Why Good Companies Go Bad?

The precise start is always difficult to pin down. Typically, trouble is not recognized until slipping revenues and eroding profits span two or more calendar quarters. These are difficult problems and catch many managers unprepared to deal with the rapidly deteriorating situation. These problems are symptoms of many underlying problems. These underlying problems are often unrecognized or simply overlooked as the financial slide gets worse.

What causes a good company to go bad? It can be anything or any combination of things that began the all too quick slide into financial trouble.

Way posts on the journey include nervous bankers, demoralized employees, defection of competent players and strained resources. The temperature is rising faster than revenues and profits are falling. Denial and fear of fault finding become the driving forces.

A survival threatening crisis is significantly different from years of running a business in good times and bad. Sadly, in a crisis situation, decisions tend not to be made. Unfortunately for the business, failure to act is a default decision to do nothing. This is often the most expensive decision of all. Suddenly marketing, sales, production and accounting all have different agendas, views and are going in different directions.

Given the nature of market forces and change, every enterprise is as vulnerable to trouble as it is to the lure of success. Assigning blame at this point will do nothing to alleviate the problems: you won’t even feel better. The blame game can clearly wait. Post mortems reveal the causes of death after the victim has already died. Remember, it may not be your fault, but it is your problem.

Okay, so blaming someone does not cure the problem. What to do?

Ask yourself these four questions:

  1. Is the business viable?
  2. Is there a solid core business which can be salvaged and form the foundation for the new, restructured business?
  3. Is there significant cash on hand, or available sources to fund the turnaround through recovery?
  4. Is management capable of leading the new business?

If you can answer yes to each of these questions, then a seasoned Crisis Manager can help. The CM offers a new set of eyes, skills and understanding of troubled situations to independently evaluate the enterprises’ circumstances and quickly must face a series of questions that existing management may never have asked:

  • What is the purpose of this project (or business)?
  • Should it be saved?
  • If so, why?
  • Are those answers valid?

Problems that occurred over time will not be solved overnight. A successful turnaround requires months, even years of arduous work. The Crisis Manager is a change agent, a catalyst in this process. Ultimately the success or failure of the turnaround rests upon the various stakeholders: owners, management, employees, suppliers and lenders; all of whom must be dedicated to turning the business around.

The Crisis Manager focuses on stabilizing the situations threatening the immediate survival of the company (e.g. calling bank loans, negative cash flow, death of the CEO.) In addition, he will quickly assess the root causes of the enterprises mediocre performance so limited resources (time and financial) can be marshaled to best effect. Once the chaos is stabilized, he business gains much needed breathing room to implement corrective actions and begin the turnaround.

The ability to develop and implement a Recovery Action Plan designed to stop the fiscal bleeding and begin corrective actions and restructuring necessary for a successful turnaround is the Crisis Manager’s next task. In the event management is temporarily unable or unwilling to function under the current stress, he may also act as the interim CEO.

The Crisis Manager acts in an interim role for periods lasting from three to fifteen months in small and mid-cap companies. He assumes the CEO, CRO (Chief Restructuring Officer) or general manager role for the period of time necessary to guide the company though restructuring and recovery. As part of the CM’s responsibilities he will coach existing management, add new players to supplement the management team and, where necessary, replace managers.

In many cases existing management is one of the causes of the crisis. Rarely is this intentional. In order to stop the bleeding and steer the company towards recovery it is often necessary for an experienced crisis manager to take the helm. The duration of this role depends upon many factors, only one of which is the ability of the existing management to adapt.

Changing conditions, new technology, etc. may not be ‘fair’ but they are facts of business life. The keys to yesterday’s successes often become the locks barring today’s need for growth. Adaptability and prompt recognition of the need for outside assistance are the keys to survival.

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