Turn around, bright eyes | John Thibodeau's Windsor Associates specializes in pulling businesses out of dire straits

Presiding over a company that's in over its head isn't an enviable position. Maybe the firm is behind on its bills and mired in operational red ink. Perhaps the company's facing heavy pressure from its industry competitors. Or maybe the business' strategy simply isn't working. So what should be the strategy of the person at the helm? According to John Thibodeau, founder and principal of Portland-based Windsor Associates, the first step should be to give someone like him a call.

Thibodeau in 2002 founded Windsor Associates as a "business revitalization" firm, offering turnaround consulting to help companies right themselves after going through a corporate downturn. The Bangor native returned to Maine in the 1990s after more than a decade in Boston, bringing with him a long résumé of corporate recovery and consulting work at companies like Arthur Andersen and Fleet Bank. In 2000, Thibodeau also was certified as a turnaround specialist by the Chicago-based Association of Certified Turnaround Professionals.

With just one other employee, Thibodeau, 44, relies on a network of industry pros ˆ— independent contractors with experience in industries such as marketing, manufacturing and retail ˆ— to help clients turn their companies around. Windsor Associates also offers clients a range of consulting services, including help navigating the complicated bankruptcy process, tips on securing capital and advice on how to overhaul a company's business plan. Mainebiz recently spoke with Thibodeau about what kinds of companies need a turnaround, how to approach creditors and the pitfalls of working with a family-owned business. The following is an edited transcript of the conversation.

Mainebiz: The concept of a corporate turnaround makes me think of big, Fortune 500 companies that bring in high-profile consultants to remake the firm. But are corporate turnarounds also for small firms?

Thibodeau: Absolutely. Many of the businesses in Maine are, of course, privately held. Therefore, unlike the MCIs or the Enrons of the world, you're not going to unilaterally replace management. That's because in many cases, the management is also the ownership. That's a very fine line. Many of the reasons a company gets in trouble are at some level because of the management, whether it has to do with their ability to foresee change in their industry or their ability to hire the right personnel to run functional areas.

Is it more difficult to do your job when a company's management is also its ownership?

Yeah, I suppose it makes it harder because there's that emotional involvement in the business. They live it every day, and family members have lived it every day for generations. That can be very hard. And don't get me wrong, but an element to my job is to be a mentor or an ambassador or just someone there to be a psychologist. A part of my job is to be there for the client and walk them through all the considerations, like the non-economic or non-financial considerations that they go through.

Having said that, what I've found is that I try to work with them to step back and view the whole situation as a shareholder, as opposed to viewing it as the president or the manager. Where I have found that to work is in the context of trying to help shareholders decide whether to keep the business going or not.

Besides management, what other factors could lead a company to put a turnaround into motion?

Some of that could be a technological or structural change in the industry. It could also be a cataclysmic event like Sept. 11. I had clients who saw a dramatic impact on their near-term prospects because of Sept. 11, to the point where they lost a substantial amount of orders. That led to a real constraint on cash flow, which then led to problems meeting vendor payments or bank payments.

At what point will a company call you for help?

Well, no two turnarounds are alike. The companies are either in different industries or you're getting to them at different times in the turnaround stage. In a perfect world, we'd get involved when a company first starts to experience flat sales or early gross margin pressure, or when they lose one or two customers. More often, though, we don't get involved until very late. That's when there's already a crisis not simply in profitability, but in cash as well ˆ— the companies might not have enough cash to operate next month or pay their employees next week, and that's a hard proposition for us to come out of. But it's not unusual.

What kinds of companies typically call you?

Generally they'd be manufacturing sector [or] retail sector. Right now, for example, I'm dealing with a retail food chain, an automotive repair chain and a lot of consumer products companies. It's usually in sectors that are in a cyclical trough or in industries where you keep hearing about outsourcing, where they can't be cost competitive and are facing huge pricing pressures because they're losing business overseas.

So what's the first thing you'll do when you get called?

The first thing I do is an evaluation, which is a fact-finding mission that lasts anywhere from two days to two weeks. But it needs to be quick because we don't have a lot of time, especially for those companies that are tight on cash. What you're trying to figure out is the business' strengths and weaknesses, and whether there's actually a viable core business.

Also, can we find bridge financing either internally ˆ— does the company have enough cash to survive ˆ— or externally through a bridge lender or equity sources? Finally, are there adequate organizational resources to turn this thing around? In some cases, we get involved in companies where a lot of people have either left or been terminated. So you may be left with people who are trying to fill a number of different positions, including their own, and frankly they can't get it all done. No one could.

Once we've done that evaluation ˆ— and let's assume there's adequate cash flow in the near term, that we have something for the next couple weeks ˆ— then we go into trying to define a preliminary action plan, and that's purely focused on cash. Cash, cash, cash. We do a very detailed cash flow [analysis]: Who do we have to pay, when do we have to pay them, when do we expect payments in from customers, when are our ship dates? It's all focused on trying to convert to cash, because without cash, the business cannot stay alive.

When you go into a company and find out that it's getting low on cash, what do you say to people like vendors or bankers? Are they usually pretty accommodating?

Yeah, I find they are. But in some respects, it depends on how the message is communicated and who's communicating the message. A company that over a number of months or years has submitted projections or financials or business plans that have continually not borne out ˆ— there's a general lack of credibility with the company. But one key in communicating is to lay out for those lenders how the problem came about and, more importantly, to show them your solution for getting out of the problem. You have to show them the plan. If you show them the plan, and communicate with them in a forthright manner, then, yes, more often than not, my experience is they do listen and they do want to help.

And if the company's cash situation can be squared away?

Then we start looking at under-performing parts of the business: If there's a profitable core business, how can we get there? Is there low-hanging fruit, or are there underutilized assets there that we can sell off? Or do we have to go through a round of layoffs to get our head count into line? We do whatever we need to get this company to cash-break-even so we have enough time to asses the viability of the business.

What kinds of things do you look at when you assess the company's viability? It seems like a very qualitative process.

It's both a quantitative and a qualitative assessment. The quantitative part comes through looking at the company's financial forecasts and what their underlying assumptions are to attain their profitability figures or revenues or gross margins. We look at the buildup of the business plan as reflected in their projections. A lot of that is based upon our experience in a number of different industries.

Then the qualitative part is meeting with the company's management team ˆ— the vice president of sales and marketing, the chief financial officer or the vice president of production or manufacturing. With them, we try to understand if the business plan makes sense relative to the numbers that we're looking at, or relative to the goals and objectives that they're laying out. Sometimes the dots are connected and sometimes they're not. A lot of it is common sense: Does what they're telling me reconcile back to the business plan or the financials I just read? A lot of it is just how I've seen other businesses operate in that similar industry.

So if the dots are connected, what's the next step?

The third stage is a stabilization stage, where we focus on profits, not cash. Here we look a lot at the company's product, the marketing of that product, who it's distributed through, its pricing points, the customer base. Is there an opportunity to retain the existing customer base or grow the sales? In that stage, if it's a manufacturer, we'll look at whether to continue manufacturing the product or whether we should consider doing contract manufacturing as a means of improving the margins and therefore the profitability of the business. We'll look at different operational changes that might lead to an improvement on return on assets. We'll also look at sales and marketing changes as a means to improve the sell-through of the product.

Last, there's what we call the "return to normal" phase, which comes after the company has initiated the turnaround and put the plan in place. Then you're really looking at if there's a new market they can go after or if there's a new investment in machinery they should be making. Are there joint ventures or co-branding opportunities they should be looking at that might expand their markets? That's not going to happen early on in the turnaround.

What happens when a turnaround doesn't work, when it becomes clear that the business isn't viable?

I've been retained by shareholders to conduct early wind-downs of their business, where they have made the determination that there is no long-term viability in the company. They ask how they can maximize the return on the assets to take care of the secured debt and to leave something left over for themselves and their family. And a lot of times, in that context, there is a business there, but it's with a different strategic partner. I would work with their accountants and investment bankers and business brokers to perhaps sell the business as a third-party sale.

Sometimes the business will not remain viable as a standalone, but there may be some relationships or products or locations where a competitor in a similar type of business may say this would be a nice fit. So they may do a joint venture or co-brand on that basis.

For example, I was serving on the board of a company that was family owned and run by a third-party manager, a president who wasn't related to the family. The business was not performing well, and in fact it was losing money. Its relationship with is vendors was strained. Over two years we worked to get the company back to profitability, which we did in part by developing functional responsibilities that were necessary to operate the business, as opposed to functional responsibilities that were created for family members.

Family members worked there in positions that frankly weren't necessary to operate the business. So we restructured the job descriptions in such a way that they fit what the business needed as opposed to what the family members needed. Then we essentially offered those positions to the family members, to the extent that they had the qualifications. Some took them, some did not. As part of that, we were able to right-size the business from a profitability perspective. Then we retained an investment banker to market the business, and the business was sold to a strategic partner.

I could see some people at an underperforming company feeling threatened by you. Does your relationship with your clients ever get adversarial?

I would say that it depends on whose recommendation it was that I be brought in. I'm a pretty open communicator and I'm pretty direct. I don't mean that in an adversarial way, but I'm a big believer in full disclosure. The problem is what it is, let's all decide that we have a problem and let's all talk about a game plan to hopefully solve the problem. I use that approach not just for the employees and management, but also with the banks or the suppliers.

More often than not that approach works. Are there times where I'm making recommendations or drawing conclusions to my clients that they don't want to hear?

Absolutely. But that's my job. Because the owner is the manager in many cases, they have an ownership stake and their ownership is at risk. Many times they have personal guarantees on the line, so their personal net worth is on the line. I'm not doing them any favors by sugarcoating the hard facts of the viability of the business or the nature or degree of the problem.