The Resilient CEO

Posted on November 30, 2008

When adversity hit, these leaders battled back and gave us all something to learn.  Inside Alliance private working groups, we hear with some regularity jaw-dropping events that land on the chief executive’s desk. Sometimes they are simply challenging opportunities, but often they are disasters that threaten the survival of the business.

From hundreds of incredible survival stories, we’ve chosen to reveal three of the most amazing. With special permission from each CEO, we’ve told the story of the adversity they had to overcome, how they survived, and what there is for all of us to learn from their experiences.

For those CEOs in the midst of a struggle right now, we hope that this article, just like an Alliance group, will offer some hope that you, too, can turn it around, and offer some ideas to help you get there. Several of these recoveries have full case studies written on them that dig much deeper, and you’ll see links to the Alliance website for further reading.

Dave Dutton, Mattson Technology

In January 2001, Dave Dutton (Group Q200), then COO at Mattson Technology (Nasdaq: MTSN) had been shoved aside from had opposed the integration plans of a merger that had just closed. As 2001 rolled forward, the firm reeled not only from the dot-com bust and a major downturn for semiconductor equipment makers, but from the $400 million in accumulated losses as a result of the acquisition.

As the firm hemorrhaged cash, the founder announced that he was going on sabbatical. By December of 2001, the firm appointed Dave as CEO in a desperate bid to save the company.

Burning $50 million in cash per quarter, with $60 million in the bank and $40 million in debt, Dave had no time to lose. The 2,300 employees in Germany and Fremont, California needed to be reduced to 600. “On my first trip to Germany as CEO, I actually feared for my safety,” he said.

The founder had never built a strong management team and the culture of the company was in shambles. The merger integration was broken, and they were in an expensive IP lawsuit fighting an infringer. In addition to raising a pipe of $40 million, laying off 1,700 employees, and selling half their revenue stream to raise cash, Dave began the real work of building lasting value by creating a functioning management team and a healthy culture.

Bob Schonefeld, Bridger Commercial

In the spring of 2007, every CEO would have been envious of Bob Schonefeld (Group 202), CEO of Bridger Commercial Funding, LLC. He was leading a company growing sales and profits at 50% per year, generating so much positive cash flow that he had cash enough to cover 18 months of expenses. He invested an additional $1 million that year into marketing and infrastructure to bulk up for the cyclical 10-year wave of commercial refinancing coming in 2008. They were on track to do $1.5 billion in loan fundings in 2007, and as usual, the company had about 4 months of loans in inventory, not yet securitized in the capital markets.

At the time, it didn’t seem that the residential subprime mess would affect them at all, since they are strictly commercial lenders. But the growing panic among the financial sector meant that the buyers for Bob’s inventory were only willing to buy for 3% less than they would have just a few months earlier. The unprecedented 3% swing on $600 million in loans was a big number, and took the loan portfolio deep underwater.

As the firm paid buyers to take the loans, 95% of the 18 months of operating cash vaporized. Bob slashed headcount from 95 to 25 as the struggle to survive played out. A potential suitor for the company dropped out, scared by the economy. But even as cash headed toward zero, Bob kept looking for someone that would value the loan machine that his team had built. And in the nick of time, he found it. The recapitalization brought $5 million in cash and reduced Bridger’s debt obligations, giving him time to ride out the economic storm to begin growing his operation again.

Mike Willis, Westaff

Seventeen years after founding his first staffing business, Mike Willis (Group Q100), CEO of Westaff (Nasdaq: WSTF), found himself starting another staffing firm in 1993. By 1995, Westaff went public, then became Metamor Worldwide Inc. Seeing a sizzling market for IT professionals as Y2K breathed down the world’s neck, he spun out the IT division (Comsys) and took it private in a leveraged buyout by a private equity firm, with a then comfortable five times debt ratio.

As one of the top IT staffing firms in the world, it looked great—until Y2K came and went as a non-event, followed by the dot-com bust of 2000. Revenue plunged from the $450 million range to around $350 million, EBITDA dropped from $40 million to $4 million, and all the bank covenants were busted wide open.

Mike quickly slashed the only real expense a service firm has—its people. The headcount dropped by 30%, all non-essential capital expenditures stopped, and new services were halted. But while the bleeding stopped, so had the forward momentum of the company. Four years later, in 2004, Mike executed a reverse merger back into a public company to take advantage of shared overhead.

That’s just three out of hundreds of harrowing experiences that Alliance CEOs have navigated through. Today we know that quite a few member CEOs are doing battle with adversity, and we’re glad that they have the guidance and support of their Alliance group, and so are they.

All CEOs going through adversity should remember how much resilience exists in most businesses. It always feels worse than it is, and an able leader, determined to win, usually is the difference between success and failure.