This story is about a Black Friday at the paper company. Some years ago, I was hired to do a turnaround of a paper manufacturer. The company manufactured one product, hanging file folders. The business was over 90 years old. The management team purchased the company two years before I started the engagement. The CFO and nine other senior managers each invested $500,000. They borrowed $5 million from the bank and bought the business from the family for $10 million. Until selling the company, the family owned the company for nine decades.
The company’s sales and profits for the prior five years were very consistent until the most recent three years. The year the management team purchased the company, the business made a profit of $2 million. The next year the company broke even, and the year I was hired, the business was trending towards losing $2 million on $90 million in sales revenue. As a result of the negative trend, the President hired a turnaround specialist.
Before I accepted the engagement, I researched the company and the paper manufacturing industry. I did a year by year comparison of their last three years financial statements. Sales were flat, the cost of sales and gross profit were pretty consistent for the three years. The whole problem with the negative trending results for the prior two years was all due to operating expenses, mostly payroll. Therefore my focus on the initial stages of the engagement was to understand why the payroll expense grew.
Black Friday – I accepted the job, and the first thing that I planned to do was interview the management team.
I asked the President if he had a formal chart of organization. He handed me a sheet of paper that listed him on top with eleven “C” level managers reporting to him. I could not believe my eyes.
Over the next week, I spent most of my time meeting and interviewing the eleven senior managers and their direct reports. I am a firm believer in a “flat” chart of organization. That means a single level of the management team reporting to the President.
This company had a:
- Vice President of Sales,
- VP of Manufacturing,
- Vice President of Engineering and Safety,
- VP of Technical and Quality,
- VP of Finance,
- Corporate Controller,
- VP of Information Systems,
- Vice President of Research and Development,
- VP of Legal Administration, and
- Vice President of Procurement.
There were too many “Chiefs” in this company with big salaries and not enough Indians. During the third week of the engagement on a Friday, I terminated 9 of the 11 senior executives. We called the day “Black Friday!” Payroll was reduced by $1,600,000. I revised the chart of organization to have three executives reporting to the President: the CFO, VP of Manufacturing and VP of Sales. I eliminated all the positions of the individuals terminated. We did not hire anyone replacing any after Black Friday. There were only director level positions reporting to the three Vice Presidents in the future.
The year of the turnaround, the company reversed the trend of losing $2 million and instead made a profit of $900,000. The following year, the company earned $2.5 million, the most substantial annual profit in the history of the business.
I learned a lesson from this turnaround. A small, flat organization management team is much better than employing the “dirty dozen” like this company! It is less expensive and easier to manage.
My name is Robert Curry, and I am an Author, CEO Coach, Keynote Speaker, and Turnaround Specialist. Over the past 20 years, I have worked with more than 70 companies taking their businesses from Loses to Profits.
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Recently, I published two books about turnarounds: “From Red to Black – A Business Turnaround” and “The Turnaround.” Both books are true stories about turnarounds of real companies that I have turned around during my career. In both books, I have shared all my Profit Improvement Recommendations (“PIR’s”). PIR’s helped to grow sales, reduce expenses, improve cash flow, and most importantly, strengthen the management teams.
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