When It's Time To Call A Turnaround Specialist
Business is booming? Don't call Renee Fellman. When the Portland (Ore.) turnaround specialist appears on the scene, it's almost always time for drastic measures. Over the past decade, Fellman, the owner of Interim Management Co., has stepped in as temporary CEO for 17 troubled small and midsize companies. She brought 10 of those back to health by cutting costs and firing employees and sold the others.
Her latest triumph: the turnaround of PML Microbiologicals, a family-owned firm in Tualatin, Ore., that lost $1.5 million on sales of $15.3 million in 1995. After 15 months under Fellman's leadership, PML was back in the black, earning $670,000 last year on sales of $13.3 million.
In recognition of that success, the Turnaround Management Assn. awarded Fellman its 1997 prize for a small-company turnaround. Speaking with Staff Editor Edith Hill Updike, Fellman talked about her job, common problems faced by troubled small companies, and steps to restore an ailing company to good health.
Q: How did you get into this specialty?
A: When I was in my MBA program, I knew I wanted to do consulting. I loved analyzing and recommending, but I realized that once I left, a client company might or might not implement my recommendations. I wanted to do something where I could also implement.
Q: How do you usually get called in?
A: Most often, I am referred either by the special assets department of a bank--"special assets" is a euphemism for troubled company--or by the company's attorney.
Q: Are most of your clients well into the crisis stage by the time you arrive?
A: Absolutely. People just don't bring somebody else in to run their company unless they have serious problems. It's like giving your child up for adoption.
Q: What are the early warning signs?
A: There are many. A lack of current financial statements; payables and receivables getting older. Being placed on credit hold with vendors. Increasing complaints. High turnover. Constant firefighting. Of course, one sign all by itself doesn't mean trouble. It's multiple problems that bring companies to the brink of disaster.
Q: How do you evaluate potential clients?
A: I ask: Is there a reasonable chance that I can save this business? Is there a market for this product? Will management--and this is key--give me the authority to make needed changes?
Q: What are the first steps? You have to get cash flowing to start, no?
A: You're right about cash. I set ground rules about what will be paid. For example, in a company in which there just isn't enough money, which is the usual case, we will pay absolutely nothing on past-due bills. Essentially, we go to paying for current products and services with current cash. To decrease costs, generally the easiest things to do are find suppliers who will sell at a lower cost or negotiate with existing suppliers. Or cut money-losing projects.
Q: One of your service-business clients said that simply changing billing to credit cards almost immediately shortened receivables by 60 days.
A: Yes, the management had had a great campaign to open accounts for everyone. It just killed their cash flow. I converted as many people as possible to paying by credit card. For most of the customers, it was easier.
Q: Can't most business failure really be laid at the feet of management?
A: There are two primary reasons that companies get into trouble. One is poor management. The other is careless creditors. Creditors foolishly continue to lend money or provide products and service, when, in fact, they should not.
Most of the companies I've been involved with have not established accountability within the company, and that's the major problem. I'm talking about people knowing what the company's goals are, what their jobs are--specifically, who's responsible for what, what the financial and operational targets are, and holding people accountable for achieving those results.
Q: A turnaround usually requires some housecleaning. Presumably, you can't fire the owner.
A: I am careful to teach my clients about what it takes to make a business run smoothly and prosper. Nonetheless, it's difficult for people who have been running their own companies to step back. [PML's] Ron Torland understood that it was time to bring in an experienced, professionally trained manager. The rest of his family, however, took months to persuade.
Q: How do staff typically react?
A: Initially, everyone is thrilled, because they are aware that there are problems. However, as time goes on, those--whatever their position--who are poor performers become, shall we say, disenchanted, when they discover they are expected to have a higher level of performance. Often, those people don't survive the turnaround. I have very little tolerance for incompetence and absolutely none for insubordination.
Q: Your clients praise the quality of your recruits. How do you find people?
A: I have a massive database. I have used my contacts, newspaper ads, and an executive search firm. I really try to keep the people who are in the company. But often that just doesn't work. Often, the really good people have left.
Q: Who decides your exit strategy?
A: I do everything I can not to leave until I feel that the company is on a secure enough course that it will survive. Absolutely, positively, once the new CEO is on site, I am not. You can't have two captains on the same ship. But in one situation, it took three tries. It's hard to find the right person for a troubled company, especially the smaller ones.
Q: When do you sell vs. rescue?
A: A key issue is whether or not the [present] management can manage the business. If not, can somebody else be brought in to run it? Once a company is financially distressed, it's very difficult to compete. So if it's in a rapidly changing industry where there's a lot of consolidation, finding a strategic buyer would be the ideal solution.
Q: What's the personal feeling when you're done?
A: It's almost worse than being a parent. As a parent, I felt my job was to raise my sons to be independent, and it's wonderful because even though they're now independent adults, I still have contact. When I leave a company, I don't feel I can have contact anymore and PML is probably the best example. I just loved the people there. But we all know each other so well, that I feel I might unintentionally, by raising an eyebrow, somehow interfere with what [the new CEO] is trying to do. So it's a real loss. I have many clients who think I did a great job who would just as soon never hear from me again.
Q: What do you do between jobs?
A: My clients have trouble believing this, but I am every bit as good at relaxing as I am at turnarounds. I love to entertain. I love to travel. After my last project, I went to Italy for three weeks.
Q: Any new goals for yourself now?
A: I am already on the board of directors of one healthy company, and I'd love to do more of that. I'd like to practice some preventive medicine so that companies can avoid the kinds of situations I've had to clean up.
Join Fellman for a chat on Feb. 23 at 8 p.m. EST. Go to AOL Keyword: business dinner.