One business we invested in I had never heard of, and in 45 days we had completed due diligence, borrowed what was needed, and acquired it from departing owners. That’s the fastest I’ve ever done it. Great business, humming along, looked good on paper; that’s why you paid a premium for it. Now it’s on you to figure it out and generate a return to justify the premium. The game clock has started. Clock’s running. Tick tock.
Another business we acquired in a bankruptcy court, not the kind where the business is still operating, but dead stop bankruptcy. The eerie kind where you walk into the factory and it’s dark and the work gloves and safety glasses are on the bench exactly where the operator left them before he got laid off. You actually outbid other parties for the right to own something that has zero inertia. You wanted it, you got it. Now what? Clock’s running. Tick tock.
As a young pup you get what you think is a great career opportunity. Everyone dreams of “P & L Responsibility.” Then you find out it’s not exactly a dream come true. Four manufacturing plants, and three are on strike. The veteran union guys are all gone and prior leadership has brought in a bunch of “replacement workers.” Making crankshafts on a lathe is dicey enough with seasoned operators. So it’s up to you to figure out how to get the “P” out of the P & L, because right now it’s all “L.” Clock’s running. Tick tock.
How do you create wins, quickly?
Step 1 – Eyes Don’t Lie
There’s a lot of leverage in getting on the field fast, learning the game, and moving the chains. Step one, use your eyes. Look around. If you know what you’re looking for, looks are rarely deceiving. How many cars are in the parking lot? Is the building decent, clean and reasonably neat? Is it a wreck? Do people look reasonably happy or nervous and scared? What do the products look like? Do they look appealing? Are they lined up neatly, or in a jumble? How do the offices look? Kickoff hasn’t even happened yet and your eyes are already writing the scouting report. Tick tock. Look and see.
Maybe your eyes tell you things look too good. Sometimes beautiful offices and beautiful factories indicate overspending on things that may not matter. I have had more than one consultation with an owner apparently bleeding red and looking for a lifeline, or advice of some sort, and he’s entertaining me in an office that looks like the bridge of the Starship Enterprise. Customers don’t buy your buildings and your offices, and significant issues can lurk behind impressive facades. On the other hand, some of the least glamorous factories and offices I have seen have housed terrific, profitable business models generating impressive profits. Your eyes can see, and experience will see through a business. Visual senses build a visceral understanding.
Step 2 – Learn the Fundamentals
When your eyes have had their fill, dive into the mechanics of what creates points on the board, the origins of income and cash. How is value created? Which transactions generate cash flow, and which don’t. Is there enough cash to maintain the capital structure, service borrowings and reward equity holders. Is there enough cash to reinvest and grow? If the business is hitting a wall, where is cash hidden, or stuck? There are always opportunities to do better.
But if you really want to understand cash, don’t just look at the dollars. Customers don’t buy dollars. They buy stuff. You won’t win the game staring at the statistics; you have to see how the ball moves and why. What plays create yardage and which get blown up. Understanding the mechanics of value creation starts with products and similar stuff. So, follow the stuff. Get to know who buys what, and how many, and when, and why, and why they buy more or less. Suppliers don’t sell us dollars either. They sell us stuff that we add value to, supposedly. You can denominate all the stuff later, convert it all to dollars, sure. But dollars tend to make all the physical stuff start to look the same, all just dollars. The granularity of commercial transactions is clearer if you understand the physical transactions. Some may be winners, some less so. Why? It’s easy to let your understanding of the stuff be hidden by the dollars. But it’s the stuff that creates the dollars. If you understand the stuff and how you can manipulate it, you can start to drive the dollars.
Step 3 – Develop a Game Plan
The clock is running and the game is already underway, and understanding the business model, the financial dynamics, the market dynamics, starts to paint a picture of the stress points and the opportunities. How sustainable is the current model, what’s it built on, what’s it vulnerable to. You start to see which transactions pay the rent, which drive the business, and which just came along for the ride.
But one thing is certain, whatever it looks like today, you’re not getting paid to maintain the status quo. Call it continuous improvement, call it a turnaround; there are a lot of euphemisms out there, but the clock is screaming “win,” not “maintain.” So Step 3 is figuring out what plays you’re going to run to generate more wins. Armed with a real feel for what drives the financials, you need a game plan. There are plenty of planning paradigms out there to help you build one. No one of them is perfect or sufficient on its own.
Keep it simple. There’s life on the inside of your business and life on the outside, and a coherent game plan comes from lining those two up. On the inside: what are the strengths and capabilities you can build on, and what are the limitations and compromises you’re stuck with, at least for now. Look at everything you’ve got, people, processes, products, systems. On the outside: what’s happening in the market, with the competition, with the customers, the distributors. These are all things you can find out. The trick is to ask, and then actually listen to what’s behind the answer.
Step 4 – Find the Mismatch
Games don’t get won by changing the rules. They get won by finding the mismatch the other team hasn’t noticed yet, a linebacker who can’t cover your slot receiver, a corner who bites on play-action every time and calling the play that exploits it before they can adjust. That’s Step 4. You’ve got two lists now, the inside list and the outside list. Somewhere between them is a mismatch nobody else on the field has spotted.
Maybe it’s a capability you have that the market doesn’t know it wants yet. Maybe it’s a competitor who’s slow to adjust, still running last decade’s defense against this decade’s offense. Maybe it’s a customer segment everyone else is covering with a zone when they need a man on it. Whatever it is, it doesn’t show up on either list by itself. It shows up in the gap between them, and finding it takes creativity and insight, your “mind’s eye,” your imagination. That’s the X-factor. Leadership “sees” what’s not there, but could be.
Some mismatches are worth a quick, tactical play. Call it, run it, bank the yardage. Others are worth building a whole offense around for the next few seasons. Good leadership isn’t the mechanic who just keeps the current game plan running. Good leadership is the coordinator upstairs who sees the mismatch developing three plays before it happens and calls the shot that turns it into six points instead of four yards.
You’re on the clock. Eyes don’t lie. See it, imagine it, and create it before the defense does. Implement. Execute.