The Rich Niche Group blog interviews and enables you to hear directly from successful entrepreneurs and product managers about the steps they took to grow their businesses/products and how they were able to create, penetrate, and/or dominate their niche.  This week we interview Leo Pound, the founder of Pound Consulting, a turnaround consulting firm often brought in by outside investors or the Board of Directors to fix ailing companies and get them back on the right path.

Interviewee:  Leo Pound, Turnaround Specialist and Financial Expert. 

Why Selected:  Mr. Pound is the President of Pound Consulting Inc., with over 30 years experience in many industries. For over 18 years Mr. Pound has specialized in high growth and troubled situations, with a focus on increasing customer and shareholder value. Mr. Pound’s in-depth knowledge of operational and strategic planning, M&A, forecasting and budgeting, cash flow, cost containment and re-engineering is balanced with his understanding of the customer and market needs. He is a team leader who builds consensus while moving a company forward. Mr. Pound is a hands-on professional who is sensitive to the pressures and challenges facing a troubled company and their management team. He has been active in the CEO, CFO and COO roles in manufacturing and further processing, distribution and service industries. In addition, he has been responsible for managing banking relations, Big Four auditors, outside legal counsel, the financial community and investor relations. Mr. Pound has had direct accountability for Sales and Marketing, Manufacturing, the Controller function, Treasury, Human Resources, MIS, Risk Management, Contract Administration, Customer Service, Real Estate, Purchasing and Administration.  Mr. Pound serves on many public and private company boards and consults with companies of all sizes.

Several years ago, Leo was brought into a firm I was working with and his insight and advice helped us get that company on the right track and eventually sold.

In the following interview, Leo discusses the issues he most often finds when brought in to help turn-around a company in trouble.  The key points you’ll take away include:

1.  The key to success is having a well rounded team that compliments each other and a focus on executing a well conceived plan.

2.  An early warning sign your company may be in trouble is if your revenue cycle is out of synch with your payable cycle. 

3.  Keep your lenders fully informed when bad things happen and what you plan to do about them.

4.  Don’t be afraid of change, it’s what growth is all about.

Over the past 15+ years you’ve worked with many companies who have gotten themselves into trouble, what are the top 3 – 5 characteristics of companies in that position?  Can you give an example or two? 

Here are some:

• Confused leadership in, and around, the management team 
• No depth and dearth of complimentary skill sets within the management team  
• Failed strategy, or ignoring the strategic plan 
• Failure to react to changes in the business environment, economic climate and/or changes in social behavior

Example 1: Failure to position team with strong leaders:  In this example a medical device manufacturer who was heavily dependent on Medicare reimbursement failed to see a shift in Washington surrounding Medicare funding of their products.  They ignored the environment outside the company only focusing on the growth of organization rather than looking at and understanding the underlying funding formula that drives revenue.  (i.e. checks that you can cash). 

Example 2: Confused leadership:  An international company with a dominant market position ignored competition, the management team actively fought any changes to the status quo that would require them to change how they develop and market their products.  Company was forced to sell to liquidate debt after covenant defaults. 

What are the top 3 – 5 characteristics of well-run companies you’ve worked with?  Can you give an example or two? 

When you have a well-run company, you almost always find:

• A good balanced team
• Thoughtful plan
• Intense focus
• Diligent execution
• And the result, excellent profit. 

A CEO over a 10 year period recruited and hired a world class management team to run a NYSE company.  This company was near bankrupt when he arrived.  His singular focus of hiring the brightest minds that created and executed a well thought out plan allowed this company to be Barron’s top retail investment one year not to long ago.

Are there any “early warning” signs business leaders should pay attention to that might help prevent them and their companies from getting into trouble? 

Simple, the revenue cycle is out of sync with the payable cycle.  If it takes 180 days from receipt of order to payment by customer and your vendor cycle is 120 days from PO to shipment of completed product and your capital base and bank facility cannot bridge the gap, you’re dead.  In this economy customers are asking for extended terms and vendors want to be paid next day.  A disaster in the making, the sales department wants to keep customers regardless of terms, and finance is the last to know.

Small businesses can be doing just fine one minute but can get themselves in a bad situation rather quickly, are there any set of processes and/or procedures you recommend to small businesses that can help them mitigate the downside of a troubling situation?   

Depends if situation is of their making or environmental.  For example, if your lender experiences a large loss in your sector, they likely will overreact and try to limit future credit risk by reducing your credit facility.  Keep your financing options open by continually maintaining relationships with multiple banks.  Second, if bad things happen don’t waste time by blaming someone, or some earlier decision.  Take control, focus, communicate and redeploy a new plan to solve the problem.  And keep your lender fully informed when bad things happen and what you are going to do about it.  They will find out anyway, may as well face the music early, they may be able to suggest something new to help.   

In today’s market many companies, large and small, are in precarious positions, in your opinion, what can they do to help them survive these turbulent times?  

Stop the car, take time to sit and assess the situation.  Plan for the next step(s), and execute.  And have more than one plan.  Likely it will take several iterations before you find the right vein.  Don’t be afraid of change, after all that’s what growing is all about.  

There are reports that some companies have cut back their employee base at such high levels, that those left are having a tough time servicing existing accounts.  Have you seen any instances where companies have scaled back too far and were not able to recover? 

No, a few close calls but I have not seen one myself.  Although it is more likely because I do not work with companies that I feel are beyond redemption.  Let someone else put them into bankruptcy.

Once company leaders realize they have issues, what can and should they do to turn it around? 

Seek outside help and then listen.  Most teams do not want to, or are incapable of owning the process.  As an outsider, that’s all we do, all the time.  I can create a plan, help management execute, hand back the restructured company to management in a fashion they can manage and I take the baggage with me.  

What has been the biggest challenge you were brought into and were you able to help turn things around?  Why or why not? 

Biggest, $2BB, wholesale distributor, broke into two companies, sold both, including refinancing $100MM in senior debt.  One became a Midlantic based company, one southeast.  Southeast company failed within two years.  Midlantic survived for 5 years as an independent and then sold upstream to $1BB competitor.  Inherent problem was both companies failed to look at national landscape and missed an opportunity to combine 5 private companies to create a $7BB firm with scale and efficiency in a business with thin margins. 

When the CEO of a start-up and/or small business is putting together their Board, what advice would you give them and how often they and the company’s executive staff should be interacting with Board members? 

Seek experience that compliments and adds depth to the CEO.  I suggest at the start up stage to meet monthly, with calls more frequently as needed.  Board members should not interact with management team without CEO permission, such contact serves to confuse team and dilutes CEO impact on team.  The CEO reports to the BOD.  The management team does not. 

In general, what piece of advice would you give to someone who is either starting a new company or getting ready to launch a new product which they are hoping to either create and/or penetrate a niche? 

Make sure there is room for you in that niche, and that your product will make a difference to the end consumer.  And that consumer is willing to pay for that difference. 

What are the key characteristics of companies that have been able to penetrate a niche, even niches dominated by another company?

Their product has perceived value add for consumer and higher satisfaction for end consumer.

When you think of companies that dominate a niche, who do you think of and what do you see them doing to keep that dominating spot?

Research in Motion (RIM), as a company they have continued to focus on niche in business mobile communications.  This focus on higher margin business clients differentiates them from other mobile companies.  They are not a “me to” product company.

What are the biggest threats to losing that dominating position?

Complacency and ignoring any changes in customer behavior

Finally, which companies come to mind who once held a niche dominating position and then lost them and why do you think they lost that position?

Motorola, the innovator of the mobile phone in the USA lost that position years ago, they did not move fast enough with product development and did not see rapid change in the consumer behavior pattern in the mobile arena.  Motorola acted a lot like US car companies, the same old products with new names, rather than new products.  They lost their innovative edge.