48,  San Jose #46, and Chicago #50, all in the same strata as cities like Detroit, Cleveland, and Milwaukee), largely due to the affordability issue.

North Carolina is now 6th in the country in number of African-American residents and 11th in Hispanics. North Carolina has seen a boom in its Hispanic population, with the percentage of total residents growing by 111% over the past 10 years. Locally, we have seen many minorities move to our area due to a stronger economy than other parts of the country. As these newcomers begin to start businesses, we expect our market to look very different.  From 2007 to 2011, Hispanic-owned businesses in North Carolina grew from 9,000 to 21,301, according to the census and the Latino chamber. The Research Triangle Park is also home to a large and growing Asian population, with the two biggest subgroups being Indian and Chinese. There are now an estimated 200,000 minority-owned businesses in North Carolina, increasing at a rate of 50-60% every five years.

Minorities own 15% of all businesses, but 20% of franchises nationally.

Why are minorities attracted to franchise concepts?

Survival rates among minority-owned businesses ranked highest among Asians, and Asians were the only minority population whose rate surpassed the general population.

Why do non-Asian minorities struggle to attain similar survival rates?

We think the answers to these questions are actually one-and-the same. The franchise concept is attractive because it comes with a business plan, a blueprint as to how to make an idea profitable, complete with templates for each and every category of decisions to be made. When the business is not a franchise, it is imperative that the entrepreneur find a mentor and other key resources to guide the preparation and implementtation of a solid business plan as well as the other key decisions. Perhaps the Asian-Americans are doing a better job of this than others?