Business Turnaround
A successful business turnaround is a terrific way to transform an organization that’s stuck, but how big does the plateau have to be before you take action?
And what kind of action is necessary to jumpstart healthier growth and profitability? Today’s business turnaround expert, Rich Allocco, shares his insights.
What You’ll Discover About a Business Turnaround:
* The 3 red flags that signal the need for a business turnaround
* How business turnarounds share the same symptoms, but not the same root cause
* Why trust is essential to leading a successful business turnaround
* How to break down silos that stand in the way of a successful business turnaround
* And much more
Guest: Rich Allocco
After studying Economics at the University of Notre Dame Rich Allocco joined IBM in Large System Sales. After turning several complex competitive situations to IBM Rich was appointed Manager of Wall Street accounts and tasked with growing sales and returning competitive accounts back to IBM. From there he was named Manager, National Large System Competitive Marketing and then Branch Manager for sales and services for a 250M in revenue office in San Francisco. Rich then joined a small team of IBM executives tasked to turnaround an IBM company losing $1M a day. That company was returned to profitability and eventually sold.
Rich joined Siemens US and continued in functional sales and services roles and then company turnaround situations. Rich joined Remedy and ran Global Sales and Services, growing the company 4x in his tenure. He was then invited to work with several companies in need of turnaround, change and rapid growth.
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The Inside Scoop to Achieving a Successful Business Turnaround
A successful business turnaround is a terrific way to transform an organization that’s stuck, but how big does the plateau have to be before you take action? And what kind of action is necessary to jumpstart healthier growth and profitability? We’ll find out when we come back. Stay tuned.
This is Business Confidential Now with Hanna Hasl-Kelchner, helping you see business issues hiding in plain view that matter to your bottom line.
Welcome to Business Confidential Now, the podcast for smart executives, managers, and entrepreneurs looking to improve business performance and their bottom line.
I’m your host, Hanna Hasl-Kelchner, and I’ve got another terrific guest for you today. He’s Rich Allocco, he’s a seasoned executive with significant business turnaround experience. And in the spirit of full disclosure, I have to tell you that Rich and I went to high school together and reconnected not long ago at a high school reunion.
So, as an aside, if you’re on the fence about attending a reunion and you’ve got one coming up, please consider going.
But getting back to Rich, when he started telling me about what he had been doing over the years; how while he was at IBM, he was asked to turn around an IBM company that was losing $1 million a day, how he made it profitable and got it sold, how he joined Siemens US and continued in functional sales and services roles, and then a company turnaround situation. He joined Remedy, ran their global sales and services, quadrupling it during his tenure, and then was invited to work with several companies in need of turnaround, change, and rapid growth.
Man, alarm bells were going off in my head, and I said to myself, “I’ve got to get him on the show.” Business turnaround is a really important topic. Organizations can paint themselves in a corner sometimes, and knowing how to get out of it can be challenging. And thankfully, Rich graciously accepted my invitation, and I’m thrilled to have him join us now.
Welcome to Business Confidential Now, Rich.
Hanna, thank you so much for that intro. I really appreciate it. It’s good to be here.
It’s good to have you, and I appreciate your being here. I’m curious, Rich, what are your thoughts about how a business owner or a senior executive can distinguish between a cyclical event compared to a sustained downturn that merits a business turnaround?
Hanna, that’s a great question. I think it’s relatively simple. In most turnaround situations that I’ve been involved in, it’s recognizable. It’s a chaotic situation. There’s a lot of disruption within the business. Revenue is being affected in a very big way. The company is bleeding. Typically, there is customer loss, and in fact, there’s employee loss, too. Employees are giving up, they give up on management, they don’t believe in the future. And so, they take off for greener pastures.
On top of that, there’s probably some level of competition. Whereas in a cyclical situation, I would say that is more predictable that there is data over quarters and years that would determine that, “Yes, we’re in a cyclical situation,” and/or it could be as simple as a product announcement, a new product coming out, a new release or something happening within the business that is seasonal. So, I think the differences are quite dramatic.
Well, you’ve certainly given us three flags to look for, and I appreciate that. Just to recap, it’s about chaos, about losing revenue because you may be losing customers and employees walking out the door. When they lose confidence in management, that is definitely not a good situation.
So, let’s say for a second that someone says, “Yeah, I kind of recognize at least two out of the three factors here.” Does business turnaround makes sense to get an organization back on track? Who should be involved in getting it back on track in righting the ship?
Well, another good question. Typically, again, in the situations where I have some experience, the board’s already been involved. The board recognizes that we have a substantial problem. In some cases, they may even point the finger at the CEO, or they might replace the CEO with somebody who has turnaround information.
But the fact of the matter is, that across the management team, across the employee set, across every element of the business, it is apparent that something is radically wrong with the business. In most cases, people will point to sales, Hanna, and say that, “We’re having a drop in sales quarterly or on a half year basis or yearly basis,” but in effect, what’s happened is there’s a problem within the organization, and it’s recognized from top to bottom.
And those three characteristics that I had mentioned to you are happening in spades. Everyone recognizes that something needs to happen. Again, it may lead to a change of leadership. And again, some small companies bring in leadership to basically run the turnaround situation, and/or there’s some senior executive on the team that’s well-trusted and/or they bring in somebody from the outside.
In most situations that I’ve been in, at least at the latter part of my career, that would have been me. And I can talk to you more about the process and all that in just a second, but that’s pretty much what you have to look out for.
Well, that definitely sounds reasonable but people recognize there is a problem. They may not agreeing on where the bottlenecks are, and that really does bring me to my next question, because it’s one thing to say, “Yeah, we got chaos. The customers are running out the door. The employees are running out the door.”
But how do you go about figuring out what the cause of all of that is? Because what you’re looking at is the symptoms, right? The revenue is down, there’s loss in confidence, but how do you figure out where the pinch points are in order to then remedy it? What would the process look like?
So, you used the keyword there, “symptoms.” There are going to be symptoms that can be read all across the company, and probably in many situations across functions. Typically, it’s going to show itself in sales. And as a matter of fact, in most of the situations, Hanna, where I’ve been involved, the people in charge would basically say, “We have a sales problem,” and they would show me all the symptoms.
But the fact of the matter is, there is always a root cause. And I would tell you, in every situation I’ve been in, the root cause is different. Even though the symptoms look the same, the root cause is different. Now, how do we get to a root cause?
Exactly.
Right. So, the first thing that I would recommend, that I would do, is I would embed myself in the operation. Of course, I would have the support of the CEO, I would have the support of the executive management team, I would go in, and I would ask a lot of questions but you have to realize that when you’re asking those questions, that some people are being protective. They’re being protective of themselves. They’re being protective of the organization. They might have their eyes on some change your position.
The person who does this kind of work has to be a relatively good read of people, has to have a good objective view of business. I think they need to have a cross-functional view of the business. They can’t just understand sales or marketing.
It’s important that they have a good appreciation for product management, and the product, and engineering, marketing, all the functions. So, first would be a good view of the business; step level meetings, participating in functional meetings. And the other thing, too, Hanna, that we all have to realize is that when you’re going through this process, there’s a tremendous amount of fear happening within the organization. “What’s going to happen to me? What’s this thing all about?”
And so, there has to be a really good communication as to why we’re doing this, what we expect the outcomes to be, what the outcomes might be, and the fact that we need everyone to be completely honest in terms of their own recognition of the problem, while knowing that their symptoms and their recognition of the product may not be accurate.
So, there’s another keyword that I would use, which is ““You’ve got to trust your intuition.” I have done so many of these that I can pretty much, within a pretty short period of time, I know who’s on board and who’s not. I get a sense for who I can trust and not. You can pretty much get a feel for people that are either holding information to themselves or don’t want to share, or they’re afraid to share.
But the worst thing anyone could do would be to start this process, embed themselves in the organization, have conversations with the various functions, and do it in an office with the door closed.
This needs to be an open operation. It needs to be a freewheeling kind of situation where people are giving and taking. And at some point, and I would say this has always happened in my situation, you really need to build trust within the organization. They need to know that you are completely objective, and your marching orders are to find the answer to the root cause or find the root cause, and then how to solve that root cause problem. Once you have that, believe it or not, this becomes pretty straightforward.
So, four or five things that I would say. One is you’ve got to get to a point where you recognize what the problem truly is. It’s not always sales. Although sales is where it typically manifests itself. There needs to be complete honesty within the organization. Collaboration with various people in the organization is key. Somehow, you need to get buy in that you’re the right person to be doing this. And once you have that buy in, information comes rather freely. It’s got to be a cross team approach.
You can’t focus only on one function, and you got to be very careful because the business, Hanna, has to operate as you’re doing all of this, so you can’t create a sense of paranoia. You need to be part of the organization, and people need to be free and feel free to speak to you without retribution.
That makes a lot of sense, but you mentioned something earlier that I think probably resonates, and that’s the fear in the organization. I mean, if people that are still employed there, okay, “They haven’t left for greener pastures,” as you said. They recognize, “Is there something wrong?” They may have their own opinions. They probably do.
They may or may not be accurate because they don’t see holistically the entire organization necessarily. They see it from their corner of the world, and they’re scared, right? They don’t know what’s going to happen. They don’t know if this turnaround is going to be successful, or somebody’s just going to start selling off assets, and there goes their job.
So, my question to you is when you go into a situation like that, that people are fearful, how do you start going about building the trust that you need? Because I totally understand that once you’ve built that bridge, and they’re like, “Yeah, I could tell Rich the truth. It’s not going to come back and bite me in the butt. I’m not going to get sold out, people are going to respect my opinion, and I can be totally honest.”
But being able to do that in an organization where if they’ve gotten themselves in a jam like this, I might venture a guess that there’s some toxicity somewhere that needs to be smoked out. And so, how do you go about building the trust that you need?
I think it comes down to a couple of key points. One would be you need to really hyper communicate. You need to really explain to people what you’re doing and why you’re doing it, and the fact that you’ve got complete confidence that this can be turned around, and how proud the employees are going to be to be part of the turnaround.
And that makes a basic assumption that the people who are there want to be there. They believe in the company. They believe in the product. They recognize something is wrong within their system, but they want to be part of the solution. Now, I’ve been in situations where I have communicated, I’ve stood in front of an entire company and explained why we’re doing this. I explained I was very confident it could be resolved. Some people left anyway; they’ve given up hope. The start of this transition or this transformation took too long.
But I’ve never had a situation in my career where that happened, and we weren’t able to turn it around. As a matter of fact, my last couple of situations, we actually turned the company around and sold the company. And as I mentioned earlier, one of the companies I worked with was bleeding sales. The CEO came to me and said, “We have a sales problem, and you need to come in and fix it.”
And it turned out, it really wasn’t a sales problem. It was a cross-functional problem. It was a product management problem. It was a product marketing problem. Customers want to hear our solution. Customers wanted to know what our vision was, and our sales reps were not able to do that. They were getting feeds and speeds and all that kind of information. It was a technology-bound kind of a problem.
By the way, technology is not bad, but you’ve got to feather that in with some real vision for the customer. So, I don’t know whether or not you want me to go into it a little bit more detail as to what I did in that situation.
Yeah, good.
Every functional group was a faction. Nobody had any empathy for the group that they were participating within meetings. And so, I said, “Hey, listen, let’s make this easy. Give me the most complex problem we have in the company. Give me the most complex customer and tell me what they want to accomplish with us.” And I brought every function into a room and said, “We are going to solution this customer.”
“I’m going to need help from engineering. I’m going to need help from product management, product marketing, sales, finance, operations, the executive management team.” And we sat in a room, and I observed how we responded to this need that a customer had for a worldwide solution.
And it was very interesting because over time, what happened was everybody in that room started raising their hands, saying, “I think I can do this,” or, “I think I can do that.” I didn’t realize that sales couldn’t get a price or a discount strategy for the number of units being sold to that ‘cause people really want to help each other out. They felt good about it.
And before I knew it, the functions realized that we are all in sales, that everybody in the company, no matter what the position was, we were all in sales. And in fact, that was the beginning of the turn of the company.
Now, having said that, there were people that weren’t a good fit. There were people that we had to move into different positions. There were people that had to move out of the company. But for the most part, the team that got us in trouble was the team that corrected the problem, and we flourished after that.
That’s a great example. Thank you for sharing that. It sounds to me like having all those people in the same room broke down the silos that they were operating in.
Exactly.
Wonderful. So, let me ask you this, you’ve been through umpteen turnarounds. Do you think it’s easier for somebody who is outside of the organization to come in, as opposed to somebody who’s already inside, trying to figure this out?
That’s a really good question. I think going back to the first question you had asked me, in a lot of situations, the board has had enough, and I think you and I have both have seen – have seen that. And when the board has had enough, they will bring in a CEO who has complete control over the entire organization, and they can make judgments. And hopefully, that person has turnaround experience.
But we’ve both seen situations where someone coming into the organization just doesn’t have the right chops, the right background, the right experience, the right knowhow to do this, and it’s also quite difficult to operate the ship when you’re also the mechanic.
And so, in my situation, I was always the person that people knew of me, they knew of my reputation, they knew of my background, they either worked with me in past jobs, and now they’re a CEO of a company. They had a problem, and they trusted me enough to bring me in knowing that I think I’m fairly objective. I really don’t have an interest in winning or losing.
Personally, a win for me in that situation would be that we turn the company around, that we grow revenue, that people are happy, that we retain customers, that we gain more customers. That was my measurement system.
To answer the question, when it’s a board decision, Hanna, the board’s going to do what the board is going to do, but I can’t tell you how many times when I was running a worldwide sales organization and the board would say to me, “Hey, Rich, we think this should be done within the sales,” and I knew that wasn’t the right answer, that there was something else that was a rub that was causing us not to perform.
So, I think having a third party objective person working with the CEO, getting the approval of the CEO, getting the support of the CEO, all I can say, Hanna, is it worked. It worked for me. And how many CEOs have this kind of background where for basically 35 years of my career, that’s what I did? I helped turn around situations from beginning to end. So, I would say it’s based on the flavor and on the philosophy of the board.
But I have had a lot of success, so I kind of lean towards an outside party “who” knows the market, knows the industry, has done it probably multiple times, has had success, is a really good read of people, is very objective, and the only stake they have in the game is to turn that situation around.
Well, Rich, you don’t realize it, but you’ve answered my last question is what would somebody need to look for, and hell, if they don’t know you, to begin with, and they need somebody with turnaround expertise? They don’t know what to do. They don’t have it. They don’t have the experience, but they want to hire somebody.
And you’ve just laid out the criteria of what somebody should be looking for in hiring a consultant to help them with that; that they know the market, know the industry, have experience with turnarounds, are successful with them, not just having tried to do them, but actually succeeded in doing them, knows how to read people, is objective, and their only stake, the only skin they have in the game is to make it work. So…
Exactly.
Thank you so much, Rich. This has really been fantastic. [Laughter]
Oh, my God. Thank you so much. I’m so happy. I hope it helps you and others. And I can’t thank you enough, Hanna, for having me. I’m really honored by it. Thank you.
It’s been my privilege because I really think this is an important topic, and it’s so easy for someone who’s trying to do the doggy paddle to not realize that the benefit, first of all, of having somebody with experience, the kind of criteria that it is doable, and that people don’t realize the silos that may have been created and the information that doesn’t get passed between silos that should be, and having somebody else outside the organization facilitate those conversations I think helps keep the egos in check.
So, that was a marvelous example that you gave us, and I really appreciate your time and the inside scoop on how to achieve a successful business turnaround.
So, if you’re listening and you’d like to know more about Rich Allocco or how to get in touch with him, that information, as well as a copy of the transcript to this interview, can be found in the show notes.
So, I thank you so much for listening. Please be sure to tell your friends about the show. Leave a positive review. We’ll be back next week with another information-packed episode of Business Confidential Now.
So, until then, have a great day and an even better tomorrow.
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