Value Creation Traps


One often misunderstood element of successful business transformation efforts is the importance of minimizing self-inflicted wounds. Toxic modes of thinking, unexamined assumptions, and decision-making processes that repeatedly fail to generate positive outcomes are all commonly found, in abundance, in underperforming organizations. As experienced change agents seek to implement and lead a successful business transformation, many select as their top priority reorienting the thinking of leadership, staff, and key stakeholders towards value creation.

Leaders of faltering organizations too often lapse into modes of thinking that are counter-productive at best and are worst are antithetical to value creation. I refer to these modes of thinking as value creation traps and consider highlighting and minimizing them to be a key element in any successful business transformation effort.

Value creation traps, in the form of modes of thinking, often fall into two main categories: errors of omission and errors of commission.

Errors of Omission

Failure to understand the problem. Too often, decision makers facing a crisis (and any company that embraces the need for a business transformation is implicitly acknowledging that it is a company in crisis) confuse symptoms (the “what”) with root causes (the “why”). A clear understanding of what the problem is makes subsequent efforts to address that problem much more likely to succeed. Conversely, absent a clear understanding of the problem, including its scope and severity, it is often difficult to win a mandate for an appropriately scaled business transformation.

Failure to make leadership team changes. Regardless of personal feelings, any company seeking to embark on a business transformation must embrace the reality that changes in the leadership team will likely be crucial for success. Leaders who have authored failed strategies are sometimes extremely reluctant to acknowledge their error, and the perception within a leadership team that there is a valid constituency for an in-progress business transformation effort to fail is toxic and value destructive in the extreme. Additionally, making changes in the leadership team sends a powerful signal to internal and external stakeholders and offers an opportunity to reset the dynamic at the highest levels of a company.

Failure to define success. For organizations that have struggled with underperformance for a period of years, success is an undiscovered country, and as such it is very often misunderstood. Managers who have endured years of insufficient budgets may believe that post-transformation, budgetary discipline will be relaxed, or that their own priorities will be met due to the increased availability of funds. It is vitally important for all key stakeholders to receive appropriate and consistent communication regarding what the goals of the business transformation are, what the timing and progress is, and what the end state is expected to look like. The effort to create a deeper sense of understanding of what success looks like will guard an organization against a sudden slump in morale when the goals of the business transformation have been reached but individuals feel that their key priorities have not been met.

Errors of Commission

Data agnostic decision-making. For companies that are laser focused on value creation, there are no “bad facts”; there are favorable and unfavorable facts, but even unfavorable facts can yield valuable learning opportunities. In a time of abundant data and a paucity of insight, a commitment to place gathering and analyzing data at the center of organizational decision making is a de facto commitment to value creation.

Slowing the rate of change. Business transformations, even wildly successful ones, can be traumatic for an organization. Staff are dismissed. Processes are upended. Long-standing practices are thrown into question and the internal politics of an organization are inevitably scrambled. And in the midst of this swirling change, leadership is busy reorienting the company to incentivize a set of behaviors and outcomes that had not been the focus before. The logic here is sound: a business transformation is essentially a sanctioned catch up period for an organization, and as such the scope of change will be broad and disorienting to many. But this is also a necessary element of a successful business transformation, as an organization seeks to make the leap from a status quo that is value destructive to one that is value accretive. The danger here is that, as business transformation efforts begin to bear fruit, the sense of urgency in an organization will lessen, and a de facto “slow down” constituency will begin to make itself heard. No organization can sustain a sprint indefinitely, but neither can an organization afford to cut short a period of rapid change aimed at meeting the value creation goals of a previously underperforming company.


Toxic and unexamined thinking creates value creation traps that collectively present the most formidable challenge for change agents. These value creation traps must be addressed both directly through a robust and disciplined communication strategy and indirectly by ensuring that business transformation efforts are successful in driving positive change that is perceptible to all key stakeholders.

About the Author

David Johnson (@TurnaroundDavid) is Founder and Managing Partner of Abraxas Group, a boutique advisory firm focused on providing transformational leadership to middle market companies in transition.  Over the course of his career David has served as financial advisor and interim executive to dozens of middle market companies.  David is a recognized thought leader on the topics of business transformation, change management, interim leadership, restructuring, turnaround, and value creation.  He can be contacted at:

Pricing Strategy Post-COVID


The shifting economic outlook for small and midsized businesses (SMBs) has resulted in a commensurate shift in the optimal focus areas of business transformation initiatives for these companies. In the early days of the coronavirus pandemic, there was concern that as many as 1 million SMBs could fail. Luckily, government intervention softened the blow for many companies, and the public health outlook improved considerably. The end result has been that only 100,000 to 200,000 US SMBs failed as a result of the pandemic. Unfortunately, the economic impact of the coronavirus pandemic has still been extraordinarily severe for SMBs, and their long-term survival is by no means assured (see Exhibit A). Now, those companies that successfully navigated the disruptions of the last 18 months must turn their attention to the challenge of driving a successful business transformation that will allow them to survive and thrive in the recovery. One avenue for strengthening financial performance post-COVID is as simple as it is profound: pricing strategy.

Exhibit A

Source: “2021 Global State of Small Business Report”, Facebook and the Small Business Roundtable, April 2021.

What Pricing Communicates

The price a company charges for the goods or services it provides relays important information to current and prospective customers, and as such a strategy to optimize that value is a powerful lever to drive business transformation. The quality of an offering will speak loudly, but it will only speak to actual customers. Prospective customers will not have the benefit of direct experience with your product or service, and so will tend to draw inferences from the relative pricing of your offering vs. those of your competitors. The danger for companies is that a high-quality offering with a mid-tier price will tend to be viewed as a mid-tier offering absent a concerted messaging strategy. Any successful pricing strategy must strive to avoid a myopic focus on a company’s own offerings and instead seek to be conversant in the trends ongoing in the broader market.

Thinking About Pricing Holistically

The global consulting firm BCG outlines four key gaps in how organizations think about pricing:

  • Strategy. The absence of a well-defined pricing strategy puts organizations at a disadvantage.
  • Execution. Success in pricing requires a commitment from company leadership to the discipline of regularly evaluating prices and making appropriate adjustments.
  • Tools & Insights. Marshalling the appropriate data and applying insights generated through analytics tools can allow companies to develop and test pricing models that will improve over time.
  • Organization. Having the right people, in the right positions, properly incentivized, to drive pricing strategy is key.

A successful business transformation effort premised on optimizing pricing strategy must address the gaps outlined above.

Pricing Traps

Too often, SMBs approach their pricing decisions out of fear. The following are some of the most common pricing traps:

Buying business. By intentionally pricing low some companies seek to establish a sales “floor” for the company. Unfortunately, this approach necessitates a level of financial sophistication and forecasting that exceeds the capabilities of many of the companies who practice it. In the absence of these capabilities, a strategy of buying business becomes a strategy of being a low-cost provider, which often siphons away the profitability that would otherwise allow a company to invest in developing higher quality, and higher priced, offerings.


Stagnant pricing. In many ways, this is similar to #1, but more insidious. The pricing was originally fine, comparable to market peers, etc. But over time, and in the interest of staying in the good graces of a major customer, pricing increases are pared back or avoided entirely. As a result, over time good pricing becomes bad, or disadvantageous pricing. And formerly “good” customers come to understand that your fear is a key input in their price.

Loss leaders. Goods/services priced at a loss with the intention of using that low price offering as an opening to sell other, higher priced goods and services. This approach can often fail companies when sales teams, incentivized to maximize revenue and not some measure of profit or cash flow, fail to drive sufficient volume of additional goods or services to make this approach viable.

Actual pricing. Sometimes the list price is fine, even attractive, but a lack of internal controls may allow the sales team to grant or the customer to negotiate, discounts that severely undermine the original unit economics.

Ignorance. Simply being unaware of how your pricing works at the level of each individual customer and offering is a trap, and often, the costliest of them all.


The coronavirus pandemic was massively disruptive to small and midsized businesses, but all indications suggest that the recovery and attendant adjustments to it could be even more so. The companies that thrive in the recovery will be those who embark on business transformation efforts focused on a critical reexamination of business practices, core assumptions, and even long-term goals, all in the interest of initiating a virtuous cycles of value creation. For business leaders seeking such opportunities, pricing strategy is a good place to start.

About the Author

David Johnson (@TurnaroundDavid) is Founder and Managing Partner of Abraxas Group, a boutique advisory firm focused on providing transformational leadership to middle market companies in transition. Over the course of his career, David has served as financial advisor and interim executive to dozens of middle market companies. He is also a recognized thought leader on the topics of business transformation, change management, interim leadership, restructuring, turnaround, and value creation. David can be contacted at:

Analytics in the Middle Market

“The future is already here, it is just not evenly distributed.”

William Gibson


The question of analytics, or more specifically how to deploy the tools and capabilities now broadly available for analyzing large data sets, distill actionable insights from that analysis, validate insights and implement the changes necessary to realize the potential that the analysis has uncovered, is a pressing one for the middle market. This question is pressing because the middle market is awash in data. However, the middle market lags far behind other segments of the economy in taking concerted action to seize the opportunity that analytics presents.

In 2021, analytics represents something truly rare: a broadly available but individually distinctive opportunity to improve the operations and enhance the strategic positioning of nearly every company in the middle market.

Multiple Points of Equilibrium

Experienced business transformation professionals know that organizations exist in a world of multiple points of equilibrium. A successful business transformation can be fairly described as the process of migrating an organization from one point of equilibrium to another, with the condition that the new point of equilibrium will possess superior return characteristics. Essentially, a successful business transformation results in an upward shift of the efficient frontier for a company. In 2021, analytics represents something truly rare: a broadly available but individually distinctive opportunity to improve the operations and enhance the strategic positioning of nearly every company in the middle market.

A successful business transformation requires identifying, refining, and applying levers to a business model in order to generate an outsized degree of positive change relative to the resources employed. Every business era has a go-to set of tools and capabilities to which the gaze of leaders inevitably drifts as they search for such a lever. In 2021, analytics is near the top of the list. Consequently, the development of an in-house analytics capability should be a focus for every middle market leadership team focused on value creation.

Implementation is the Goal

A depressingly easy way to stump a data scientist candidate is to ask them to map out a path from identifying a prospective avenue of inquiry through to the realization of measurable business improvement.

Generally, there is a grudging acceptance that time will be spent on data wrangling, or the process of cleaning and reformatting data for ease of analysis. There is a marked level of excitement in the discussion of the tools and techniques that can then be applied to the cleaned and reformatted data. Enthusiasm then dips when discussing the presentation of insights to those outside the data science sphere, although there may be a slight uptick when discussing data visualization.

Any discussion of the fate of analytics insights beyond the presentation stage represents something of a chasm among analytics professionals. On one side are the majority who are uninterested and unenthusiastic (they did their part), and on the other are the small minority who understand that insight without implementation has little value. This latter group works to become not just excellent technicians but able communicators and translators, helping to bridge gaps in understanding and foster the development of implementation paths for insights generated by the analytics team.

Analytics as a Lever

Marshalling the full potential of analytics in driving a successful business transformation requires a clear understanding of not only the potential but also the limits of these tools and capabilities and the organizational bottlenecks that inevitably manifest as middle market companies seek to fully exploit them. This challenge is further compounded in the middle market by resource constraints, a deficit of analytics savvy among management and leadership, and the communication challenges that are sadly persistent between analytics teams and all other members of a company.

The discrete steps that allow companies to best mitigate these challenges can be broken down into two groups: 1) Define the Problem, and 2) Path to Realization.

The challenge is that, while analysis scales, implementation does not. And results, not multivariate regressions, are the goal.

Define the Problem

Many impressive quotes have been attributed to Albert Einstein, but my favorite, perhaps, is this one: “If I had an hour to solve a problem I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions.”

Modern analytics tools and techniques are incredibly powerful, and when deployed against the right data sets, with a clear understanding of the goal, they can and will produce impressive results in terms of insights. However, ensuring that an analytics capability results in not only insights but measurable business improvement requires the discipline to more rigorously define the problem, not only in its technical elements but the business problem as well, and to act only then, having taken the necessary steps to maximize the expected outcome of your efforts.

Data Mastery

The necessary condition for the development of an effective in-house analytics capability is a mastery of an organization’s own data. The phrase “garbage in, garbage out” has never been more apt than it is in our analytics age. The simplicity of this point belies just how profound it is. Nimble startups designed with a high level of data savvy and enormous multinational companies able to devote immense sums to digital transformation initiatives may have clear paths to data mastery, but for middle market companies, the path is anything but clear.

Target Selection

The tools now available and in wide use by data analytics staff and consultants create an illusory sense of boundless possibility when choosing targets. The challenge is that, while analysis scales, implementation does not. And results, not multivariate regressions, are the goal. The scalability of analytics tools has a tendency to blind even senior level data science practitioners to the many difficulties of implementation. The application of brute force algorithms to large data sets as a path to insights will inevitably yield results that are underwhelming. Choosing avenues of inquiry with care is essential, especially when seeking quick wins to build internal support for an in-house analytics team. Effective target selection requires that the analytics team not be siloed but be integrated into business operations. This can be as simple as including data analysts in key meetings and involving the analytics team in reviews of business unit performance. In the end, an analytics capability is meant to confer a business advantage for a company, and this will only happen if the analytics team is not walled off from the rest of the business.


Define the Question

After defining the data source(s) and target for an analysis, it is vital to define the question. This step is crucial in that it requires a nuanced understanding of the business. By investing the time necessary in defining the question, an analytics effort increases the likelihood that any insights generated will have a clear path to implementation.

Analysis is cheap, and implementation is a bottleneck. It is far easier, and cheaper, to test and refine the algorithms rigorously than it is to prematurely move ahead with the implementation of real-world changes in the business necessary to realize projected efficiencies.


For middle market companies seeking to build an analytics capability, it can be easy to be lulled into complacency once there is a clear path to the generation of insights. This is a trap. Insights are not the proper endpoint of an effective analytics capability. Rather, insights are a stop along the way. A properly integrated analytics team will not only generate, but rigorously test and screen insights, with only the most promising being passed along for further investigation. Analysis is cheap, and implementation is a bottleneck. It is far easier, and cheaper, to test and refine the algorithms rigorously than it is to prematurely move ahead with the implementation of real-world changes in the business necessary to realize projected efficiencies.



Insights that have been thoroughly vetted should be presented to leadership for review, with cross-functional implementation teams then formed to validate their real-world potential. Each insight becomes a project, with its own staffing requirements, timeline, and ROI characteristics. Resource constraints will necessitate that only the most promising insights will be acted on initially. This will ensure that only the most only high-return prospects are acted upon. Additionally, through detailed review of a targeted set of insights, company leadership will give itself much needed time to begin to integrate consideration of insights from the analytics team into the existing rhythms of company decision making, or change those rhythms, as appropriate.



Effective implementation will require a high level of communication between the analytics, business unit, and functional leaders in a company. This level of integration will initially feel awkward and forced for all parties, but over time it will become apparent that the returns to the company of the analytics staff having a direct line of communication with key decision makers will foster a higher level of business understanding in the initial stages of analysis, and a higher level of analytics understanding in insight review, yielding a virtuous cycle of improvement in the company’s ability to successfully transmute insights into enhanced business performance.


The middle market is traditionally a segment that is at best a fast follower of technology trends, and at worst a reluctant adopter of them. 2021 represents a crucible year, with broad opportunities and challenges for many middle market companies. There are few broadly applicable, high-return investment opportunities available for middle market companies, but investment in an analytics capability is one of them. Properly executed, such an investment can reset a company’s equilibrium point, permanently raising its level of profitability, with all the attendant value creation that such a shift implies. Like all business transformation opportunities, realizing this potential will not be easy, but the middle market companies that successfully pursue this path will find themselves richly rewarded.

About the Author

David Johnson (@TurnaroundDavid) is Founder and Managing Partner of Abraxas Group, a boutique advisory firm focused on providing transformational leadership to middle market companies in transition.  Over the course of his career David has served as financial advisor and interim executive to dozens of middle market companies.  David is also a recognized thought leader on the topics of business transformation, change management, interim leadership, restructuring, turnaround, and value creation.  He can be contacted at:

Maximizing Profit in the Middle Market


The literal definition of margin in business is that it is an accounting metric that measures financial health. The profit margin is a ratio of profits earned to total sales over a defined period.  An internal operator of a business uses this statistic to determine financial and operational efficiency. She analyzes margin on a gross or a net basis, determining at different operating levels whether her employer is delivering goods or services economically. An outsider analyzes profit and loss statement similarly but also incorporates a broader industry analysis. This perspective can be helpful to management with determining what levers can be pulled to influence margins and what can be attributed to external market forces. When a middle market company falls under increasing scrutiny as a result of of declining or negative profits, leadership should consider bringing on an interim partner to review the business and to implement a business transformation.

Every industry will have specific dynamics impacting profitability, but in the end fixed and variable costs affect profitability whether the company in question is an airline or a metals fabricator. Understanding how each the key drivers of a business impact profitability is a crucial insight that must be present for any successful business transformation effort.

For middle market companies struggling with profitability challenges, the right interim leader, focused on driving a business transformation, is a key partner in this situation. Such a partner can serve as the catalyst a leadership team needs to foster understanding of the internal and external pressures that can lead to margin erosion while simultaneously leading the charge to develop a plan of attack to address them.

Change is Possible

Too often middle market companies view themselves as being subject to the whims of broader market forces, but even the smallest companies can develop and execute strategies to hit back at the persistent drivers of underperformance.

Helmuth von Moltke (the Elder) famously quipped: “No plan survives contact with the enemy.” This is certainly the case when seeking to execute a business transformation. Middle market change practitioners understand that versatility and the humility to seek out solutions that work, irrespective of authorship, are exactly the traits necessary to drive home a successful transformation initiative.

Identifying the drivers of weak or declining (or both) profitability requires a rigorous assessment of the present situation as well as the recent past. This process is focused on answering the questions 1) What is the situation now? 2) What is the near-term forecast? 3) What constraints is the company facing (financial, operational, supply chain, employee morale, etc.)? 4) What are the most promising avenues of change for the company? and 5) What is that impact of those change levers if the plan works?

Based on the understanding gained from a rigorous but expedited objective assessment, the focus will turn to implementation.

Value Creation Partnership

A faltering company presents a timing challenge, particularly in the middle market. The analogy of a melting ice cube is used frequently, and for good reason. Preventing value destruction relies not only on skill but also speed and focus. Turnaround specialists can implement a plan that focuses on driving profitability during good times and stopping cash bleed to stave insolvency during bad times. Affixing this financial management plan to a company dashboard can be part of a departing interim executive’s legacy.

Middle Market companies in distress are companies in dire need of partnership. Building the right advisory team, headed by a seasoned interim executive, gives shape and structure to a nascent business transformation.


Most companies will experience profit challenges at some point in their lifecycle. Persistent unprofitability, however, is a symptom of a larger problem, and often requires the expert help of an expert well versed in business transformation. The right partner will not only work in tandem with incumbent leadership to identify the root cause of a company’s profit challenges, but design and implement a comprehensive business transformation which will allow the company to address those persistent drags on performance and thereby enhance the level of profitability the company is capable of generating. For middle market companies struggling with profitability challenges, the right partner serves the role of teacher, mentor, and colleague, all in the service of creating value.

About the Author

Brett Ladendorf is a Managing Director at Abraxas Group, a boutique advisory firm focused on providing transformational leadership to middle market companies in transition.  He can be contacted at:

Agile Business Transformation


Business transformation professionals understand that their role, distilled to its essence, is to serve as a change agent for their clients. Catalyzing business transformation is challenging, and doubly so in the always tumultuous middle market. In order to effectively drive change, it is of paramount importance that a solid foundation for that change be laid upfront.

There must be consensus among all parties on the goal, including an agreement on what success looks like. This agreement must have a firm objective basis, so that in the future it can be conclusively established whether or not the goal was achieved. Responsibilities and lines of authority among and between advisors, company leadership, middle managers, line staff, and any other key stakeholder groups must be clearly mapped out. A detailed project plan, timeline and budget should be created and broadly disseminated, and these should be coupled with a reporting framework that includes a regular check-in cadence to ensure that a business transformation initiative is proceeding on schedule and as planned. In many ways, middle market business transformation is a testament to the awesome transformative power of diligent planning.

As the economies of the world face an economic downturn unlike any in living memory, how can change agents succeed at a time when long-standing assumptions are giving way to the awesome and destructive power of an unseen and unlooked for cause of disruption? How does one lay the foundation for change when the ground is shifting beneath our feet?

The answer is to take a hard look at the components of a successful middle market business transformation effort and deconstruct it. This is a moment that calls out for a retooling of traditional delivery models. What is needed instead is an agile business transformation approach. This agile delivery model is better aligned with the lived reality of middle market companies in times of extreme uncertainty and market shifting emergent developments.

Related Concepts

Many professions have grappled with the inherent trade-offs that organizations must consider when assessing operating models that offer greater flexibility. In the interest of becoming maximally impactful change agents, those active in the work of business transformation should seek to become conversant not only in the trade-offs relevant to their specialty, but to the broader set of interdisciplinary corollary concepts that bear on this tendency.

  • Fixed vs. variable costs. The agile business transformation framework has a corollary concept in management: the practice of optimizing a company business model by determining which costs should be fixed and which variable. There are benefits to each. An emphasis on fixed costs implies a higher break-even point, but after clearing that threshold, profitability increases rapidly (this is known as “operating leverage”). By contrast, an emphasis on variable costs offers the benefit of a lower break-even point with the trade-off that operating leverage is forfeit.


  • Triangle offense. In basketball, the triangle offense, championed by many but perhaps best popularized by coach Phil Jackson during his tenure as head coach of the Chicago Bulls (1989 – 1998) and Los Angeles Lakers (1999 – 2004), is the hallmark of team over individual, and flexibility over all. This offensive approach allowed Jackson to earn 11 championships as a coach. However, the triangle offense challenged individual scoring greats Michael Jordan (Chicago Bulls) and Kobe Bryant (Los Angeles Lakers) to retool their approach to a game that they excelled at. The changes were difficult, but the results were undeniable.


  • Game development. In the world of game design, the announcement of No Man’s Sky was met with a mix of awe and skepticism. Rather than present players with a series of explicitly designed environments and situations, No Man’s Sky featured a procedurally generated universe of worlds for the player to explore. Despite the impressive technical accomplishment of offering game players a potential universe of 18 quintillion worlds to explore, the limitations of the game quickly became apparent. While acknowledging the technical achievement that the game represented, it initially received only lukewarm reviews and it was only after the game developer invested the time and effort to bolster other, key design elements that the game began to be regarded as having closed the expectations gap that had grown over the years.
The Agile Change Agent

The Agile Change Agent

The Agile Change Agent

Change management in the era of COVID-19 must embody all the traits of which change agents are justifiably proud: the ability to alter the status quo, a structured approach to execution, a tested process for upskilling client staff, an ethos of accountability, etc. And yet, the current moment presents us all with an opportunity for self-reflection. Have the best practices of business transformation professionals been getting in the way of delivering change to our clients? Is our approach to service delivery becoming too doctrinaire and over-structured? Do we need more flexibility? The answers are yes, yes, and yes.

Now is the moment to loosen the reigns and approach middle market business transformation with the goal of inserting flexibility into the delivery of transformational change. In the process, we all have the opportunity to become more agile, and impactful, change agents.

By blending the traditional focus on objective measures with a bias towards maximal flexibility in the following key areas, business transformation professionals can take a major step toward becoming agile change agents:

• Goals
• Project Plan / Timeline
• Responsibilities
• Consensus
• Budget

The agile change agent is not an irresponsible or undisciplined business transformation professional. Rather, they are those who recognize that must by definition proceed from and be judged by the initial starting point. And when the macro state of affairs is ever shifting, the delivery of business transformation must shift as well.


A successful approach to middle market business transformation during a historic downturn caused by a global pandemic but sustained by previously unaddressed weaknesses that have built up throughout the economy over the course of the long boom will require a change in mindset. We are truly living in a period in which perfection can be the enemy of progress for our clients. Rather than being overly structured, business transformation professionals must instead seek opportunities to increase the flexibility of their delivery models in order to deliver the maximum level of impactful change for their clients under conditions of heightened uncertainty. Flexibility, and the capacity to incorporate emergent developments into in-progress business transformation initiatives, will be the hallmark of successful change agents in these challenging times.

About the Author

David Johnson (@TurnaroundDavid) is Founder and Managing Partner of Abraxas Group, a boutique advisory firm focused on providing transformational leadership to middle market companies in transition.  Over the course of his career David has served as financial advisor and interim executive to dozens of middle market companies.  David is also a recognized thought leader on the topics of business transformation, change management, interim leadership, restructuring, turnaround, and value creation.  He can be contacted at:

Value Creation in a Downturn


Value creation is a mandate for leadership teams regardless of industry or company size. This mandate is both an economic necessity and a nod to the element of stewardship inherent in leading an organization: good leaders improve the companies they lead and work to ensure that they leave them financially stronger, in a more robust strategic position, and more valuable at the end of their tenure than at the beginning. The challenge for every leader is that the optimal mix and weighting of value creation levers changes over time, sometimes due to idiosyncratic factors, and sometimes due to sudden, exogenous shocks.

The impact of COVID-19 has been a severe negative shock to global growth prospects. Even worse, research suggests that below-trend growth could persist for years. There will of course be exceptions, and some quite notable, but for many companies and in some cases whole industries, the prospects for year-over-year revenue growth in 2020 are decidedly bleak. In some cases, the prospects for 2021, even accounting for the lower bar of comparison, are daunting. For many companies, pursuit of a growth-oriented value creation strategy in this environment is no longer viable.

Growth is a proven engine of value creation, and over the last decade it has been the lever on which leadership teams and capital providers have focused their efforts. But there are many ways to increase the value of a company, and as companies grapple with a radically altered business landscape, now is the time for leadership teams to reacquaint themselves with equally proven, though at times less sexy, value creation drivers.

While there are many value creation drivers, in looking to recast a strategy there are certain characteristics that should be sought out:

  • Actionable. Focus on measures that leadership can influence.
  • Scope of Impact. Focus on measures that will deliver a considerable impact to company performance when optimized.
  • Scalable. Focus on measures that scale.

The fact that COVID-19 acted as the catalyst for the end of the most recent expansionary phase serves to obscure the reality that systemic weaknesses have been steadily building throughout the long expansionary phase that the U.S. and global economy enjoyed from the end of the global financial crisis to February of 2020. Middle market companies that respond to the shifting zeitgeist with a focus on pivoting to value creation drivers other than growth will be setting the stage for compelling value creation in the years to come.

Unit Economics

Generally, companies on a robust growth path will experience a steady decline in gross margins. There is no hard and fast business rule that dictates this trend, but companies and their leadership teams must understand the implications of their own strategy, and a strategy that seeks to maximize revenue growth is a strategy that, at the margin, will tend to be associated with gross margin erosion (absent technology driven network effects other structural idiosyncrasies).

The impact of flat or declining revenue can be offset, in part or in whole, by improving unit economics. When gross margin ([Revenue] – [Cost of Goods Sold] / [Revenue]) is rising, a company enjoys an increasing level of incremental benefit (profit) from each sale. Despite this fundamental benefit, it is organizationally very challenging to focus simultaneously on executing a successful growth strategy and driving persistent gross margin expansion.

Working Capital

Working capital management should appear high on any list of organizational value creation drivers. The impact of optimizing working capital does not appear on the income statement, but savvy leadership teams and capital providers understand that by offering the prospect of increases in both cash flow and capital efficiency, working capital is an attractive value creation driver at all points in the economic cycle.

Net Working Capital, or the net amount of capital used in the normal operations of a business, is calculated as the sum of total Current Assets (excluding cash and equivalents) less the sum of total Current Liabilities. Since any increase in Current Assets represents a use of cash, and any increase in Current Liabilities represents a source of cash, the goal is to reduce Accounts Receivable, Inventory, and Other Current Assets while increasing Accounts Payable and Other Current Liabilities. Working capital improvements cannot be accomplished in a vacuum, as the parties on the other sides of these initiatives are often important stakeholders for a company, but nevertheless, the basic arithmetic remains unchanged.

Analytic Insights

Mastering the implications of their own data remains perhaps the greatest untapped source of competitive advantage available to every company. Data is ubiquitous but as a result of that ubiquity it carries with it a low signal-to-noise ratio. Leadership teams must champion efforts, and ultimately structured processes, to generate insights that will point to opportunities for improvement. Once generated, insights should be regarded as maps to untapped pockets of value creation.


Growth cures many ills, but expansionary phases, whether at the macro or micro level, contain within themselves the seeds of their own dissolution. At the level of individual companies, long growth phases are often associated with sub-optimal levels of profitability, as the mandate to grow consumes the time and attention of leadership teams, and the discipline necessary to improve underlying operational efficiency becomes an early casualty of a company’s narrative of growth as the dominant value creation driver.

In the face of the massive economic disruptions arising from COVID-19, middle market companies and their leadership teams will find any growth oriented strategy severely tested. The end of positive momentum for revenue growth, even over an extended period, does not presage an end to value creation. Rather, in an economic environment that will prove hostile to the growth ambitions of many companies, middle market leadership teams must reset both strategy and operations in order to maximize a different set of actionable value creation drivers.

About the Author

David Johnson (@TurnaroundDavid) is Founder and Managing Partner of Abraxas Group, a boutique advisory firm focused on providing transformational leadership to middle market companies in transition.  Over the course of his career David has served as financial advisor and interim executive to dozens of middle market companies.  David is also a recognized thought leader on the topics of business transformation, change management, interim leadership, restructuring, turnaround, and value creation.  He can be contacted at:

Middle Market Transformation

Middle Market Transformation

“Change, when it comes, cracks everything open.”

Dorothy Allison, Bastard Out of Carolina

Middle Market in Flux

The successful design and execution of a middle market business transformation poses unique challenges for company leadership. In good times, when the cost of a strategic change initiative can most readily be afforded, and the risk most easily managed, there often seems to be no need, and hence little urgency on the part of company leadership. But in challenging times the cost and associated risks of business transformation can seem to be insurmountable obstacles, and company leadership may feel intense pressure to defer action for another month/quarter/year while performance steadily declines, rather than make the leap.

Leadership in the middle market is challenging in any time, but the middle market leaders of today must become quick studies in the key tenets of business transformation as they seek to make adjustments commensurate with the external changes facing them. Change has come to the business world in 2020, vast in scale and scope and breathtaking in its speed. It remains to be seen how many businesses will be equal to the challenge, but it is a certainty that some businesses will fail.

The most potent enemy of middle market business transformation is not fear, risk aversion, lack of strategic clarity, or the leadership challenge of implementing change. Rather, for middle market companies the most potent enemy of business transformation is the failure to recognize that change has come, and that the only viable strategy for a company is to meet external change with internal change.

While change itself is a constant, 2020 has been a year of profound and wrenching change for organizations everywhere. In the U.S. and elsewhere, the combination of governmental restrictions and a radical shift in the internal risk calculus of consumers has eviscerated the business models of companies across a broad swath of the economy. Sectors such as airlines, hotels, event planners, restaurants, bars, movie theatres, playhouses, retailers, commercial real estate, and more, all now face a radically altered outlook from that of only a few months ago. Companies in each of these sectors, and many others, are now confronted with the grim specter of a new status quo that is inimical to their viability.

A natural and understandable reaction to the massive economic shock that the coronavirus pandemic and protection measures meant to address it have imposed on businesses is to hope for a deus ex machina. Something that will provide deliverance from the life and death struggle that the leadership teams of millions of organizations now find themselves engaged in. If only we could return to the halcyon days of 2019, if only this legislative relief would be extended, or changed, if only…

Hope is not a strategy.

It is a worthwhile thing to hope, and if your conscience leads you there, to pray, for change. But the role of company leadership is to calmly assess the challenges of the moment, objectively weigh the known and unknown risks, and design and implement a plan to win in the current environment.

The world has changed, and across the middle market survival and ultimate market success will go to those companies that recognize our current moment as one crying out for business transformation, and act accordingly.

A New Paradigm

In a recent research report: “Handicapping the Paths for Pandemic Recovery”, Moody’s Analytics notes the following:

  • Global GDP is forecast to see a peak to trough decline of 10%.
  • Unlike prior global downturns, there is not currently any country that appears well-positioned as a catalyst for global recovery.
  • Fiscal support by the U.S. government has already totaled 14% of GDP.
  • Moody’s projects a non-negligible risk of a double-dip recession in the U.S. if fiscal support is withdrawn too early.

If anything, the view from a U.S. middle market perspective is even worse. The “2nd Quarter 2020 Economic Outlook Survey”, released by AICPA, was full of sobering statistics that illustrate just how dire the outlook has become for the leadership teams at middle market companies:

  • 92% of respondents indicated that the pandemic has had a negative impact on their business.
  • 81% of companies have made downward revisions to their financial forecasts.
  • Nearly 50% of companies across all size ranges surveyed (<$10MM, $10MM – $100MM, $100MM – $1B, and >$1B) expect some contraction in their business over the next twelve months.
  • 25% of companies report having an excess of employees (versus 7% in Q1).

Middle Market Change

The greatest danger in the middle market today is that leadership teams will continue to labor under the old assumptions, disregarding mounting evidence that we are living through a paradigm shifting event. The world has changed. Economic activity has experienced a drastic decline, and the path out of that decline is unlikely to be the V-shaped recovery we all pine for. To assume that the strategic landscape for any middle market company will be unchanged by this crisis is naïve.

Absent knowledge of when a vaccine or effective treatment for COVID-19 will be broadly available, we are all nothing more than amateur economists choosing to assume a can opener as a way to keep opining, abiding by an unspoken agreement that we will not grapple head-on with the gaping hole in our own logic.

We simply do not know when this will end.

But the world will look different when it does.

Strategy is your own bespoke plan to win. What is your plan to win the environment as it will be, not as it was?

Competitive Landscape

Formerly struggling giants are collapsing into bankruptcy (JCPenney, Neiman Marcus, J. Crew), and a far larger number of middle market companies will pursue restructuring as an option (whether in or out of court) as well.

Companies are going out of business. Now. Business bankruptcies in the United States rose 48% in April. A broader measure of distress (one that might encompass businesses that shut down but did not file for bankruptcy, those in the process of pursuing bankruptcy-like solutions such as an Assignment for the Benefit of Creditors, as well as those being pressured into an out-of-court restructuring by their lenders) would undoubtedly show an even more profound increase.

According to Moody’s Analytics: “Of the 8 million business establishments operating prior to the crisis in the U.S., it would not be surprising if close to a million do not make it.”

Post pandemic, every company will be faced with an altered, and in some cases radically altered, competitive landscape.

Multinational Business Transformation

A crisis often provides the necessary external catalyst for leadership to acknowledge the need for business transformation. Unfortunately, even in the face of the current crisis many companies, particularly those in the middle market, are thinking too small in terms of the changes they are considering.

The reaction by many of the largest companies in the U.S. to the current crisis is instructive. To a large extent, these companies and their leadership teams have discerned a need to fundamentally rethink key aspects of their business. The business transformation efforts of these companies to date have signaled the breadth of the change that they view as necessary. By attacking their cost structures, bolstering their liquidity positions, reassessing their channels for customer interaction, and reviewing their talent management policies, some of the largest and wealthiest companies in the U.S. have signaled unambiguously that they view the current moment as one that requires business transformation on an ambitious scale.

A sample of companies and their business transformation efforts in the face of the coronavirus pandemic will illustrate the point:

  • Gap. The clothing retailer has been hard-hit by the pandemic. Management has reported that 90% of stores globally were closed starting March 19, leading to a 61% year over year decline in same store sales, partially offset by an aggregate 13% YoY increase in ecommerce sales. In May the company announced a private placement of debt facilities and amendment of the terms to its revolving line of credit. Gap is also in the midst of resetting its cost structure by engaging in contentious negotiations with its landlords.


  • Starbucks. The company that brought coffee culture to the United States is clearly less sanguine about our prospects for a rapid economic recovery, and it is acting accordingly. Leadership is accelerating rollout of the “Starbucks Pickup” store format, originally projected to take five years, and now slated for completion in 18 months. The company closed on a debt financing in May aimed at improving liquidity and has negotiated a relaxation of certain debt covenants with existing lenders. Additionally, Starbucks has contacted landlords for its corporate owned stores and is pursuing aggressive rental concessions.


  • Facebook. CEO Mark Zuckerberg has announced an intention to transition as many of 50% of roles to remote work in the next five to ten years. The challenges of rolling out this policy are considerable, especially as Facebook has stated that it intends to maintain a pay differential by location, which may be less defensible in a remote work environment.

Transformation in the Middle Market

The challenges of the moment are profound, and for middle market companies seeking to navigate a path through the global pandemic the energy involved in imaging a radical shift in business while simultaneously working to ensure viability on a day-to-day basis can seem too much. But such is leadership in the middle market. This is the moment for companies and their leadership teams to take bold action, move forward with aggressive business transformation initiatives and position themselves to not only survive the immediate crisis but also secure for themselves a prosperous future. The host of unknows facing us all is no excuse for inaction. When the history of the pandemic is written, this moment will be recognized as one that offered extreme value creation opportunities for those leaders bold enough to take action.

Middle market companies are not smaller versions of larger companies. Rather, they are sui generis, and should be viewed as such. Nonetheless, no middle market leadership team can afford to regard with complacency the signals from economic forecasts and multinational companies that indicate adjustment to a post COVID-19 world will require business transformation on an epic scale.

Effective business transformation requires not only a plan, but a mindset oriented toward change. Leadership teams in the middle market should look to answer the following questions about their own companies:

  1. What are the key assumptions about our business that we believed to be enduring at the start of 2020?
  2. Have recent events undercut our confidence in any of those assumptions?
  3. Are our current sources of competitive advantage stronger or weaker now than they were at the beginning of the year?
  4. How secure are our finances? Profitability, cash flow, liquidity? If we needed to raise capital quickly, do we have a sense of how much capital would be available, on what terms, and from whom?
  5. Is our company positioned to be an acquirer if a major competitor fails?
  6. How strong are our relationships with key stakeholders? Is there more that we can do to bolster these relationships?

The exercise of answering these questions, with a self-critical lens, will help middle market leadership teams identify areas of weakness to be addressed in a business transformation initiative.


We are in the midst of a period of undeniable economic and social change, and the impact of these changes will reverberate for years to come. Business models will be upended. Competitive dynamics will shift. This is a moment for forward-looking leadership teams to set their companies on an upward trajectory of value creation. But for those who do not act, history offers a bitter lesson: change is inevitable, and failure, no matter how remote the prospect is in our own minds, is always a possibility.

About the Author

David Johnson (@TurnaroundDavid) is Founder and Managing Partner of Abraxas Group, a boutique advisory firm focused on providing transformational leadership to middle market companies in transition.  Over the course of his career David has served as financial advisor and interim executive to dozens of middle market companies.  David is also a recognized thought leader on the topics of business transformation, change management, interim leadership, restructuring, turnaround, and value creation.  He can be contacted at:


Funding Transformation

Recognizing the need for change, developing a plan for change, and gaining support for change are all necessary steps in a successful business transformation.  Necessary, but not sufficient.  An actionable business transformation plan, especially in the middle market, must also grapple, in the harsh glare of objectivity, with the cost of transformation and how best to fund it.

The question of how to fund a business transformation can test leadership teams that already feel themselves at the razor’s edge of endurable pressure, and for too many companies the question of funding is where a promising business transformation runs aground, as that same leadership team finds itself unable or unwilling to think through or engage outside support to advise on how best to chart a path to the desired outcome in light of available resources.

Timidity in the face of resource constraints, and the scarcity mindset it implies, serves only to narrow the horizons of those most desperately in need of a business transformation.  Luckily, engaging proactively with the sources and uses of funding does not need to serve in any way as an inhibitor of aims.  Rather, the discipline of addressing resource constraints and funding sources upfront can serve as a valuable spark to the creative process, yielding a more capital efficient, and oftentimes more ambitious in the long-run, business transformation.

An Umbrella When the Sun is Shining

The result of an extended period of below trend (or any) profitability for a company is that ambitious business transformation initiatives become increasingly difficult to fund just as they become increasingly more necessary.  For many leadership teams, the answer to this quandary is simple: borrow.

Efforts to borrow in order to fund a business transformation often run into a frustrating challenge.  Companies find that the ease with which outside funding can be procured for a business transformation project is inversely correlated to the importance of the project’s success for an organization’s future.  Capital for low-risk, high return projects is abundant, but for those business transformation initiatives that truly represent a do-or-die crossroads, capital is more scarce and much more costly. 

Mark Twain famously quipped that: “A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain.”

The availability and sophistication of risk capital has certainly increased since the late 19th century, but the central point that Twain was seeking to make remains as true today as in his own time: for the majority of lenders, and certainly the sources of the cheapest outside capital, the most attractive candidates for a loan are those that do not need the money.  Luckily, there are lenders active across the risk spectrum, and prospective borrowers have no need to limit themselves to banks.

Internal Sources

Middle Market leadership teams often have less exposure to the capital markets, and hence are more susceptible to shock when they realize the challenges that come with certain types of funding sources.  Absent expert support, this shock can impose costly delays on, and even derail, promising and even existential business transformation projects.  In order to prevent this, it is important to consider the internal sources of funding available to any company, and the pros and cons associated with that source.

  • Operating Expenses.  Too often leadership will view an existing cost structure as a fact of life, rather than a set of circumstances that can be easily changed.  The inadvertent misallocation of resources is unfortunately the norm throughout the middle market, and as a result the gains to be achieved through a rigorous assessment and reprioritization of spending are considerable.
  • Working Capital.  The capital tied up in an organization’s operations represents an immense opportunity and is one of the lowest cost sources of funding for a business transformation initiative.  Too often management teams severely under-estimate the magnitude of the opportunity that working capital management represents, and so fail to consider working capital as a viable source of funding.  

There are pros and cons to funding a business transformation via internal sources of funding.  Among the pros are the high level of control that companies have on both their internal cost structure and in their approach to working capital management.  Cons include declining employee morale, dissatisfaction among customers and suppliers, and increased strain on management.  Regardless of whether or not internal sources of funding ultimately utilized for a given business transformation initiative, they should always be considered.


The ultimate source of value creation in a company is improved performance.  Industry, positioning, and timing all matter, but robust profitability and cash flow enables an organization to maintain control over its own destiny.  The funding of a transformation project should be looked at as a question of carefully assessing the project, how and why it is expected to improve performance and moving forward aggressively with any transformation project that makes sense.  Faced with a compelling business transformation initiative, leadership teams have several viable avenues to explore for funding, and so should not allow their horizons to be narrowed.  In business two things are certain: change is constant, and the returns to controlling your own destiny are enormous.

About the Author

David Johnson (@TurnaroundDavid) is Founder and Managing Partner of Abraxas Group, a boutique advisory firm focused on providing transformational leadership to middle market companies in transition.  Over the course of his career David has served as financial advisor and interim executive to dozens of middle market companies.  David is also a recognized thought leader on the topics of business transformation, change management, interim leadership, restructuring, turnaround, and value creation.  He can be contacted at:

Reporting: A Catalyst for Improvement


Business owners today are stretched for time, and so are all the members of their team.  The pace of business can seem unrelenting, and in that environment abstract goals can seem frivolous.  The ever-present temptation, given this state of affairs, is to regard the past as a curiosity, and a topic as banal as reporting to be a matter of creating something that is good enough, in order to move on to the next thing.  This view is almost invariably wrong and has often proven to be a fatal mistake for companies large and small.  Rather, an investment in robust reporting should be considered a necessary step for every company seeking to utilize its own data to maximize value.

Reporting, whether on financial, operational, or business intelligence data, presents every company with an opportunity to develop insight into its own business as well as its broader market.  Too often that opportunity is not seized.  Opportunities to begin building an insight advantage are deferred, and eventually lost.  Reporting that presents sufficient data to answer the question of what happened must be considered to be merely the starting point and must be enhanced first with comparative information and qualitative context in order to transmute the simple reporting of data into the creation of insight.

Successful companies understand that data-driven insights are the one universal value creation opportunity.  Every company sits on immense data about both itself and its market, but few make use of that data in a thoughtful way.  By investing constantly in data reporting and analysis, high-performing companies develop crucial insight into themselves and their markets and then seek to constantly push out the frontier of that insight.  These companies are invested in knowing not only the “what” but the “why” behind it.

Giving Context to “What”

For entrepreneurs and business owners who do not possess an analytical background, many reports can seem daunting at first glance.  The data is evident, but it often takes additional time and thought to see all that is missing. Consider a simple quarterly income statement (see Exhibit A):

Exhibit A: Quarterly Income Statement

Amounts in ($000s)

The above income statement provides sufficient data to answer the question of what financial performance was for the first quarter and takes the next step by providing useful profitability measures.  But how should this performance be assessed?  Absolute measures of performance at most companies are meaningless.  Context is necessary to better understand whether performance was superior to, in line with, or below expectations.

Consider the same income statement, with added context (see Exhibit B):

Exhibit B: Quarterly Income Statement (with context)

Amounts in ($000s)

The additional data included above (the Q1 budget) was limited, and likely already known to whoever would be viewing this report, but the value of the report has been substantially enhanced.  With the benefit of additional data, a deeper understanding of performance is now possible. 

It is now clear that the company under-performed on revenue expectations but outperformed on profitability (in both nominal and percentage terms).

The Power of “Why”

The strength of comparative analysis is that it provides useful insight for report audiences.  But comparative analysis alone is not sufficient.  High performing companies look to provide additional context that will further aide in understanding the drivers of performance. 

Consider the additional utility of a further revision to the quarterly income statement (see Exhibit C):

Exhibit C: Quarterly Income Statement (with additional context)

Amounts in ($000s)

The above format now provides a level of context that allows for the development of a few key insights:

  1. Revenue. Adjusted for timing, revenue seems to be tracking to budget.
  2. Gross Margin. Improvement due to better pricing with a new supplier is higher than forecast. Why was this opportunity missed or under-represented in the budget? Has the market changed?
  3. Operating Expenses. Out-performance was temporary and directly tied to the delayed customer order.

The more robust report format has yielded superior insight of both the company’s own performance as well as offering tantalizing hints about the broader market.  Additional follow-up in these areas would likely yield further insight.


In an era of rapid innovation, industry shaking disruption, and voracious competition, no company can afford to disregard opportunities to create and enhance competitive advantage.  Unfortunately, mastery of data, through robust and thoughtful report design, is too often considered to be merely a use of time, rather than an investment in developing superior insight.  Those companies that invest in the necessary mindset shift and seek to understand the “why” behind every key “what” are on the path to becoming the industry leaders of tomorrow.

About the Author

David Johnson (@TurnaroundDavid) is Founder and Managing Partner of Abraxas Group, a boutique advisory firm focused on providing transformational leadership to middle market companies in transition.  Over the course of his career David has served as financial advisor and interim executive to dozens of middle market companies.  David is also a recognized thought leader on the topics of business transformation, change management, interim leadership, restructuring, turnaround, and value creation.  He can be contacted at:

Stakeholder Support

A business transformation presents an abundance of challenges for any leadership team, regardless of tolerance for conflict.  In the business press, financial issues often take center stage in reporting on a business transformation, and with good reason.  The task of systematically resetting the capital structure and profit potential of an enterprise is an enormous endeavor, and when that task is combined with intense time pressure, it is easy to see how financial concerns naturally take the forefront, particularly in the discussions of outside observers.  The challenge in focusing too narrowly on financial issues in a business transformation is that such a focus obscures a key driver of success: fostering stakeholder support by rebuilding relationships and crafting a narrative of future success that effectively sets the stage for productive collaboration moving forward. 

It is difficult for many leaders to intuit the crucial importance of stakeholder support, and as a result that importance is felt most keenly when it is absent.  By their nature, relations with stakeholders are often marked by long stretches of monotony interspersed with intense periods of rancor.  The time commitment necessary for productive relationship building with multiple stakeholders has none of the glamour of the 11th hour restructuring that saves a company, or the heroic return to profitability following years of losses that the most dramatic business transformations are known for.  And yet, as the work of professor Michael Jensen at Harvard Business School suggests, value maximization is inextricably tied to cultivation of stakeholder support.  Simply put, the headline grabbing value maximization results of a successful business transformation are impossible without stakeholder support. 

The stakeholders in every situation are varied, but the overriding theme in the early stages of a business transformation is their sense of anger and betrayal.  Capital providers feel misled by performance that has fallen short of forecasts and are impatient for a credible pathway to an acceptable level of profitability or a palatable option to cut their losses and exit the investment.  Employees are demoralized by poor performance and frustrated by management’s inability to solve the problems that are overwhelming the company.  Suppliers are furious at a lack of communication as they nervously assess their exposure while hoping for a return to better days.  Each stakeholder group has a good deal to gain from a successful business transformation, but the reality is that, for any transformation effort to truly be successful, each stakeholder group is going to need to grapple with a set of hard truths first.  

Earning stakeholder support in the context of a business transformation is very much a process of guiding stakeholders through the acknowledgement of hard truths and on to a workable framework for a forward-looking relationship with the company.  Over time I have come to see this process as one of the defining crucibles of transformational leadership.


We can safely generalize stakeholder constituencies into the following groups: Capital Providers, Employees, and Suppliers.  Each of these broad constituencies has a unique set of concerns, risk tolerances, and levers at their disposal to help or harm a nascent business transformation.  It is the role of leadership in a business transformation to manage each constituency for the maximum benefit of the enterprise.

With each of these constituencies a few key principles apply:

Rebuilding Trust

Capital Providers: This group, which comprises lenders ranging from banks to private credit funds and shareholders ranging from family owners to private equity firms, is broad but has a common interest in earning an attractive risk-adjusted return on investment.  The challenge with this group is in respecting a party’s risk/return preferences and structuring a formal proposal that will result in a palatable long-run equilibrium.  Banks, almost always at the low end of the risk/return spectrum, will seek a path to reduce their exposure in a business transformation, while private equity firms, at the opposite end of the spectrum, will be more amenable to deploying additional capital at an attractive return.

The hard truth for this stakeholder constituency is the definitive end to prior forecasts and a resetting of the baseline, both short and long-term.  In the short-term, this resetting of the baseline will often involve a violation of lending covenants, a worrisome level of liquidity (cash plus untapped borrowing capacity), and a need on the part of capital providers for intensive monitoring (often weekly, but usually no less than monthly).  In the mid-term, a restructuring is often necessary, which raises the specter of considerable losses to all capital providers, but most often to equity investors and subordinated debt providers.  Given these dynamics, trust is low, all analysis is heavily scrutinized, and it is of the utmost importance that leadership at the company under-promise and over-deliver.

Capital Providers

Employees: As a group, employees are the stakeholder group most open to a plan that will return the company to success, but most resistant to the idea that they (individually) had a role in the company’s troubles.  Executive team members are often defensive and unrealistic in assessing their performance prior to the launch of a formal business transformation initiative and are noteworthy in their frequent attempts to envision a successful business transformation that somehow leaves their personal status quo unchanged.  The hurdle with this constituency is to address layoffs, reassignments and key promotions quickly, and instill a sense that, following a brief but intensive transition period, their efforts will again be the prime determinant of their future success at the company.   

The hard truth for this stakeholder constituency is that the status quo is at an end, permanently.  People will lose their jobs, and for those who remain there will be considerable changes: departments will be reshuffled, executive departures and new promotions will scramble old power dynamics, former sacred cow divisions or projects will be objectively reassessed.  The promise here is that the change is premised on making the company better, the challenge is in recognizing that such an outcome will be secondary to those facing an individual loss in power, status, or control. 

Suppliers: This broad stakeholder group encompasses landlords, key supply chain partners, and miscellaneous service providers large and small.  The key dynamic for this group is the overwhelming desire to maintain and grow their commercial relationship with the company, mediated in part by concern over their current level of financial exposure and a desire for clarity on the path forward. 

The hard truth for this stakeholder constituency is that every business transformation takes time, and so the fix is unlikely to be immediate.  Past due balances are more likely to be worked down over time rather than paid off immediately.  In some cases, this disappointing news must be delivered simultaneously with a request for additional concessions.  The key here is to focus on the plan that is being executed, and appeal to greed (growing with the company post-transformation), over the fear of current levels of financial exposure.

Employees and Suppliers

Time and Attention

The investment in leadership time and attention necessary to rebuild stakeholder support is considerable.  In the short-term, even formerly low-value stakeholder communications should be handled by executive leadership.  Routine interactions such as vendor calls, quarterly financial reviews with capital providers, and employee townhalls should be recast as opportunities to reinforce the message that a business transformation is in progress, get real-time feedback on how the process appears to those outside the c-suite, and provide a forum to address questions and concerns promptly. 

Leaders executing a business transformation must recognize that they swim in a sea of skepticism, and that the way to change that condition is to address the skepticism patiently, clearly, and often.  Results ultimately carry the day in any business transformation initiative, but in the early stages the process can also be envisioned as a series of interlocking public relations campaigns to different stakeholders.

Capital provider communications can most effectively be recast through upgraded report quality and an accelerated reporting cadence.  If updates had been quarterly under normal circumstances, consider a weekly or semi-monthly update call along with appropriate financial reporting.  Look to provide additional metrics, featuring an appropriate mix of leading and lagging indicators, and tell a consistent story.  Once the transformation has gained traction, invite capital providers to an on-site presentation of the long-term strategy.  The goal here is to provide visibility into near-term performance, provide advance warning of any issues, showcase improved performance, and build excitement for the future. 

Employee communications offer the prospect of the rich bounty of energy and goodwill that comes from an energized, enthusiastic workforce.  Unfortunately, the risk of declining morale and skepticism is ever-present.  Communication to this group must represent a mix of styles: townhalls, small group gatherings, email, etc.  Few people are equally disposed to all methods of communication, and leaders in a business transformation should keep that in mind when crafting an approach aimed at winning, and keeping, the hearts and minds of this group.

Vendor communications are a risk area for all but the most iron-willed leaders in a business transformation.  Accusations and threats are to be expected in the early days, as months or years of pent-up frustration are released, ironically on the very leaders with the discipline to hear out angry vendors.  The key with this group is consistency and access; setting a rhythm of weekly updates with critical vendors and providing them with an executive level point of contact goes a long way toward reestablishing a positive working relationship.   

The investment in time and attention necessary to rebuild stakeholder support is considerable.  In the short-term, even formerly routine stakeholder communications should be handled by executive leadership.  While this approach might initially seem to represent a questionable allocation of precious time, when considering the crucial importance of stakeholder support, the cost is low. 


Business transformations strain the political skills of even the most persuasive leaders.  The dynamic challenge of setting expectations, addressing past missteps and rebuilding trust, all while driving cultural, financial, operational, and strategic change, is daunting.  But with stakeholder support even the most challenging business transformation becomes less so, and without it even seemingly minor situations can falter.

About the Author

David Johnson (@TurnaroundDavid) is Founder and Managing Partner of Abraxas Group, a boutique advisory firm focused on providing transformational leadership to middle market companies in transition.  Over the course of his career David has served as financial advisor and interim executive to dozens of middle market companies.  David is also a recognized thought leader on the topics of business transformation, change management, interim leadership, restructuring, turnaround, and value creation.  He can be contacted at: