Turnarounds are fair play for Fayetteville business expert

John Harrison Newman turns troubled companies around.

It’s not always fun. It’s not always easy. But after 15 years in the business, his record speaks for itself.

“I haven’t lost one yet,” Newman says. “I wouldn’t say every case has been a home run. Some of them are doing great and some are still floundering, but they’re all still in business. When I first got into this, just keeping them alive is what I was content to do.

“Now I get my kicks changing the underlying problems — not just getting the train back on the tracks but fixing the wheels, too.”

Newman, a native of Long Island, N.Y., first moved to Northwest Arkansas in 1970 and has been leading turnarounds from Fayetteville since 1985. He has a bachelor’s degree with high honors from the University of Arkansas, an MBA from the University of California-Los Angeles and is a certified public accountant.

He generally works with companies employing 500 to 1,000 people, with problems ranging from financial stumbling to near-bankruptcy. Like the Harvey Keitel character, The Wolf, in the movie “Pulp Fiction,” Newman is called into desperate situations to make pragmatic decisions.

His clients don’t always want to hear what he has to say. But Newman’s a perfect 12-0 as a turnaround specialist because all of them have listened.

“It’s not John’s job to be warm and fuzzy,” says Nancy O’Connor, nutritions educator and marketing director for Community Mercantile Inc. in Lawrence, Kan.

“It’s his job to save businesses, and he’s very good at it. There were definitely moments when we struggled with what he asked us to do, but we might not still be here if it wasn’t for John. O’Connor says Community Mercantile was “close to the edge” in 1993 when it called Newman. The natural foods co-operative store had recently secured a large loan to expand and relocate when formidable competitor Wild Oats Markets opened a store just five blocks away.

Heavily leveraged Community Mercantile looked as though it could not compete in a tight market against the second-largest natural foods chain in the nation. Even for a 25-year-old company, extreme measures were necessary.

“We called John in the 11th hour,” O’Connor says. “He came in and put our feet to the fire and held them there for a year. We shored up our resources that we hadn’t yet tapped into and turned our business around.

“The result was Wild Oats closed their store here, and it was only the second store they had ever closed in their whole chain.”

Turning it around

Newman, who normally serves his clients as an interim CEO, compares himself to a surgeon operating on a bleeding patient. Because cash is the lifeblood of business, his first step generally is to apply a tourniquet to the cash outflow.

“If you don’t deal with that, you’ll lose the patient on the operating table,” Newman says. “There’s often some confusion where companies say, ‘Can you just get us some cash.’ That often helps, but it doesn’t deal with the reasons why the company got where they are in the first place.

“It’s about making changes that are going to make them profitable by correcting underlying behavioral problems. It’s about both getting them out of the crisis and stabilizing the company.”

Newman, who says he’s the only turnaround specialist in Northwest Arkansas, is the facilitator and founder for the area’s Presidents’ Advisory Group. The organization, comprised of CEOs from mid-sized, healthy companies, meets once a month to exchange ideas and look for solutions to business problems.

Newman approaches his engagements with unhealthy companies in the same fashion. He first arranges for a viability study, a quick look at the company’s problems, and its willingness to change.

Newman says this forces the company to look at itself as in a mirror.

“I’ll say this is the situation,” Newman says. “They have to look reality in the face and stay really focused on saving the company. I’m in the business of saving companies, not just giving advice. It doesn’t make sense for me to try to help if it can’t be saved or the willingness to sacrifice is not there.

“Some companies don’t need a turnaround expert. They need a magician.”

Newman, 50, takes anywhere from a few months to a year or two to work his magic. He works on a contract basis and tries to average a project every two years or so because turnarounds take so much energy.

Mike Shupe is chairman and founder of CEI Engineering Associates, a civil engineering firm in Bentonville. He says Newman’s enthusiasm was crucial in 1996 when he sought the expert’s help for some problems at CEI. Newman was brought in as interim chief financial officer and an adviser to the company’s board.

“We’ve been profitable since the day he was hired,” Shupe says. “Not only were the changes he made incredibly effective, but he was very helpful because he showed me how to deal with the stresses of the time.

“He helped me understand the situation we were in and how to straighten it out.”

The easiest part is identifying the problem. The hardest is firing people, although Newman is most often not the one who pulls the trigger.

“We’re better off if they’re willing to do that because the decision is more respected,” Newman says. “Most companies’ largest expense is personnel, so that’s a cost cutting expenditure they can immediately look at.”

How problems start

Companies get into trouble for a lot of reasons, Newman says. Turbulence may come from the external environment — tough competition, a slowing market or bad economy. But it’s the nature of business for conflicts to develop, and healthy companies usually see them coming and deal with them as small problems.

The unhealthy ones are guilty of what Newman calls “ostrich management.”

“You have to deal with the problem aggressively and not just stick your head in the sand,” Newman says. “A common scenario is that changes are needed at the top. If there’s a dysfunctional behavior at the top of a company, you’re not going to change anything without dealing with that first.”

Newman says often an executive starting up a new company may take little or no salary for a period of time and scrimp and save. But once the company gets off the ground, the executive may start trying to enjoy some of the money that’s been earned.

He or she buys a nice car. The exec moves to the nice side of town and maybe joins a country club. But the good times don’t last forever, and when the company hits a downturn, the exec keeps spending like it’s still the good times. Meanwhile, the things that were once luxuries have now become necessities.

“CEOs have to hold themselves accountable,” Newman said. “If they don’t, that attitude is going to flow right on down. It takes more than words. Strong leadership is needed to tackle problems when a company is still healthy.

“Some companies will just go on down the pipe thinking the big deal is always around the corner, still spending the big bucks.”

Newman says this is the point at which companies should decide whether they want to make a turnaround. If not, it’s probably best to sell the company while it’s still worth something.

Pulling together

Despite his success rate, Newman says every one of his turnarounds has been a team effort.

He says an interesting dynamic happens during a crisis. Creditors, employees, company owners and management are willing to pull together if they can find a plan they believe in.

“If I come in and expenses are running out of control, we’ll find some places to cut,” Newman says. “Sometimes the people involved will say it’s not possible without major disruptions, but you have to say, If the cuts aren’t made then we’re out of business.

“People can feel the urgency when they’re close to the edge. It’s a wonderful opportunity and amazing how people will pull together.”

O’Connor says, in Community Mercantile’s case, Newman even pulled its 1,200 private owners together. He called an emergency meeting with a “call to action” story on the cover of the company newsletter.

“People responded because he put the cold facts out there and they wanted to save the business,” O’Connor says. “He told us what we had to do and we sucked it up. John was also very good at working the media affectively. He was very open with them about what our trouble was, and that helped get us some positive publicity.”

Newman says, ironically, the worse shape a company is in, the more many creditors are willing to work with it. Especially when presented with a reasonable plan, creditors are eager to salvage what ever possible.

“If a bank can shut you down and collect money by selling your assets, there’s not a whole lot of reasons for them to be flexible,” Newman said. “But if shutting you down means they’re going to collect five cents on their dollar, and you offer them a plan that will get them 50 cents or more, they’re going to listen.

“A lot of clients go in thinking they need to show the bank the good side of things and plead with them, but the turnaround strategy involves a kind of openness and telling the story.”

Newman says just overcoming the denial that often takes place in troubled companies is refreshing for people. He says the willingness to confront things becomes even more powerful when they actually do.

“Some people like to start something new,” Newman says. “For me, I get my kicks recycling energy within companies. Usually it’s a company that’s been around 10 to 15 years and a lot of people have put a lot of energy into building a name or manufacturing methods.

“It’s really neat to see that get saved.”