Wait, Turnaround is Not a Dirty Word

It’s not easy being a turnaround artist these days. Just ask Republican presidential nominee Mitt Romney.

Romney is taking serious heat for his work at Bain Capital, including recently a derisive Rolling Stone article, “Greed and Debt: The True Story of Mitt Romney and Bain Capital.” The piece outlines Bain’s “epic wealth grab” which it argues both destroyed jobs and entire companies.

Don’t flee, this isn’t a political piece. But a word here, please.

Whatever the opinions about Mitt Romney and his private-equity business history, let’s focus for a moment on the real-live turnarounds of distressed companies, the kind of engagements that attract many interim executives. Turnaround, that is, by definition.

Lonnie Sciambi, for example, is one turnaround artist who would appreciate that shift. Sciambi said he was asked at a party what he did for a living. He said he did turnarounds. “The guy said, ‘So you slash and burn?’” Well, not exactly.

A Secret or Two

“There are two dirty little secrets (to turnarounds): you can’t cut your way to profitability….and if you’re not spending, you’re not generating” business, Sciambi said. He said struggling business owners often over-emphasize cuts, essentially managing the day-to-day operations into the ground and failing to see that increasing sales must be a part of the story.

That’s what a turnaround artist knows. He or she also knows those skills are essential in today’s challenging economic environment.

Turnarounds are “a critical job. There are industries today that are going through such dynamic change that it’s very difficult to compete. Companies that don’t change are left by the wayside,” according to John Collard, turnaround specialist, interim CEO, and chairman of the Association of Interim Executives.

Experts like Collard and Sciambi are called in when companies are losing their edge. Here are examples from each specialist’s turnaround repertoire:

Turnarounds à la Collard

There are two parts to the turnaround story, Collard said. “You’ve got to be doing cost cutting; and (focus on) broadening the market and selling.

The most basic question is if the company is turnable, Collard said. Here’s one scenario he’s faced, and the initial thought-process involved. Question: “Can I take something we have at the moment and sell something?” he said. Answer: “If my product is timely, cost-effective then all I need is to go to new markets. That’s turnable,” he said. If, however, production costs are not competitive, it might not be, he said.

Collard said he’s had engagements in industries where a lack of cost competitiveness appeared to spell disaster. The turnaround business is not for conflict-avoidance types. He’s the one who has to sell the reality of non-competitiveness to an employee base.

In one case, Collard took the helm of a company going seriously south, having lost 60% of its sales. He called a meeting of employees. “Within one week, if we don’t change this dramatically, half of you won’t be here” in the future, he said. “I needed their cooperation to jumpstart sales and get back customers,” Collard said.

In an attempt to increase efficiency, Collard emphasized the need to create pay incentives, rather than remain at unsustainable wage rates, making employees more vested in the health of the company.

Often, management bears the blame for unrealistic expectations on the part of the employee base, failing to warn its employees about the realities of the balance sheet, Collard said. “Employees need to understand why they (must) become more efficient,” he said.

Not a conversation anyone wants to have, but necessary. Here’s Collard’s harsh truth: individuals are not his priority; the successful turnaround of a company is. If a company isn’t competitive, neither will survive.

Turnarounds à la Sciambi

Sciambi works with companies in the sub-$25-million range, he said. “I love those kinds of companies. They are short on bureaucracy and long on getting stuff done,” he said. He specializes in those smaller companies that need a hand.

His typical client, accounting for about 80% of his business, is a company that has either hit a revenue ceiling or has gotten into serious operational difficulties, he said. They usually want a doctor but need a priest, he said. One client had only 30 days of cash left.

The hemorrhaging of cash is the most typical problem of distressed companies, and must stop immediately, Sciambi said. Here, the introduction of an outside expert is often essential, he said.

“What occurs is either big egos or lack of objectivity” that get in the way of management being able to solve the problem themselves, he said. The board, founders and investors can result in a Bermuda Triangle of problem-solving: often their motivations aren’t in sync, he said.

A turnaround artist knows that cuts aren’t sufficient: they’ve got to make sure that the company has the tools in place to get sales up. Interims can drive that process best as they don’t let politics get in the way, Sciambi said.


Turnarounds are about reducing costs and increasing revenues. It requires a particular edge to get that tough job done.

The truth is, turnaround management has never been an easy job, even before presidential politics or the Great Recession. But today’s climate of cash-hoarding by both lenders and corporations adds to today’s challenge. Turnaround skills are as important as ever, especially as needed by small- and medium-sized companies like those depended on to make the U.S. economy, for one, hum.

According to Collard, turnaround experts are the answer for troubled medium- and smaller-sized companies that, in his words, “aren’t too big to fail.” The big companies might get government assistance, as seen in the U.S. auto industry, but the smaller ones that account for about 85% of economic activity are on their own. Turnaround interims can be just the answer.

See DealBook’s related article on the positive role of a PE shop on one company’s fate: http://dealbook.nytimes.com/2012/10/09/the-private-equity-wizardry-behind-realogys-comeback/.