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CEOs, CFOs

From Bankrupt to Profitable in a Year: A Turnaround Tale

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I’ve made a career out of turning around mid-market and sub $50 million companies — the kind of businesses that can’t afford McKinsey consultants — and helping them increase top-line and bottom-line growth across industries and geographies.

But back in 2007, I was a newly minted MBA from Wharton who had just moved to India. I was obsessed with the idea of managing a P&L, though frankly I did not really know what that meant. Before business school, I was a management consultant. While I enjoyed working with clients, I was eager to gain more hands-on experience in the trenches of an organization.

My break came when the chairman of Asahi India Glass Ltd., a manufacturing firm with $300 million in annual sales, offered me a job. His proposal was that I work for him as Chief Information Officer for the group, focusing my time on turning around a small ($3 million) independent chemicals subsidiary — AIS Adhesives Ltd.

I was thrilled at the opportunity and accepted the offer with no indication of the challenges that lay ahead.  

When I first walked into the small chemicals company, the management team and accountant were closing the books. Because of a one-time defective supply hit — the company had experimented with using a Chinese supplier instead of its usual U.S. suppliers — they were projecting a bottom line profit of $100K and future sales growth of 25%. The chairman and others at the corporate level saw this as a small hiccup for a profitable company with a promising trajectory.

Within three days, I would learn the truth. In fact, the accountant told me, the company had a bottom-line loss of $200K. There was no cash in the bank, the company had lost money in the previous years, and operations had stalled completely. We hadn’t been supplying materials to our customers for three months.       

My task was formidable. As a brand-new CEO, I had to rebuild relationships with suppliers, customers, and employees; increase sales; and restore profitability.

Here’s how I approached the process.

Focus on damage control.

At this point, banks were refusing to issue us any debt (before that, we had a couple of limits through which we could get supplies). To get our operations back on track, I put some of my own money into the business and went to existing stakeholders for additional capital. The equity infusion was around $50,000 in total, just enough to get some supplies and reboot operations. Then I rolled up my sleeves to make things happen.

In the first 90 days, once we had some money in the bank, it was all about appeasing customers, employees, and suppliers. Customers were angry because a) we had disrupted their operations by not supplying our products, and b) our communication strategy had been vague at best. I met with each customer personally and told them about our plan to rectify the situation by flying overnight materials from the U.S. to India (up to that point, the company had gotten materials via ship). Our employees were nervous they might lose their jobs and angry with the dysfunctional management. I worked to develop personal relationships, build their confidence in me as a leader, and cultivate a new sense of excitement among the team.

Meanwhile, the suppliers had to be paid, which I selectively took care of with the equity infusion, focusing on the most critical payments first and constantly juggling between creditors. Almost the entire first year, I kept a very close lid on the cash flows and sought to create as much liquidity as possible to sustain and grow operations. (One of the suppliers even agreed to forgive some of our debt, but that wasn’t until much later, once we had demonstrated our ability to deliver results and volume.)

Instead of continuing to mislead and misrepresent the facts, I was honest about the status quo and asked everyone to give me and the company another chance. I kept everyone updated on our progress on a daily and weekly basis.    

Build camaraderie.

In my experience, the most successful CEOs are charismatic leaders who include everyone in the story. Even more, they are tireless teachers who nurture talent and bring out the best in people. From the beginning, my focus was on opening channels of communication and getting people to interact cross-functionally. We started multiple formats of meetings and gatherings that included a 10@10, a 10-minute standing meeting with the 10 department heads each morning where we talked through our daily action items. To help build stronger personal relationships, we planned regular social events (e.g., trips to an amusement park and meals).

I also tried to create a culture of accountability, autonomy, and trust. For the sales team, I did away with timecards entirely. They didn’t have to come to work (a godsend given traffic in India) — just show me the numbers! Since we didn’t have money for salary increases, we gave employees title upgrades where warranted and helped with resume writing and skill-building.       

I also got folks across the organization involved in a company-wide business plan project, which served a few important purposes. First, it gave us some important data points to inform future plans. The company had been in operation for a decade, but they nevertheless didn’t have a good sense of what the margins were for their three main verticals. They hadn’t formerly identified our competitors, products, supply chain, and internal value chain. The business plan project helped us remedy that and reallocate resources accordingly toward our most profitable business lines. It also had the secondary purpose of building rapport and getting everyone bought into our mission moving forward.

Identify core strengths.

In the second phase of the turnaround (after 180 days), once we had cash flows on track, I used the new business plan and other information we’d gathered to address low-hanging fruit. We’d found that one of our three verticals was much more profitable than the other two, and realized we could potentially double the business in a year by targeting a single customer. We did just that and were lucky to acquire the customer, and saw an immediate impact on our sales. We chose to ignore another vertical as it had low margins and was operationally demanding. This freed up resources and fueled a cycle of growth.  

Within a year, we had orchestrated a significant turnaround in all aspects of the business, resulting in a return to profitability and an 80% growth in sales – from $3 million to $5.2 million. The focus on getting back to steady operations by flying our supplies impacted our margins for the first few months, but allowed us to regain traction and rebuild our reputation. At this stage, we were ready to pursue other product lines and began focusing on strategic partnerships and considering new verticals.

While our financials and numbers validated our success, for me the biggest win was our employee retention rate — almost 100%, an unheard-of statistic in India. One employee left for family reasons, and I let two employees go due to performance concerns.  

Takeaways

Here are some of the most important lessons I took away from the experience.

  • Be transparent, and seek transparency. When I first walked into the company, I could tell everyone was fearful. Almost no one was forthcoming. I had to figure out quickly which employees I could trust and who might be counterproductive to my goals. A lot of the learning came through what was not said versus what was said; I learned to listen and read nonverbal cues through multiple interactions.
  • It’s all about the people. All businesses are all about people, both internal and external, but in my opinion this is especially true for small businesses, where standardized procedures and systems and processes can be lacking or non-existent. In this case, internal politics, egos, communication chasms, silos, and sabotage had become cultural norms and I had to quickly identify and remove the troublemakers where possible. On the other hand, though there were some people I naturally gravitated towards, it was equally important not to play favorites.
  • Make believers. Employees have the power to make or break your company’s success. Just as important as crafting a vision for the business is selling that vision to employees. Make sure team members are bought into the company’s vision by involving them from the ground up, soliciting their input and expertise, and ensuring open lines of communication at every level.  
  • Build momentum. Focus on quick wins at the beginning to build traction and create buy-in for larger changes. Not everything will go your way, but don’t lose steam.

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