Archive by topic: Private equity

Distressed Investing + Leadership

January 25th, 2011

Wednesday, I am leaving for the Distressed Investing Conference of the Turnaround Management Association and am eager to see whether presenters spend much time discussing  leadership considerations.

Many investments in distressed companies  fail because the investors (most of them private equity firms) pay too little attention to selecting and managing company leadership, but the last time I attended this conference, 2009, there was only one session (really, it was only one panelist) who highlighted this very important issue.

Mike Heisley discussed the fact that distressed companies require a leader with traits that are very different from those required to lead  a “healthy” company.  He was exactly right.  Click here to view my post from that event.

Eddie Bauer Bankruptcy

June 18th, 2009

Are You Guilty of These Bad Business Habits?

June 9th, 2009

The “headline” of my post today is the headline of the June 9th post on the VC Task Force Blog.  The post features some of the high points of Kristin Jones’ recent interview of me.

If you are not familiar with VC Task Force, it is a Bay Area-based organization designed to assist all stakeholders in the venture community.  Take a peek–Lots of heavy hitters are involved.

Renee’s Rule™: “Bigger” may not be “safer.”

May 17th, 2009

When is it “safer” to hire a “big” professional firm rather than a smaller one?  This is a topic I’ll be exploring in several different posts.  For the moment, here is an instructional story. (The names and some details have been withheld to protect the guilty.)

Some time ago, a principal from PE (private equity) Firm A, with investments across the country, called me to take the place of the CFO they had hired because he was a consultant with a national (“big”) consulting firm.  Why was the PE firm replacing him?  When the portfolio company’s lender conducted its audit, guess what they found?  The “F” word: Fraud.  (I did not accept this engagement for a variety of reasons I’ll discuss in a later post.)

Several months later, PE Firm B interviewed me for a turnaround in an industry in which I had successfully turned around more than one company.  Did they hire me? No.  Why did they pick someone else?

  • He’s from a national firm, so that’s “safer.”
  • He has industry “experience.”
  • We know him.

Here is what I know about this person:

  • He IS a consultant with a national firm.
  • He was involved with a company but definitely did not lead a successful turnaround in the “industry.”
  • He was the person who was removed by PE Firm A because bank fraud occurred while he was CFO.  (Evidently, PE Firm B didn’t really “know” him.)

I also know that the company was not, in fact, successfully turned around.

Let me be clear:  There are some times that a bigger firm really IS safer; nonetheless, there are many lessons to be drawn from the above story.  Stay tuned for further posts.

In the meantime, remember these Renee’s Rules™:

  • When hiring, RESULTS are more important than “experience.”
  • Always check references.
  • There is no substitute for common sense.

The Experience Fallacy

May 5th, 2009

Too often, people make hiring decisions based upon “experience” rather than “results.” A true story illustrates my point.

Several years ago, at the beginning of what ended up being a very successful turnaround project, the CEO told me, “We have a new CFO who has experience in turnarounds.”    (I’ll call the CFO “Jill,” to protect her real identity.)

“Oh?” I said, “What kind of experience?”

To make a long story short, Jill had been CFO at company A, and it went out of business.  Then, she went to company B, and it went out of business.

During my tenure in this extremely troubled company, it soon became apparent that although Jill talked a good game (and, indeed, sounded very impressive!), she was simply unable to make needed changes.  She fancied herself a turnaround expert but was absolutely unable to fulfill even her most important job function; i.e., producing timely, accurate financial statements.   I replaced her with someone who could.

Not long ago, I read about a company that expected to have to shut down if it could not get additional financing very soon.  Guess who had recently been a financial officer for that company?

The companies that hired Jill undoubtedly made “experience” their key criterion.  Instead, they should have asked about and verified what RESULTS she had actually achieved.

Please note: Although Jill, who marketed herself as someone who could turnaround a company, was neither capable of doing that nor able to accomplish basic accounting functions,  there are many extremely capable CFO’s who have found themselves in distressed companies through no fault of their own.  I have had the pleasure of working with some of them.

Renee’s Rule™ – When hiring, RESULTS are more important than “experience.”

Women’s Private Equity Summit

March 14th, 2009

Thursday and Friday, I attended the Women’s Private Equity Summit (300 women and one very brave man).  The conference covered the same kinds of topics that any current private equity summit would cover.  Panelists talked about the impacts of uncertainty and where opportunities lie, even in the current environment.

Two comments struck me as being noteworthy:

One panel moderator asked, “How important is diversity in private equity recruiting?”  Although most people immediately thought about race, gender, and  “ethnic” diversity,  one very insightful audience member pointed out that for the same reasons that  private equity firms reduce their financial risk by diversifying their financial portfolios,  such firms (or for that matter, businesses, in general) could further reduce their risk by ensuring that their teams include a diversity of skill sets and perspectives–regardless of race, gender, or ethnicity–so that multiple views would be more likely to be considered.

On a slightly different topic, another observer pointed out that women have been conspicuously absent in the leadership of the well-known failed and failing business enterprises that have led to the current economic crisis.

Renee’s Rule™- There is no subsitute for common sense

March 4th, 2009

It seems like every minute a new book with the “latest” business “secrets” hits the market.  In reality, however, running a business profitably and well boils down to taking care of the basics; i.e., having a well-conceived plan, having a capable leader, and implementing a carefully crafted management control system.  It is astounding to me that so many companies lack these basics—not just family-owned, but also publicly and private equity-owned (You know some of their names.)

Much of the information in this blog may sometimes sound like nothing more than common sense, but common sense and an attention to the basics are too often missing-in-action.

An example from my personal experience: In 2007, a private equity firm interviewed me for a turnaround project.  The company had been losing money for three years; there was no business plan; the president was clearly not qualified; and there was no effective management control system in place.  After I mentioned that the company needed these basics, the managing director said, “We know that.” (As in, “do you think we are idiots?”)  So…if they knew all of that, then where had they been, and what had they been doing for the past three years?  And these were people with MBA’s from prestigious institutions, who, presumably, have a fiduciary duty to their investors and definitely know better.

Find a way to step back from your business, to take a cold, hard look at where you are and what your real prospects are…Are you making money or losing money?

Distressed Investing Conference #3

January 27th, 2009

During one of the most interesting panels of the conference, Mike Heisley, a self-made billionaire according to Forbes, made an incredibly important point about the management skills required of a CEO running a distressed businesses.

He said that there is a huge difference between “managing” and “managing a distressed business” and that the latter requires a

  • Different psychology
  • Different temperament
  • Different experience

I could not agree more. Why?

  • In my experience, leading a turnaround requires being a combination of general on the battlefield, teacher, psychologist, negotiator and camp counselor. Being able to make on-the-spot decisions and to “rally the troops” may spell the difference between success and failure.
  • Decision-making time lines are dramatically compressed. Decisions that would take weeks, months or years in a “normal” company may have to be made in minutes, hours or weeks in a troubled company. There simply is no time to do otherwise.
  • The patient is in the emergency room, so saving the company takes priority over everything else other than legal and ethical considerations–because most stakeholders will be worse off if the company folds. As a result, the turnaround CEO has to make tough calls–quickly.

I’ve seen managers who think that they have “turned around” a division fail spectacularly when they find themselves running troubled companies because

  • They were used to having effective systems and procedures in place rather than having to create them
  • They were used to being able to have HR recruit the creme de la creme at competitive salaries rather than having to work with most of the people who were already in place, regardless of their skill sets
  • They didn’t have to worry about whether they would be able to pay payroll or vendors–They knew that cash would be available
  • They did not have to worry about being placed on credit hold or C.O.D. and facing the possibility of not having materials necessary to production

Do you remember the opening scene in Saving Private Ryan? That’s exactly how it feels in the early days of a “real” turnaround, but without the physical danger (although I have had nails put into tires and had an employee try to attack me physically). If you don’t remember the scene, rent the movie. It will be an eye-opener.

Firms and individuals investing in distressed companies will be well served by following Heisley’s admonition.

Distressed Investing Conference #2

January 25th, 2009

One of the most interesting–and telling–observations at the conference came from David Shapiro, KPS Capital Partners, who said that the one investment of theirs that is doing well offers “adult incontinence” products.

Not surprising, is it? After all, this product is offered to a real market with a real need. Given the current state of the economy, those are the only kinds of products and services likely to succeed. Will we finally get back to basics?


January 4th, 2009

“These are the times that try men’s souls” (Thomas Paine, The Crisis, 1776)

As financial troubles roll through the economy, many–possibly, most–companies are seeking ways to ensure their survival. The purpose of this blog is to provide helpful information to

  • Businesses, whether they are publicly held or owned by private equity, family, or employees
  • Boards of Directors
  • Trusted business advisors to whom businesses and their owners turn in times of trouble; e.g., accountants, attorneys, bankers, insurance agents, financial advisors, investment bankers

Based upon my experience as an award-winning turnaround expert, I plan to provide practical advice, comments, and tools that readers can use to improve their business prospects both now and in the future.