Business failures are often caused by poor leadership. During a business’s growth phase, a landgrab mindset frequently takes hold that steers companies to new geographies, solutions, channels or customers. However, when conditions change – perhaps strategic miscues, shifting product demands or technological innovation – many companies that grew indiscriminately find themselves riddled with inflated costs, poor strategic focus and ill-conceived products.
Given the high stakes and peculiarities of managing a troubled company, corporate turnarounds are complex and often intimidating. To be successful, any attempt must start with having the right leaders in place.
In selecting leadership for a troubled company, it is tempting to quickly ‘hire and fire’, as the private equity owner seeks to avoid writing off the investment and/or recoup their investment. However, before anything else, one must start by conducting a basic investigation into a few key considerations.
- How bad is it? It is vital to gain a general feel for the current state of affairs and how rapidly the situation is deteriorating. The exact nature of the problem can vary widely and influence the desired timeline in selecting leaders for the turnaround.
- Where do we go? A clear turnaround action plan is critical for hiring towards that end goal. Pathways forward may include product shifts, strategic pivots, sales reorganisations, new market entry, retreating from non-core markets and cost reduction.
- Who do we need? One size does not fit all in turnarounds. Every company has
idiosyncrasies in terms of its industry, goals, operating history, organisational structure and cultural values. For example, the needs and structure of a multinational energy company are vastly different to those of a niche, regional SaaS software provider.
Ultimately, what binds turnaround executives together is an objective to not only survive but prosper. This requires leaders with enough industry know-how to execute the plan successfully – at least one wise soul advising or leading the core turnaround team is essential. Companies devoid of this expertise often face too steep a learning curve or misread a market’s evolution. A lack of industry depth can result in leaders making unrealistic promises that go unmet and, moreover, may lack a relevant network of talent to pull from.
Turnaround leadership must be skilled at examining a troubled company with thoroughness and objectivity, determining what does and does not need repair. Leaders need to recognise that problems are not always what past executives indicated, and that success hinges on both assessing key issues and developing market differentiators that others previously missed. Leadership must realign the company’s resources to execute on the new direction forward.
People management is essential to ensure finger-pointing between functions is removed. There is a proverbial new sheriff in town and cross-functional teams can push in tandem on cross-cutting initiatives, such as organisation redesign, role clarification, simplification and the implementation of new company policies. The common language and logic created here will build organisational strength that prospers well after the completion of the turnaround.
Once a new course is charted, decisiveness and prioritisation become paramount, which requires excellent short-term planning skills from leadership to immediately focus the company. Crafting action-orientated, detailed and accountable short-term plans can be more art than science, but effective turnaround leaders develop these plans to simplify key goals, achieve stabilisation and avoid further time decay. The best leaders are flexible and able to readjust their short-term priorities, for example, by placing deeper emphasis on daily activities while maintaining focus on end goals.
Leaders in any troubled company must have a strong grasp of the resources needed to execute a turnaround. Expertise in cash management – deciphering how a company spends and what investments generate positive ROI – is essential knowledge. Regardless of the company’s pricing model, its leadership team must be adept at forecasting and managing short-term cash flow. They need to identify avenues that free up internal sources of cash via working capital reductions and, if possible, asset realisations. It becomes a balancing act of maintaining an efficient operational structure while continuing to prioritise the needs of the customer.
Ultimately, everything must be verified by the customers. Businesses exist to supply a service or product and sometimes poor leaders will insulate themselves and over-index in crafting a business strategy at a distance. However, great turnaround leaders exhibit a passion to hear it ‘straight from the horse’s mouth’. They seek market feedback and are savvy at leveraging key customers to help shape the company’s redirection. Loyalty can also provide a crucial base of customers who become references for new business.
Great executives are often more successful in leading a turnaround after learning from past errors; the battle scars and lessons learned from prior situations are invaluable. Though mistakes are made in every turnaround, understanding the characteristics of a strong turnaround team can help put the right people in place and cut down on the frequency and scale of these missteps.
Jon Bennett and Alan Borenstein are partner and consultant respectively at executive search firm Roar Group. The company partners with private investors and technology companies to identify and deliver high-impact leaders for both transformation and growth settings.