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Corporate distress is so common, sometimes we don’t even notice it.
Twenty percent of companies fail in their first year. Sixty-five percent fail within 10 years. After 20 years, nearly 80 percent have disappeared.
Yet these statistics also reveal that decline is not at all inevitable. What separates the survivors from the casualties?
The difference lies in how they think about their core business.
This isn’t intuitive, or popular. When companies get into trouble, the reflex is frequently to attack the symptoms: costs.
Fire the receptionist.
Cancel the office perks.
Reduce headcount.
But this approach rarely works, because cutting expenses isn’t usually the way to fix a failing business.
Why Cost Cutting Is the Wrong First Move in a Turnaround
This was not obvious to me when my father asked for help with his Manhattan printing plant in the 1980s. The company was losing money every week, and trimming expenses seemed an obvious first step.
Predictably, the receptionist had a very bad day. We cut travel. We reduced inventory.
None of it mattered. The losses kept coming.
Something else was wrong, but whatever it was, I could not see it in the financial statements. Then I blundered across a different question: Which products make money? And which customers buy them?
I took 60 job folders out of the file room, dumped them on a worktable, and sorted them by product and customer types, using profitability as a gauge. This crude exercise became the basis for many of my projects since, and also became the basis for what I now call the Core Product/Core Customer X-Ray.
The Hidden Question Every Struggling Company Avoids
Because what I found stunned me. The specialty envelope product that my father had invented, the one he was most proud of, the one the company vigorously promoted, was a consistent money loser. Meanwhile, the plain letter printing everyone considered pedestrian was quietly generating healthy profits.
That discovery hit like a slap. Expenses were not too high. The company was simply chasing the wrong business. That’s why I wrote my book, Core Turnaround Strategy.
I’ve seen this dynamic damage company after company since. Managers chase revenue without understanding that some of those efforts destroy value. They abandon profitable core businesses in favor of new ventures that don’t measure up.
Seeing What Financial Statements Conceal
Take a traditional shoe manufacturer. The president spent two years developing a luxury fashion loafer line, convinced it would transform the company’s image.
By the time I arrived, the company was nearly bankrupt. The fashion shoes showed zero margin after accounting for retailer chargebacks, quality problems, and customer returns.
Meanwhile, the company’s boring military shoe business generated 40 percent gross margins. The solution was painful but clear: return to the core.
Why Bad Cost Data Leads to Bad Strategy
A metal fabricator in the Midwest offered a slightly different example. The family patriarch had built a successful prototyping business, but nobody could explain why profits kept shrinking. The controller blamed market conditions. The sales team blamed the factory. The factory blamed the customers.
The real problem? The company had not updated its machine costs. They calculated job profitability using fictional data. Twenty percent of jobs required expensive rework that was never charged to anyone, so the math never worked. Measurement errors of this kind distort every decision that follows.
What Successful Turnarounds Always Require
Over time, I developed a framework from these experiences. Every struggling company needs three things:
- a plan
- a team
- financing
Remove any one of these elements, and the effort collapses.
Among these three, the plan is often the hardest, because it requires telling uncomfortable truths about what’s working and what isn’t.
The plan begins with the X-Ray: identifying which products generate real profit when sold to which customers. This analysis often reveals that a company’s hoped-for strengths are actually weaknesses, and overlooked businesses are lifelines.
Three types of errors typically obscure this picture.
- Strategy errors occur when companies pursue the wrong products or customers.
- Measurement errors happen when inaccurate data misleads managers into chasing the wrong business.
- Execution errors emerge when sound strategies break down in implementation, eroding margins.
I like to test for each error type systematically, like a physician checking for symptoms before prescribing treatment.
Why Outside Interim Executives Change the Outcome
Outsiders help struggling businesses by bringing objectivity and urgency, plus the ability to ask questions that insiders have stopped asking.
But the teams that make turnarounds work come from inside: factory supervisors, customer service representatives, bookkeepers, and salespeople.
They wear white collars, blue collars, and no collars.
What they share is pride in their work and willingness to step up when given the chance. A successful turnaround creates the conditions for this leadership to emerge.
Shrinking to Grow: The Paradox of Profitable Restructuring
The paradox of the strategy-first approach is that it sometimes requires making the company smaller before it can become more profitable.
The top line shrinks, but the bottom line improves. Shedding unprofitable business is not failure. It is clarity.
Peter Drucker wrote that the best way to predict the future is to create it.
For companies in distress, creating the future begins with understanding the present, including the hard realities that accounting statements obscure.
The expense lines will not save you.
The core will.
Get the Help You Need
With the right turnaround leadership, even companies facing steep decline can regain control, restore performance, and emerge stronger than before. Successful business turnarounds don’t happen because one person has all the answers. They happen because an interim CEO activates the entire organization — culturally, operationally, financially, and strategically.
If your organizaiton is in need of experienced strategic leadership, reach out to us for a confidential conversation about how an InterimExecs RED Team CEO can turn around your business.
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