Restructuring a Problem Company


7. Move.
Just the act of cleaning house can be a catharsis that gets your company in the mind-set of change. Moving offices is even better-a new look, lower costs and greater efficiency can often result.

8. Reorganize.
Sometimes your problems are structural. Liz Goldberg, 32, owner of 2-year-old Chicago-based art consulting firm Design Arts Inc., learned that lesson when she started her firm with a partner, splitting the company 50/50. "I spent a lot of time just nursing the relationship," recalls Goldberg. "I was selling less and helping her more. Within six months, it became clear that it just wasn't working, so I decided to buy her out."

The resolution didn't come cheaply or painlessly for either party (ultimately it took enlisting lawyers to settle the buyout), but Goldberg was finally free to grow her business.

9. Outsource.
Kelly, of Phyto Cosmetics, outsources teachers for his educational line of business. "I tried three separate hires, and none of them worked out," he says. However, with outsourcing, he has about a dozen instructors delivering his product. Kelly says this solution gives him more coverage over a wider range of customers, allows him to hire better-quality staff and lowers his costs.

You can also try to outsource your bill paying, finances, taxes, payroll, IT and other time-consuming functions. If you have an outside investor, see if there are economies of scale to be gained by combining sales or administrative functions with other portfolio companies.

10. Terminate.
You may not think you have any room to cut staff, but you do. And if cash is really tight, a termination or two is practically unavoidable. This is tricky business, but if handled properly, it can really get your firm on solid footing. (The second article in this series, appearing in two weeks, will review the details of this painful but necessary step.)

11. Liquidate.
If all else fails, consider a proactive liquidation. There are tremendous advantages to liquidating part or all of your company rather than being forced into bankruptcy by your suppliers.

First, if you liquidate, you call the shots. You can come up with your own game plan, reserve money for appropriate severance packages for laid-off employees, get your best vendor relationships their fair share, and best yet, go out in style.

Joel Toner, for one, SVP of business development for the now-defunct, worked through the liquidation of the 350-person firm. "We made the liquidation decision primarily to protect employees and the customer base," he says. Going further out on a limb, explains Toner, would have jeopardized's ability to pay severance. Furthermore, says Toner, it allowed them to "plan to go down in a dignified way."

Legal bankruptcy, on the other hand, means that you have no control. The court may take over, liquidate assets for a far worse price than you could have fetched yourself, and may not allow for your employees to be treated in a manner you think appropriate. It can also drag on for years.

12. Pull it together.
Remember these keys in implementing a restructuring:

  • Be a realist: Your company is not going to change into Microsoft overnight, and changes take time to take effect. Make good business decisions, and the rest will come.
  • Communicate often: As Mueller says, "More communication is always better than less communication." Your employees, customers, suppliers and investors are in this with you. Let them help out.
  • Lead by example: "If you're going to ask your employees to take a salary cut," says Anderson, "start with yourself. If you want them to work extra hard, don't leave early on Friday afternoon."
  • Know when to call it quits: Not all great ideas are great businesses. Furthermore, it's no fun to live a constant hand-to-mouth struggle. There are a lot of things to do in this world, so don't waste too much time trying to raise the Titanic.

Being a small company offers you many advantages-you are nimble and can change direction at will. Use your small size to your advantage, and change often. All the pain you go through now will prolong your life and ultimately make your firm more efficient. And don't get distracted from moving from A to B because of long-term concerns. Remember John Maynard Keynes's platitude: "In the long run, we are all dead."

Watch for our article on how to lay off employees, appearing in two weeks.

As a CFO, CEO and consultant, Dale Galvin has noticed an inverse relationship between the quantity of hair on his head and the number of employees he's terminated. He holds a degree of economics from Cornell and an MBA from MIT, neither of which was able to save his last two companies from the guillotine. He is now traveling the world seeking new methods of making employees' lives miserable.

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This article was originally published in the October 2001 print edition of Entrepreneur with the headline: Restructuring a Problem Company.

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