The stress test: leading with integrity, even under fire
In my near quarter-century in the IT sector, almost a decade of my experience has consisted of doing “turnaround work” as a sole practitioner. “Turnaround work” is a term used to describe working with distressed companies that are close to insolvency and desperately trying to avoid bankruptcy.
My job was to work with the bank (usually the troubled assets team) and other folks such as bankruptcy attorneys to help the business owner navigate a situation they were ill-prepared to face.
In that time, I worked with 101 companies across both product and service industries. The largest was approximately $30 million in revenue and the smallest around $3 million. I noticed that there are quite a few ways to get a business into financial trouble and each one had its story. Since I worked with 101 companies, it seemed there were 101 ways to become a stressed/distressed business. It’s under these conditions, when the owner has everything on the line, that we see leadership play out in real time.
Under severe stress, a lot of good and bad leadership behavior comes out. It’s important to repeat that few are prepared to go through a business crisis leading toward bankruptcy. Most do not know what it takes to save a company. And to a person, they are all good people – they simply wanted to run their own business. But that’s hard. And most of the time it doesn’t work out, and a large majority of small businesses fail.
Here are some observations in working with those 101 companies, their owners, and their management teams.
Poor Leadership Traits
- Place blame everywhere but on yourself
- It’s generally not the fault of staff if the company is in decline; and regardless of the industry, economy, weather, suppliers, or business cycles, it’s your job to lead the company given all these challenges, because that’s what business leaders do. Every successful business has its own combination of challenges to navigate. So, don’t think the world is uniquely stacked against you. It’s not. It’s stacked against every business.
- When the business is in decline, assuming that doing more, faster, is the solution
- Doing more of what got you in the distressed situation usually isn’t the solution, so quit doing it. Looking at and dissecting forecasts and sales pipelines and analyzing product costing and margins and drilling deeper into detailed reports simply won’t move the needle, especially when you need to move the needle fast. It was amazing to me that the most desperate leaders seemed to spend most of their time in their office “looking at spreadsheets.” They seemed stuck in hope mode, as if they looked at and modified numbers enough, the business would turn around. It didn’t, and it won’t.
- Not deciding is a decision, but under stress, it’s easy to forget that
- It’s time to be decisive. It’s time to do something different. Figure out how to fix the problem or find someone that does. Gain concurrence with your talented and motivated staff and move forward immediately. Imagine that you only have 24-48 hours and get started. Because if you don’t, the bank or another major creditor may make a different decision more in their interests than yours. Don’t get to that point simply because you won’t decide.
- Not realizing people know more than you think (and they are watching – especially now)
- Your banker. Your accountant. Your suppliers. Your customers. Your staff. I have a saying about that: “Ugly doesn’t stay in the boardroom.” Even more, your entire family knows something is wrong, because remember, you’re under extreme stress, and you can’t hide that form of ugly either. Plus, it can kill you. Literally. So, don’t think you are hiding anything from anybody – it will make it easier to do what needs to be done.
- Not being open and truthful
- As I mentioned above, people are watching. If you don’t communicate, they will make up their own version of the situation, and it will likely be wrong. But that doesn’t matter, because you’re not talking. So, say something: what you plan to do, how you plan to do it, when you expect results. Be truthful and open. If you tell a supplier you will send a check for $100 dollars on Wednesday because that’s all you can afford to do for now, do it. And come Wednesday, tell them you did it and when to expect the check. Follow up to make sure it happened. It seems simple and small, but it’s big and important. Because, as a leader, at the end of the day, all you have is your word. And hopefully a company in recovery. And if it’s not, you still have your word, and that will go a long way in your next chapter.
- Forget that others want to help, and abuse them when they do
- People really do want to help, so don’t be ashamed to ask for it. Remember when you told a supplier you’d pay $100 by Wednesday and you did it? Well if the supplier is reasonably big, then you aren’t the only one saying you’ll “pay $100 by Wednesday,” but you may be the only one that actually does it. Believe me, it’s true, and it builds a trust that pays lasting dividends and makes your partners much more willing to help if you’re willing to maintain honesty and transparency. This works with suppliers, bankers, customers, staff, family, and friends. When you do get help, be grateful and appreciative; and say so to those offering and giving help.
Good Leadership Traits
- Do the opposite of the bad traits listed above
- Truly. Re-read them and think about doing the opposite.
- Figure out a solution or find someone who can
- This is worth repeating, because remember, you didn’t go to school to learn this. Even the school of hard knocks doesn’t teach you how to deal with this situation. Even if this was taught in school, you’d be acquiring book smarts, not hands-on, practical knowledge. Find someone who has been there, done that.
An illustration of integrity
By way of example, a residential home builder in one of the fastest growing suburbs was building 200-250 new homes per year during the years leading up to the great recession. To do so, it became critical to also own the land, develop it, and then have lots available for sale along with selling the new home. This builder held multiple developments and raw land in anticipation of the economy remaining as it had been for many years. Surprise! The housing market bubble burst and having the capacity to build so many homes so quickly was no longer an asset, but a huge liability. Having loans against numerous developments and acres of raw land quickly went from a net positive to underwater status overnight.
The business owners weren’t in any position to address this new reality. They saw the net worth of all their holdings disappear in a matter of months. There was no traditional approach to business that would save them.
Their solution with their lead bank came not because they had a balance sheet that would support a workout, they didn’t. Nor was it because they had the personal net worth to recapitalize the company. It simply came down to the fact that in every dealing with every bank, land-owner, and customer, they simply did what they promised: built and stood behind wonderful homes.
On this basis, and this basis alone, they were able to commit to the bank that they would continue to offer the same level of honesty in working through the tough times. My argument to the bank was that if they were to bet on any company to make it through the tough times, it would be the one that had done it right all along. Even though nobody quite knew what “doing it right” would look like during the coming economic crisis, the bank trusted the word of the those who had been trustworthy all along. That doesn’t mean the bank didn’t follow the “trust but verify” concept, but that the verify part of the deal was easy, because the owners already had a do-what-you-say mentality ingrained in their corporate DNA. That company not only survived the great recession, but it is now thriving again.
While these observations occurred in highly stressed environments, they also apply well to your day-to-day business, as if that isn’t stressful enough. While there are many other good and bad leadership traits, these seemed to be the most relevant in helping a company avoid going over the cliff.