The packed auditorium was ominously silent as the audience hung on every word that Brandon Leigh spoke. The high flying CEO of Leaf Wireless and Ernst & Young 2005 Emerging Entrepreneur was describing how he once had to call all six employees of his fledgling company into a barren boardroom and tell them that Friday’s paycheck would be their last.
The business was bankrupt, he announced. They had run out of cash and would have to shut down. None of the team members was willing to give up that easily.
They offered to work for free and do anything to inject new life and hope into the business. Leigh convinced his parents to mortgage their house for bridging capital and everyone banded together, working hard to begin the tough road to recovery. It paid off.
Today Leaf Wireless is a R100 million turnover business recognised as a market leader in mobile technology, delivering state-of-the-art solutions to South African giants such as First National Bank and MTN, and now successfully competing in the international arena with customers like Virgin.
Leaf also distributes mobile communications products from HTC and i-mate. In 2005 Ernst & Young honoured Leigh for his tenacity and pioneering spirit by giving him the emerging entrepreneur of the year award. His business continues to grow and thrive and his story has inspired hundreds of young South Africans who have heard him speak.
Apple, Swatch, Dimension Data, Nedbank, Walt Disney and GAP are just a few of the many companies to face a crisis that has seriously threatened their long-term survival. From the small business owner who gets that dreaded call from the bank manager, telling him that his overdraft has run out to the corporate CEO who has to endure the pain of reading about his company’s tenuous position in the press, most people who choose to lead in the business environment are going to be confronted with moments of darkness, dread and self-doubt as their business faces a life-threatening crisis.
In the many different case studies of business survival in times of crisis, it is evident that there are things that a leader can and should do to increase the chances of survival. Many of these things are obvious. Some will say they are just common sense, but when you are in crisis mode, very often common sense eludes you.
A detailed and specific roadmap of steps and actions is what many yearn for in those moments of panic and desperation.
Road Map for Business Survival
Step 1: Acknowledge the problem
One of the toughest days of my entrepreneurial career was the day I called in my small team to tell them we had a real problem. We had grown our customer base too quickly and were way behind on a number of projects.
There was no way we could deal with some of the new projects on the horizon. Each and every contract we had won had been a huge victory with the associated celebration and now I was calling them together to tell them we had a real capacity problem.
I can remember every detail of that discussion, from the words I used and the table that we were sitting at in the local coffee shop, to the reactions on their faces. I had expected shock and panic but their expressions reflected relief and appreciation.
We all knew we had a problem but none of us had been courageous enough to admit and acknowledge it.
They were relieved that I was bringing it out into the open because that would give us a chance to address and hopefully resolve it. No problem can be solved if it is not first acknowledged. Pride, false hope and blind desperation often prevent us from openly admitting and accepting we have a problem.
This in turn prevents us from discussing the problem with others, asking for help and putting a plan together for recovery. Good leaders acknowledge problems early.
Step 2: Measure the damage
Admitting you have a problem gives you the opportunity to understand exactly where you stand. This may involve looking for answers to questions such as:
- Exactly how much cash do we have? What do we realistically need?
- How many days’ backlog do we have on the customer service desk?
- What will this year’s income statement report?
- What do the profit forecasts look like?
- What would we need to get the project finished on time?
- Measuring the damage often requires a deep dive into reality. This may involve painful phone calls to customers, investors or suppliers to find out exactly where you stand with them. It also requires that you understand the financial position of the business. You will need to draw on the expertise of your accountant to gain that understanding. Get all the facts down on paper so that you have a crystal clear picture.
Step 3: Identify the cause
Measuring the damage in step two will highlight the symptoms of a sick business but it may not highlight the root causes. Just as doctors need to look for relationships and linkages between symptoms and use their deeper understanding of the human body to diagnose illnesses, so the entrepreneur needs to delve into the detail of all aspects of the business to try and isolate the root causes of the problem.
Treating symptoms without addressing causes will result in a recurrence of the problem at some point in the future. Symptoms are often poor cash flows, losses on the income statement, missed deadlines and unhappy customers.
Causes are flaws in the business model, an inappropriate measurement system, a lack of project planning, the retention of unprofitable customers, under-charging, poor systems or an inappropriate management philosophy. Challenge yourself to explore deeply and be vigilant in looking for the causes. Dealing with superficial issues won’t solve the problem in the long-term.
Step 4: Reframe your management/business philosophy
Einstein said that the definition of stupidity is doing the same thing in the same way and expecting a different outcome. If you don’t want the same outcome you need to change the way you are managing the business to deal with the cause of problems.
When Brett Dawson took over as CEO of Dimension Data he had to change the organisational management philosophy from one of the growth, acquisition and world domination to managing costs, refocusing the business and striving for profitability at the expense of growth.
This was a big change for an organisation that had been South Africa’s darling IT growth stock.
The market had changed and investors were no longer tolerating growth stocks with lots of promise but no profit. If Dawson had not changed the management philosophy, it is unlikely that Dimension Data would still be around today.
Steve Jobs caused Apple to once again focus on design and Nicolas Hayek shifted SMH, the Swiss watch manufacturer, from a low volume, high cost, classic style orientation to a high volume, low cost, trendy fashion orientation when he created Swatch to save the Swiss watch industry.
In identifying what was wrong with your previous management or business philosophy, consider whether you need to adjust things at a strategic level (are you doing the right things?) or at an execution level (are you doing things right?).
At a strategic level, consider whether you are targeting the right markets at the right price levels with the right products or services? At the execution level, are you delivering on the company’s promise and do you have the right systems, controls and measures in place to cause the business to operate efficiently and effectively.
Step 5: Create a bold but realistic plan
A plan creates hope and promise by translating the changed management philosophy into actionable steps. The actionable steps can be assigned to people within the business so that the hard work of a turnaround effort is shared amongst the management team.
Tom Boardman’s five step plan for returning Nedbank to adequate levels of profitability was what was required to convince Nedbank shareholders that he was the right man for job.
That plan has been central to his turnaround effort and has enabled everyone in the large organisation to know and understand what he is trying to achieve.
If a fairly simple 5-step plan can have such a significant effect in a large organisation, it can have an even greater impact in a smaller, more closely knit enterprise. Planning is hard work and requires the planner to think and commit, something many of us avoid.
Don’t fall prey to sloppy planning. Construct a set of goals with specific tasks, assigned to specific people with specific deadlines if you want to increase your chances of getting out of a business crisis.
Step 6: Sell the plan internally and externally
Steve Jobs’ compelling, inspiring, articulate presentations to Apple employees, investors and customers are legendary. Many have argued that he would have been far less successful in reviving Apple if he had not put so much time, effort and energy into his internal and external presentations soon after reclaiming the CEO spot at Apple.
The larger the organisation the harder you need to work on making sure everyone understands where you are going and how you plan to get there. Be sure to use various different mediums and methods to reach people and let them know what is going on.
Some will pay attention to an inspiring speech, others will respond with more urgency to a written document while others will place the greatest level of reliance on the internal grapevine.
It is crucial to keep external stakeholders informed of your plans for recovery.
In many cases you will need them to buy into your plan. You may need to ask suppliers for longer payment terms or quicker deliveries, or get bankers to extend an overdraft or change a loan covenant. Go to the external stakeholders with a compelling, succinct and confident message about how you are going to turn the business around.
Be open, frank and honest with them in order to get them to support you in your effort.
Step 7: Execute ruthlessly
In the end it all comes down to what you actually do, not just what you plan to do. So you need to get down to action. Turning a business around is never a light or easy task. It requires extra effort, long hours and increased focus, so don’t expect to get away with doing things half-heartedly.
No turnaround effort should last forever so plan to put in the extra effort for a few months while you build momentum and then ease off a little so that you don’t burn out. Execution is about doing what you say you are going to do in your plan.
Make your plan the highest priority of the management team. Have regular meetings and hold people accountable for the tasks assigned to them. Execution is about ensuring everybody is doing what you planned for them to do.
Step 8: Measure progress
One of the things that Michael Eisner did in his effort to save Walt Disney in the mid-1980s was set up a system that reflected everything that was happening in the Disney Empire at almost any point in time as he led it back to profitability. He believed that what gets measured gets done.
Some would argue that it was because his compensation package was so closely linked to the financial success of Disney. But whatever it was, he kept close tabs on how the company was doing on its road to recovery, and he regularly shared that insight with his management team and the company employees.
Measure the success of all aspects of the business (financial, customer, people and process) in the recovery process so you can see if you are making progress. This will enable you to adjust your path where necessary and celebrate success where deserved.
Step 9: Celebrate and share success
People are programmed to respond to rewards. Celebrating success enables a business to build positive momentum to get out of a difficult situation. Celebrating even the smallest success can indicate to everyone involved that you have turned a corner and are on your way back.
Even if you need to try and manufacture early successes to get the business moving in the right direction, do your best to make sure success is happening and being rewarded. Celebrating big successes and a job well done is fun.
If you want to ensure that you have a business for the future, make sure that all those who have worked hard in a turnaround effort are adequately rewarded. Consider rewards that have meaning for the individuals in question – couple financial rewards with other rewards that are pertinent to them.
Some people will value a holiday while others will value public recognition or even a sincere, hand written letter.
Most of us would prefer not to experience a turnaround process – it is hard work and can be very draining and stressful. But those who choose to lead will, in all likelihood, be faced with a survival challenge at least once in their careers.
When it happens, you need to be ready to face up to the challenge. Remember the words of Theodore Roosevelt: “The credit belongs to the man who is actually in the arena; whose face is marred by dust and sweat and blood; who strives valiantly; who errs and comes short again and again; who knows the great enthusiasms, the great devotions, and spends himself in a worthy cause; who, at the best, knows in the end the triumph of high achievement; and who, at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who know neither victory nor defeat.”