Crisis affects everyone differently. The typical response is either panic, freeze, hide, or attack. In my experience, none of these responses will take you to the place you need to be. If you panic, your mind will go to the worst possible outcome. If you freeze, no answer will come. If you hide, you’re hoping that others will find the answer for you. And, if you attack without purpose and plan, you’re confusing activity with productivity. What’s the correct response?
Be calm. You need an open mind and patience to properly evaluate everything you are facing before you start making changes.
So, how do I deal with crisis on a daily basis, year after year?
Let’s start with what happens on the days that I am not working, since they are so few. When I actually manage to get a day without any clients, I sleep. If I can’t sleep, I find a way to escape into something completely mindless and menial. I’m looking for some remnant of innocence from my childhood. I look for popcorn, ice cream, and a walk in the park. Anything else—anything that resembles responsibility and adulthood—is just too much effort. Newspapers, bills, other adults—sorry, not today; it’s just a day I need to pretend the world does not exist.
Vacations? I can plan them…I will even go on them…but I never enjoy them. I have been on the phone and my computer all day, every day, looking out my window at some of the most beautiful beaches, mountains, and cityscapes around the world. You can’t ask a crisis to take a break. When you do this work, you are either in or you are out. There is no halfway or part-time measure.
So, what does 99% of my life look like when I’m working? It is a combination of juggling act, obstacle race, and emergency room. Something is falling, failing, or crashing at all times and I am racing to keep it in one piece before it and everything around it dies.
It is not uncommon to be overseeing multiple clients at one time. Often, I have been a chief executive of one company while advising other companies in crisis. Generally, we work in teams. I run my teams just like the military. There’s a hierarchy and there’s a structure. I need a lot of discipline and clarity within my organization or we would drown under the confusion and pressure from our clients. Our days are filled with dealing with one issue to the next. Aside from the usual graveyard humor, we don’t have time for chitchat about sports, and weather. In my world, you get to the facts quickly or get out of my office. I’m not there to comfort you. If you want warm and fuzzy, find another job or buy a dog. I have empathy for people, but in a crisis, I know that if I don’t move quickly, there will be no one around to care for. My primary concern is for taking care of the most amount of people; to do that, I need to accomplish a lot every day.
Most of my client engagements begin with this sentence: “We can’t make payroll in three days; can you help us?” It’s always that dramatic and always that real. Sadly, many people do wait that long to make a call for help. It’s not much different than people and their physical health. They change their bad habits only after they have had a heart attack or stroke.
My answer to the payroll question is always the same: “Sure,” which is followed by, “I will send over my contract. When it is signed, and I receive the retainer, I will start, and you will have your payroll.” Unlike an actual emergency room doctor, I need payment up front. I believe companies are living entities but they’re not actually going to die right that moment. Knowing that these companies are already drowning in debt, it would be foolish of me to extend them any credit. If they can’t make payroll, they have a long list of creditors, and I don’t want to be one of them.
The moment the contract is signed, and the retainer is in my account, the first phone call is to their senior lender. It’s generally a simple conversation. “I’m here. They’ve hired me. I need some time to get my arms around the situation. Can you release funds for payroll?” The answer is always, “Yes.” The lenders have lost faith in the current owners and leaders of the business, but they have trust in me and my team. Why? Because most likely I have worked for them in the past, and hopefully I got their loan repaid in full. It’s always about trust. If you have it, you have latitude to work. If you don’t, you won’t get far.
Once I have payroll, I have a few days to figure out what is actually happening at the company. My goal at this point is to turn days into weeks and then weeks into months. I know that if I can fix things to a point where I get “months” to work, then the chances for longer-term survival grow significantly. I’m never certain which way it will go. It might live or die, but in the meantime, I can pay off creditors, keep people employed, give suppliers time to find new customers, and keep money flowing through the economy.
I am always thinking about the long-term prospects for a company, but until a company is out of crisis the primary focus is on the short-term. We generally break a situation and company into smaller, digestible pieces. We’ll start with the next two weeks, then the next 30 days and, finally, the next 13 weeks. If we can see what the next quarter looks like, then we’ll move on to a longer period of time. In the meantime, the plan is to get through the day, every day.
As a crisis manager, each day begins with having to choose between bad and worse. I am never handed an easy problem. If it was easy, I wouldn’t be there. There are always layers of complexity and competing interests for each decision that I make. I have scarce resources and little time. If I pay one person, another person can’t get paid. If I fire people, others will be affected. If I only have enough product to ship to one customer, other customers will be delayed, and on and on. There’s never a right answer. It is the fog of war. No two people will approach the issues in the same manner. Even after I have finished working with a client, I will analyze and second guess my decisions for years.
In the meantime, I have to find a way to evaluate and decide as quickly as possible. Generally, I don’t have enough time to think through every option. Ultimately the only real choice that I have is whether to become cynical or to maintain some level of optimism. If I am cynical, my decisions begin to isolate and prepare for death. If I am optimistic, my decisions come with comments of support and hope.
My days usually start long before I am awake. Emails trickle in all through the night. Before I can wipe the sleep out of my eyes, I find myself staring at dozens of urgent or dire issues waiting for me to resolve them. I click through all of them, knowing that if I don’t answer them, the cries for help will only get louder as the day proceeds.
In the next couple of hours as the rest of the world wakes up, my laptop boils faster than my blood pressure. In the middle of a crisis, it’s not unusual to receive 60-100 emails per hour, every hour. I refer to it as “email snow.” They come in so quickly that there is a cascade across my screen. I try to read as many of them as I can, deciding where I need to intervene and guide. In each case, I am careful to be clear; otherwise, the confusion will only compound exponentially, which will mean more emails. The goal is to shovel the snow faster than it comes down.
Generally, by the time I am finished reading the first round of urgent emails, my phone will start ringing. Bankers, lawyers, owners, other creditors, and random angry or concerned executives and customers are calling. Everyone wants something. There’s always a list of demands and complaints. The demands always involve taking something from someone else, and the complaints are always against one another. I listen to everyone and I take notes of their issues. Then I try to manage their expectations while assisting them with their needs. This is probably the most difficult aspect of the job; taming the greed and anger. Everyone in and around this failing company feels as if they’ve been condemned to the beasts. They act as if they’re in the Roman Coliseum fighting lions, tigers, and bears. In reality, they’re fighting each other and they’re acting like savage wildlife. If I can’t calm this group and get them what they need, there’s no chance of survival for the company. And in the end, everyone loses.
Crisis, by definition, is ugly. People panic. They fear losing their jobs, their homes, their social status, and their families. As human beings we crave stability. We need predictability. People in and around a business need to be able to accurately see and walk straight lines. In a crisis, as the leader, I have to try to remove the surprises. I need to bring reassurance and order, and words are not enough. The F yous and email snow are waiting for me every day. I have to literally and figuratively get my arms around a business in crisis and deal with each problem as fast as possible. If I don’t, it will fall apart and no matter how hard I tried, in the end everyone will blame me, whether it’s deserved or not.
By the time I make it to the office, I walk through the company and one by one I am confronted by employees. Some hate me and some cling to me. Most are confused by my presence. “Are you here to fire us?” “Are we going to make it?” “Should I be looking for a new job?” One by one and sometimes in groups I tell them the truth of that particular situation. There is always the temptation to lie and give a convenient answer, but I have never believed in that approach. I believe in building trust by being honest. To get through a crisis, I will need help from employees. They are the engine and creative force that will move a company. I will offer guidance, but the power will come from the employees’ willingness to work through all of the chaos and change. Most are stunned when I first start speaking with them. Most never knew how bad the situation was. Most companies in deep trouble lied or hid the truth from their employees—it was just easier to live in denial. As I reveal the truth of their situation, the emotions pour out onto me. The messenger gets shot most of the time, and that’s okay. They’re in shock and they’re frightened. Who am I to tell them to feel otherwise? In their eyes, I am just a stranger that showed up wielding a knife. To help them survive, I may have to slice through the company and change their entire working environment. Why shouldn’t they be angry with me?
By the time I arrive at my desk, I take a break from the calls and emails and I move on to the next pile of misery and anguish—the stacks of lawsuits neatly arranged in one corner. Companies in crisis are under constant threat of litigation. Generally, before I start an engagement I ask, “How high is the pile of lawsuits?” They come from every direction; suppliers, customers, employees, lenders, and investors. Behind those lawsuits are dozens more that are mounting. Everyone wants the same thing—the one thing that I don’t have—money. With lawsuits, I try to buy the one thing they don’t want to give me—time. The discussion may be about right or wrong, but the real issues are time and money.
Every day, as I march through the barrage of issues and the onslaught of desperate people, the biggest challenge inside of me still is the battle between becoming cynical or remaining optimistic. The list of demands and confusion continues every day. Everyone is fighting. Everyone wants their money. Everyone wants me to find an answer to it. They don’t want the right answer; they want their answer. They don’t want it later; they want it today. They’re tired. They’re frustrated. They’ve been on this sinking and troubled ship for a long time and now they want out. The trouble didn’t start when I arrived; it started long ago. They’ve been through months—even years—of anguish, confusion, and loss. In this type of environment people break. They get worn out. They change in a bad way. They become desperate and they cut corners. They turn on each other, and trust is hard to find. I am lied to every day. The days are filled with opinions and half-truths, and I spend a lot of energy trying to figure who is telling the truth and whose perspective is real.
I am surrounded by people who built the company. They’ve been there a long time. They were there when times were good—big parties, big bonuses. They claim to know what’s wrong and how to fix it. But now times are bad, and they were the ones managing the company. They have to be wrong on some things, but they can’t be wrong on all things because they helped build the company. The challenge is to figure out if what they’re telling me is either right or wrong at the very same time that everyone else is yelling at me and threatening to sue me and fire me from the job.
Every day is a fight from all directions. I am there to save everyone, but they’re overwhelmed with so much emotion they can only think in terms of anger and fear. They want all of this to go away, including me. It would be so easy to lash out at them or walk away. I could easily say, “The company should be liquidated.” The reality is that whether I am saving a company or liquidating it, I bill the same rate. My fees don’t change. As people and issues are raining down on me it would be easy to say, “Forget it. It’s not worth it. Fire everyone. Shut it down. Sell off the assets and go home.” But I don’t.
In the middle of that ongoing battle between cynicism and optimism in my mind, I remind myself that I am there to save them from themselves. I have to keep moving forward.
By early afternoon, key employees and key customers find their way to me. They’re good and they know it. They’re loyal but they too have families. In their minds, I am a stranger at best. At worst, I am the enemy. Somehow, I have to earn their trust. I have to lay out the complete and honest picture from my perspective. And, hopefully, I have a path to take the company out from crisis and turn the situation around. If I do and they believe me, they will stay. If I don’t and they’re uncertain—if they are unable or unwilling to believe me, they will leave. One by one, as the best and brightest employees and key customers leave, the crisis will deepen. If this happens, the prospect for survival moves further away.
As I approach the end of a day, fatigue makes the debate in my mind between cynicism and optimism get louder. The constant nattering of negative, horrible, bad, and worse information starts to wear me down. “Can this work?” “Can we keep it together?” “Do we cut?” “How far do we cut?” “When do we cut?” “Where are the opportunities?” “Where haven’t we looked?” “Should we sell everything?” “How long do we have before the company has melted down beyond the ability to pay its creditors?” “Should we just begin an orderly wind-down now?”
As this frenetic negative information reaches a boiling point, I then remember that I haven’t eaten lunch. Often, I think that if I eat something I will see things differently. But, then I remember that when I am working nothing tastes good and I have a hard time getting food down. Usually by this point, I am exhausted, but I am nowhere near to being done. Another day has passed, and more problems are certain to have come up that haven’t been brought to my attention yet.
Most likely, I will have at least one more conference call, usually with creditors and then with employees. I will review the most recent numbers; thousands and thousands of numbers. “Where is the cash?” “Are we burning cash?” “How much are we burning?” “Where’s the fix?” “When will we be cash flow positive?” Over and over, line by line on countless spreadsheets. If one number is wrong, if one formula is misplaced, all credibility will be lost in “the numbers” and it will trigger another round of verbal abuse and calls for another meeting to review “the numbers.” In a world of chaos, in a company filled with incompetency and inaccuracies, I have to find a way to make “the numbers” perfect. If not, the world will continue to spiral out of control.
As the evening begins, I resume shoveling of the snow on my computer screen. I answer emails, respond to problems, give directions, and answer calls for help.
When I manage to eat dinner, it’s terrible. All sense of smell and taste have been deadened by the stress of the day. Nonetheless, I still eat. I try to pretend that I am enjoying the food and my surroundings. I watch other people smile and laugh. I watch them nod in approval as they listen to each other’s stories, and I am exhausted. I know that even when I am successful, there will still be a long line of people who hate me. Try enjoying a meal with that thought in your mind.
By the time I lay down in bed, the entire day swirls around in my head and I continue to try to find answers for every issue and every person. I know that optimism is the path to creativity. It is the channel for inspiration and hope. Optimism is what will bring people together to help save and rebuild the company and the lives of countless people. Every day, this is the last thought that I try to hold in my head because I know that tomorrow the fear and panic will begin before I even rise.
I was interviewed by my next client while I was working as CRO for the automotive company. It was spring of 2008. Two gentlemen in their mid-50s appeared in my office, and they began by laughing at my Spartan environment. I had a modest office space with three rooms, including a meeting room and space for an assistant. It was located in a building built in 1929. Two-thirds of the building space lay vacant; it was quiet and mostly abandoned. I spent most of my time at clients’ places of business, so I didn’t feel the need to waste money on things for my ego. There were no pictures hanging on the wall. I didn’t have an assistant. I had a coffee machine, but it wasn’t plugged in. I had the same bottle in the water cooler for six months. I had a desk and electricity and the phones worked, and that was all I needed. My prospective clients sitting in front of me found all of this amusing. They thought I was cheap and certainly not successful. I found their giggling and musings sad.
Soberly I said, “Keep looking around. This is your first business lesson: spend money where it matters most to the customer. I’m a crisis manager. Do you care what your emergency room doctor looks like? The only thing that matters is that I can help you with your problems. So, what are they?”
That got their attention. Within a minute they told me that in a matter of two years they’d gone from being entirely debt-free to having every asset committed as collateral for loans. And, according to the company’s balance sheet, they had lost their entire net worth, which was somewhere north of $30M. After an hourlong discussion, they changed their opinion of me and decided to hire me to conduct an independent assessment of all of their operations and managerial staff, hoping to construct a turnaround plan out from under this mountain of debt.
They were the fourth-generation owners of a 105-year-old furniture company. They principally made sofas and lounge chairs. Two years earlier, they had lost interest in running the company, so they appointed a trusted friend and longtime employee, the former CFO, to be the CEO. He was a nice man but a complete train wreck of a CEO. The company had been experiencing many operational problems for years. Rather than address and fix them, he just kept borrowing money to finance the losses. Eventually, he ran out of assets to sell or borrow against. The company continued to burn cash, but no one knew how to stop it.
As we conducted our assessment we discovered a severely bloated company. Years and years of existence had led to a sense of entitlement for many people. There were factories in five different states. In total they had 17 different legal corporations. They did everything from importing and manufacturing to retailing and franchising, and they even owned a lumber mill. There were 27 different bank accounts. There were secretaries for secretaries. Company-funded country club memberships were normal. The balance sheet included items such as “inside showroom.” When I asked what that meant they explained to me that certain managers and certain members of the board had their entire homes furnished with custom-made furniture. They didn’t buy the furniture; it was a benefit for their position. Every couple of years, they would refurnish. The bank, believing these were legitimate store showrooms, lent against the furniture as “current inventory.” Everywhere we looked we found excess, and everyone had contributed to it.
Teamsters and steelworkers’ unions had been at one location since the ’50s. They were tough. They had seen the owners’ families make significant fortunes for decades; they never believed them if they told the workers “times were tough.” The unions held to their work rules tightly. If a senior worker called out, a junior worker could not take his or her position—not even for the day. Only a person of equal and better experience could fill in. As a result of rules like this, production was painfully slow and behind schedule, which only served to put more pressure on cash.
We put together a turnaround plan that involved no magic or prayers. It was basic business. Consolidate under-utilized factories, cut all excess overhead, reduce SKUs significantly, focus on better margin offering, and manage to better accountability. The first stop was the unions. We asked them to help us with some concessions on benefits and make a few changes to work rules. It was a simple but solid plan. It would turn a $125k per week cash burn to a positive in 12 weeks. In a year, the owners would be well on their way to having their net worth re-established, in a leaner, cleaner, and faster company.
The owners didn’t have the stomach to fire a few hundred people. Many employees already questioned their motives, and this wouldn’t help, so the owners asked me if I would assume the CEO role for the duration of the turnaround plan. I agreed on one condition: that my team also had the COO and CFO roles. I wanted only my team, so we could work as fast as possible without any politics.
We presented this plan to the bank and the bank loved it. They claimed it was the most reasonable and achievable plan that they had seen in years. In the world of troubled loans, that was high praise.
We began the next day and moved quickly. In the first week, we announced the closing of one plant, resulting in 400 layoffs. In that same week, I fired nine of the top 12 executives.
In the coming weeks, everything moved along as planned, until we hit a major roadblock. We discovered that we had $2 million worth of obsolete inventory. This inventory was listed on the books as current inventory and the bank was lending against it. There was no way this inventory was current. It tied into the design industry and it was at least five years out of fashion. I couldn’t understand how this could have happened. The bank had auditors and the owners had their own independent auditors. How could two sets of auditors miss millions of dollars of inventory for years? When I looked into it, a conscientious employee explained to me that none of the auditors had ever been into the warehouse. They showed up every couple of months, but they always went to the local bar with the manager. Beer is a great distraction. Now, as CEO, I had inherited this problem.
There was no way I couldn’t report this to the bank even though their auditors were apparently fine with it. I reported it and the bank barely paused to reflect on the fact that they helped create this problem. It was their auditors who had helped perpetuate a fraud for years. They could care less. They were one of the biggest banks in the country; they made the rules. Instead of finding an agreeable and gentle path around this problem, they simply decided to re-categorize the inventory and immediately remove $2 million from the borrowing base. Instead of rewarding my honesty, they punished me. Legally and technically they were correct, but they would have never known if I didn’t bring them the information. I didn’t expect them to keep lending at the current rate, but I did expect that we would work together to find a less dramatic way out of the situation. With a reduced borrowing base, I would not have enough cash to run the company. A challenging plan now became a crisis just because I had decided to be honest.
I put my sense of injustice aside because we quickly had to come up with a plan to deal with the immediate shortfall of cash. All of the assets were already secured by the bank. We couldn’t liquidate any of them without dramatically shrinking the company. The only remaining answer was to cut. We had to make more cuts in staffing and we had to simultaneously cut everyone’s pay. It was desperate, but we didn’t have a choice. If we didn’t, we wouldn’t have enough cash for another week. So, we concluded that there would be more layoffs and a 7% cut in compensation across the board. As a gesture of good faith, I cut our firm’s fees by 20%. But that gesture was almost irrelevant to thousands of people. We still had 1,300 employees, and fear continued to build as word spread that more layoffs and cuts in overhead were coming.
The next day, a crumpled note appeared on my desk. It read, “You won’t make it to your car tonight.” The director of Human Resources asked me if I wanted a security guard or police officer for the day. I knew people were frustrated and confused. This company had been part of the community for more than a hundred years. It had seen lean years but certainly nothing like this. The entire furniture industry had been under pressure for a long time. Many manufacturing plants had closed and their work was sent overseas. Now, thousands of people were fearful that this may be the very end of their company. For many of them across the country, there was no other option for employment. This was the end of the line. If the company closed, they would have to relocate and move their families to another city. They were scared and they were lashing out. I understood where they were coming from. They saw me as the undertaker that came to put the final nail in the coffin.
I looked at the director of Human Resources and said, “No. That’s okay. I don’t need security. I want them to look me in the eyes when they try to kill me.” I had grown used to death threats. I knew people were angry and even dangerous, but I had a job to do. I had no time to bathe in their fear. I had to lead by example, with courage. My biggest concern was trying to figure out how I was going to raise $2 million to save the company.
We announced the cuts and I concurrently begged the bank to discuss a new agreement for the credit line. Without any additional assets in the company to borrow from, they needed to come from someplace else. The only place left that we could access in a hurry was from the owners. So, along with our new attorney, a sharp, strong, and quick-witted friend of mine, I negotiated a new deal that included a limited personal guarantee from the owners that would make up the difference in the shortfall of cash. They were relatively wealthy, but they had spent most of their money on things other than the business; namely, cars. Together, the two owners had 22 cars totaling several million in value. This was good news for me because they were assets I could borrow against to save the company. However, when the banker saw this on their personal financial statement he became furious. He didn’t think that he should finance the company when the owners had millions in recreational vehicles. He changed his mind and now believed that the owners should sell the cars and inject the cash into the company instead of just offering a personal guarantee. He had a point, but we had already had a deal and we were out of time. The company desperately needed the cash. He didn’t care. He backed out of the deal, then the owners became frightened and they too walked away from any other possible deal with the bank. Without the bank’s additional funding, they were unwilling or unable to put more funds in.
We had a solid plan and we needed maybe seven more weeks to reach break-even. Everything was demonstrable and achievable. But here I was stuck in the middle of grown men acting like children. A few days earlier, everyone was in agreement. Now, because one banker had lost his temper and the owners were reluctant to part with their toys, this company would be killed. To this day, I don’t understand why they didn’t sell their cars in a hurry. And, similarly, I don’t understand why the bank wouldn’t accept them as collateral.
I pleaded with both sides. I begged them to be reasonable. I tried and tried. I just asked them to be practical and agree to the plan that they had previously agreed to. I wasn’t asking for anything more. Operationally, nothing had changed. The company would hit its targets and return to profitability in a few months. Success for everyone was well within reach. But, I got nowhere. Everyone stopped listening to me. They threw a tantrum and hid in their offices sucking their thumbs. Each day passed, and cash ran dry. Within two weeks, I didn’t have enough money to fulfill existing orders.
The banker, my former friend, stewed in his own arrogance and power as he watched the company’s cash run short. Each day, he directed his subordinates to tighten the credit as our sales shrank. We were then unable to buy enough supplies to build any sofas and chairs for either existing or new orders. Without cash or credit, our sales eventually went to nil.
Unable to make or sell anything the bank had effectively killed the company. We had just enough money to make one final payroll. At this point, the bank then asked us for a meeting, on a Friday at 4 p.m. Our lawyers were present. My sharp-witted friend did all she could to try to persuade the bank and their attorneys. They were immovable. All we could do was listen carefully as the bank told us that they were pulling funding from us at the end of the day.
It was a legitimate company; there was a legitimate turnaround plan in place. We needed 60