Greg McDonough: The Turnaround

Transcript

[0:00:18] Charlie Hoehn: You’re listening to Author Hour, enlightening conversations about books with the authors who wrote them. I’m Charlie Hoehn. Today’s episode is with Greg McDonough, author of The Turnaround. Bankruptcy; most people think of it as the end of the road for a broken business, an admission of failure. But Greg believes that bankruptcy can actually allow a company to restart, renew and improve, as long as it’s done right. Greg is a seasoned executive who mentors companies ranging from startups, to $100 million dollar enterprises. He’s led companies through turnarounds, mergers, acquisitions. And in this episode, Greg talks about what it’s like to face your professional death spiral, and how to stay mentally sharp on navigating bankruptcy. And now, here is our conversation with Greg McDonough.

[0:01:28] Greg McDonough: The moment came for me while sitting in our boardroom with the management team, our bankruptcy attorney, potential bankruptcy attorney, our internal council and a couple of other people. The discussion was around do we close the doors of the business, or do we basically file for Chapter 11 bankruptcy and hope to come out the other end? As a CFO of business for the previous time about six years, you know we had three years of good times and three years of bad times. The feelings I was having were disappointment in myself and lack of confidence. How did we get here? I’m the person holding the purse strings and then managing cash flow and trying to keep the lights on. “I should’ve seen this coming” sort of feeling. It was exhausting and stressful all at the same time, and again, this was supposed to be a stepping stone for me and my career, and I was going to take this $10 million dollar business into a $30 million dollar business, and then roll it into something else. I had true aspirations about the positive trajectory of this business when I joined and low and behold we’re sitting there in December, talking about closing the doors or filing for bankruptcy. The moment hit me when the bankruptcy council turned to me and he said, “Greg, you know, not many CFOs see this process from the inside. It could be a real opportunity for you to gather some experience in an area in which others haven’t built experience.” There is obviously law firms and turnaround firms and other financial advisers out there that can lend a hand. But not many for the small – I mean, they can help with a small business, but they tend not to pay much attention to the small business owner. So I got revitalized for it, and I stepped up for the opportunity, and that’s where the book ends up going. But between then and sort of the outcome, there was many long nights of Google searches and trying to understand what the process truly means and what it’s going to mean for my family and for the business. Do companies come out of this and how do they come out of it? There’s a lot of unanswered questions. So it was, back to my feelings, I was feeling unprepared, unadvised, eager and excited for a new opportunity, although it was something that not many people get excited about pursuing. So I had a whole mix of sort of feelings and, “Is this the right thing for me to be doing? Is this right for the business? Should I go out and find other work? How tightly do I want to hold onto the organization?”

[0:04:19] Charlie Hoehn: Without getting too far into the weeds and the details, how did you guys get to that point? What were the root causes?

[0:04:29] Greg McDonough: So the business is doing about 10, $11 million dollars up until 2008, 2009 when the economy shifted and a huge part of our business was a training; an instructor-led training business where we would hold classes for editing and writing and desktop publishing and some other communication skills. So, many government agencies and government contractors had associations around Washington DC, which send their employees to us to be trained in the disciplines that we’re training. When 2008, 2009 hit, the marketing budgets and the training budgets of these organizations vanished basically overnight. So the revenue from that business went from – it probably declined 80% over the first two or three months of that economic turn. If you think about the training business, especially in a structure-led training business, we’ve got real estate, we’ve had classrooms that we had, we’ve got IT equipment, we’ve got IT professionals. We had a tremendous amount of – They weren’t fixed assets or fixed cost, but they were difficult to stop, you know at least obviously takes three to five years. Your IT equipment is there, you’d either purchase it or release it. So there was these contracts that we were in that we had to maintain our cost structure while our revenue turned upside-down.

[0:05:54] Charlie Hoehn: So you’re learning about how to turn around a business from bankruptcy, learning how to save it, right? So tell me how difficult was that process? You were spending your nights Googling things and likely, I would imagine talking to attorneys on the side. How difficult was it to learn this stuff?

[0:06:19] Greg McDonough: Yeah. So I did a couple things. One, I did a Google search, read the white papers, talked to our bankruptcy council about the process. I also was turned on to a certificate that association issues that’s related to turnaround. It was called the Certified Insolvency and Restructuring Analyst, and it’s basically three years with a test and we go to class and you learn the process from the mechanics, the financial analyst, the financial – I’m forgetting, financial analysis perspective. So, that gave me a really good sort of peer group to bounce questions off of, to understand the mechanics, to read the legalize, to understand it from an insider’s perspective. So that’s been really – it was very, very helpful. I also hired a coach, a professional coach, personal life coach that help me keep the broad picture in front of me. It was very easy to get stuck into the feelings of depression and overwhelming – feeling overwhelmed and having a life coach that I spoke with basically once a week. It allowed me to step back from time to time and say, “Hey, let’s look at all the things that you’re accomplishing and the direction you’re going and keep focused on the goal, versus being stuck in the weeds.” Then also, I joined another organization called the Entrepreneurs’ Organization, which is a peer-to-peer experience sharing organization. That put me in a room of another 150 local entrepreneurs, and several of them had similar experiences. So that allowed me to share my experience or what I’m going through with what they’ve gone through or contemplated. So again, it’s sort of what helped me get through it was research, and then some practicality with the certification, and then having a good support group around me.

[0:08:16] Charlie Hoehn: Yeah, it sounds like you had to learn the information, the tactical stuff, but what really kept you afloat was the emotional support that you were getting from the coach and from EO.

[0:08:32] Greg McDonough: Yeah, absolutely right. Absolutely right. And my family, obviously. They were very supportive through and have been. We’re a very tight family, which is wonderful.

[0:08:43] Charlie Hoehn: Yeah, so let’s talk about how this led to your book The Turnaround. Is The Turnaround really distilled all the best information that you got, plus what somebody needs emotionally to get through such a challenging process?

[0:08:59] Greg McDonough: Yeah, that’s right. The reason I decided to write this book was because when I was up in the middle of the night in December of 2011 contemplating the business going into Chapter 11 bankruptcy, I couldn’t find – and this was before EO, before the coaching, this is before going through the experience, I couldn’t find a good resource that told me the story from a practitioner’s perspective, right? What does it truly mean from the inside? What is the process? How are you going to feel? What are the emotions you’re going to be dealing with? What’s the pace like? And I just wanted to hear somebody’s story that said at the end of the day, “Hey, you know what? It’s going to be a tough road, but you’re going to be okay. Stay positive. Stay committed to your goals.” And I couldn’t find it. I couldn’t find it in a book, and I couldn’t find it in a white paper, and I couldn’t find it just in Googling. Perhaps, I wasn’t looking in the right places? But when I got about halfway through the experience, you know this is probably 2014 when we were coming out of bankruptcy. It was, you know what, this story needs to be told that this is a tool for an organization and it shouldn’t be looked at as such a negative connotation. It is painful, it is stressful, it’s expensive, it takes a long time, but for the right business at the right time, it’s a great tool. But really, the broader story is the shift in mindset that, “Hey, bankruptcy is not the end. It’s just the beginning of a new journey.”

[0:10:36] Charlie Hoehn: If you had to pick one idea, or one tactic, or even story from your book that listeners can remember and use three months from now, what would you pick?

[0:10:55] Greg McDonough: The tactic that I would recommend is think bigger. What I mean by think bigger is the possibilities in life and business I find or have found are much greater than what we experience day-to-day. And it’s very easy for a business owner and an entrepreneur to get stuck in the routine, get stuck in the day-to-day, to be managing payroll-to-payroll. You just get into that routine and we very rarely take the time to step back and understand what the big picture is, what’s the big goal that we’re trying to accomplish? So, my tactic would be think of big goals. One of my big goals that I took on while going through this process was signing up for an Ironman triathlon. And it’s something that I had never done. I’ve been a swimmer historically, my cycling is terrible, my running is even worse. But my wife was getting into the sport and shorter distances, and we started working together and training together, and that provided some balance to the work stress that I was incurring. I was able to have a good outlet for that through the triathlon training. And I said, “Why not? Why not try to go for the biggest goal out there in the triathlon and athletic world?” So, I put that goal and I found — this is probably a second tactic — is setting big goals that are outside of business, that you can have in your life and be working towards. So that when you do have that feeling in your business that you’re not accomplishing anything and you’re down under depression and you’re thinking about all the negative things and “how are you get into payroll next month?" you at least have something in the other side of your life that you’re accomplishing and you’re making progress towards. So, you having two different – and inside your business and outside of your business goals to be going after, at least for me what I found was beneficial is that I had – at those moments, I had something positive that I could grab onto and say, “You know what? At least I made progress here today. And this side of my life is a little bit difficult, but the other side is great. And so, let’s keep the positive energy flowing between them,” and it tended to average out. So, the two tactics would be set the goals, and two, diversify your goals to have something in your business that you’re trying to achieve and something in your personal life that you’re trying to achieve, and systematically go after both. And you find that they complement each other, at least from an energy perspective.

[0:13:34] Charlie Hoehn: Yeah, I completely agree with that advice. I remember getting that advice from someone who is super accomplished himself and he advised the same thing where he said, “Whatever you’re doing in business and in your work, you need to have something physical; a physical goal or a physical routine that you are measuring yourself against as well. Because there are going to be times where you’re not making any money, you’re losing money, but if you’re setting your deadlift record every other week, you feel great about that. Or if you’re playing tennis with your friend on a regular basis, you can feel really good about that.” So I think that’s great advice. Now let’s talk about some of the other stuff in the book. What’s the stuff that – what is the high-level overview of how to successfully get through bankruptcy? So let’s say we got the emotional part taken care of, we’re taking care of our personal lives so we’re a little bit more balanced. What do we need to do to get through this? What are the first couple steps?

[0:14:52] Greg McDonough: Sure. One is you need a good attorney. The courts won’t accept your bankruptcy case without counsel. We’ve talked through several and some very big international firms that we couldn’t afford, and then we found somebody small that was around our size that we could afford. Then from there, it’s – one of the things about the bankruptcy process, it’s a process and it’s been in place for many, many years. And so, once you’re in it becomes pretty systematic. Now, and that’s from the court’s perspective and what you need to be doing from your filings and your motions and the thing — And your attorney can handle a lot of that. What I have found though was the real art to managing a bankruptcy comes down to making commitments to where your business is going to be, doing your financial forecasting, explaining to the outside world why you’re going to achieve the things you’re going to achieve. It really brought a layer of accountability to the organization that we hadn’t had before. It’s very much a feeling of a fish in a fishbowl; all the documents you file with the court are public documents. You’re being asked questions from your smallest creditor, all the way up to your largest creditor and opposing attorneys and your secured lenders. It’s a big part of the process and change in the entrepreneur’s lifestyle is going to be exposure and accountability. That was a big hurdle for me and us as an organization to get through. Fortunately, for us I’ve got a finance background, I got a master’s in finance and a couple undergraduate degrees, and I really enjoy the finance and the modeling piece of this. So, I very quickly could relate – I very quickly can relate to how the creditor was seeing our situation, how the bank was seeing our situation, and was able to communicate with them in a way that allowed us to keep our process moving forward. But truly, at the end of the day it’s – once you filed and once you’re in the process, keeping your eyes on the goal, getting out of bankruptcy at some point in time is a key to keeping the momentum going. A couple things that I found through the process, which I thought was unique, you know we didn’t lose any employees through the process. We lost a couple of vendors and that’s understandable. But truly, at the end of the day, most of our vendors came back and said, “Hey, you know what? Your credit risk is a little higher. We’re going to increase our pricing, because obviously we’re going to lose some money that was on your accounts payable schedule when you filed.” But the end of the day, they wanted to work and if you’re able to pay them a little bit quicker this time around and give them your good faith that, “Hey, this is an organization we’re targeting around and that we’re going to survive and we’re sustainable,” and you deliver that vision and you treat them better than they were treated before, and granted a lot of our vendors were small businesses, Mom & Pop shops, they wanted to work. And if you could pay them on time and not take advantage of them, they were excited about getting back into this new vision and coming back to work. I found the same with the employees, right? It was a difficult conversation with the employees of why we’re in the situation that we’re in. Then you explain what the tool does and how it can be beneficial and the fact is it’s really not going to change their lives that much, because me as the CFO and then president was going to manage the process and now I’m working with council. Again, it’s back to the laying out division of where we’re going to be and we are a strong organization and we deliver great value to our clients. Then the third component of that was the clients, and we didn’t lose any clients. Again, we weren’t selling aircraft carriers to the US government. So, the credit – the bankruptcy risk on the work that we were doing was much smaller than a huge organization that you read about in the papers. But as long as the clients had the same team, the same pricing and the work was getting delivered at the same quality, they were indifferent in our experience with once we filed. So, it really turns into managing the process and setting up the time to do the filings, take the phone calls from the attorneys, go to the meetings at the courthouse. It becomes another project on your desk, but it’s a project in which it takes you – could take the organization to the vision that you’ve always had. It stops you using current dollars, current profit, current cash flow to pay off what’s happened many years ago, and allows you a good restart. There’s a process for it, it’s very systematic. There is hundreds of these cases in the courtrooms every single day and getting into the flow of the process and understanding is going to be another responsibility for you, but it could reap great rewards, because it could give you the right footholds to turn the business around is a better way to look at it.

[0:20:09] Charlie Hoehn: Author Hour is sponsored by Book in a Box. For anyone who has a great idea for a book but doesn’t have the time or patience to sit down and type it out, Book in a Box has created a new way to help you painlessly publish your book. Instead of sitting at a computer and typing for a year, hoping everything works out, Book in a Box takes you through a structured interview process that gets your ideas out of your head and into a book in just a few months. To learn more, head over to Bookinabox.com and fill out the form at the bottom of the page. Don’t let another year go by where you put off writing your book. How quickly can people expect to turn around their business, get out of bankruptcy using this book, being empowered by this book? I know it varies case-by-case, but let’s say, they try and figure it out on their own versus, read The Turnaround.

[0:21:10] Greg McDonough: Yeah, I’m not sure that reading the book shortens the time, because to your point there is complications within any organization, and depending on how willing your creditors or your vendors are willing to work with you will dictate how long you are in or out of bankruptcy. The one thing the book will deliver to the reader who is contemplating the same processors in it or is years away from being in it, is that you’re not alone. There’s been organizations, there’s been entrepreneurs, there’s been people that have gone through this process and have survived. My bigger advice would be, well before you’re at the point of having to decide of going into Chapter 11 bankruptcy, you should be considering – you should be managing your business, or having a mindset within how you look at your business that this could be a possibility. So let’s make changes now. One of the things I’d say about my experience was when 2009 hit and our revenue turned upside-down, that was the time that we should’ve filed for bankruptcy. But we spent three years trying to just work out vendor-to-vendor, creditor-to-creditor and just keep our head above the water. So we get back to profitability, we’d swim a couple months, and then we’d sink because something else changed. And then we do it again and do it again. We were managing our business to get back to break even, or to slight profitability versus making distinguished changed. My hindsight through the process was, you know, if we knew about this tool and how it could be useful, in 2009 we could’ve either applied, had more guts and made bigger decisions and really pivoted the business, or use the Chapter 11 tool back then when the business had more revenue and had more clients and had more potential.

[0:23:09] Charlie Hoehn: Yeah, so that’s a really interesting point. When does a business owner know they need to use the tool and file for Chapter 11 bankruptcy? When is a good time? What are the indicators that this needs to happen now and not postponed?

[0:23:28] Greg McDonough: Yeah, it’s a great question and it varies obviously for every organization. But some of the tools that I would look at, and I talk about them in my book, is where is your time being – one, where is your time being spent? Meaning, as the business owner, are you spending a majority of your time dealing with past issues versus dealing with future issues? If I found myself dealing with upset vendors, dealing with the bank, dealing with things that have happened prior to my time that I just continually had to deal with. There was always somebody calling, when are they going to get paid? There is always somebody looking to do something with their cut. It was very rearview-focused and just maintaining – maintaining them from doing something dramatic; quitting, or leaving, or filing suit, or whichever. In hindsight, that would’ve been an indication for me to say, “Hey, wait a second, you’re spending 80% of your time just keeping the people and the organizations and the vendors and the creditors behind you happy and you’re spending very little time on where the business is going, your vision, the employee morale, those type, your sales pipeline.” So, what ends up happening is if you’re not filling the future with your potential pipeline or vision or setting a direction for your organization, you end up obviously continuing the spiral down, because you’re not putting the energy or the resources into the future. So that is one indication. Similarly, I would look at my cash flow on a monthly or weekly basis and say, “Where am I spending my money — Spending the cash that comes in the organization? Am I spending it on current expenses that are going to propel revenue in the future, or am I spending the current dollars on past problems?” And it very, not quickly or easily, but you can model out the amount of resources – Again, this is just the inverse of the time; it’s the money. If you’re spending your time on past problems, that’s doable. But if the past problems are so significant that you can never really reinvest in your future, then that’s an indication for me of when a bankruptcy petition should be considered, or at least brought into the conversation. Because you’re not investing in the future, you’re not going anywhere. You’re really going sideways from a business standpoint, and every valuable resource that comes into that organization is being spent on things that revenue is already been recognized on. It’s called the death spiral. It just feeds on itself. A couple others would be, if you’re skipping your own payroll, if you’re not paying yourself a market-based wage as the owner for the work that you’re doing, if you’re not receiving a distribution as the owner, those would be too.

[0:26:29] Charlie Hoehn: I feel like a ton of business owners do that.

[0:26:32] Greg McDonough: Oh absolutely. Absolutely. I did it. I did it for years and years and years. I’m still paying for it.

[0:26:38] Charlie Hoehn: And there is like – there is a weird badge of honor that comes with that and I don’t fully understand why that is. It’s like a very martyr perspective.

[0:26:47] Greg McDonough: Yeah, it goes to the emotional – It’s very quiet and lonely at the top of an organization and you feel as if you need to protect and shepherd your employees, your clients, your vendors, and that mentality is right. But the end of the day, if the organization isn’t running well enough to pay you a market-based wage, there is something fundamentally wrong with the business and you’re just hiding it by not taking a paycheck.

[0:27:22] Charlie Hoehn: Agreed, fully. That’s fantastic. And I hear that a lot from business owners that it always surprises that they think it’s a good thing, or that their self-sacrificing is a noble cause. And it’s like, if you’re not able to pay yourself, you’re going to burn out. It’s just a fact, and then your business is screwed. So this has been really interesting, Greg. This is the most I’ve ever learned about bankruptcy. Can you give our readers, or I’m sorry, our listeners a challenge, something that they can do if they’re a business owner that they can take away from this interview and maybe apply this week? Maybe it’s something that prevents bankruptcy? Maybe it’s something that instills a stronger mindset. What would you tell them to do?

[0:28:13] Greg McDonough: The challenge I would put in front of the audience would be to take on something that you feel is greater than what you can accomplish, and in particular outside of your business life. Again, that’s the story of the book, me taking on Ironman triathlons, and I’m not suggesting that’s the right answer for everybody. But taking that on outside of what I was dealing with within the business allowed me to have a broader perspective. As somebody finished listening to this webinar, or finished reading the book, I would love for them to say, “You know what? This has been on the top of my mind for a long, long time. I just haven’t had the time or the courage to take it on. I’m going to take it on. I’m going to commit to doing it.” Because I found, and to get back to my experience that having the balance between the two goals – yeah, I guess just really the balance between them allows for a better balance between feeling productive and positive and having a sense of accomplishment. I’d also say, if you are an organization or you are a business owner and you find yourself spending most of your time and money dealing with the past – and I’m not saying like the past 60 days, but I’m talking about the past couple years, where you still have vendors that are on your AP list that are 90, a 180, a 360 days old, you’re skipping your paychecks. You’re spending a tremendous amount of your time just to break even or maintain, keep your head above water, I would challenge you to talk to a peer. You know, there’s been a tremendous amount of – a tremendous number of other organizations and entrepreneurs who have gone through this or are contemplating it. Find a peer group, somebody to talk to, to understand what they’ve been through or contemplating, and reaching out to your accountant, your investment banker, your attorney. There is a lot of good resources out there who are willing to talk to you about your situation and the business that you’re in, because you’re not – at the end of the day, your business isn’t unique enough that it’s the only one that’s going through this. There’s been thousands that go through and entrepreneurs have felt the way that you’re feeling. I would challenge you to do something about it today, because if I had that same feeling in 2009 when our business went upside-down and I ground it out for three years, and I think the outcome could’ve been significantly better personally, business-wise, family-wise if I would’ve at least considered it — bankruptcy as a viable option at the time. We might not have filed, but having that mindset when I’m dealing with troubled vendors or employees, I would’ve brought a different outcome to the story, I think.

[0:31:09] Charlie Hoehn: How can our listeners connect with you and follow you, Greg?

[0:31:13] Greg McDonough: Sure. So you can follow me on LinkedIn. It’s just Greg McDonough, or Gregory McDonough, and I’m always available for e-mail. If somebody wanted to shoot me a note, it’s gmcdonough@blackburncap.com. You can also find me on Facebook; that tends to be a little bit more social. That’s more of my triathlon life than my business life. Then, my wife and I have got a blog out there called TriathlonParents.com, which we write about our Ironman experiences and how we balance work and kids and the dog and still accomplish the feat of getting across the finish line. So there’s a handful of ways to get in touch with me. I would love to chat with anyone I can, if I could be useful to them or their situation. My journey is not over, so I’m learning as I go every day. But this I felt was an important chapter of my life that it needed to be shared, and so I put it out there.

[0:32:05] Charlie Hoehn: Awesome. And is Triathlon Parents your next book?

[0:32:09] Greg McDonough: My wife and I self-published a small Triathlon Parents guide, and it’s called The North American Ironman Triathlons, I think? It’s been a couple of years, and it’s basically a race report of all the North American Ironman races. But then mixed in – basically, I think it’s the [inaudible 0:32:25.9] guide for the pharmacies and the bike shops and all the things that – If you are a family or a parent bringing your family to an Ironman race and you wanted to know exactly where the pharmacy is, “where are the best hotels, what’s a kid-friendly restaurants and where are the parks?” there is a map on each of those races that give you a sense of things that other people that are joining you at these races would want to do while you’re doing what you’re doing at race day. So we self-published that about, I don’t know, two years ago. It’s on our website, it’s on Amazon. It was a hobby at the time, and now it’s becoming more and more of our lifestyle. But it’s a great little read and I’m happy to share it with anybody interested.

[0:33:08] Charlie Hoehn: Awesome. All right. Thank you so much, Greg. This was great.

[0:33:12] Greg McDonough: Appreciate it.

[0:33:13] Charlie Hoehn: Many thanks to Greg McDonough for being on the show. You can buy his book The Turnaround on amazon.com Thanks again for listening to Author Hour, enlightening conversations about books with the authors who wrote them. We’ll see you next time. Thanks again for listening to Author Hour, enlightening conversations about book with the authors who wrote them. We’ll see you next time.