Surviving Zero Revenue: Thoughts from a Turnaround CEO

Surviving a period of zero or near zero revenue is extraordinarily difficult. The fundamental challenge is how to use time and capital purposefully. Most businesses have multiple constituents with diverse and conflicting interests. There is no one correct course of action. What is beneficial to one constituent is likely to be harmful to another.

Consider the following: The shareholders, owners and founders of a business have invested their own capital, have taken risk and have worked hard to create equity value. These owners could be individuals, institutional investors, private equity groups and hedge funds or could be a publicly owned company. They could be US citizens or foreign entities. Should the protection and retention of owner and shareholder value be the primary and controlling objective?

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V.U.C.A. Helps Companies Deal with Dynamic, Shifting and Challenging Situations

Our world, our universe is characterized by constant change. Stars are born and die, storms transform the landscape, nations rise and fall, people change over time. In the business world economies grow and collapse, business models evolve, industries transform and even the Top 100 list of leading companies completely changes in a matter of a few years.

But sometimes the speed and scope of change is extremely rapid, its consequences unforeseeable and unpredictable. This makes planning and decision making highly risky because it is so difficult to see what the future holds. “Everybody has a plan,” said championship boxer Mike Tyson, “until they get punched in the face.”

To help explain the often sudden, fluid, rapidly evolving and dynamic forces of change – that “punch in the face” — the U.S. Army War College created the term V.U.C.A. to describe and ultimately deal with highly dynamic, shifting and challenging situations.

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What Bad Loans and Management Shortfalls Mean for Investors

U.S. Banks are growing concerned — if not alarmed — and are reevaluating just how lax they are when it comes to handing out commercial loans. With sour loans on the rise, that’s not a pretty picture for companies that rely too much on credit lines or commercial loans. This is, in essence, a self-imposed business risk, as they are more dependent and susceptible to any fluctuations that occur.

A recent Financial Times article reported that non-performing loans increased by 20% at ten large commercial lenders. How much of an impact is that on the bank industry exactly? According to the Financial Times analyst, that’s a hefty $1.6B in the first quarter alone, a significant shift from credit quality since 2016, an era where the dust had settled from crashes and subsequent defaults on loans. The future started looking bright. Lending portfolios and credit quality began to improve. 

With merely three years of positive momentum, fast forward to present day and all that has changed and not for the better.  “Since most businesses utilize a credit line or other commercial loans, any slowdown will impact all types of commercial lenders – banks, asset-based lenders and factors,” said Yoav Cohen, an interim executive who has spearheaded eight turnarounds and liquidations, each one successful in paying off secured lenders in full. Cohen has seen it all, serving in roles as varied as interim CFO, COO, and a Chief Restructuring Officer.

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Signs Your Struggling Business Needs Help

We were having a conversation with an executive recently who shared about their experience parachuting into a business that was struggling with operational inefficiencies.

This executive, like many interims, kicked off the assignment by meeting face-to-face with the management team and employees to learn how the business functions, what’s working, and what isn’t. Their findings would turn into an operational roadmap of the business, where they would set out and implement a go-forward plan. When meeting with one team member and learning about what they did, the executive pointed to a process they had in place asking “why do you do that?”

 The answer: “Because we’ve always done it that way”

 (Alarm bells begin to loudly ring)

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How an Interim CFO Can Quickly Grow Your Business

Interim management has arrived, and it only took 50 years, from a specialty that started in the Netherlands and moved slowly around the world. And its first and best incarnation is the interim CFO.

A good Chief Financial Officer will help a business catapult to the next stage of growth. Whether public, private or private equity backed, a CFO leads and implements strategy that ultimately creates value for shareholders, increasing EBITDA and cash flow. The means to get there may look different for each organization, but companies choose to bring in an Interim CFO because they are looking for transformation:

Operational Improvement and Strategic Planning

An Interim CFO will streamline accounting and financial reporting, helping owners, board members, investors and the management team get a clear look into the state of the business.

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How Turning Around a Company Looks Different Today

Turnarounds aren’t what they used to be.

Like a good spy movie, turnarounds used to center around a strong central figure making things happen. Turnaround stars and distress experts were born, like Stephen Cooper of Enron and Krispy Kreme fame.

In 1985 the Turnaround Management Association started as a conference of company turnaround specialists in Chapel Hill, ultimately creating a rigorous formal program and exam for Certified Turnaround Professionals.

“Back then the time frame for turnarounds was long,” Richard Lindenmuth, an executive who has completed 23 turnarounds over the years said. “There was bridge financing from banks that would facilitate a turnaround and bankruptcy was really used as a tool for restructuring a company.”

Times have changed. Many of the Fortune 500 companies from those days have merged or disappeared due to outdated technology, products, or services (think RCA, Blackberry, Zenith). At the same time, the way to turn around a struggling business has transformed, being driven by several factors:

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Latin Got Interim Right 2,000 Years Ago

My daughter eagerly accepted an internship at the morgue. Wait – how does she put it? The medical examiner’s office. Regardless, all I hear is morgue. Anyway, let’s move past the whole your-daughter-is-around-dead-people issue because here’s the interesting thing. They ask their interns to sign a statement agreeing to work pro re nata.

This was a new phrase for me: pro re nata. It is latin for “in the circumstances” or “as needed” or “as the situation arises.”

I believe the phrase is really a guiding light for the best interim execs around the world, because the best leaders operate as needs demand – pro re nata.

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Poor Company Performance? Work on Mastering Nuance

The Olympics are the perfect example of the difference between champions who win gold, silver or bronze, and everyone else who goes home empty handed. The winner could be winning by just one ten thousandths of a second.

Why do you think you or I are any different in our work – if we could improve our performance just a couple percentage points, we’d stand out from the masses clear as day.

Steve Jobs was genius at nuance, the subtle improvement that could cause massively asymmetric outcomes in favor of Apple. Thirty companies had MP3 products delivering hardware, software and content for streaming music. The category was done. Then along came the iPod. Not major changes, but so much better!

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Association of Interim Executives member, Yoav Cohen, is an interim executive who has successfully helped turn around many struggling companies. In a recent interview with MeetAdvisors, Yoav shares his experiences, and the warning signs owners should look for if trouble’s coming.

“Many people who run companies get comfortable with the familiar and are not managing the changes demanded by the market,” Cohen said.