The Entrepreneurs' Organization (EO) is committed to helping entrepreneurs attain the knowledge, skills and community necessary to weather any crisis. Implementing an informed crisis management strategy is key to business survival during the COVID-19 crisis. Jeff Sands, named the 2020 Turnaround Professional of the Year and founder of Dorset Partners, has transformed dozens of businesses in dozens of industries with a reputation for taking on the most dire situations. He's also a former EO member and author of Corporate Turnaround Artistry. We asked Jeff how entrepreneurs can leverage what he's learned to save their companies. Here's what he shared:
What specific skills, personality traits or experience makes you the best guy to call in the worst situations?
No one ever taught me to run a business in distress. I realized I was terribly unskilled at turnarounds when I was getting my head kicked in during my first one. It was awful! Even with an economics degree and an MBA plus 15 years' work experience in a wide range of industries, I joked that it took us three years to pull off a six-month turnaround.
And then everything was great--until Hurricane Katrina wrecked our home, neighborhood and factory. That became turnaround No. 2, which was the failure that fueled my obsession to learn the turnaround game and never, ever again be caught unprepared.
Turnarounds are my calling: I enjoy tussling with mayhem and calamity, and I've been doing it now for over 18 years. The skills needed are a mix of management, legal and finance along with a tremendous amount of persuasive skill, rat-like cunning and poker-type strategy.
You've won three TMA Turnaround of the Year Awards in a row. What are some of your most successful turnarounds?
- Aerospace manufacturer, revenues sunk from $45M to $6M, FBI was developing warrants for three felonies, workers were unsupervised for years, CEO committed suicide, the bank called the loan and I was in there running the company the next day. As a result, employees got serious, we convinced the No. 1 customer to give us more business, lots of cost-cutting, a few miracles--and we were cash positive by Week Two.
- A shuttered, 114-year-old Ohio steel fabrication mill that we purchased and re-opened. It was a significant effort to wrestle the assets away from the (rightfully) upset bank, but we had support of the United Steelworkers, Ohio political leaders and our customers. This is one of my all-time favorites.
- Pharmaceutical manufacturing rollup with eight locations in seven countries. We took it from -1% EBITDA to over 13% EBITDA in one year by renegotiating several horrible acquisitions, selling or closing the four most troublesome sites, and re-invigorating the four best sites.
What specific challenges are your clients confronting in the COVID-19 crisis?
Uncertainty for sure. Banks are largely giving borrowers a free pass, currently.
I see four types of businesses these days:
- Those who will do great for a long time, like N95 mask makers
- Those experiencing a surge that will balance out, like producers of toilet paper
- Those taking a big hit, like auto suppliers, where it will feel much like 2008-2009
- Those getting wiped out, like restaurants and hotels
The abrupt change we are facing will significantly widen the range of competitors in each industry. The gap between the best and worst performers will be two or three times greater coming out of this than it was going into it. A healthy balance sheet helps--but what you do and how you do it matters more.
What's the most significant strategic error you see entrepreneurs making during the COVID-19 crisis, and what can we learn from that mistake?
Not acting aggressively enough. Every CEO will tell you they should have reacted sooner and more aggressively during the Great Recession of 2008-2009, and we all saw that crisis unfold slowly over 12 to 18 months. Therefore, in this sudden and immediate economic shutdown, it is certain that 99% of business owners are reacting too slowly and too gently.
Turnarounds are mostly a mental game. Sure, you need to get the mechanics right (cut costs, raise prices) and experience helps, but if you don't fully commit to survival, then nothing else matters. There is a reason that morbidly unhealthy people spend more money on support groups than cross-fit classes; it's human nature.
If you genuinely want to save your business, then your mindset and actions will lead you to salvation. You will make it if you have the mindset that you will survive at all costs, that you will be the cockroach in nuclear winter, that if every competitor dies, you will somehow survive on their remains. If you adopt that mindset with unshakeable determination, then all you need is some coaching, and the rest will take care of itself.
Anything short of that leaves you exposed to the vicissitudes of a global pandemic--which is a low-odds place to be.
What are your top four pieces of advice for entrepreneurs during this crisis?
- Immediately switch to running your business on a rolling 13-week cash flow forecast. This is the first thing banks, insolvency attorneys or bankruptcy courts require--because it is the single most powerful management tool ever created. Yes, I realize that's not taught in MBA programs, which shows how out of touch they are with real-world business. The 13-week CFF puts all the power in the entrepreneur's hands and makes the future clear. If you take one thing away from my message, make it this: If you understand the cash flow forecast, you understand the business.
- Get intimate with your balance sheet. Know every account and figure out how to extract liquidity from it. Your P&L won't matter for a while; it's a cash flow and balance sheet game for the foreseeable future.
- Turnarounds are team sports and alliances are critical. If every stakeholder supports you as a priority, then the business can survive. It takes a lot of persuasion, but a really good turnaround plan can get the lenders to lend more, the customers to pay more, the suppliers to supply with better payment terms, and the workers to work harder. When that happens, survival happens.
- Heroes are forged in turnarounds. A few people in every business are hidden tigers, ready to step up and help you save the company. The sooner you can identify and empower these folks, the further they will carry you and everyone else.