Zero to IPO

with George Northup

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Turnaround

Bringing companies back to life


Instructor
George Northup

CEO, Startup Whisperer, Lacrosse Coach

Lessons Learned

The first step to a turnaround is analyzing the business: balance sheet, P&L, and product.

The difference between a pivot and a turnaround is that a turnaround business is near death.

A shift in your strategy can be the difference between 0 and $30 million in revenue.

Transcript

Lesson: Zero to IPO with George Northup

Step #2 Turnaround: Bringing companies back to life

I've done two turnarounds over the last ten years in two different technology companies. Both had gone through enormous amounts of capital. In one case they went through $30 million over 4 years. Another company had gone through eight or nine million dollars over a four year period.

When I came into the CEO role for these two companies, both of them had very short runways, perhaps 90 days or less. When I came into those, the first thing I did was analyze the business itself immediately in terms of what their balance sheet looked like, what their P&L looked like, and also, where they were in terms of their product, revenue stage, customer base, and things like that.

In both of those cases, those were very dire situations. So probably within two or three weeks, I came up with a game plan where I would cut the staff. These are very hard decisions, because you are playing with people's lives. It's also a big impact on the culture the company and also the morale of the company, so it's a very difficult thing.

I think this is very difficult to do in Silicon Valley and elsewhere in the business world. However, the driving force in thinking of this is that you're trying to preserve the overall community for the long term despite the pain of releasing people. It preserves the core community from going forward. So typically what we have done is really look at each group within the company, and make an assessment of how vital are they to the survival of the company in the near term and perhaps the long term as well.

That is really what drives what gets reduced and what stays. The definitions of the turnaround situation to me is that a company for any number of reasons had been neglected to the point where it's almost out of business. The ultimate manifestation of that is its financial condition, that it can't keep going, and that would be different from a company that's maybe doing okay but stumbling around a bit. So to me the distinction between a pivot and a turnaround is in a turnaround the company is near death or headed towards death. In a pivot situation, you may have a company that needs to redirect itself to keep going and progress in a different direction. These things can converge.

I think a good example is Auction Drop, where I was the CEO for five years. AuctionDrop had risen during the time of eBay, which was very, very popular. It's popular today, but it was on the skyrocket in the mid-2000s. So AuctionDrop was a service where if you wanted to sell your goods on eBay, but didn't want to do the work. You dropped off your goods at AuctionDrop, they would do everything for you and they'd write you a check and they had a commission they took for this. The company had spent $30 million and essentially no revenue, and it was at a difficult situation. So this was a situation where it was a turnaround, but we made assessment and basically we decided that the economics of AuctionDrop would not work. The fees were roughly about 20% of the good sold.

If we were selling goods for maybe $70 on average on eBay, that would mean $14 of money was being generated to cover the cost. Almost immediately we just decided, this model would not work. What we did was very, very quickly shifted to a model very similar to Overstock.com. What we did was, we decided that there was a market for high priced luxury goods with big brand names that would sell very quickly and have a very high sell through percentage in an online marketplace. With that approach, we then started going to companies like Costco, Neiman Marcus, Breitling was another one, and Rolex as well. So these were high tier branded luxury goods that sold out almost 100%. This was a big shift in the strategy, and it was really because we saw no opportunity in the old model to do anything. The company went from 0 to $30 million in revenues in 2 years.

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