The Five C’s of a Successful Turnaround

5 C’s to Change Direction

A few weeks ago, I spoke at a Distressed Investing Conference in Florida.  It’s really a turnaround conference designed for professionals focused on fixing troubled companies.  Since I’ve had plenty of crisis management experience in turning around troubled businesses, I was asked to share war stories and strategies.  I also enjoyed the opportunity to network and learn from the 200 industry leaders in attendance.

Here are the five major points I shared:

1. Control.  I’m not a big proponent of top-down, autocratic management systems.  I much prefer an entrepreneurial environment with lots of input and a leader with a persuasive style.  In a crisis, though, it’s often necessary to ramp up the control level and increase the speed of decision making.  I tend to move very fast anyway, and I like to seek opinions and then make a decision and move on.  If you are in trouble, you don’t have the luxury of numerous meetings and extensive analysis.

2. Cash.  If you find yourself running a troubled company, you will find that there are many financial types reviewing reports and showing you all sorts of charts.  You will be inundated with metrics.  Unless you are a bankruptcy attorney or an accountant, it may be a challenge keeping up with all of the terminology.  There are so many problems.  How do you know what to focus on?  You’ve heard the old saying, “Cash is king.”  That’s never truer than when you are in a financial crisis.  Well-meaning accountants don’t always look at things in a basic way.  I often would hear, “Don’t worry, this expense is capitalized over many years and the impact is small this year.”

Though what they say is true, and I appreciate the approach, I don’t know any of us who can overspend at home and not worry about something because of accrual accounting methodology.  We look at the checkbook.  What is coming in and what is going out?  That’s the basic level that is required when you turn around a company:  Look at where you are sending cash.  All of the other measurements may be important, but look at this one above anything else.  Cash is king.

3. Customer.  I’ve never met an executive who doesn’t say, “Focus on the customer.”  It’s a given.  In a turnaround crisis, though, it is all too easy to have the executives locked up in boardrooms talking with attorneys and accountants and advisors.  They may lose the connection with the customer.  In my experience, you need all of the advice you can get, but much of the best advice isn’t found in a boardroom; it’s found visiting a customer.

4. Culture.  Admittedly, when I’m speaking at a turnaround conference, this one is a little harder to swallow.  Many turnarounds are focused on the very short-term.  Culture can seem so amorphous and irrelevant.  It’s not.  I could write pages on culture and its importance.  For now, I will say it’s important for two reasons.  One, culture is where your employees live every day.  Improving the culture helps productivity.  When they are happier and more productive, that improves the customer experience which translates into more sales.  Two, if you fix the financials and don’t fix the culture, you will end up in the same position.  The culture created the problems—and the opportunities—for the business.  It’s important for the long-term, and it’s important for the short-term.  Don’t ignore your culture in good times or in bad.

 5. Connection.  The leadership of a company needs to connect with employees, customers, investors, and many others.  It’s always important to connect, but it is especially important in a crisis.  We all crave authentic leaders, and we want to know more about our leaders than ever before.  How leaders accomplish these goals depends on their unique abilities, but it always requires an increase in communication.  Negative water cooler talk is almost always a symptom of a communication vacuum.

Today’s tools make it easier than ever to connect.  Sending emails, holding town hall meetings and roundtable discussions are obvious ways to connect.  Today, leaders are able to use Twitter, Facebook, YouTube, or a blog.  I’ve personally been surprised by the way Twitter can help connect to customers and others.  In a turnaround crisis, connecting with customers, employees, strategic partners and others is vital.  Use every available outlet you can.

Many executives might never face a true crisis requiring immediate action to save a company, but it’s becoming much more common to find yourself confronting a turnaround.  In this situation, the five c’s—control, cash, customer, culture, and connection—can help your strategy.