Accomplishing a successful business turnaround is much easier said than done. For a small business without access to government bailouts, Wall Street lines of credit, or national media campaigns, the challenge can seem downright impossible.
In the following 10 steps I want to share a simple sequence for managing a marketing-centered business turnaround.
1. Meet with key leaders (and board of directors or advisers if applicable)
Before any change program can take place in a company, there must be absolute honesty about why things are where they are. A management team that is grounded in reality is an absolute must if the process is to end well.
2. Meet with employees
Discussing the new situation with employees is usually one of the most anxiety-inducing aspects of a executing a business turnaround strategy. The dangers are definitely real. Vital talent might jump ship, or productivity-draining misunderstandings about the turnaround plan may arise.
My most important recommendation is that you involve employees during the formative phases of your intended changes by developing clear metaphors and story lines that illustrate your company's strategic challenges and the set of strategic choices you face.
3. Meet with key customers
Meet with key customers (or call them) and draw out where their priorities are. Determine whether your business model and marketing strategy is clearly differentiated and perceived as uniquely valuable. If you find this is not the case, your earliest project is to develop a new brand positioning strategy and unique selling proposition (USP).
4. Scan competitors
Never ignore your competitors when crafting a new strategy or identifying a new marketing message. Mine your customers for competitive intelligence. Shop your competitors to identify areas of strength you can learn from or whether your organization needs to create greater divergence from their strategies.
5. Renegotiate vendor terms and financing terms
Make a list of your key suppliers and approach each to negotiate new terms. Don't be afraid to put pressure on your vendors. Look for new terms in areas such as pricing, volume pricing, customization, value added services, deeper integration with your systems, etc.
You could also try sharing the nature of your challenges with the vendor. Before you take this approach with a supplier, verify that your request will not bring a negative outcome like a downgrading of your credit terms or status. Don't share sensitive information if you think sharing that information could have adverse consequences.
6. Develop a Strategic marketing plan
Developing a strategic marketing plan is one of the most effective ways to execute a business turnaround. An effective strategic marketing plan expresses itself as a comprehensive marketing system within a business. It grants you greater management control by making marketing results predictable and predictable.
7. Create a Strategic Operating Plan From Your Marketing Plan
Asking the right questions can help you build a new strategic plan out of your redefined marketing direction. Some of these questions include:
What key strategic relationships can you turn into quick alliances for demand generation or cost reduction?
What human, technical, production and financial resources are needed to keep the promises made by your USP or brand positioning strategy?
Are the people you currently have up to the task in competencies, attitude and motivation?
What will be the key processes required to deliver on your new strategy?
How will you link the new strategy to your human resources strategy, processes and your available technologies?
Will the new strategic plan be sufficient to meet your earnings or revenue goals?
What specific programs and projects will ensure that the new strategic plan is executed?
What milestones or deadlines are associated with strategic programs and projects?
Who is accountable for what program? Do they know and agree?
Use a rigorous process of questioning, debate, analysis and follow up to make sure that your strategic plan is grounded in reality and is indeed executable.
8. Deploy Your Strategic Marketing Plan
I have taken part in many business turnarounds in my career, and time and again I noticed the same problems, regardless of whether the reason for the turnaround was a relatively minor situation or a reorganization after bankruptcy. Here are the ten steps that need to happen during any major business adjustment and some of the pitfalls to avoid along the way.
1. Assess the situation. Before a successful business turnaround can be implemented, it is crucial to understand what got the company where it is now. Providing that the company’s products or services are competitive, the issues affecting the performance of a sales team can range from poor management to an ineffective sales process to low morale, which is caused by any number of factors. Insight can be gained by getting close to the company’s sales force, sales processes, and customers to determine why sales are not progressing to plan.
2. Hire consultants. Ineffective management teams often say they need greater funding to correct the sagging business, but throwing money at a problem does not work. Those who created the problem in the first place will not know how to fix it, so providing them greater resources is a mistake: it wastes money and degrades employee morale.
3. Measure performance. Metrics should not only tell company leaders where they have been but should also be used to gauge future performance. Management should be able to clearly describe how the metrics it uses will predict future results.
4. Define a winning culture. Companies in need of a turnaround usually have an ill-defined corporate culture. When a company is charting rough waters, it is imperative that the sales team embrace a unified culture, one that will define success.
5. Know your core values. At the heart of culture are the core values a company embraces. Core values are like the Ten Commandments. They are simple action statements that define the principles the company believes in, not fuzzy declarations that can be interpreted at the whim of management. They should be published and posted throughout the company. Employees should understand the corporate commitment to them, and that disciplinary action will follow their violation.
6. Manage your most valuable resource with care. People are the most important component of any organization. Powerful investment groups don’t invest in companies; they invest in people. In a business turnaround, it is important to identify who stays in his or her current position and who must find a position elsewhere. However, most failing ventures have poor methods of measuring individual results, so care must be taken in this selection process. Making this determination is critical; powerful managers surround themselves with high performers.
7. Identify high performers. In the long-term, it isn’t so much who you fire as who you hire. To retain high performing employees, you must ensure that they can trust management’s word, that management has their best interests at heart, and that management is committed to distinction in all that they do. High performers want to be on a winning team, and if they think management can’t accomplish this they will look for employment elsewhere.
8. Do damage control.
There are several reasons you may have to reorganize the operations and other structures of the organization. Restructuring a company can improve efficiency, keep technology up to date, or implement strategic or governance changes made by, or mandated to, company owners.
1. Changed Nature of Business
In today’s business environment, the only constant is change. Companies that refuse to change with the times face the risk of their product line becoming obsolete. Because of this, businesses experiment with new products, explore new markets, and reach out to new groups of customers on a continuous basis. Businesses seek to diversify into new areas to increase sales, optimize their capacity, and conversely shed off divisions that do not add much value, to concentrate on core competencies instead.
All such initiatives require restructuring. For instance, expansion to an overseas market may require changes in the staff profile to better connect with the international market, and changes in work policies and routines to ensure compliance with export regulations. Starting a new product line may require changes in the system of work, hiring new experts familiar in the business line and placing them in positions of authority, and other interventions. Hiving off unprofitable or unneeded business lines may require changes to retain specific components of such divisions that the main business may wish to retain.
2. Downsizing
One common reason for restructuring a company is to downsize the workforce. The changing nature of economy may force the business to adopt new strategies or alter their product mix, making staff redundant. Similarly, cutthroat competition and pressure on margins from competitors who adopt a low price strategy may force the company to adopt lean techniques, just in time inventory, and other measures to cut input costs and achieve process efficiency.
In such situations, the organization will need to redo job descriptions, rework its team, group, and communication structures and reporting relationships to ensure that the remaining workforce does the job well. Very often, downsizing-induced restructuring leads to a flatter organizational structure, and broader job descriptions and duties.
3. New Work Methods
Traditional organizational systems and controls cater to standard 9 AM to 5 PM office or factory based work. Newer methods of work, especially outsourcing, telecommuting, and flex time require new systems, policies, and structures in place, besides a change in culture, and such requirements may trigger organizational restructuring.
The presence of telecommuting employees, temporary employees, and outsourcing work may require a drastic overhaul of performance management parameters, compensation and benefits administration, and other vital systems. The newer work methods may, for instance, require placing emphasis on the results rather than the methods, flexible reporting relationships, and a strong communication policy.
4. New Management Methods
Traditional management science recommends highly centralized operations, and the top management adopting a command and control style. The new behavioral approach to management considers human resources a key driver of strategic advantage, and focuses on empowering the workforce and providing considerate leeway to line managers in conducting day-to-day operations. The top management intervenes only to set strategy and ensure compliance; strategic business units receive autonomy in functioning.
Traditional management structures were bureaucratic and hierarchical. Of late, management experts see wisdom in flatter organizations with wider roles and responsibilities for each member of the team. Job flexibility, enlargement and enrichment are key features of such new structures, but successful implementation requires changes in the communication and reporting structures of the organization. While new organizations can start with such new paradigms, old organizations have to restructure themselves to keep up with these best practices to remain competitive.
5. Quality Management
Competitive pressures force most companies to have a serious look at the quality of their products and services, and adopt quality interventions such as Six Sigma and Total Quality Management. Implementing new quality standards may require changes in the organization. Most of the new quality applications strive to imbibe quality in the actual work process rather than maintain a separate quality control department to accept or reject output based on quality specifications.
In many cases, an organizational level audit precedes quality interventions, and such audits highlight inefficiencies in the organizational structure that may impede quality in the first place. For instance, reducing waste may require eliminating certain processes, and thereby reallocation of personnel undertaking such activities.
6. Technology
Has this happened to you? You needed to consult with a friend about an important matter, but when you finally met, you realized that he was hardly interested in your problem. Even worse, he half-heartedly gave you vague and remotely related advice. Could it get more frustrating?
Similarly, a CEO may feel that the board of directors does not help the company. She may be right — board meetings could be a waste of time; board members may be unproductive or burdensome; in the worst cases, lack of board cooperation may prevent a successful exit. Kevin Rose got an offer to sell Digg for $60 million a few years ago, but his board rejected it. Digg was sold for mere $500,000 back in July 2012.
Board ineffectiveness often stems from board nomination mistakes. Here are five big mistakes that are often made when choosing board members — and, maybe more importantly, tips on avoiding them.
1. Wrong People on the Board
Board members can be great resources who provide support, knowledge, and access to unique professional networks. Unfortunately, not all board members offer such value.
For example, some board members prioritize the interests of the investors or founders whom they represent far above those of the startup.
Scott Kurnik, an experienced entrepreneur and investor, advises not to nominate to the board anyone reporting to the CEO. Interestingly enough, he also suggests putting the founder’s best friend on the board.
Additionally, one should be careful of five types of dysfunctional board members as defined by Jack and Suzy Welch: The Do-Nothing; The White Flag (will do anything to avoid confrontation); The Cabalist (driven by personal agenda); The Meddler (dwells incessantly on details); and The Pontificator (only enjoys hearing himself speak).
How to avoid this mistake:
Carefully consider board nominees and ask for feedback from people who have worked with them.
Appoint at least one independent director, loyal to the company only.
2. Misalignment Regarding the Board’s Role
Boards of directors have many fiduciary and legal responsibilities. Still, boards often have additional roles, correlated with the venture’s stage.
At early-stage startups, members should support the management (without micro-managing it). For example, they may help guide product decisions or provide access to recruits, customers, and investors. Ideally, board members could also mentor founders. More established startups, however, may need a different type of assistance related to scaling sales, engineering, logistics, and other functions that no longer fit into a garage.
The above roles differ from those at publicly traded companies, where board members extensively monitor the firm’s performance and confirm that the management does not put its interests before the company’s (“the agent problem”).
Matt Blumberg, the CEO of Return Path, provides a useful summary of what makes awesome board members.
How to avoid this mistake:
Check whether the candidate has board experience with firms of similar stages and needs.
Discuss with the candidate expectations of the board’s role and responsibilities.
3. A Homogeneous Board
It is important not to form a board of too similar profiles (e.g., all are engineers or all have similar VC backgrounds) and to diversify your startup to confirm that the various required skills are in place.
David Roth, the co-founder of AppFirst, described recently how the need to balance the board guided his startup’s decisions.
Aileen Lee of Kleiner Perkins Caufield & Byers has an interesting argument, that the next board member should be a woman, especially if women compose a significant portion of the venture’s users.
How to avoid this mistake:
List the skills and experience needed from the board (Product design? Customer acquisition? Partnerships? User experience? A great rolodex?).
Consider rejecting solid candidates whose skills and experience are common within the board in favor of candidates who possess the missing skills and attributes.
4. Too Many Board Members
An entrepreneur once complained, “My board keeps on growing.” VC-backed startups often encounter this problem when a new round of financing entitles investors to board seats. Sometimes, “observer rights” increase the number of attendants even more.
At some point, a board’s growth has diminishing returns. For a startup, a ten-person board will rarely be as engaged and helpful as a smaller one will. Further, the logistics (assembling everyone, arranging one-on-one time with the CEO before board meetings, etc.) become exponentially more complex. Fred Wilson from Union Square Ventures thinks a board of five members is ideal. He recommends no more than 7 board members (two founders, one to three VCs, and one to two other industry professionals).
How to avoid this mistake:
Negotiate the number of future board seats entitled with investors in the shareholders agreement.
Prefer nominees who will agree to leave the board when it grows or when their skill sets become less relevant.
Consider building a board of advisors to access additional experience without increasing the size of the board of directors.
5. Poor Organizational Fit
