The Pomp Podcast - #1294 Jeff Sands on How To Fix Any Business In 100 Days

Episode Date: January 15, 2024

Jeff Sands is the Founding Partner at Dorset Partners. He is also the author of a great book, “Corporate Turnaround Artistry: Fix Any Business in 100 Days.” In this conversation, we talk about Jeff’s experience turning around struggling businesses, crisis mode, hard decisions & hard conversations needed, vendor relations, debt, labor, and more.  ======================= Cal.com is leading the charge of scheduling platforms in the open-source sphere, offering you the chance to harness the efficiency previously reserved for elite corporations and tech gurus. That's right, Cal.com is transforming sophisticated calendar management into an accessible tool for all via a user-friendly interface. Discover how countless users are optimizing their time in unprecedented ways. Use code “POMP” for $500 off when you set your team up with Cal.com. ======================= This episode is brought to you by Frec — Just as easy as investing in an ETF, Frec Direct Indexing can help you earn more by unlocking tax savings, no matter the market. Done for you, automatically. Check them out at ⁠⁠⁠Frec.com⁠⁠ ======================= Pomp writes a daily letter to over 250,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

What's up, everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Jeff Sands is the founding partner at Dorset Partners. He's also the author of a great book called Corporate Turnaround Artistry, Fix Any Business in 100 Days. In this conversation, we talk about all of Jeff's experience turning

around businesses across America. We talk about how these businesses get into crisis, what you have to do when you step in, what are some of the hard decisions and hard conversations you have to have. And then he goes through a ton of stories of the different times that he's helped save businesses, helped save jobs in local communities, and helped actually get businesses back into a strong position. Throughout this conversation, you're going to hear all kinds of anecdotes, but also tons of lessons that you can take with your businesses struggling and you need to implement them today. Or you can use these insights to actually implement into a healthy business to prevent you from ever getting into any sort of trouble. I really enjoyed this

conversation. I learned a ton from Jeff and I hope that you guys do as well. Here's my conversation with Jeff Sands. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. tech gurus. If you like to have your calendar organized and be able to have an efficient exchange when scheduling, but you love all of the benefits of open source technology,

then Cal.com is for you. They are transforming sophisticated calendar management into an accessible tool for all via a user-friendly interface. You can customize it and you can make your calendar work for you. Use code POMP for $500 off when you set up your team with Cal.com today. Again, go to cal.com, C-A-L.com, and use code POMP to get $500 off when you sign up. Cal.com, an open source tool that allows you to take back control of your calendar, be efficient when scheduling, and make sure that no one can steal your time. This episode is brought to you by Freck. Historically, the wealthy had a hidden secret in investing. They would spend a lot of money and use very big teams to conduct tax loss harvesting.

Tax-loss harvesting is the timely selling of securities at a loss to offset the amount of capital gains tax owed from selling the profitable assets later. But now FREC is bringing this incredible advantage to any investor. They'll literally lower your tax bill regardless of how much money you have. They use state-of-the-art technology through a product called direct indexing to allow investors to invest in the S&P 500 while getting all the benefits of tax-loss harvesting without the big build. If you want to learn more, go check them out at freck.com. That's F-R-E-C.com. I'm a big fan of the product, and I even became an investor in the business. Freck.com. Go check them out today. All right, guys. Bang, bang. I've got Jeff here.

Jeff, you are probably the number one turnaround artist in the United States, maybe even in the world. There's lots of crises that occur. Some of it's mismanagement, and sometimes people just started a bad business, either a bad market, a bad business model, et cetera. When you see the crises, how do you determine whether the business can be saved or it's just a bad business and it deserves to die? For sure, everybody says, oh, it's external factors. It's the industry. It's something else. Really, it's manufacturing. You try to figure out what root cause is, try to get to the basis of that. You know, if it, if it really is industry wide, I worked with a computer reseller recently, and according to him, the, all the manufacturers

pulled back credit a couple of years ago, you know, so, okay, if that's true and you're in trouble, what, what's, is everybody else in trouble? Is, are you the best performer? Did everybody else go out of business with this set of circumstances? What happened is that was universal but then they everybody hit this pivot point like my credit's gone what do i do they made a horrible decision and went and got uh merchant cash advance money and that's ultimately what's killing them 47 million dollar business and um and there's just nothing left because the mcas are picking picking them alive um the so it's it's really that you know you talk to the owners and you just get a sense uh you know are they really committed are they goofballs are they are you know

Or do they have the wrong focus somewhere else? Those sorts of things. Now, when you've seen, I don't know, hundreds, maybe thousands of these crises at this point, I kind of think of it like you're the firefighter. The fire is blazing. Someone's called you up and said, hey, we come put out the fire. What are the things that you see in the fire that would cause you to not want to go save it, right?

Or like, what are the things that would turn you off from a situation? Is it people? Are there other things that are kind of the red flags where you're like, hey, even though the best of what i do i can't save that business or i don't want to go spend time doing that um in general there's no set of circumstances that'll scare me off um probably my most radical was i got a call um from a bank the ceo committed suicide yesterday um there's uh four felonies being investigated revenues have fallen from 46 million to 6 million and about to go to zero And I was in there next day running the business because as long as I can draw a clear line of all that fraud and all those felonies happened previous to me.

And, you know, in that case, I reached out to the state attorney general and just said, hey, I just arrived. If you need to arrest anybody, you know, give me a call. I'll have them meet you in the parking lot. But we're running a clean ship here and we're trying to fix the business. So it's not so much circumstances. It's really the people. It's, you know, kind of if you think of Alcoholics Anonymous or CrossFit Gym, it's the people who come in and really are ready to change your life and really are ready to go down a new path with passion and commitment. And if I have somebody who's bullshitty dicking around with like, oh, I think I want to lose weight. I'm tired of being 400 pounds.

But, you know, you can tell if they're not serious about why should I be more serious about fixing their problems than they are? We once had a guy who was drinking himself to death, locked himself in his apartment when he should have been at work, was out of options, called AA and AA said, we don't go and mug people with treatment. They have to come to us. Um, and, um, and, and that's kind of me, you know, when somebody is ready to change, uh, in their heart, then, you know, they're my best client, I'm their best friend, but it's,

they've got to have that commitment. And there's a lot of people who sort of dilly-dally around the edges, but aren't, aren't ready to take that, that plunge yet. So you wrote this book, Corporate Turnaround Artistry, Fix Any Business in 100 Days. And when I read this, I was like, I got to talk to Jeff. This is a Bible, it almost seems like, in terms of corporate turnarounds. It's almost 300 pages or about 300 pages. And my number one lesson from this was your job is to motivate people.

There's all kinds of tips, tricks, hacks, all these different things. But at the end of the day, you got to motivate people to actually want to fix these businesses. Can you give me a couple of examples of things that you've done to actually, when you walk in, there's the folks who kind of messed it up. And then there's the people who are going to stick around. What are the things you've done to motivate people that you kind of now use as part of your playbook? You know, I would say if you step back, if you gave everybody in the world the opportunity right now, today you can relive the most heroic moment of your life or you can sit on the couch and take it easy. They're all going to say, no, no, no, I want to go relive the most heroic moment of my life.

And that probably involved a lot of sweat, some pain, discomfort, fear, all these things that no one really wants. but we do as humans deep down inside because we know it's it it's worth it in the end um so i think everybody has that latent urge to run up you know charge up the hill and do something awesome um so for me it's trying to define that and you know take a union shop full of a bunch of tough old guys who've been working in a factory that's pretty easy because i just go in and talk to them like a high school football coach and um you know hey listen this got all screwed up y'all had a bit a bit of this because you weren't working hard enough but what we're going to do is we're going to work hard we're going to go kick ass and you really need to motivate them everybody

wants to go get some ass somewhere and uh and you give them like we're this is what we're going to do we're going to go and with a linear focus people latch on to it they love it now i go into you know you take a pharmaceutical business and i'm talking about let's do more with less and they all want to do less with more that's just the culture where everybody's kind of overpaid and taking it easy that's a lot tougher so you have to get their attention you know maybe it's shutting down division maybe it's firing their boss but there's got to be some sort of thunder clap to get everybody's attention and then once they realize they're fighting for survival some will leave because there's an easier path but um a lot will stick out and and and do the heroic

battle to bring this business back reclaim our pride you know and then you can leave i i worked with um one guy who was quitting and i said bill if you leave now you're it's going to haunt you for the next 20 years he was like 60. and and and it's going to tear you up inside for 20 years you're going to be a loser and you're going to know it and there's you can your way around it but you're going to know it in your bones but if you stick it out here for six more months we'll kick ass and you can walk out of here a winner with your head held high you'll be a better grandfather and husband and um what do you have to lose what the hell are you running home for there's nothing there for you you got to stay here and you know i i had like 30 seconds to make that

pitch but it stuck it worked bill bill actually stayed for two years but he totally kicked ass we did a great job, saved the business. And he went on to hero and everybody recognized him for that. And I think more than anything, that's what people want deep down inside. They don't want comfort. They want to do something cool. So I remember watching years ago, Marcus Limonis, he had a TV show called The Prophet. And one of my takeaways from watching that, although there was cool stories and cool businesses and stuff, was sometimes he showed up and they were like, oh my God, thank you, Marcus, for showing up and saving us. Other times he showed up and they were like, get the hell out. We want nothing to do with you.

What is the receptivity when you show up? You're known as the turnaround guy. Are they excited to see you? Is it a mixed reaction? What has that been like? It's a mixed reaction. The screwball is definitely to want me around. The hard workers who feel oppressed do. And then there's sort of a middle road of people who sort of do in your belly. One speech I often given you didn't walk in to this business, whatever you 15 years ago with this shitty work ethic. You don't tell your kids. If your kids knew the shitty work ethic, you're bringing in here every day. They'd be embarrassed for you. If your parents knew they'd probably slap you. And you didn't walk in here like this. The culture brought you down. We're going to fix the culture. And you got it. You

got to bring the culture back up and the culture is going to bring you up and that's the book that's the bulk of the people and and they like that they again they want to be part of a winning team and um and they're willing to you know people were raised right people have a good work ethic they know right from wrong it's just that the culture hasn't required or demanded that of them in a long time and um and they're actually relieved and inspired when when you do demand out of them because people want to perform at their best. That makes complete sense. We've talked a little bit about the internal changes that you have to go through. Another thing that you talk about is one of the first steps once you get inside of these businesses is you immediately

call up all the vendors and aggressively start renegotiating with them or trying to get some relief from them. It's not dissimilar from maybe a private equity firm like 3G is famous for being hyper, hyper aggressive with a lot of these vendor relationships. And so what is those conversations like? And what are some of the tactics that you've used? And now you say, hey, whenever I've got to renegotiate, these seem to really work. And I walk into a tough situation because generally payables are all wage. The vendors haven't been paid. And ideally, I don't want to pay them anytime too soon because I don't have cash and i want them to give me a lower price which is probably impossible so what i say is

here's a plan where you're going to keep shipping us we're going to we're eventually going to deal with the past dues but most importantly i want to keep you as a vendor i could replace you today but i don't want to i want to keep you as a vendor but i need cash flow i need i need additional terms i need you know this that or the other some kind of grace from you once we solve the cash issue then we're going to go over to the p l issue because the company is not profitable enough then i'm going to really work you over for pricing and we're going to make it fair but i want the sharpest price you have not not the dullest price you have and then once we solve the profit issue we're going to go over and deal with the balance sheet and that's where your past dues are which

we're freezing for the moment and then we're going to find a equitable way to deal with those um worst case we all know that bankruptcy um provides the opportunity to work out debts to haircut or stretch or what have you i don't want to do that i'm not threatening it but we all know that's an option so after we get to solve the cash and then we solve the profits then we're going to deal with the debts fairly um and we'll have open conversations and see what the the company can afford to pay and and um you know i'm thinking like every damn client i have right now they just can't afford even when we fix the company they can't afford the balance sheet because they just have too much debt um and then it's really a conversation of i mean i got one

right now um i can give you 20 cents i can i can pay off 20 cents on the dollar um over four years or we can just go into bankruptcy you can get 10 over three years it's it's your choice but you know let's be friends why not work this out out of court um keep the lawyers out of it and get you a higher recovery but mathematically you know um how can you show me how i can pay anymore here's our projections and um emotionally they'll fight but eventually the logic part of their brain takes over and um and they say yeah i i get it unfortunately um and you usually have to to go through several people in the organization and get the CFO or president, somebody who can really understand and their lawyer who says, yeah, it kind of is what it is. And we, you know,

we need to accept this. Does it change? Or they fight like hell. And then my number one mission is to get rid of them. And, you know, and go give somebody else our profit or go allow somebody else to make profits on us for the next 10 years. Does it change at all when the vendor is a software vendor versus maybe somebody that's, you know, providing equipment or some other kind of physical economy type product? Yes. Only because of the cloud. It used to be, you know, you buy software and they'd say, well, we're not going to service you. And I'm like, fine. I'll call you when I need service. You know, I don't give my plumber a monthly retainer. Why the hell would I give you one? But now they have cloud access. They can just turn it off. So it almost has become

like a utility, like the gas company. We just got to pay a monthly. Maybe we won't. We'll put the old balances on ice, but we've got to pay monthly, either full or partial. But yeah, software has a lot more leverage than they used to. Now, one of the quotes that I've heard over and over again, that's probably one of my favorite quotes in business, is that companies die by suicide, not homicide. And it's just them doing constantly stupid things. In the book, one of the really stupid things that you highlight is you say, Google IRS 941 prison, and you call it the dumbest crime in America. Explain what this is, and then why do people fall victim to it? So a 941 is the, as an employer, you're a trustee for the withholdings for taxes from

your employees, the employment taxes and whatnot. And all it does is I take it from your paycheck and I give it to the government. It's not mine to touch or take. But when companies get in trouble, when CEOs get in trouble, I say, well, geez, there's a bunch of cash. Why don't I just use that today? And we'll pass it on to the government in a couple months. The problem is the IRS has made this the number one law to go after and punish. And when you Google IRS 941 prison, you'll find all these people who got found guilty and are in prison because they tried to play the 941 game. My first question is, what the hell are you accomplishing? I mean, if you really have the miracle solution, maybe it makes sense to take that risk if you really have the miracle solution.

none of these people had the miracle solution they were just hoping and dreaming and thinking i'll rip off my employees in the irs to fund my delusional fantasy and eventually you know the the order fairy will come around um of course there's records you know i always say if you're going to rob a bank go go in with a ski mask because they don't know who you are when you're doing like white collar bank crime they they know where the money went to they have the accounts They have their records. They have the EIN and numbers. There's no possible way you can outsmart that kind of crime. But people do it. It's impulsive. And boy, the IRS just hammers on folks. So when I come in and find that, we have to quickly deal with the IRS, make it known,

come up with a payment plan, and stay away from their sharp knives. So you mentioned delusion. And one of the things I immediately jumped to is there seems like there's a growing number of entrepreneurs who don't have what I would consider kind of just basic financial skills or understanding, read a P&L, read a balance sheet, understand how some of this works. And it feels like maybe those two things are related. Like you get increased delusion, the less that you are well versed in kind of core, you know, accounting or financial metrics. Is that true in your experience where, you know, people just, if you don't understand the numbers, then dreams run wild and it leads you to ruin? Yeah. Yeah. Largely. Interestingly, people who really understand the numbers still delude themselves.

It's just, you know, it's a human trait, but you're right. The further you are away from reality, which is the numbers, the further you are away from reality. So in the book, you say, quote, few executives have ever thought of themselves as a chief profit officer, but that's what the leader needs to be in a recovering company. So the CEO or executive is the chief profit officer in a recovering company. How's that different than a normal company or a growing company? Should they always be the chief profit officer or is it specifically during that recovery period where it's essential? They should always be the chief

profit officer and somebody should always be. I entered a company recently. The CEO is on his business card and email, chief visionary. The number two guy was chief something else ridiculous. And I say, listen, y'all got plenty of this vision stuff and y'all got plenty of that other stuff. What y'all don't have is profits or cashflow. And somebody has got to quit that stupid job that means nothing to me and become the chief profit officer. But I mean, you see it. Who wakes up in the morning and thinks i gotta go shave some pennies today and i gotta go add a couple basis points to my gross profit margin every day like they're a monk and it's the only thing that matters people just don't do it um and and and if you don't do that when times are good

um then you're going to end up uh where times are bad you know probably chances are over time and um and it's just it's like the most fundamental mindset in the world but we kind of forget about it and um entrepreneurship and being executive and all that crap is so over um romanticized um and it has you know and and and the romance has nothing to do with uh scraping pennies but retiring or you know retiring with a big war chest has everything to do with scraping pennies you are probably glamorous of course you're probably the epitome of a wartime ceo could you be a peacetime CEO? Is it possible for you to run a business that's not in trouble? Somebody else could. I can't. And I think there's a third, there's a startup CEO,

which is a different breed as well. And usually when we buy a business, I'll run it for the first hundred days. And then I think you need a one-year person that kind of sets the foundation and really just start doing reps and gaining momentum. We're going to do the basics over and over and over. And then the third CEO type would be the growth, sort of return to normal and growth. And I think they're three completely different. I can do the first two. Somebody else might be able to do the second two, but I can't.

No, I'd be a complete failure as a peacetime CEO. Now, in reverse, could the peacetime CEO be the wartime CEO in your experience? occasionally you know these guys like bezos or zuckerberg that can take it from zero to gazillions i don't understand how somebody can have both temperaments um and they're extremely rare there are people that can do both the peacetime and wartime but um there i i'm not one of them and it's an extremely rare bird that can um and i'll tell you the worst thing in the world is trying to is fixing a company getting it right falling not in love but really believing that you're on the right path and then the results aren't showing up and

you need to turn it around again emotionally i have this break where i just struggle to go in and and take apart the organization that i just built over the last two years so i almost need somebody to come turn around me when I need to turn around. Now, I asked a friend of mine, Lulu Ms. Very one time about peacetime and wartime in communications. She said something to me that's just seared in my brain, which is there is no difference between peace and wartime. It is pre-war and post-war. And maybe that is what the Mark Zuckerbergs and the Jeff Bezos, right? They just, they're prepping for war and then they're kind of recovering from war and prepping for the next one i guess yeah i i i it astounds me that you know the same person that can get this this

little idea off the ground you know anybody who's been through a startup like it is so hard it's um just to get momentum and then to be able to do that in an organ you know organize and manage a company with a hundred thousand employees i it's just two different universes to me but the occasional rare bird can do it. There's another line in the book that really resonated with me, which is the bottom line is that a turnaround will be some formula of raising prices, cutting costs, streamlining operations, and fixing bad habits. Can you give me an example of each one of these? And maybe we start with raising prices. Yeah. Raising prices. The banal is raising prices. The more aggressive is we've raised

prices on um you know so it's one thing we're going to raise prices going forward it's another to say we're raising prices on our whole backlog that we haven't even produced yet but we're just going to add an extra 10 percent to that and go tell the customers the the more extreme version is calling customers and saying hey and i've done this hey we're in a bit of a pinch um two things one we need cash so you've got to pay us immediately even though you have 60-day terms that you turn into 75 and the other is we're not profitable so we're adding 10 to all the open invoices so um all the invoices you have add 10 to them and pay them today or we're not shipping any further that goes over like a lead balloon but you know if you have leverage it works and

and you you know i've saved businesses that way um it upsets them but a lot of companies would rather have a viable supplier than um that they're not and if you have that kind of leverage you can do it um cutting costs it what about cutting costs and what's maybe the most extreme situations you've been in there you know cut well i mean you know it's the easy ones like you find i remember this guy was billing 75 hours a week so 35 hours a week in overtime and he had a 20-hour job he was so bored that he started drinking on the job became an alcoholic crashed the um the um forklift still didn't get fired um you know so you go in like whammo there's there's a bunch of costs that just got cut um you know declare uh no more overtime without approval and everybody fusses

i'm like just come and talk to me i'll prove sensible over time um nobody does because 90 of the overtime was bs um then you know deeper into cost you know put put your major materials out to bid most people don't frequently bid their uh their supply items um and just get competitive market pressure going and a lot of it's really pareto analysis you know where the 80 20 and uh people do a lot of just you know they're wasting time on products that don't really work ideas that don't worry work just call them focus on on on what delivers the box and um you know there's your cost cutting um streamlining operations again that's pretty much Pareto um you know where are we sitting idle i work on a lot of manufacturing so it's a lot of industrial

engineering um you know just work at uh workflows process scheduling is probably the single greatest um place for pickup and profit it's a you can have people looking super duper busy and you re-engineer the scheduling and you can just get out so much more um but it's it's scheduling and and and it makes sense because processes develop over time um and just become cumbersome and awkward with lots of bolt-on steps and whatnot um scheduling is the best one for that And then the bad habits, you know, family members, soft work hours, soft expectations. You know, are we here to provide people with a work life balance or are we here trying to win the frickin Super Bowl? You know, go get a work life balance somewhere else.

We're here to we're here to, you know, get to the playoffs and put some wins on the board and quite frankly, keep the business alive. We're not we're not here for anything else. and I fell into this early in my career I thought we if we were more inclusive and we gave people what they wanted it would work better and when I rethought it of if I'm Bill Belichick or I'm the general manager of a team and my job's to win I have no qualms about swapping out my third string quarterback for a different third string quarterback but you know when you personalize and treat everybody as family, it kills you to get rid of a third string quarterback because maybe they have some hidden potential. And that's not my problem. I'm here to staff a team and win.

And you just got to bring in to get rid of, or let me say it this way, you need to upgrade every position rigorously and consistently. And if you do that, you'll have an all-star team. Do you think that it helps that you don't know the teams before you come in? like the fact that you're an external person? Absolutely. Because I would have such a soft heart for so many people if I knew them without a doubt. And that's my problem when I'm running a business after a couple of years, that becomes my blind spot. I love Bob. Oh, sure. He doesn't move that fast, but God, what a sweet guy and his wife's got problems. I'm such a sucker for all that. I talked to Graham Weaver, who runs Alpine Investors. They're one of the top private equity

firms in the world. And one of the things Graham told me is 100% of the time when they buy a business, they switch out the management team. And he said, sometimes they keep the management team, sometimes not. No one has a really hard, fast rule. He goes, 100% of the time, we switch them out. And one of the things is, one, you get your people in there, but also two is it really changes the dynamic of the business because all of those personal relationships and everyone knows the person who's the good kind of smoozer, right? Who's able to get different things in the business. If you don't have a personal relationship, all of a sudden it comes down to just, Hey, what, what are the rules? What are the ways that we're going to run this business?

Yeah. What, what have you, what, what have you been accomplishing? What have you been doing lately as opposed to 20 years ago? Um, and, and with a CTP certified turnaround professional, which is the designation in our industry, um, sacrificial lambs is part of this study guide and part of the test and you have to write about the value of sacrificial lambs as part of the exam and that is the public display of somebody getting shit canned where and it tightens everybody else up I had one situation where declared an end to to unauthorized overtime it was a machine shop so guys ran two machines each one guy refused to turn his second machine on that day and said I'm not getting overtime. I'm not turning. Why would I turn on my second machine? Which makes no sense.

His supervisor didn't know how to respond to it. So he went to the manager. Manager was confused by this. They came to me. I'm in the office, freaked out, trying to figure out how to fund payroll. And I don't have a solution for that. And they give me this petty thing. And I said, listen, I'm so busy. Just bring them in here. Let me fire them right in front of everybody because I don't have time. I only have more than 30 seconds to fire this clown. and they said okay and they went out and said listen you're not turning your machine sans wants you to come in there so we can fire you in front of everybody in the office and he said i think i'll just turn my second machine on and that was it but you know the word shot through the

whole factory and everybody realized i'm serious and i don't play those games and we're here to win and um and you know it's nice to get a sacrificial lamb without actually having to throw somebody out the door. Yeah, completely. You got to change that thinking. You can't soft pedal change. As we have seen over the last two years or so, tech companies, especially early stage kind of venture-backed companies have struggled quite mightily. Is this turnaround playbook, can it be used in the tech sector as much as in a lot of the manufacturing or industrial engineering businesses you're talking about? I would say absolutely because ultimately it's about uh cost versus uh revenues and um but you got to have product market fit i get tech

companies coming to me that haven't achieved product market fit and you know what do i do it's like you're adrift in in in the ocean and you've never seen land you want me to navigate you towards land like i have no idea what to do but if i can go into a company that like well we were profitable but now we're not fine i just reverse engineer like okay what changed how do get back to where we're profitable that's pretty easy but you know people that have never been i i don't know how to make them suddenly and then real quickly tech also you know you've got your inc there's generally two turnarounds income statement turnaround which is your profitability and balance sheet turnaround so you maybe you're profitable but your debts are killing you

um tech has a somewhat different debt stack as well so that's going to be treated differently but you know on the surface it's um if gross margins are greater than expenses uh you're you're profitable and if not get them there so debt i think is a really interesting thing where most of the physical economy runs on debt of some form or fashion uh in the tech world most people are only familiar with either convertible debt which really they just treat as an equity investment that yet hasn't been kind of finalized or venture debt um talk your perspective on debt and you know maybe what some of the hangups are and then also times where you've seen it work really, really well. I often say that this sounds ironic, but bank debt is one of the best things you can have

is because the discipline and rigor of dealing with bank debt is so great that it keeps you focused and keeps you online. And I see, we worked on a company this year who was trying to revolutionize some building product. They burned up $50 million, accomplished nothing. You can't do that with bank debt. You can do it with friends and family. You can do it with equity, but you can't burn up that kind of money on a frivolous adventure with bank debt. And that's what I kind of like about bank debt.

The rigor and discipline keeps you from screwing up to that extent. One of my mentors has like 80 companies. Every single one of them does a daily borrowing-based certificate where they, you know, if you're asset-based lending even even folks without debt even companies are incredibly profitable every single day they do a daily borrowing based certificate what's the value of my receivables what's the value of my inventory how much can i borrow against that what's my cash position how much headroom do i have on cash um and that's just if you watch that you're not going to get in trouble or you're going to see trouble coming you know months in advance you're not going to be

surprised by it same with the 13-week cash flow forecast which is somewhat similar which works in tech companies or you know even asset light um you know we do 13-week cash flows weekly for all of our companies and um are always trying to see around the horizon uh or over the horizon you know what could be coming what what's the downturn and um and how could we how could we get in trouble that we don't see it and that but family and friends will never make you do that uh equity investors will never make you do that and um that's why a lot of tech companies just uh flame out um you know the flip side is they're not going to get bank debt because they don't have assets and they don't have collateral um and you know you can't borrow from a bank if you don't have

either collateral or a hell of a um proven earnings history and which obviously you know a tech startup doesn't. So I'm going in a circle here. So they have to go to equity, but, you know, and friends and family, but, you know, equity and friends and family should be running a tighter ship. But they don't. And I think, I don't know. That's what I like about, that's what I love about manufacturing. It's also tangible, it's real. And, and it's, if you do it right, it's, it's hard to, hard to lose your mind along the way. You mentioned a mentor. Most people would say that you're one of the best, if not the best in the business. What have you learned from your mentor? Oh my God, all my mentors. Everything. I learned a turnaround game from

a mentor. I learned the distressed investing game from a mentor. And I never purposely sought out mentors, but I've seemed to have always throughout my life had them, picked them up along the way. Um, I can't say, you know, when I was in high school, I wanted to, um, I wanted to be a professional football player and we lived outside new Orleans and some of the saints were moving to our neighborhood. I went and took, took over every single lawn contract of every single player in my town. And they all said, I got somebody doing my lawn. I'm like, you didn't understand me. I'm taking over your lawn contract. If it's price, I'll beat them on price of a service. I'll beat them on service. But Jeff Sands is going to cut Kenny Saber's grass and I'm not

leaving um and it was awesome and then you know then they all became my buddies and i got to spend the summer at uh in vero beach at summer camp and fly around on the plane the best thing in the world and i kind of did that when i took a fancy to turnarounds i found the best guy i could find and wouldn't wouldn't leave him alone until he basically adopted me um and then same with the stress investing i wouldn't leave him alone i just kept bringing him deals and then um and then we started doing them together. There's best career path you can pick. Talk about the difference between turnarounds and distressed investing, because they're related and they're somewhat sequential, but some people choose just to do distressed investing and some people want to

just be in the turnaround game. And so why do you think that there's advantages or opportunity in being somewhat advantageous or expert at both of those things? Well, I think there's a stress investors who don't really do turnarounds because they're financial they can run the numbers they can do all the modeling they can talk about it but they don't know how to go on the factory floor and motivate people um there's people who can go on the factory floor and motivate folks who just don't understand leverage finance and some of these other things uh you know and how to successfully pull off a deal uh you know if you can do both then you're um you know if you can if you can buy the pro take buy or take over the problem and then actually go fix it um i don't you know if

you're a control freak like me that's great because you can you can see the whole problem and the solution and um you don't have to depend on anybody else to get you there you know other than like your you know your trusted teammates now um another part of this that seems really interesting is uh labor every single time i talk to anyone in the physical economy they tell me labor's a problem. It's a restaurant, it's manufacturing, whatever. You have the blessing of having to recruit labor to a crisis situation. It's one thing when you're the turnaround guy, you're the guy who's used to doing this. You're choosing to go do this, but now you have to convince people to come work at a business that's basically failing. How do you do that? How much

of it is like, you just tell them it's failing and try to motivate them to come and help versus you got to show kind of the shiny, kind of rose colored glasses and sell them the dream. How do you recruit people to these crisis situations? Largely selling the dream. Often I go in and I remember one, everybody's like, boy, if Rick were here, you should bring back Rick. Boy, if Rick were here. And I'm like, who's Rick? So I went on, oh my God, I got a bunch of stories like that where you just hear his name and then you go find a guy. Everybody wants you back. They all thought you were the best. Here's what we're doing with the business. Here's your role. you can be the hero of this journey um and what else you doing you know your your boss doesn't

care about you you're stuck we're gonna love you and worship you you got to come back others i just recruited in a um controller for a uh distress company that we don't have a solution for she can see the numbers right there but you know the pitch is um you know you're going to learn all about turnarounds. It's going to be fun. It's going to be a hell of a rollicking adventure. If it doesn't work, you know, go back and get a boring job. But, you know, if it does work, hey, it works and you got this fantastic education and a great experience. And I'll give you a heck of a reference. And it's a thousand percent sale job. You know, I'm just you're right. I don't have much to work with, but I'm I'm shutting it up as best as I possibly can. That makes complete sense

in the chapter called building long-term value. You say there's four things that can be done immediately for a business. One is get rid of the turnaround consultant. Explain that. Most people would say, wait, why is this guy saying get rid of the turnaround consultant? Yeah. Well, you know, once the business is profitable, the balance sheet's cleaned up, I'm just taking up space. I'm billing a lot and I'm not providing much value anymore. And it's just, it's time for me move on um some turnaround consultants will not have the next thing lined up so they'll try to stay there but it's just time to get rid of them get rid of that expense and move on um yeah sorry that was uh answering your question the second one is maintain a monastic focus on

the fundamentals of running a lean and profitable company and that seems like maybe just like reinforce the good habits yeah yeah basically you know the it's pareto but it's just that that focus and i i don't know how can you be successful at anything without a monastic monk-like focus on the fundamentals and if you do that you're going to stay out of trouble uh and and probably the reason you end up in the turnaround is you didn't do that you got distracted by other stuff by chasing shiny objects but if you just do the right things over and over and over and keep your life simple you should probably avoid trouble number three and four is gain core strength and accumulate resources and then pick the right strategic direction now that you're lean and

flexible and it seems like rather than try to um you know improve your weaknesses to some degree you're saying hey lean into the strengths and really kind of accumulate those resources explain that further yeah it really is which probably goes back to the pareto you know what are we going to be exceptional about really clean up and focused and um you know uh book profits and just put them into retain earnings and strengthen your balance sheet don't go chasing shiny objects don't go try to create a new division just do your thing and do it well and get strong get your feet super strong underneath you um and then when it is time to go expand you know do that with just laser like intensity and don't don't lose don't lose your focus your foundation your laser-like intensity

because everything other than that is just risk and it's a it's a tough world out there um and there's just bad you know so you like remember successories posters they say dumb like um you know there's no such thing about luck it's just about preparation and every life coach who says there's no such thing as luck or whatever they all buy insurance because there's bad luck there's good luck and bad luck and um you know bad luck's out there and it doesn't matter nothing else matters you get i mean i got i lost a factory tour i lost a factory in a home to a hurricane what the hell could i have done to prepare for that um it just you know bad luck's gonna happen there's fires there's uh

tornadoes and if you don't have a strong core it it it can be fatal if you have a really strong core, you can probably weather a storm. Let's talk about liquidating a business or liquidating assets. In these crisis situations, you need cash and you need it quickly. And so selling some of the assets potentially could help you do that. But a lot of times, especially if you're selling a business unit or something that isn't just a physical asset, it could take a long time. Even a real estate deal could take a long time. And so how have you in your career kind of expedited these sales and really ensure that you get the cash as quickly as possible? um you're right that it can take time and um the more of a hurry you're in the lower the price

you're going to get you know for a piece of equipment or real estate it's more than anything um if you think of yourself and then you think of all your stakeholders your customers your vendors your lender everybody else they all have balance sheets what you're trying to do is pull cash off their balance sheets onto yours um and then uh and and then at some point you you you push the the cash back onto theirs as you get through this hole you know if i got a piece of real estate or equipment i can um i can sell an option in it i can sell part of it i can borrow against it i can take a hard money loan against it while i'm going for a sale um maybe i can get the bank to advance me a little bit more if we have the real estate listed it's how do i get cash from other people's

pockets into mine so i can i i can you know pay great working capital pay for my expenses keep keep my employees going buy materials and spin that and then i'll ultimately generate profits and then be able to push that back out and most people if you say hey i'm just going to borrow from you for a little while and then i'm going to give it back but i've got a bomb proof plan We're going to track it every day. I'll be 100% transparent. They'll buy into it, you know, because they want a customer. They want a vendor.

And I always, you know, if you've got a good plan, people will support it. If you don't have a good plan, people aren't going to support that either. And the world's just full of plans that aren't that great. When you go in, how much of it is you come up with a plan yourself and then you approve the plan yourself and you go implement the plan versus you're looking for kind of consensus, right? Whether it is with investors, whether it's maybe some people at the business, how do you just think about setting the plan

and then actually approving that plan? It's a great question. I walk in as beleaguered as the entrepreneur is. I mean, there's just some bad CEOs, but usually I say, you're still the most qualified person in the world to run this business. You don't feel like it.

you've really had your head kicked in. But you're the single most qualified person to run this business today. And then I get them to give me the ideas. How do we get out of this situation? If they can't come up with that, with that, or, you know, so often I'll take their disjointed ideas and put it into a plan. If they don't even have disjointed ideas, then I basically come up with a plan myself. There's no consensus. There's absolute buy-in. I don't need everybody to think it's a swell plan. I need everybody to get behind it and execute on the plan, whether they like it or not. And everybody's free to leave. And sometimes people have to leave, but it's, it's about the execution. And, you know, if you leave it up to the inmates to come up with a plan and

execute it, I mean, there's a reason I got called in the first place. And it's not because y'all are doing a great job. When you think about maybe external pressure, another thing that's really interesting is in these, let's say a local town, people know that there is a crisis happening. And so whether it is kind of the whisper network and, you know, people go to the bar at night and they're talking about it, or maybe even the local papers writing about the problems, et cetera, that kind of compounds some of these issues. How do you deal with maybe the soft stuff, right? It's not numbers. It's not, you know, the actual business itself, but you're trying to almost manage expectations or, or maybe change the narrative around the business in the local

community? It, it's really hard. Um, and as you can imagine, entrepreneurs personalize their business. It's part of them. Um, you know, I get some that won't, won't cut the country club membership because they're afraid of how it'll look. And I get on the other side, I get people who just bravely go into bankruptcy. We'll call the paper and say, Hey, we're going to file. it's going to be news. I want you to have the inside scoop. And this is what we're doing. This is why we're doing it. They'll go to the trade show and deal with all the vendors who haven't been paid. And I have one of those now, but it's rare to have somebody with that sort of courage. The employees is tough. And the toughest part of the employee is like, I can talk to people

all day long and pump them up and tell them it's going to be okay. And here's our plan, all that stuff and they go home and their spouse starts nibbling at them or their jerk brother-in-law starts nibbling at them be like oh blah blah blah that's really hard to overcome and you know monday everybody needs to be built back up and you lose some in the process but yeah you're totally right that how it plays out in public is um fragile is probably the best word for it last question i have for you is uh in the book there is a quote uh and i think it's in the beginning of the book it says despite being impatient and relentless jeff is the happiest guy on earth and there's some sort of uh dichotomy almost of like you're running into the fire every

single day you're just seeing absolute you know uh uh everything in shambles businesses are failing people are stressed uh there's all kinds of uncomfortable tough situations or conversations yet you remain really happy how do you do that well number one it's not my neck in the noose um and when it was my first two turnarounds were my own business and you know i was looking at losing my home um that wasn't fun but i love untangling big complex problems that other people can untangle and um the ability to do that and have all this action and not risk losing my home is i think it's just the coolest thing in the world um and i often say i you know i hope on my dying day on my deathbed somebody calls me to talk about deal structure because i'd i'd

i'd love to love to have one more one more conversation on buying a distressed asset before i check out i love it so jeff you wrote the book corporate turnaround artistry fix any business in 100 days i highly suggest people if you have not read this yet please go pick it up and read it it's a fantastic book and i think part of what makes it so good is very practical obviously, but it's also looking at these turnaround situations and it really can reinforce and teach good habits and things that you should be doing with a healthy business as well. So it's focused on turnarounds, but it's really about how do you run a business correctly and avoid these mistakes. I've learned a lot today. I appreciate your time. Where can we

send people to find you? Or if somebody unfortunately has a turnaround situation and needs your help, where can they get in touch with you? So my website is dorsetpartners.com, D-O-R-S-E-T partners.com. You can find me there, Jeff at Dorset Partners, my email, I'm on LinkedIn and Twitter and stuff like that. But yeah. And you know, again, my dying day, I love these conversations. I love getting phone calls and I get such a kick out of this. It's not work for me. I love to hear that. All right, Jeff, thank you so much for doing this. We'll definitely do it again in the future. Thank you, Anthony. It's been a blast. Take care.