Want to Go Big? First Get Ready.

A 5 Step Plan to Turnaround Your Business and Position it for Growth.

Step 1 – Get your company on the right path

Step 2 – Plan for growth

Step 3 – Develop your strategy

Step 4 – Getting stakeholder buy in 

Step 5 – Executing your strategy

Introduction.

During this critical and rapidly changing economic environment, businesses are finding themselves confronted with a host of challenges not seen in nearly two decades. As the dust settles, within these challenges, we see ample opportunities for growth; whether through an increase in production to fill the vacuum left by failed competitors, through mergers with weakened contemporaries, or through the acquisition of smaller companies along the supply chain. To take advantage of these opportunities, though, businesses must first make sure that they are fit and well-positioned to do so.

Since the early 2010s, we have provided business and financial advisory services primarily to Small and Medium sized businesses. Our focus is mainly on product improvement, pricing optimization, sales strategies and operational efficiency gains. Solutions that lead to further digitization and automation have become our strength. For most of our existence, the economy was steady, in a low inflation, near-zero interest environment, and as such, our mandates were almost exclusively in matters of sustained growth and increased profitability.

The Pandemic.

Starting in late Spring 2020, the requests we received and the projects we were put on changed suddenly. COVID-19 impacted businesses of all sizes and in all industries (some positively, of course), as we dug deeper, however, we realized that the pandemic not only affected the business environment at a macro scale, it also acted as a catalyst to reveal underlying deficiencies that were not readily apparent during more favorable times. This led to rapid performance decline, and in some cases, crisis. We posit now from our experience, that the Paycheck Protection Program, although well-intentioned and provided temporary relief, served only to prolong and exasperate this deterioration.

Sales are down, we’re behind on our bills, our suppliers aren’t taking our calls…you get the point. We’ve worked with a dozen clients these last 3 years, some from our current roster that we knew lots about, others brand new through referrals; we’ve heard these and many other grievances during our initial interactions. We soon realized that although the symptoms were the same, they were suffering from a host of different reasons.

Working with startups, we’ve devised a comprehensive step-by-step method to make sure we cover all aspects of the business before we begin to work on our business plan and financial projections. The result is a complete report including a sales, operations and financial blueprint for use in managing, tracking and updating their development; and for capital raising.

With emerging and mature clients, and for acquisitions, we extricate certain aspects of the business in order to analyze them first in isolation, then returning the results to see its performance in concert with the rest of the business. Some fine-tuning occurs to make certain we’ve adjusted for any duplicate efforts and account for any economies of scale.

The Steps.

Now we were being asked to consider crisis and turnaround situations. To do so, we chose aspects from among both of these methods, and added the ability to look backwards (up to 5 years) to begin our analysis from there. Our inputs come from annual reports and financial statements, along with conversations at all levels from within the organization. The goal of this exercise is benchmarking; when was the business at its best? Risk analysis at this early stage is key; finding their best historical results and using the relative ratios of each income, expense, asset and debt items during that successful period gives us our first insight into the business’ path back to sustainability.

These ratios are then compared to their current performance. Here we begin to identify the deficiencies. Is it Product related? Sales? Operations? Production? Transportation? Overhead? Collections? Debt Service? So much as it would be convenient to say there’s a single issue and that we have a silver bullet that’ll fix it, it is almost certain that the deficiencies are plentiful, and permeate throughout the organization.

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And that’s step one; stop the bleeding, and get the company back on the right path.

Once identified, you’ll need input from throughout the organization. Buy in is key, as there’s probably some insecurity and restlessness reverberating within the organization. That leadership has a plan and is counting on their staff to help find resolutions goes a long way in identifying those who are loyal and eager, and those that are less so; this will assist in making decisions regarding personnel changes, additions and subtractions.

Input at the departments’ level will add context to the data, and often leads to the source of the problems. For example, you may see that sales are down and inventory is low. You need a little more information to determine if this is a sales issue or a supply chain one. Conversely, you may see that sales are down and inventory is up. Again, without context, you won’t know if this is a sales, accounting, or a product quality issue.

We are always looking for the sources, not the symptoms; that’s where problems are solved. 

In one instance we saw low sales and low inventory; we knew this client for years. They had a world class sales team, business development was seasoned, and raw materials were at productive levels. It wasn’t until we spoke with engineering that we learned that due to the pandemic, they were unable to get spare parts from their original equipment manufacturer and had to settle for generics. The result was less production per hour, a slight decrease in the quality of the finished product, and increased downtime due to the increased frequency in maintenance related works.

We were able to source the OEM parts by purchasing an identical piece of equipment in good condition from a failing rival at auction. To our surprise, the piece shipped with several seasons’ worth of spare parts (worth as much as we paid for the equipment). As pleased as our client was with this result, we were left wondering if the folks that sold us the equipment failed due to their risk averse, inefficient purchasing practices.

And so it goes at every stage of the business. Analyzing every aspect of each product to see if it should be kept as is, update or eliminated. Analyzing every expense to make sure it’s essential and in line with their competitors. Every asset to make sure it’s providing the value that was intended. Every discount, prepay, loan, note, lease, investment or any other financial instruments to understand near-term cash positions and solvency.

Looking Ahead.

Having identified the problems, along with a path to recovery, we now need to look forward. What can the company do to sustainably grow, generate enough cashflow to satisfy its obligations and be profitable. This is the vital step that will encourage stakeholders to be patient as you move from crisis to recovery towards growth.

And that’s step two; from recovery to growth.

Do their clients like their products? Is the company easy to deal with? Are they keeping their word with delivery times? Have service levels remained consistent during this crisis? Keeping customers in the loop is valuable here; most of them will stay, even during trying times, if they’re kept in the loop and see that there’s a plan forward. It may come at a cost, though, usually in the form of discounts.

Although somewhat counterintuitive, this is also a good time to shed unprofitable customers; those that require a disproportionate amount of time or service, those that were acquired during difficult times and as such, generate razor thin margins. This is difficult, I know, but a conversation about the state of the relationship is crucial; maybe renegotiating for more suitable SLAs or increased pricing could be arranged. If not, the opportunity costs of not freeing up those valuable resources may be too dear.

Then we need to understand their market. How much share do they have? Are there opportunities to grow locally, nationally, are there export markets for these products or services? What are the laws and regulations involved in expansion?

Regarding production, are there new products in the pipeline that can be released? Are there new technologies out there that increase competitiveness? If so, is it additive or will it replace older assets? Is there value in that older asset, or is it scrap? How about buildings and land, the company’s fleet? What’s still productive and what can be squeezed out of these?

Labor related matters must also be addressed. As products change, or business size or focus changes, redundancies will almost certainly be necessary, even in cases of employee growth. Which of these folks can be easily retrained for different positions within the organization? Which of them can be useful to partners, vendors or suppliers? What kind of retraining programs and severance packages must be provided to the rest? Leadership while maintaining stewardship will go a long way.

Is the business up-to-date on all of its required filings; financial, administrative or otherwise? Remember, this is an opportunity to clean up shop under the guise of planning for the future.

Now we know exactly where the business is, why it’s the case, what needs to be done quickly to right the ship, where we want it to then go, and all the options available to get there. 

Prioritizing.

Resource constraints, temporal, financial, human or otherwise, and the need to isolate and identify which of the changes are working, dictate that solutions happen in steps. Setting priorities is critical. Although the following sequence may not always be exactly the case, it works well as a starting point, and can be modified if warranted. Effort and impact are our measuring sticks.

• Low effort, high impact fixes – remember, early on, the business needs buy in from all of its stakeholders; customers, lenders, vendors, and employees. A couple of quick wins go a long way in this effort. Clearing out a warehouse, even at discount, clears space and generates cash. The sale of an underutilized but valuable asset could be a lifesaver too.
  

• High effort, high impact fixes – these take longer, require more coordination and resources, and are intended to yield larger and longer-term benefits. The acquisition of independent sales offices to strengthen inside sales efforts was common over this last period. Brokerage offices in general are less capitalized, and as the last mile participants, during downturns, they are among the first affected.

Valuations, negotiations and integration (operations and culture) are rigorous and critical exercises; does the business have the financial and legal resources? Are there operating systems that can be extended to the field? How will the business absorb each of the acquirees’ datasets (accounting, sales)? Can it be done in-house? Where are there administrative and support redundancies? What training and retraining will be required?  How about branding and messaging? Opportunities to double and triple the size of a salesforce while increasing ownership along the supply chain is so valuable.

Administratively, we’ve seen material benefits gained from doing a thorough analysis of all the company’s contracts and agreements. Contracts with suppliers, vendors, service providers and the like lead to opportunities to renegotiate pricing and terms. In some instances, contracts may have expired or they are for services the company no longer needs or uses. Customer agreements also lead to opportunities to either reduce responsibilities and service levels, or increase pricing. This is a great place to find savings and add revenue with little to no business or operating disruption. 

• Low effort, low impact fixes – these may have some impact, and bring some value. These ideas or tasks won't take long, and won’t require much effort. Consider this the running task list, to be completed during a lull in work or when there is extra time. These can be accomplished quickly and easily.

We see items like this pop up often; one recurring example is in file storage; not in the where so much (cloud space is cheap) as in the how. We see clients’ employees spend a disproportionate amount of time searching for past work, or unable to find the latest copies of files. The idea here is to come up with a solution and naming convention quickly, and then to propagate these new methods company-wide on a go forward basis. Going backwards is tedious; and there are certainly no fireworks involved, but once it’s done, you’ll be the all the better for it.

• High effort, low impact fixes – these are the killers, they take time and money, and they’re not helping the business to achieve its goals. These are the tasks that seemed like a good idea at first, and the company may have even devoted significant resources towards it, but if viewed without emotion, they know better now. There is no need to continue to spend time and money just because there are sunk costs. Identify these, and make sure your team isn’t wasting their time here.

This occurs in most businesses; we see it often with software companies. Early on in their own development, a company may have built a one-off solution to satisfy an early client (we’ve all done this) without considering the carryon development, maintenance, security and other costs. Then to justify the resource spend, the company continues to develop the product even though none of their current or prospective clients are asking for it. These must be sought out, and done away with immediately.

Creating the Blueprint.

Having studied past performance to identify the company’s historical ideal performance metrics and analyzing current results, getting to breakeven is a good first goal; to be accomplished quickly, in less than 6 months if possible.

The key here is to focus on the low effort, high impact fixes, to generate cash and momentum.

Somewhere during those first 6 months of the plan, we can start to consider the high effort, high impact fixes.

Every fix is a function of time, resources and money. As such, you need to work through the effect of any change being made throughout the entire organization; how will it affect income and expense, what resources and assets are affected, how much time will it take to fix, when should the company begin to see its benefits?

And that’s step 3, converting the ideas into a strategy.

The Numbers.

Financial plans and economic studies are then developed as a result of this work. Projected sales forecasts and their associated expenses, overhead, and any other non-finance related expenses tell us if the proposed fixes are adequate and timely, or whether other options or fine-tuning is required.

Then to assets to see the results of what’s been disposed of, what needs repairs, and what needs to be added. The timing of these moves needs to be in coordination with the sales results from above.

Then to financing to see whether and how much additional financing is needed to make these changes, along with the restructuring of current debt and other obligations.

This whole process will need to be fine-tuned a couple of times until it’s smooth and in sync.

Negotiations.

Now the hard part; getting in front of your lenders and vendors to convince them that your plan is sound, so that you can make the ask, and move forward. Most lenders will be open to restructuring the debts, and to provide additional capital if the plan is sound, especially so if there are free assets that can be used as collateral.

And that’s step 4, getting the needed buy in.

Time to get to work.

During times like these especially, it is important to manage the business at all levels, to make sure the new plan in place is being adhered to as closely as possible. Live and daily updates are not uncommon during this time, and slight modifications will need to be made to make sure the business does not veer off from the plan.

Regular meetings need to take place to discuss results, and to give the go ahead for the next set of changes to start taking place.

And that’s step 5, turning the plan into reality.

Summary.

Although many businesses have emerged from the last period a little battered and bruised, there are those that have fared better than others. To take advantage of the new landscape that has emerged, these companies must be able to make moves from a position of strength, and to do so, they’ll need to go through a reassessment of who they are, and who they want to be.

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