Saturday, January 28, 2017

Turnarounds (Business): How is a declining company turned around?

I've done them before - both hotels and motion picture theatres. 

The first question you must ask is, if this failing business didn't exist, would you build it from scratch and launch it today? If the answer is 'no', it's time to deal with reality.

Image result for lean on me movie

Whether it's a business in itself, or a unit or location of a larger business (e.g., a chain-owned hotel, or theatre - and if you can't run one right, you can't run a chain of them doing it the same way . . .), don't bother unless resources are ample. A turnaround is basically a 'do-over' of a business venture doomed to failure. It wasn't launched - even as successfully as it might have in any better times it might have had - on a shoestring, by someone trying to milk the last five bucks out of a $3.98 investment, and it won't be turned around by such a person or in such a manner. Very few can be turned around without significant commitment of present and future resources.

Which brings us to an accounting of that few that might - and this applies to all of them, whether significant recapitalization is necessary or not:  If it's a unit or location of a larger business (or even if it isn't), you need flexibility as well as resources. I don't want to hear it about 'company policy this', or 'company policy that', or 'this is how we do/have always done things': it's your company policies and the way things have always been done, that caused - or at the very least, permitted - your operation to get into trouble to begin with

I don't particularly care to pursue such adventures anymore - at least, not turnarounds per se. It can be rewarding and gratifying, if done successfully. But if you get too much of a reputation, within either a theatre chain or a hotel chain, as a guy who's able and willing to take on managing out a mess, that's the only kind of work that the people for whom you do it will want to give you. ("Why can't you assign me to a good one, that's in decent shape, that I can run a lot more easily; and maybe settle down in that town for a few years and have a life?" That's when you discover you're in a "too valuable in your present position to be replaced if you're promoted" slot.) Not all messes can be cleaned up successfully, and too many of those that can are owned or controlled by people for whom it cannot be done successfully. 

(We won't even go there with how some of them dispose of you once the turnaround is complete; when it's once again in good enough shape that they feel that anyone can run it, and you've suddenly gone from being indispensable to expendable: often, having in the meanwhile stepped on a lot of toes . . . Chrysler, remember, eventually fired Lee Iacocca. Gordon Bethune made the rounds at so many failing airlines that he'd have been unemployable but for the fact that he was so good at what he did at each.)

Right now we are pursuing such adventures (we're a new company, we have to take what we can get, and our best prospects for now lie with lender-owners); but it's agreed on both sides: only for a time. With a lender-owner, we're only asked to get it into good enough shape so that they can find a buyer. We don't commit to anything more.

With a client-owner who wants to buy a failing, existing property and turn it around - we don't do turnarounds. Remember the $6.4 million question about if this was a new venture that didn't already exist, would you launch it from scratch?  It's never going to be what it was before. That was what it was right before it began devolving into what it is now, so are you sure you'd want to turn back the clock?.  

Instead, it's a new venture.  We don't commit to anything less.

Originally appeared on Quora

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