I have led turnarounds and driven accelerated growth in multiple companies, and in sectors ranging from software to education, traffic management, media and solar energy. For me, successfully executing a turnaround is easier than managing accelerated growth. Here’s why:
- Key turnaround levers are within your control. In almost all turnaround cases, costs are bloated relative to activity and revenue levels. In addition, there are often unprofitable customers and/or stores or branches. The act of reducing costs or cutting unprofitable activity does not rely on external parties, unlike for a growth situation, where it is dependent on customers buying more from your company.
- Organizational resistance to change is lower. In financial markets, it is said that fear is more powerful than greed. This is also true in the context of an operating business in a turnaround phase, where the greater the fear, the easier it is to get buy-in to make drastic changes quickly. This fear often manifests from a realization that cash is going to run out shortly. Conversely, in a growth situation, past immediate success tends to immunize the organization’s mindset from believing anything fundamental needs to change.
- Recovering to previously achieved levels is easier. Just as it is easier for an athlete to achieve a previously attained milestone than it is to breakthrough to a new personal best, it is easier for a company in a turnaround phase to get back to a level of revenue and profits it has previously delivered. Instilling this goal in a turnaround team’s mindset is often easier than challenging an already winning team’s mentality to break new records (not everyone has the single-minded determination of elite athletes).
- The stars in the organization becomes more evident. A turnaround situation really exposes who is good at what they do (for example, a salesperson that is still meeting quota or an accounts clerk that is still delivering on collection targets) and spotlights underperformers who are no longer buoyed by a high tide. As Warren Buffett once said, “When the tide goes out, you find out who has been swimming naked.” It also reveals those who have the AQ (adversity quotient) to stay and fight, as the “fair-weather friends” have left or are in the process of leaving.
In many circumstances, the tools for a turnaround are the same tools that should be used for accelerated growth, especially when a growing pains inflection point (where systems, people and/or processes are breaking) is being experienced. For example, fast-growing companies tend to be the most inefficient when it comes to cost management, so a lean management program that would be used in a turnaround phase would be appropriate for that fast-growing company.
Companies will oscillate through periods of turnaround and episodes of fast growth. In fact, many turnaround situations are born from the failure to manage accelerated growth properly, especially when this growth has been debt funded. Conversely the momentum from a well-executed turnaround can lead to an episode of accelerated growth and success. Importantly, a turnaround phase can help you identify and build up a leadership team with the right ethos, stamina and discipline to successfully deliver on an accelerated growth phase.