1. Many turnaround consultants don’t want to turn your business around.
The reality of the restructuring industry is that many of the people doing the advising either don’t know how or don’t want to turn a business around. Why? It’s too hard and they don’t have the experience in actually running a business. Most “restructuring” or “turnaround” advisors are either accountants, bankers, or lawyers. They read numbers and words on a page. They read the Wall Street Journal or Barron’s and they watch CNBC™. They know a lot of technical financial or legal information, but they don’t know how to start, grow, manage or lead a company when it’s in trouble. They know how to put numbers in boxes. They know how to move numbers around on a page, so they can “restructure” debt. They know how to generate thousands and thousands of words for legal documents. They get paid by the hour. Whether a company is turned or liquidated the hourly rate is the same. In most cases, the only thing that matters is that the debt holders (typically the bank) get their money back (or are reassured that the debt will be serviced). After all, it’s the debt holders that sent them to your place of business. If they don’t keep them happy, they won’t ever see work from them again. For many turnaround consultants, their primary focus is keeping the bank happy. They can’t afford to be removed from their referral list. As for “fixing” a company, that’s a side note that is occasionally considered “nice.” If fixing it brings the bank back its money, then everyone is on board.
Turning a significantly troubled company around requires a tremendous amount of energy, skill at many levels, and luck. You have to marshal all of the employees, all of the suppliers and customers, and all of the assets. You have to keep the creditors and lawyers happy, so they don’t shut the business down. You have to get your arms around all of these parties and items, then you need to make everything and everyone better–quickly. That’s a lot of work that requires a lot of wisdom and a lot of knowledge about business. So, why would you want that headache when you get paid the same amount of money just to wind the business down—or more, if you file for bankruptcy? Be careful who you hire to help you with your problems.
Task: Interview turnaround consultants. Most likely the bank will give you a list of people they trust. Meet with them but try to find your own credible list to interview. You can start with the Turnaround Management Association for a comprehensive search of restructuring professionals. First, see if you connect with them personally. It’s a tough road ahead; you will need both a friend and a taskmaster. A lot will need to be done and a lot may have to change in your company. You need someone who is hardworking; tough but compassionate.
Second, ask them for a list of successful turnaround engagements. Have them show you, line by line, what they did to actually help a client fix their business or improve their situation.
Third, suspend judgement. The tendency is to think you need to hire someone who is an expert in your industry. The reality is that most likely you and your team know more about your industry than anyone you will ever hire. What you need is someone who is (a) an expert in business, (b) an expert at dealing with trouble, (c) optimistic about your chances of survival, and (d) able to help you rebuild trust with your lenders, creditors, suppliers, customers, and employees.
Don’t drag your feet too long and don’t be too upset at the cost of this phenomena. You are in trouble, the company is drowning, and you need a lifeguard to help you out of this storm as fast as possible.