The Turnaround Mindset

A well-executed turnaround is an intricate thing, and it always requires careful coordination with stakeholders, both internal and external.  Capital providers are skeptical, suppliers simultaneously desperately want you to succeed and hope to quietly reduce their exposure should you fail, management is resentful, and employees are afraid.  Despite the pressing nature of external issues, experienced turnaround practitioners understand the value of focusing on the internal first.  By carefully working to shift the mindset of internal stakeholder groups, companies greatly increase their likelihood of a positive outcome.

Successful turnarounds are ultimately determined by operational improvement often made possible through financial maneuvering (cash management, incremental financing, etc.) and facilitated by a revised strategy, but absent a hearts and minds campaign to establish a mindset among employees that is conducive to success, a turnaround initiative may fail under the weight of employee fear, indifference, and internal politics.

Areas of Focus

There are five areas of focus that bear attention when seeking to foster a turnaround mindset, some that must be attacked and reset, some that must be fostered, but all of them should be addressed:

Sacred Cows.  There is nothing more damaging to a turnaround than a long list of things that cannot be changed.  Every instance of “don’t look over here”, “we can’t possible change ‘X’”, etc. imposes artificial constraints on the nascent turnaround strategy that most struggling businesses can ill afford.  A winning approach to turnaround design should leverage a company’s unique mix of strengths and weaknesses.  Every change, no matter how unthinkable it may have been previously, is worthy of consideration in a turnaround scenario.

Silos.  Fostering a shared sense of purpose for employees at a company undergoing a turnaround is crucial, but it is just as crucial to foster that communal sense at the right organizational level.  For most companies, the key unit that comprises “us” is the department, or even a sub-set of a department, whereas “them” is not the competition, but fellow employees of the same company, ostensibly working toward fulfillment of the same overall strategy, but in a different group, office, department, etc.  Siloed thinking leads to toxic internal politics, and a level of shortsightedness that is counter-productive to any transformation initiative.

Know Yourself.  The optimal way to design a viable turnaround strategy is to chart a path to bolster/leverage a company’s strengths while ensuring that its weaknesses are the results of rational trade-off decisions and do not represent a threat to the success of the company.  This can only be achieved when a company and its employees wholeheartedly embrace the need to objectively assess both strengths and weaknesses.  Experienced turnaround practitioners understand how to navigate the cognitive biases that prevent too many organizations from learning from failures, and instead help their clients glean valuable lessons from past results, both positive and negative.

Embrace Trade-offs.  Normal course strategic planning generally results in one of two crucial errors.  It either: 1) embraces an incrementalist view in which the “strategy” becomes merely an extension of the current state, more a forecast than a plan to compete and win in a shifting competitive landscape, or 2) approaches strategy at such a high level, and such at remove from the operational, financial, and competitive constraints which the company faces in the real world that the resulting plan has no workable path to implementation.

A turnaround strategy, by contrast, is inherently a strategic rebalancing whereby a company retreats from one set of inter-locking advantages (that, due to market shifts, no longer generate economically viable performance) to another, more attractive set of advantages.  Assumptions must be explicit, and the trade-offs highlighted, for this more rigorous approach to succeed.

Be (Pragmatically) Optimistic.  The job description of a turnaround practitioner is to accomplish something that incumbent management has come to believe is impossible.  Somewhat counter-intuitively, doing so fosters a sense of humility in those who do it.  A turnaround represents a near-perfect instance of a moneyball approach to business: rigorous analysis, willingness to act in defiance of conventional wisdom, the flexibility to either double-down on successful initiatives or pull back and reset when performance is negative, and a focus on constantly learning.


By the time key decision makers at a company have concluded that a turnaround is necessary, there is often little time to spare.  A repeat of past performance will doom the organization, and resources are frequently far less than what might be wished for.  But turnaround practitioners juggle those challenges all the time.  The need to first win over the hearts and minds of employees, and then engineer a shift in mindset along the dimensions discussed in this article, does not always get the attention it deserves.  A turnaround mindset is truly the foundation upon which successful a turnaround effort rest.  Companies seeking change and change agents seeking to foster change would both benefit from devoting additional time and attention to this under-appreciated building block of turnaround success.

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:

Forever 21 Bankruptcy


On Sunday, September 29, one-time apparel retail disruptor Forever 21 filed for chapter 11 bankruptcy and will now seek to beat the odds by restructuring its liabilities, right-sizing operations and emerging as a going-concern post-restructuring.  The company, founded by South Korean immigrants Do Won and Jin Sook Chang in Los Angeles in 1984, fueled its growth by pushing a relentless stream of low-cost but novel merchandise into its stores, effectively turning speed into a competitive advantage while exposing the operational weaknesses of many of its competitors.  In the aftermath of the Great Recession, the combination of a business model in synch with the times (high novelty, low-cost) and eager landlords seeking expansion-minded tenants led to explosive growth.  

Though Forever 21 does not report financial results, industry sources in recent years suggested that growth had slowed, revenue targets were missed, and the company was experiencing cash flow challenges.  The bankruptcy filing stands as confirmation that the combination of increased fixed costs due to expansion, shifting consumer tastes, and the migration of an ever-larger share of apparel spending to ecommerce successfully halted the momentum of what had until recently been a winning model.

Too Big to Fail

No one likes to see a good customer fail, but the specter of Forever 21 failing could be particularly chilling to Simon Property Group, which counts Forever 21 as its sixth-largest tenant, occupying 1.5 million square feet of retail space spread over 99 locations.

With 800 total locations, a major question for Forever 21’s landlords will be what the post-restructuring footprint of the company will look like.  History suggests the pullback could be severe: a report by AlixPartners indicates that of 44 store-based retailers that emerged from bankruptcy in recent years, 24 reduced their store count by 25% or more. 

Landlords are not without options, however.  When Aeropostale exited bankruptcy, it did so with the support of a consortium that included landlords Simon Property Group and General Growth Properties.  Leadership at Simon Property Group has signaled that the Aeropostale investment may not be a one-off, and could represent a model that the company would utilize again.

With 800 total locations, a major question for Forever 21’s landlords will be what the post-restructuring footprint of the company will look like.

Forever 21 Store Breakdown

The Advantages of Bankruptcy

The U.S. bankruptcy code is designed to give companies the opportunity to reorganize.  Company management and advisors take advantage of the automatic stay to gain some breathing room in order to execute their plans.  Reluctant lenders can take comfort in the additional protections afforded to Debtor-in-Possession (DIP) loans; for troubled companies it is often easier to borrow money in bankruptcy.  These advantages provide only temporary respite from market forces, however.  Retail companies seeking to reorganize since 2005 (when the U.S. bankruptcy code was last amended) have an uninspiring track record. The challenge now is for Forever 21 and its advisors to navigate a path to a true going-concern reorganization, avoiding the ignominious fate of liquidation that has befallen many troubled retailers in recent years.

Forever 21 DIP Financing and Top 50 Unsecured Creditors

An Industry in Turmoil

Traditional bricks-and-mortar retail is a high fixed cost business, and the explosive growth of ecommerce has had a devastating effect on many retailers, forcing the restructuring of many one-time industry darlings, and more than a few liquidations.  Perhaps more frightening, with some experts estimating that U.S. retailers are “over stored” by as much as 30%, the current spate of retail restructuring is not yet at an end.


Forever 21 is now in a moment of crisis, but with the right mindset, a crisis can lend an invaluable level of clarity.  The company successfully grew from a single store in 1984 to 800 today, leveraging “fast and cheap” into an industry-shaking competitive advantage.  A reasonable guess would be that the next phase of the company’s story will involve a lower store count, and perhaps a non-traditional ownership structure.  The creativity and out-of-the-box thinking of the company’s leadership, combined with subject matter expertise on the intricacies of a successful restructuring in bankruptcy on the part of its advisory team, may enable the company to reset and set the stage for further triumphs in the years ahead.

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 can be contacted at:

Working Capital Management

Working Capital Management often represents the most substantial performance improvement opportunities available to a company.  While optimizing levels of accounts receivable, inventory, and accounts payable will not show improvement on a P&L, the reality is that the cash flow generated from working capital management represents a lower cost source of funding than additional debt or equity, and as such robust working capital management generally conveys a strategic advantage over less disciplined competitors.

1) Size of the Opportunity.  A recent survey of 1,000 major U.S. companies found a potential cumulative cash flow improvement of $1 trillion through working capital management.

2) Early Warning System.  Careful attention to working capital sensitizes companies to subtle changes in their operations (slow-paying customers, falling demand for key items, trouble in the supply chain, etc.), and so gives attentive managers advance notice that something may be wrong.

3) Maximizing Value.  Strong working capital management is a discipline that is hard to develop, and easy to lose.  For those companies that stay focused, though, the increase in enterprise value can be substantial.

About the Author

David Johnson (@TurnaroundDavid) is a partner with ACM Partners, a boutique financial advisory firm providing due diligence, performance improvement, restructuring and turnaround services.  He can be reached at 312-505-7238 or at


Mt. Gox Bankruptcy

It has long been an axiom of mine that the little things are infinitely the most important.

― Arthur Conan Doyle

Bitcoin exchange Mt. Gox filed for bankruptcy under Japanese law less than a week after revealing that the company had lost over $450 million in its own and its customers’ Bitcoin holdings.  While revelations of the loss of customer funds was the death blow for the company, prior allegations as well as increasing pressure from prosecutors had eroded faith in the exchange.

CEO Mark Karpless, who purchased Mt. Gox from founder Jeb McCabe in 2011, had enjoyed success as one of the foremost proponents of virtual currencies, and he led Mt. Gox to a dominant position, with the company at one point accounting for 80 percent of all Bitcoin transactions.

The broader Bitcoin community seems remarkably unshaken by the Mt. Gox situation. The price of Bitcoin stabilized shortly after revelations of the most recent fraud, and many fans of the currency are hopeful both existing bitcoin companies and new entrants to the market will take more aggressive security measures to improve the safety and reliability of the currency.


In many ways, the overriding challenge of this development for Bitcoin and other virtual currencies may be that it highlights fundamental challenges for their broader adoption.  Virtual currencies, bitcoin chief among them, have been promoted by many as friction-free mediums of exchange, superior in many ways to the currency most people rely on.  Yet the undetected theft of $450 million in bitcoin by exploiting a flaw in the currency’s code suggests that there remain considerable drawbacks to unregulated currencies supported by minimal infrastructure.  Additionally, the practice of relying on a currency’s inherent structure, as opposed to the controls built around it, has shown itself to be insufficient.

Virtual currencies are shaking things up.  Many economists scratch their heads at the phenomenon.  Law enforcement, in particular Preet Bharara, the U.S. attorney in Manhattan, continues to view mediums of exchange that simplify elicit transactions with distrust.  But despite their detractors, virtual currencies have numerous enthusiasts, and may well continue to play a role in the global economy.  For that role to grow, serious thought will need to be given toward building in additional protections for users of the currency.  For most potential users, lower transaction costs and an elegant structure are insufficient inducements to use a currency that can disappear in the blink of an eye.