To many executives, consultants, lawyers, and reporters, the turnaround and bankruptcy world is one more suited for Harry Potter: it has changed over the centuries, often in mysterious ways, and seems the exclusive province of wizards. John Pierpont Morgan Sr. took over bankrupt railroads and combined them to become one of the wealthiest men in the world. His legacy, J.P. Morgan Chase, has recently acquired large pieces of bankrupt companies, albeit unintentionally; they extended loans that went sour, and had to exchange their debt for equity.

If the turnaround is enacted in a timely manner, the bankruptcy policy of a fresh start can be avoided for a less jarring approach to a fresh start. The successful turnaround can then be indicated by a number of factors, such as

Even the pros aren't always perfect in their projections. During the 2006–2008 timeframe, the turnaround industry—made up of tens of thousands of turnaround professionals, investment bankers, bankruptcy and restructuring lawyers, liquidation professionals, and auctioneers—were convinced that their ship was about to come in, laden with gold, jewels, Gulfstream jets, and a nubile crew. Their logic was reasonable; given the amplitude of the highs we saw in an overheated economy, the amount of money being shoveled at companies to increase their debt, and the multiples of earnings paid by the ravenous feeding of deal junkies, the system was on too much adrenaline and had to crash. Couple this with the massive bonuses paid out that encouraged the closing of deals that made no economic sense, and everyone thought the "great unwinding" would bring years of $1,000 an hour work for them. (Yes, the top players in this field do charge that much.) Thus, both the big turnaround and other consulting firms logically added to their payrolls, picking up multiple professionals and staff to support them.

The trouble is, logic did not prevail. Those firms discovered that all the expected restructurings through bankruptcies didn't happen nearly as quickly as they anticipated. Part of it was the severity of the credit crunch, which dried up DIP and exit financing, forcing companies such as Circuit City, Linens'n Things, and many others to liquidate and preventing the more lucrative reorganization work. Another element was the behavior of the lenders, normally a huge source of work by forcing customers with broken covenants to hire turnaround professionals. So deluged were such lenders with defaulted loans, however, that instead of forcing their borrowers to hire experts, they changed the due dates on the payments. This became known as the "amend, extend, and pretend" strategy, which simply pushes the problems out to a later date.

That delay helps very few people if the underlying problems are not fixed. It is true that sometimes an entire industry seems to be stuck in the blinded-through-faulty-action phases for many years, until finally they hit crisis and bankruptcy; newspapers are the current poster children. I was asked to take the entire day of the bi-annual summit of the heads of the fifty largest U.S. newspapers at the American Press Institute in Washington, D.C., and discuss how best to fix newspapers. I introduced various ideas at the summit, many of which are outlined in this book. Unfortunately, not everyone will listen; despite overwhelming evidence to the contrary, some still believed advertisers and subscribers would come back in full when the recession ends. They need to focus, however, on content people want to pay for. There are many ideas on how to fix newspapers. For example, readers should go to Newspaper Next 2.0 at www.newspapernext.org. As stated earlier, their core competency is really as a trusted infomediary. They saw the Internet as an enemy rather than a new pipeline for too many years before they woke up. All that time, it should have been newspapers that created Craigslist, Angieslist, and all the other alternatives that have eroded their revenue streams. Instead, far too many fired reporters and replaced them with more color pictures, which seemed to dumb down the product into a coloring book.

The press release from the API Summit covering my presentation hit home to one additional newspaper fan, an author of erotic novels. She wrote about my thoughts on the subject on her blog as a way to support keeping newspapers alive. It caused me a bit of ribbing from friends, however, when it got picked up by the university PR Internet crawler. She quoted me and listed my affiliation with the university . . . right alongside advertisements for her books, which featured pictures and language far steamier than anything I use in working with distressed companies.

Comedy Central's The Daily Show had a great routine one evening wherein one of their reporters, Jason Jones, interviewed various editors at the New York Times.^[194]

The editor then admitted that some of the paper's more in-depth stories covered events even older than twenty-four hours versus the Internet's rapid updates. The interview ended with what seemed to be a joke:

At my annual conference at Kellogg on Turnarounds and Corporate Renewal, we created a panel on turnarounds at newspapers. I put two "lifers" from the newspaper industry on it, Andy Davis, president of the American Press Institute (previously president of several newspapers), and Steve Gray, managing director of Newspaper Next (previously publisher of the Christian Science Monitor). Two others were professional bloggers, Rachel Sklar of Adams Research and Glynnis MacNicol of mediabistro.com's FishbowlNY (both formerly of the Huffington Post). The bloggers made it clear they thought newspapers had long served their purpose and should die a gracious death. The newspapermen wanted to know where the bloggers would steal their verified news from. Carlyn Taylor—the turnaround professional from FTI on the panel—had her own ideas, which mirrored mine. The standing-room-only crowd made it clear they could have listened to the debate rage for quite a while.

In the movie State of Play, Russell Crowe plays the obligatory grizzled newspaper reporter who shows the young blogger how to really do investigative work to uncover a story of corruption. While I enjoyed it, I listened to the crowd at the end. During the credits, footage of a newspaper plant was shown from the setting of type to the press run to bundling into trucks. I was amazed how many people of different ages said, "So that's how newspapers are made." Others said, "Maybe we still need investigative reporters."

We still don't know how many newspapers will survive in the future. The speed of change can catch any industry off guard, such as Bear Stearns and Lehman Brothers disappearing overnight and Facebook taking two years to reach a 50 million audience, a milestone it took television thirteen to reach.^[195] That speed of technological, social, and economic change seems to accelerate every year, and clearly had reached a velocity great enough to bring even giants like the New York Times to seek emergency financing from the richest man in Mexico. If nothing else, it means that there will always be turnaround work, but it also means that healthy companies must remain even more vigilant—or in the more emphatic words of Intel's Andy Grove, paranoid—than they did in years past. As Grove pointed out, the day-to-day operations of a company can get in the way of thorough market environment analysis and its effect on the firm's priorities, thus masking the imminent, unforeseen technological change or commercial event that makes established products or processes obsolete. Such changes, he said, paraphrasing Carl Sandburg, "creep in on cat's feet"; that cat crept right past America's newspapermen.^[196] Do not let it creep past you and your company.

Be careful whom you turn to for help. There are many consultants and advisors who purport to handle turnarounds. Too often, what they really give you is known as a WAGNER, a wild-ass guess not easily refutable. There are others who should not be giving advice so specific as that needed in a turnaround. As the oft heard phrase implies, anyone can wear a Speedo, but not everyone should wear one. Check the credentials of the actual people doing the work, not the reputation of the firm.

If your small company needs help, several chapters of the Turnaround Management Association have volunteers; go to www.turnaround.org to find the international chapter near you. Other sources of help include the volunteers at the Service Corps of Retired Executives (SCORE) who can help over the Internet or in person at www.score.org, the U.S. Small Business Association at www.sba.gov, and legal clinics at most law schools.

For do-it-yourself types, just follow the advice in this book. Determine the stage your company is in by using the external and internal warning signs, as well as trend analysis, benchmarking, Z-score, and whether your ROA is greater than your cost of capital. Even if you think you are doing very well, every executive should examine those factors periodically for their organization, as well as for their key suppliers and customers to see if they may have problems that will explode onto you.

No matter what stage they are in, all organizations need to periodically examine their strategy, whether they are for-profit, nonprofit, government, or U.S. or foreign entities. Core competencies should be determined and built upon or acquired. With this information, and what you learn from talking to customers about their plans, you can arrive at a new strategy for now and the intermediate future. Once those are determined, occasional reengineering will tell you how best to operate the group and figure out the people you'll need now, as well as for the future. Empowering your employees and understanding your fiduciary duties will help your management efforts. Finally, always remember that even if you have to report in GAAP or IAS to stakeholders, you should manage on a true cash basis.

If you have ever swum in Lake Michigan or some other body of cold water, you know what it's like to jump into a turnaround. You take a sudden deep breath to get your courage up, and then plunge in. You might enjoy it once you get used to it. Turnarounds are much more addictive, and you just might enjoy the fresh start. You'll never be bored.