Steering Clear of the Brink - Turnaround Management, Asset ... · Steering Clear of the Brink 5...

1

Steering Clear of the BrinkSteering Clear of the Brink

Early Signs of TroubleEarly Signs of TroubleWhat To Do …What To Do …

Wh t N t T Wh t N t T

August 26, 2014Executive Webinar

What Not To …What Not To …

Esteemed Expert Esteemed Expert PanelPanel

Moderator:Christopher Stuttard, Webinar DevelopmentBeard Group, Inc.Washington, DCLaw and Business Publishing

2

Panelists:John M. Collard, ChairmanStrategic Management Partners, Inc.Annapolis, MarylandTurnaround Specialists/Outside Directors

John F. Levy, CEOBoard AdvisoryWestfield, New JerseyBoard and Governance Experts

On The Hot Seat

Beard Group Webinars

John M. Collard BioJohn M. Collard BioStrategic Management Partners, Inc.Strategic Management Partners, Inc.

Operating Manager 35+ Years P/L Management/Outside Director/Turnarounds Public & Private -- High & Low Tech -- Fed’l, Com’l, Int’l

Turnaround & Crisis Manager

Asset & Investment Recovery over $85M, 25+ years TA Trans Union, Lockheed Martin, CSC, CyberDyne, SMP, Turnaround, Restructuring & Distressed Investing Hall of Fame, Top 12 Outstanding Turnaround Firms [twice — t&w],

On The Hot Seatwww.StrategicMgtPartners.com

3

Top 12 Outstanding Turnaround Firms [twice t&w], Interim Mgt Lifetime Achievement, Most Admired CEO, Maryland Small Business of Year, Governor’s Citation, Certified T/A Pro (CTP), Certified Int’l T/A Manager (CITM), Past Chairman TMA, Chairman Assn Interim Executives, Global Atlas Award – TA Firm of Year, Business Leader of Year, Advisor= Bush2, Clinton, Yeltsin, World Bank, EBRD, Banks

Money Manager $80M Private Equity Restructuring Fund

Revenue Generator Over $670M+ Systems Integration & $280M+ Com’l growth.

M&A, Deal Flow 45+ Transactions, $780M+ transaction value, $1.2M volume

Outside Director Public & Private Companies, Equity Investment Funds


2

John F. Levy BioJohn F. Levy BioBoard AdvisoryBoard Advisory

Senior Financial Executive

30 years financial, accounting and business experience, including serve as CFO of both public and private companies for 13+ years.

Board and Governance Expert

Currently serves on Board of Directors of three public companies. Non-executive Chairman of the Board of Applied Minerals Inc., a member of the Board of Applied Energetics, Inc. and China Commercial Credit, Inc. Former Board Member and Audit Committee Member of Fortune 500 company, Brightpoint, Inc.,

www.BoardAdvisory.netOn The Hot Seat

4

and Take Two Interactive Software, publisher Grand Theft Auto. Special Investigations

Member of three special litigation committees Investigated allegations raised in derivative actions whose

conclusions were accepted by the Delaware Chancery Court. Oversaw stock option investigation at $1.0 B NASDAQ company As Director, led reorganization of the Company’s office of

Corporate Counsel. Chaired Board’s Finance Committee which led to a debt

restructuring and a capital infusion into the company. Author and Speaker Frequent speaker on the roles and responsibilities of Board

members and audit committee members. Authored five courses on governance, M&A, budgeting,

sustainability and innovation. Presented all four courses to various state accounting societies.


Journal of Private Equity:Journal of Private Equity:Steering Clear of the BrinkSteering Clear of the Brink

5

Steering Clear of the BrinkSteering Clear of the BrinkEarly Warning Signs Pinpoint Business Troubles Early Warning Signs Pinpoint Business Troubles ––Changing Leadership Style to Accomplish a TurnaroundChanging Leadership Style to Accomplish a Turnaround

By John M. CollardBy John M. Collard


Basis of Today’s Discussion

Business RiskBusiness Risk Stakeholders Face Risk When

Company Heading For Trouble Stakeholder Perception and

Needs Differ (Investment/Jobs)

Mgt Knows, But Waits To Longg , g The Longer The Wait …

The Harder The Fix Trouble Changes the Rules –

Mgt is “Out of It’s Element” Obvious Signs Rarely Root Cause True Dilemma: Who Can Handle

Crisis Mgt Role?


3

All Leaders Are Not Created EqualAll Leaders Are Not Created EqualChange Change Leadership StyleLeadership Style

Skill Stable or Growth Scenario

Turnaround or Trouble Situation

Focus On Objectives On Survival, Action, On Problem Solving

Decision Making Deliberate Decisive, Immediate

Leadership

7

Decision Making Deliberate Decisive, Immediate

Authority Delegate Direct Involvement

People Develop Recruit Talent, Communications

Respected For: Management Reputation

Financial Credibility

Known For: Consistency Ability to Shift Gears

Crack the Whip


The Process …The Process …Get Things Moving Again to Preserve ValueGet Things Moving Again to Preserve Value

Bring New Set of Eyes, Objectivity

Understand Troubled Situations

Ask the Hard Questions:Is the Business Viable?Wh t I th P f th B i ?

8

Its Not What You Say … Its What They Hear

What Is the Purpose of the Business?Should It Be Saved? Why? Are Reasons Valid?Is There Core Business on Which to Rebuild?Are There Cash Resources to Fuel Recovery?Is Existing Management Capable

of Leading the Company?

Remember: They Are Not All Salvageable


Build EnterprisesBuild EnterprisesFuture Buyers Want to Invest In!Future Buyers Want to Invest In!

Investors/Buyers look for: Business that creates value = Consistency High probability future cash flows = History Fair Entry Value = Realistic Return Potential

9

Fair Entry Value Realistic Return Potential Management Team = Market Oriented Focus Ability to sell, compete, distribute, produce,

develop products, thrive = Track Record

Exit Options = Realize high ROI @ Their Resale

Directors’ and Management’s role must beto build Going Concern Value!


4

Where Trouble HidesWhere Trouble Hides

ManagementTurnoverCommunicationsPl i

10

PlanningCompensationSales GrowthCustomersMarket AnalysisReportingExpansion

Plan Ahead.

Avert TroublesLatter On.


Is The Owner or Top Is The Owner or Top Management Over Extended?Management Over Extended?Avoid Management OverAvoid Management Over--Extension & DenialExtension & Denial

Do work for which no one else is qualified.

You can’t do everything yourself.

Delegate & Monitor

11

Delegate & Monitor.

Define owner’s/key manager’s roles.

Retain competent people -Replace if not.

Stay informed without beingimmersed in detail.

Deal with the issues.


Metrics are Key . . . To WatchMetrics are Key . . . To WatchBasis of MeasurementBasis of Measurement

Relationships tell the story…Not just P/L, B/S, Source & Use

Revenue…Volume Ini i i

Processes

12

Existing versus New BusinessRevenue (or cost) per employeeAverage Revenue per job or unit

Throughput…Volume OutHours Paid versus Billed% Improvement vs Stability

Look for Changes in Ratios and Trends


5

Is The Turnover Rate Excessive?Is The Turnover Rate Excessive?Control Employee TurnoverControl Employee Turnover

Clearly define:Responsibilities, Expectations,Rewards, and Authority.

13

Employees see underlying problems . . .Replacement costs are high.Keep it interesting, challenging.

Spend time with new employees.


Are CommunicationsAre CommunicationsIneffective?Ineffective?

‘Bull Sessions’Where little is accomplished . . .

Is the fault of the leader.

14

‰ Establish an agenda and stick to it.‰ Limit scope of topics and participants.‰ Set an example by managing meetings.

Your team will manage the company.‰ Listen . . . They have something to say.‰ Sharing Information increases Motivation‰ If you have a point, make it.


Are Goals Unclear?Are Goals Unclear?Articulate Goals Clearly . . .Articulate Goals Clearly . . .

Then Get AgreementThen Get Agreement

Failure to achieve goals suggests lack ofclarity about owner’s real objectives.

Obtain ‘Buy In’ (Management & Employee).

S G l & i f

Be a Leader!Be a Leader!

15

Set Goals & Timeframes –Hold managers accountable!

Communicate Methodology:to Measure and Reward

Goals must have substance -or they can’t be achieved.

LEAD, FOLLOW, or Get OUT of the WAY


6

Create Mission StatementCreate Mission StatementAimed at Capturing New BusinessAimed at Capturing New Business

Product Definition

How will we sell more products (new) to existing customers?

Strategy

16

Customer NeedProduct Definition

Market Definition

Distinct Competence

TechnologyVertical IntegrationHow will we sell

existing products to new customers, new markets?


The Value PropositionThe Value PropositionFramework for Determining StrategyFramework for Determining Strategy

Strategy

Value Proposition /Required Strategic Actions

What unique value can we provide?

What strategic and organizationalchanges are needed to deliver thisvalue?

17

value?

What financial impact will thesechanges have on our performance?

What actions must be taken toachieve this performance andstrengthen core competencies?

How should progress be measured?

Implement Phases & Actions PlanBuild a Key to the Future


Are Compensation and Are Compensation and Incentive Programs Yielding Incentive Programs Yielding Unsatisfactory Results?Unsatisfactory Results?

Reward for successful job performance.Don’t pay when NO performance.

Compensation structures often fall short.

B f l h f

18

Be careful what you pay for –you might just get it.

Pay incentives on gross margin,not gross sales.

Piece Rate for cost control.

If Goals are achieved thenthere will be $ to pay Incentives


7

1 to 1, Incentive1 to 1, Incentive--BasedBasedManagementManagement

Manager’s Bonus:50% on what they directly control30% on what they can influence20% on how the whole company does

Processes

19

Worker-Bee’s Incentive:Piece Rate does wonders to control cost% improvement on hours billed versus worked

Use Contracts When Possible:Establish Key Employee Commitment

Show ThemThe Money


Is New Business Waning?Is New Business Waning?Obtain New Business at Increasing LevelsObtain New Business at Increasing Levels

Manage Price, Be Responsive Understand Specific Customer Needs Commit To Winning New Business

If Not… You are out of touch with marketplace.

20

Commit To Winning New Business Bid To Win; Then Manage For Profit Develop ‘Do What It Takes’ Attitude

Golden Rule of Selling:Sell unto others the waythey want to be sold to.


Are Any Key Client Are Any Key Client Relationships Deteriorating?Relationships Deteriorating?Nurture Key Relationships CarefullyNurture Key Relationships Carefully

Meet your customer’s needs. Stay informed. Change with the market

21

Change with the market. Provide quality service.

Determine why relationshipsmay be deteriorating . . .

Poor market conditions?Poor service from you?

Worst of all,you may

not know.


8

Does Company Create Does Company Create Products In Search of Markets?Products In Search of Markets?Analyze Markets and CompetitorsAnalyze Markets and Competitors

Create product awarenesst t i ti d d

Products in search of markets?

22

to meet existing demand.

Developing a market can be costly.

Identify key competenciesto yield customer benefit.

Understand your customer.


Market, Market, , , Merc³tus

Promote your Company.

It is less expensive to createawareness of a product thatmeets an existing demand

Sales

23

meets an existing demand,than it is to develop a newmarket for existing products.

Identify key competenciesto yield customer benefit.

Market Yourself.


Identify Customer NeedsIdentify Customer Needs

The engineer wantsto create a ‘Rembrandt’…

Sales

24

Keep ‘Bells and Whistles’to a minimum.

Ask your customer…Simple but effective.


9

Do Financial/Management Do Financial/Management Reports Cover the Wrong InfoReports Cover the Wrong Infoat the Wrong Level?at the Wrong Level?Demand Accurate, Timely, Pertinent ReportsDemand Accurate, Timely, Pertinent Reports

Are you managing toP/L performance, or cash flow?

CASH FLOW is the best

25

CASH FLOW is the best indicator of a business’ health.Determine performance at each‘Center’ level of the business:

Profit – Cost – Cash - Incentive.Prepare forecasts:

Mange to them. Update often.

If They can’t See It…They Can’t Manage It! Beard Group Webinars

Does the Operation HaveDoes the Operation HaveA Track Record of Failed A Track Record of Failed Expansion Plans?Expansion Plans?

Setbacks drain cash,time, and morale.

Expand Carefully

26

time, and morale.

Why do plans fail?Inadequate Cash.

Manage Change.Analyze, Control.

Model successto produce growth.


Who Can Help …Who Can Help …Besieged Businesses?Besieged Businesses?

Consultant/BoardAdvises the Boardand/or ManagementThen Mgt Makes

( )

PractitionerDecision-MakerGuides Through theTroubled Waters

27

Decisions (or Not)Less Risk (Consultant)

(CEO, COO, CRO, CFO,CSO, CMO, CPO, CAO)More Risk (CEO)

More Effective

Turn Around Outside Bankruptcy – Keep ControlBankruptcy is Complicated, Expensive, Lose ControlLiquidation/363 Sales: Some Can’t Be SavedTough Business: Not for Faint-of-Heart – Select Wisely


10

How To Select SpecialistHow To Select SpecialistBe Cautious, Deliberate, ProgressiveBe Cautious, Deliberate, Progressive

Interviews, Background ChecksBeware of the Unemployed Masqueradingas Turnaround Specialist Pros

Time Commitment of the T/A TeamS l t I di id l ( )

28

Select an Individual (Not Firm)

Credibility is Key (W/Lenders, etc.)

Obtain Written ProposalUnderstanding of the Parties

Regular Written Reports (Communicate)

Involvement of Company’sOperations and Staff

Confidentiality & Accessibility


Business Owners OftenBusiness Owners OftenResist Outside AdvisorsResist Outside Advisors

A variety of misconceptionsand myths abound.

The Specialist: has “no heart”

29

has no heart doesn’t understand culture has private agenda has no loyalty from employees will steal ideas or techniques will not have to live with

recommendations when gone

Status Quo Versus Change & Value CreationBeard Group Webinars

Help is AvailableHelp is AvailableAdvisors Can Provide:Advisors Can Provide:

Contacts - Customers, Suppliers,Personnel, Lenders, Investors

Industry Knowledge - StrategicRepositioning, Plan Preparation

Financial Structuring -

30

Financial StructuringCustomize Right Side of Balance Sheet

Capital Infusion - Acquisition,Divestiture, Debt, Equity

Attract Talent - Management, Sales,Marketing, R&D, Operational

Financial Modeling “What If” -New Markets, New Methods

Discipline - Credibility – Time - PerspectiveBeard Group Webinars

11

What Have WeWhat Have WeLearned?Learned?

Specialists Bring Order Out of ChaosGet Control, Stabilize Situation, Jump-Start TurnaroundDevelop & Implement Sound PlanHire Permanent Management

If Misery Likes Company, Then Trouble Loves It:P bl M lti l t F i ht i S d

31

Problems Multiply at Frightening Speed Seldom One Trouble … Likely Two or Three Getting To The Real Issues Is Catalyst To Change

And That Is More Acceptable Risk Good Luck to You All

Emotion Should Not Drive Business Decisions


Caveat EmptorCaveat EmptorIt is never quite what it seems!It is never quite what it seems!

32

Change is Eminent! Expect Surprise!


A Final Word of Advice:A Final Word of Advice:

DON’T EXPECT MIRACLESOVERNIGHT

Serendipitous

33

Fortuitous

Opportunistic

Progenitor


12

Questions from

our audience?

34

our audience?


Reference InfoReference Infoww/ Interesting Links/ Interesting Links

Beard Group Webinars (Slides)www.Bankrupt.comhttp://ezine.Bankrupt.com/images/SteeringClear.pdf

Strategic Management Partners, Inc.www.StrategicMgtPartners.com/Beard.pdf Slides

St i Cl f th B i k

35

Steering Clear of the BrinkJournal of Private Equity www.StrategicMgtPartners.com/jpeews.pdf

Turnaround Phases & Action Plan Risk Management Association Journalwww.StrategicMgtPartners.com/rmaphases.pdf

Working w/Turnaround ProsAsset-Based Finance Journal www.StrategicMgtPartners.com/abfjvalue.pdf

More …

SMP Knowledge Room


Steering Clear of the Brink - Turnaround Management, Asset ... · Steering Clear of the Brink 5...

Documents

Transcript of Steering Clear of the Brink - Turnaround Management, Asset ... · Steering Clear of the Brink 5...