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:

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 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:

The Evanescence of Strategy

Every strategy has a sell-by date, and the costs of ignoring that reality are steep.  Recently General Electric took the radical step of terminating CEO and Chairman John Flannery after 13 months on the job (prior to this action GE had had a total of 11 CEOs and 10 Chairmen in its 126-year history) and replacing him with the company’s first outside CEO, Lawrence Culp.  The break with history was certainly necessary, as General Electric had seen its market capitalization decline by $100 billion in the past year, and $500 billion in the past 18 years.

GE Stock Performance
Value Destruction at GE

GE rose to prominence by constructing a set of self-reinforcing advantages that were largely industry agnostic. Under the leadership of Jack Welch the potential cacophony of multiple lines of business became a sublime orchestra, with GE Capital as the engine that powered the whole.  But the global financial crisis changed the outlook for massive financial businesses, and Welch’s successor, Jeff Immelt, spent much of his tenure untangling the byzantine, and formerly massively profitable, conglomerate.

What happened?

Strategy, a high-level plan to achieve one or more goals under conditions of uncertainty, is the answer to a question.  That question: what set of actions, utilizing what resources, will produce the best outcome.  A company’s strategy is its theory of self, its reason for being.  Unfortunately, few organizations, or the people leading them, can adjust to the cognitive dissonance of an ever-changing answer and all that that implies.

Since at least the Jack Welch era General Electric’s strategy was to compete only in sectors in which it could be a dominant player and rely on what was seen as an advantage in leadership training and internal capital allocation to drive efficiencies that would beat the market.  The strategy worked both long and well (the company first had to attain a market capitalization above $500 billion in order to lose that value), but over time challenges that were long apparent took on increasing importance.

  • Pace of Change.  As the pace of change across industries has ramped up, being a major player in disparate industries became a tax on leadership attention, making it impossible to focus or marshal the resources necessary to make sound strategic adjustments.
  • Leadership Training.  It may have been the case once upon a time that GE had an inherent advantage in leadership training, but with the workforce investing heavily in education and training, this one-time advantage has been negated.
  • Capital Allocation.  Jack Welch took the helm at General Electric after a period of flat equity returns, when many U.S. companies were bloated and inefficient.  In 1981, perhaps a case could have been made that GE could more efficiently allocate capital within the company than the capital markets were able to.  Increased competition, new classes of investor (private equity, activist, etc.), and heightened shareholder expectations have changed that state of affairs.

There is a strong case to be made that complexity killed GE, but the wonder is the extreme longevity that an outmoded strategy enjoyed.  Much like the wooly mammoths (or, for a separate example, the dodo) that lived as recently as four thousand years ago on a small island off the cost of Siberia, General Electric had been a living anachronism for years.  With new leadership, GE is making a break from its past and speeding the dissolution of its current, anachronistic form.

About the Author:

David Johnson 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:

Implementation: Big Data & Analytics Bottleneck


“In five years, inside the enterprise, analytics is just going to be called ‘management.’”

 –        David Wagner, “Five Intuitive Predictions About Analytics”

In recent years the explosion of big data and analytics tools has been truly inspiring.  Companies and academics are now able to mine data sets that are mind bogglingly large.  This wealth of data has proven to be a goldmine as data scientists hunt for previously unrecognized relationships, and seek to optimize everything from the most promising routes of inquiry for drug development, to the pricing of consumer goods, to best practices for maintenance of industrial machinery.  Machine learning algorithms, making use of these large stores of data, are powering rapid advancements in artificial intelligence.  Nevertheless, this multi billion dollar market has, at its heart, a fatal flaw: data by itself is useless, and insights without an action plan are nearly so.  Absent change management expertise and leadership, the promise of big data will never be realized across the broad swath of organizations that might otherwise benefit from it.

As big data and data analytics tools progress through the hype cycle, disillusionment is setting in as company leaders struggle to realize the massive potential of these capabilities across massive organizations.  And it is here that big data runs into a fundamental challenge: analysis may scale, but actionable insights do not seem to, and insights alone do not guarantee successful implementation.

Savvy companies, recognizing this fact, are seeking to embed data scientists into their management teams.  This is a step in the right direction, but it is unlikely to be sufficient for companies with extensive physical operations and well-established business processes.  For these companies, data-driven insights that suggest a compelling benefit to be gained from a reorganization of the business are worse than useless: they are a cruel promise of a gain that cannot be achieved, yet another example of technology’s reach exceeding its grasp.

What is needed is data savvy change management, spearheaded by leadership with the ability to foster a data-driven culture while also building a capability for change and reinvention into the very DNA of established companies.  The promise of big data will, in the end, be realized or not based on the availability of a relatively scarce resource: accomplished change agent leadership.

About the Author

David Johnson Founder and Managing Partner of Abraxas Group, a boutique advisory firm focused on change management, strategy, and value maximization.  In his nearly 20 years as a change agent, David has served as an advisor, board member, interim manager, investor and operator at organizations ranging in size from pre-revenue startups to Fortune 500 organizations.  He can be reached at

Interim Managers: Value Creation Catalysts

There is a tendency among the leadership ranks of most organizations to espouse the virtues of disruption, but only when that disruption is focused on somebody else.  When incumbent leadership is unable or unwilling to drive necessary change, creditors and other stakeholders are showing an increasing willingness to press for interim managers to supplement the senior management team and drive the change necessary to save what is often a faltering organization.

Recent news regarding two troubled organizations highlights the value interim managers can bring, especially in periods of distress:

Holly Etlin - AlixPartners

Holly Etlin, Interim CFO of RadioShack

  • RadioShack.  The struggling electronics retailer announced recently that CFO John Feray would resign, after only seven months on the job.  Mr. Ferary will be replaced by Holly Etlin of Alixpartners, would will assume the CFO role on an interim basis.  According to Michael Pachter of Wedbush Securities, Ms. Etlin’s appointment is a negative to shareholders, as she will “represent the creditors”.  Mr. Pachter’s comment is actually a strong endorsement: given the fiduciary duty of officers of a company operating in the zone of insolvency, Holly Etlin should be working for the benefit of creditors, not the shareholders who are almost certainly out of the money.

Kevyn Orr - Detroit Emergency Manager

Kevyn Orr, Emergency Manager of Detroit

  • Detroit.  In his nearly 18 months as emergency manager of Detroit, Kevyn Orr has presided over the largest municipal bankruptcy in U.S. history ($18 billion) and pushed that contentious process toward what looks to be a remarkably successful resolution.  The Michigan law which allows for emergency managers dictates a term of 18 months, but in light of his successes many in Detroit are arguing for Orr’s continued involvement, if only to provide continuity throughout the bankruptcy and immediate post-bankruptcy period.

Experienced interim managers, such as Ms. Etlin and Mr. Orr, are professional change agents, responsible for both catalyzing and driving the change necessary for organizations to raise their level of performance.  In periods of turmoil, these change agents can be the difference between success or failure for struggling organizations.

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


Business Model Expiration Dates

Buddha - Lose what you cling to

For most companies, worries about the transience of advantage can seem hopelessly theoretical.  The goal for the majority of companies and their leadership teams is to achieve market dominance, not worry about the staying power of that dominance.  And for those lucky companies currently enjoying their time in the sun, time spent pondering the end of their hard-won market position can seem morbidly pessimistic.

Recent developments suggest that leadership teams from the scrappiest startup to the Fortune 100 would be better served by stepping back and considering the roots of advantage, how it has been attained in their industry/niche, and how market trends will impact the staying power of that advantage.

  • Media company Gannett (GCI) recently attracted the interest of investor Carl Icahn due to the company’s plan to spin-off its low-growth print operations.
  • Ecommerce startup Fab, which rode to a $1 billion valuation on the strength of its flash sales model, has recently stumbled, with multiple rounds of layoffs, as the company struggles to navigate a path to profitability.
  • Consumer Products giant Procter & Gamble (PG), driven by a tectonic shift in consumer shopping behavior, has announced a plan to divest as many as 100 brands.  There is some evidence from the company’s prior efforts at divesting brands that this approach is flawed, and may in fact only delay a more substantive shift in the company’s business model.
  • Energy company Kinder Morgan, which popularized the use of a tax-advantaged structure known as a Master Limited Partnership, recently announced a $70 billion plan to simplify the company, citing investor concerns around complexity and a high cost of capital.
  • Tech company Microsoft (MSFT), announced that it will cut up to 18,000 jobs in 2014 as it seeks to integrate its recent acquisition of Nokia and implement new CEO Satya Nadella’s revamp of both the company’s culture and market positioning.

Each of these companies are coming to terms with the need to fundamentally reimagine their business models as shifting market dynamics render prior competitive advantages moot.

The lesson, if there is one, is that there is no end in the struggle for market dominance, but only a continuous journey.  It is a lesson that all leadership teams should reflect on from time to time.

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

The Change Agents We Need

The leader of men in warfare can show himself to his followers only through a mask, a mask that he must make for himself, but a mask made in such form as will mark him to men of his time and place as the leader they want and need.

― John Keegan

The middle market has seen considerable change in recent years, and these changes have led to an evolving shift in how capital providers view distressed situations among their portfolio companies. Increasingly, capital providers (including banks, commercial finance companies, subordinated debt lenders, private equity firms and fundless sponsors) are seeking out versatile professionals able to serve as Chief Restructuring Officers in order to manage a distress situation from the inside, and steer a troubled company to an optimal outcome.  In many middle market companies a CRO will often find him/herself to be the lone advisor on-site, and as such these professionals must embrace the role of change agent.

The emerging generation of CROs will need to possess the following traits:

1) Focus on Substance over Form.  Too often distressed situations devolve as a result of an overly restrictive view of form success will take.  An experienced CRO will recognize that a sale of the company, refinancing, or balance sheet restructuring are all likely to generate superior value to a liquidation, and as a result will pursue a flexible strategy to position stakeholders for the highest value outcomes while not excluding the possibility of lower-value (but still viable) solutions.

2) Strong Communication Skills.  A distressed situation is always a tenuous balancing act, with multiple constituencies angling for position.  Skilled CROs understand the need for clear and consistent communication to all stakeholders, both within the company and without.  Inevitably certain constituencies will receive more or less information, but the messaging should be clear and the focus should be on executing toward an identified goal.

3) Comfort with both Strategy and Tactics.  In the middle market the day of the armchair CRO is coming to an end.  Small and midsize companies experiencing distress can no longer afford to have turnaround advisors dictate broad strategy while the company internally struggles with execution issues.  Today’s distressed situations call for advisors able and willing to first develop a viable strategy and then take a central tactical role (i.e. leading the charge) in executing that strategy.

The role of Chief Restructuring Officer is becoming increasingly central in driving distressed situations to a successful conclusion.  However, changes in the capital provider universe as well as an increase in the general tempo of distressed situations has given rise to a need for a more versatile, independent type of CRO than those who previously served the market.  Increasingly stakeholders must look not only for a CRO, but for a CRO with the right mix of skills, in order to steer a distressed company to a successful outcome.