Back From the Brink: Strategic Management for a Manufacturer Caught in the Crunch
Introduction
I’ve known and worked with Jim Wilson in numerous engagements over the last 20 years. Much of our work together focused on companies in financial distress, including projects for firms facing Chapter 11 bankruptcy. When hired as consultants to these firms we began with a “presumption of innocence”. That is, that there might be a straightforward path out of trouble and back to profitability. We solved two problems: “How might we get the company profitable and viable again?”, and “How might creditors be better off if the company weren’t trashed?”. Jim came up with strategies and drafted the plans that could bring these companies back to life.
When Jim and I worked with bankruptcy attorneys, in every single situation, we were working with the top management of the firms. I’d like to emphasize that these were both the top bankruptcy attorneys and the most significant partner(s) of the firm. Across the board, these attorneys remarked that Jim’s plans were some of the top bankruptcy workout plans they’d ever seen.
Situation
A privately-owned company we’ll call PartsCo specialized in selling parts that allowed jeeps and trucks to go off road. Founded in the 1960’s in a garage, by 2007 the company was growing steadily and was quite profitable. At that time, a private equity company bought the company and the founder retired.
The new owners wasted no time executing their plan to hit the jackpot, namely by expanding the operation aggressively … using cash from a consortium of banks. Disastrously for them, the economy tanked a year later and the company was soon on the edge of bankruptcy. Within a short time, the company had bled out more than had been paid for its purchase. The market was not buying “extras” like off-road parts.
Since the loan agreements with the bank syndicate had been violated and lenders’ capital was in serious jeopardy, the bankers began calling the shots. The consensus was that the company was salvageable, but needed a plan.
In a complex move that kept the matter out of bankruptcy court, the banks foreclosed on all assets … a “friendly foreclosure”. Essentially they did not want to risk any more money. A new board was formed so that PartsCo could continue to operate. I was appointed to the board of directors by one of the banks involved.
Solutions
We wanted to accomplish two things:
- Get the senior management team educated in business issues. In a firm with more than 1000 employees, only the CEO held an MBA degree.
- Get a strategic plan in place to bring us back to profitability. That was where I said, “I know this guy I’ve worked with over the years—Jim Wilson. I’ve got a lot of confidence in him, and know what he’ll produce for you.”
We brought Jim in and kicked around ideas. He met with the CEO, and the chairman of the board. Jim interviewed the top management group of about 12 people. This was a multi-divisional group spread across the country. We needed to develop the right strategy and get every manager on board executing that strategy.
Jim formed a strategic planning group of the executive team. Over the course of about 6 months, he worked with the team to identify strategic objectives for the company. He kept the team focused on three things: increase revenue, increase cash flow, and increase profit.
Some of the primary objectives were:
- Increase revenue in general.
- Expand foreign markets.
- Identify new markets.
- Identify and execute a series of strategic acquisitions.
- Have products manufactured in lower-wage countries such as China and Mexico.
The team met regularly and came up with 12 strategic initiatives to grow the company. Over the course of about a year, Jim did it all with the team: getting the right strategies, getting the right people in place, enabling disciplined execution, and presenting to the management team.
The board was closely involved in the post-bankruptcy management of the company. The team presented their plans and updates to the board and it worked. We got a strategic plan with solid numbers and a team committed to getting it done.
Results
Jim’s strategy went extraordinarily well. Here are the results of that strategic plan:
- When we started, the company was doing ~$300 million in annual revenue. Within seven years’ time, that more than doubled. The increased revenue came from addressing new markets with off-road needs, and expanding operations to serve those markets. In addition, new revenue came from product development and from acquiring a series of relatively small manufacturers of complementary products.
- The increase in revenue allowed us to pay off some high-interest loans that had choked cash flow. That was a strategic move that gave us more cash to work with.
- With operations stabilized, we were able to get the management team some formal education. We arranged for 6 of the top managers to go through an executive management program.
PartsCo was not an isolated case. Over the 20 years I worked with Jim, every one of his plans was a success. In bankruptcy terms, success means:
- Keeping the company in business
- Making the company profitable again
- Getting money for the unsecured position holders
- Paying off vendors and getting them back in the business of supplying
- Saving the jobs of company employees
- Creating and preserving jobs in multiple, associated industries
[Jack: maybe you could you draft a sentence or two to tie all of this off.]
Jack Kirby, Director and CEO to Troubled Businesses
Pasadena, CA
Where To Next?
Now you’ve read a case study of one of Jim Wilson’s clients, go to the Gaston Pereira Case Study to read another.