June 6th, 2008 13:13 EST
The People Who Get You Into Trouble Usually Can't Get You Out Of It
From time to time companies find themselves in desperate situations. Management or the board of directors might make some series of judgment calls that don`t go its way, or worse, make a series of mistakes that take the company down the bunny hole. When this happens, it`s critical to take specific steps to get out of trouble.
Always remember that when in crisis mode, cash is king and all efforts must be focused on bolstering cash resources in order to get you out of the crisis. The obvious question is "how do you bolster those resources and how do you put yourself on the right track once you`ve gone off course?" The less obvious issue is about rebuilding trust in your organization from all of the critical constituents such as your employees, lenders, vendors and shareholders.
A big part of the secret in rebuilding trust and turning around a company that has many problems is to get rid of the people who caused the problems.
Depending on the circumstance, it`s common for a turn-around manager to come in and take control of the company. When a new person comes in to take control of the company, that person has great leverage with a lender who can indicate that the new management team has new strategies, new policies and new ideas that will change everything about the company`s destiny. It`s a believable story to lenders, vendors and other people who are part of the process in helping the company to get back on track.
When it`s the same management team, those lenders, vendors and shareholders don`t have any reason to believe that the management team that got them into the problem have the ability to take them out of it. On the other hand, when new people are involved, it`s reasonable that new ideas and new strategies can be put into place.
New people tend not to see the situation in the same way. They tend not to be "in love" with the policies that may have caused the problems. New leaders make it easier to sell the new program to lenders who may restructure existing debt and to vendors who may or may not want to continue selling to the company on terms that would make it possible for the company to operate because of its depleted cash situation.
I was recently involved in a situation where the existing management team refused to surrender power to new people. That made it very difficult for them to negotiate with their vendors, lenders and customers on their request to make changes to the terms of the structure of the debt and other obligations because they didn`t have good credibility. Without good credibility, they don`t have a lot of bargaining power with these critical suppliers.
Ten years ago, the Los Angeles Times found itself in terrible difficulties. In 1998 there was a scandal involving the brand new Staples Sports Arena that was being built in Los Angeles. The paper reported on the development of the stadium in an unusually favorably way for nearly a year. It was later found out that the senior management of the LA Times had secret promotional deals with the developers of the stadium. That management team embarrassed the paper-- abusing its credibility and tarnishing its good name in the editorial community (remember that the most important asset of a newspaper is its good name.)
The result: the Chandler Family, who had controlled the paper for 120 years, had to sell the crown jewel of their investment portfolio to the Tribune Company just to save face. That sale was a referendum on management. They had to sell the company in part to create distance from the management team that created the problems, because it was impossible for them to create credibility in any other way. The board of directors obviously believed that new management would do a better job even if that meant selling control of their company to another one.
So, as you are working hard every day to build your company, or as you`re building your career, pay careful attention to how you get into trouble and compare that to how you need to get out of it. New people bring new strategies, new ideas and new talents to the table. They also bring new credibility and the ability to create new structures that will give a hurting company the time and the space required to solve its problems.
About Joel G. Block, President of Growth-Logic, Inc. Often dubbed a "Growth Architect" by his clients, Joel Block advises companies on explosive growth strategies by driving revenue and sales. Well known in the capital markets, Joel is a successful entrepreneur, speaker and advisor. To bring Joel into your company, please visit www.joelblock.com or www.growth-logic.com. Also, be sure to check out our newest project: a blog to organize the blogs that cover entrepreneurship - http://www.entrepreneur-hub.com.