By Bryan Knipe, founder of TriPinnacle Advisors
Businesses rarely get into trouble all at once. Costs grow a little faster than revenue for a few years, the product line widens, a few customers that were never profitable stay on, and the team adds people and tools to every new problem. Then cash gets tight, an owner or a board loses patience, and someone is asked to fix it quickly.
The instinct under pressure is to cut everything by the same percentage. It feels fair and it is fast to announce, but it is the slowest way out: it starves the parts of the business that make money while keeping the parts that don't. A turnaround works when it is deliberate about where the money is made, protects cash while that is worked out, and keeps the operation running through the change.
I have done versions of this at very different scales: consolidating a large analytics organization we took over at Optum into one way of working, taking a startup from about $150,000 a month in burn to about $40,000 with streamlined operations and AI tools, and, as interim CEO of a digital health company, refocusing a business that had been trying to be several things at once. The sequence below is the one I follow.
1. Protect cash first
Before any strategy work, get a thirteen-week cash forecast that someone updates every week. It tells you how much time you have, which decisions are urgent and which can wait for analysis. In the first two weeks, the moves are usually simple: stop discretionary spending, freeze hiring that is not critical, collect what you are owed and talk to the largest suppliers before they hear rumors. Buying time is what makes good decisions possible.
2. Find out what actually makes money
Most struggling businesses do not know their profitability by product, customer or channel, because the reporting was built for a business that was growing. Build it. Allocate costs honestly, including the people and overhead that a product or customer really consumes, not just its direct costs. The answer is usually uncomfortable: a minority of products and customers produce most of the profit, and some lose money on every sale.
3. Decide what the business is
With profitability in hand, decide what the business will focus on and, just as important, what it will stop doing. At VK Digital Health the first step was getting the founders to agree on one definition of the company; the business plan, go-to-market and fundraising strategy were rebuilt from that definition, in that order. A turnaround without a clear answer to "what are we now?" turns into a series of cuts with no direction.
4. Cut deliberately, not evenly
Once the focus is set, the cuts follow from it. Exit or reprice the products and customers that lose money. Consolidate duplicate tools, teams and vendors. Stop the reports and processes that exist for a business you no longer are. Protect, and sometimes invest in, the parts that make money. When we took over a health system's analytics organization at Optum, most of the savings came from reconciling two sets of tools, processes and teams into one, not from cutting the work itself.
Where people are affected, decide once, explain why, and treat people well. Repeated small rounds of cuts do more damage to the people who stay than one clear decision.
5. Use AI where it takes out real cost
After the cleanup, high-volume work that people check by hand, invoices, reconciliations, reporting, document review, is often where automation and AI take out the next layer of cost. Done in that order, AI makes a leaner operation more durable. Done first, it automates the waste. I cover how in the guide on cutting costs with AI.
6. Keep the operation running through the change
The customers who make the business money must not feel the turnaround. Identify the processes and people they depend on and protect them explicitly. Set a weekly operating rhythm with a short list of numbers, cash, revenue, margin and the operating measures that matter, and review them with the leadership team every week until the business is stable.
7. Report to the owners in the same format every time
Whether the owner is a founder, a board or a private-equity sponsor, they need the same few numbers in the same format every week or month: cash and runway, progress against the plan, the actions taken and what comes next. I have advised CEOs on reporting to private-equity-backed boards, and consistency is what builds confidence. Owners can handle bad news. What they cannot handle is not knowing.
8. Rebuild for growth
A turnaround ends when the business is stable and growing again on its focused base, not when the cuts are done. The last phase is putting the operating rhythm, the financial plan and the leadership in place to grow from the smaller, healthier core, and then handing the operation to a permanent leader.
Where I help
I step in as interim COO or fractional strategic CFO for turnarounds and refocusing, including in private-equity portfolio companies: the cash plan, the profitability analysis, the decisions, the operating rhythm and the reporting to the owners.