Company Doctor

WILES: The more reorganizations, the less apt there are to be good people left, since the old management invariably hired the wrong people.

INC.: You come in, you maybe have just met some of these people, and right away you have to start filling some key management slots as people quit or are let go. What do you look for?

WILES: Basically, you look for somebody to take ownership of a situation. You sit at a dash meeting and somebody gets up and starts complaining about the way things are being done. So you ask him, "Why don't you run that particular area?" And the reaction you get helps you decide. If he hems and haws, you probably don't have a candidate. If he says, "Hell, I've been trying to do that for two years," you've got a start. And then the question is really whether he has the people skills, which is the other crucial thing, in my opinion.

INC.: Although you've reduced this notion of a turnaround to what looks to be a simple set of rules and some very precise disciplines, there has to be more seat of the pants to it than that.

WILES: No question about it. You come in and you've got these decisions to make -- decisions that often mean screwing up people's lives -- and you've got to make them with what amounts to a minimum of information.

INC.: And presumably without letting on to anybody else that you're not absolutely sure of what you're doing.

WILES: The con game is the most important part of the whole thing -- yes, especially for the first four to six weeks. Really, what you're working with is your past experience. And I'm just lucky enough, I suppose, to have more experience than most. That's the reason I can do what I do.

Most people with my experience want to go to the beach when they reach my age, or they want to be the chief executive officer of a very large company, or at the least they want to be running a smaller company that is doing well. That's the fun stuff. What I do is something other than fun. It is very, very tough emotionally. In fact, sometimes when one of my companies is in particular trouble, I often find myself making an excuse to to go back to see how things are doing at one of the well companies. That way I can call a few shots and remind everyone how good we are. That makes the ego feel good.

INC.: And what is it that makes you feel bad?

WILES: Telling somebody who's running a company, or who thinks he's running it, that he's got to leave.

INC.: That must be a difficult conversation, no matter how many times you've been through it.

WILES: The worst one, I remember, was Chuck Cantoni, at ADAC. He'd been the founder, built it up for 17 years, had taken hardly any money out of the company, worked for a fairly low salary, had never cashed in any stock. Nice man -- a very nice man.

I made the decision after almost nine months of working with him. And that's the most difficult thing, ambling up to the decision -- it's much more painful than actually delivering the bad news. I think that is true of all the tough decisions you make in a business.

INC.: In terms of turnarounds, have you had any failures?

WILES: Yes, although you probably couldn't figure out which ones they were. None of the companies has gone broke, but we've walked away from several of them.

Sometimes you can fix them up only to find that they really had nowhere to go. Sometimes you can't even fix them up, so you look for a way to keep them alive long enough to sell them off. For instance, we had a fishing-reel business once, and, after we poured too much money into it, we finally sold it to the employees, and they ran it for seven or eight years before they finally closed it. As a little tiny business, it was good for them. But I wouldn't call that a big success for us.

INC.: There has been, as you know, some criticism of Hambrecht & Quist for double-dipping in these turnarounds. First Hambrecht & Quist is in there raising capital for a company, and then, if things don't turn out the way you projected to these investors, you're in there again with Phoenix Ventures for the turnaround.

WILES: And that's why we do it, because you have some responsibility to these investors, having brought the company public or having put together the venture capital. It is part of your obligation to your customer.

INC.: Yet it's hardly charity work -- it's another bite at the same apple. After all, you're in there negotiating, in effect, with your old customers for control of the company, which you obtain at highly discounted prices.

WILES: Sure, but by now we're not very sensitive to opinions like that. Remember, they always have the alternative of letting the company go under if they don't like the deal.

INC.: When you're trying to decide which ones to try to rescue, what kind of time frame do you look for?

WILES: What we say is that we have to see a way to have break-even by the end of two quarters -- that is the rough target going in.

And we have to have two quarters of profit before we know for sure that the turnaround is finished. But in our minds, we know when the turnaround is done before anyone else does. Even before you see it in the numbers, you see it in the people.

INC.: In what way?

WILES: When people start understanding that these are their methods of operation, and their disciplines -- not Q. T.'s methods or Q. T.'s disciplines -- then I know we've turned the corner. You can sense the enthusiasm, you can see the teams finally taking shape, you hear people talking as if they believe they can kill the world. And that's when the fun starts, at least for me.

Q. T.'s 13 Disciplines

1) Weekly Business P&Ls

2) Weekly Status Reports

3) Quarterly Dash Meetings

4) "What I Heard" Memos

5) Forecast and Plan

6) Five Most Important Tasks

7) Monthly Activity Reports

8) Top 10 Key Accounts

9) Trip Reports

10) Top 10 Receivables

11) Monthly Head Count Report

12) Recruiting and Priority List

13) Quarterly Employee Meetings