“If we can get two other customers to add 10 million units annually, that will raise our profitability to a level that would make us an attractive acquisition target,” Jeremy explained, as the rest of us listened intently. Jeremy is the CEO of a manufacturing company that has been struggling to reach a sustainable rate of business for several years. He continued.
“We have trimmed our direct overhead and we’ve cut sales, general and administration costs as far as we can go. Our accounts payable over 90 days has been a problem since it violates our bank covenants for our line of credit. If we can negotiate settlements from our vendors at forty cents on the dollar, our balance sheet improvement will relieve the bank and may result in a line extension.” Jeremy paused a moment to review his notes, then added, “If the production volume reaches these projections, and if we can find competitors who want to expand in this region, we believe we can get two or three companies interested in acquiring us, providing a very nice return to the current shareholders.” He put his pen down and waited for a reaction. My first thought was a principle I learned from a successful entrepreneur who never finished college: If you have to satisfy three big “if’s” to succeed, you never will.
Jeremy is a very bright, Harvard MBA who spent his early career directly out of college working for a well-known international consulting company. He learned the type of codified, systemic consulting typical with large corporate clients. Big picture stuff. His father invited him into this business five or six years ago, producing products on a contract basis for corporations who sold retail consumables. The father had a separate contract manufacturing company with similar customers, but different product types. It seemed like a good match. Dad’s many years of experience and knowledge, tutoring a son’s great aptitude and theoretical knowledge. But even with a huge initial customer who also invested in the enterprise, the company was struggling and the odds for survival were not great, especially given the recent roller coaster in commodity prices for raw materials and the dive in consumer spending.
Our meeting included Jeremy, his father, the minority shareholder/customer, the auditors and me. I looked around the room to see who wanted to respond first, hoping Dad would start. No luck. It looked like it was up to me, the outside advisor to all the owners.
“Jeremy, your strategy is conditionally correct, meaning that it will work if your major premises are satisfied,” I began. “All of those conditions require the ability to form detailed plans, engage the team of people who must implement them, set metrics for assessing progress and following up with disciplined attention to each detailed action. And the time frame for your plan to succeed is ninety days to divestiture, including the upcoming holiday period. Your struggles over the last few years, as you have described the causes, stem from an organizational inability to establish sound business processes and then adhere to them. What evidence do you have now that would make you confident in your team’s ability to achieve the ambitious results that seem strategically sound, but tactically very difficult?”
I didn’t like being the pin that pricked Jeremy’s balloon of enthusiasm. I’m a very optimistic person by nature. But I also have an obsession with planning for the worst case scenario. I still take risks, if the worst case is considered and there’s a backup plan in case the indicators show disaster looming. When you grow up with not much, you get comfortable with risk because there wasn’t much to lose. But you also know how hard it was to get anywhere, so you don’t think everything is going to be fine no matter what. Jeremy was raised by great parents who were in a position to offer him a huge head start in life. He knew comfort and love and opportunity. He was blessed with a fine brain. He was educated at arguably the best business school in the country. Maybe the world. His handicaps came from that same history.
Jeremy thought about my question, his emotional deflation literally exhaled in a big sigh. Here he was again, faced with those pesky details which are so famously important to every Devil who hopes to scuttle the best-laid plans. There was no course at Harvard which prepared him for the realities of working with imperfect humans, demanding customers, economic trends beyond his control and limited resources. Jeremy has the disadvantage of having lived with no disadvantages. He is learning the hard way, finally, and the difficult lessons he is experiencing will serve him well throughout the rest of his life, if he actually listens. It would be a shame if he fails to see the need to acquire discipline and attention to detail in every aspect of his work. If he does, he will succeed tremendously in the decades to come. And that’s only one “if”, so the odds are much better.