IT Company – Turnaround

Client

A family run business in the IT sector which provided 4 principal services:

  • ISP
  • Web hosting
  • Web design
  • IT support and maintenance

Turnover had been stable for several years at c. £1m although with net losses now of £200,000 per year and growing.

Nick Winton was appointed as CEO to turn the business around.

Situation

The patriarch who owned the company found it impossible to manage the conflicting needs of looking after his extended family and making decisions that were necessary for the business.

The son who provided the technical lead for the business had pursued many new innovations and interests resulting in a proliferation of new products, many of which were not core to IT services.

Although initially highly profitable, over the last 2 years the company had become loss-making and the morale had declined to the point where employees were shouting at each other across the office and the environment was very stressful for everyone.

The immediate need was to stem the outflow of cash and to restore the business to being cash-positive and trading profitably.

Solution

Of the options available, the owner and directors agreed the business was insolvent and with the agreement of the bank the company was put into administration with the intention of buying back the assets. The business was restarted on a more professional basis.

The three phases of restarting were:

  1. Inception and planning
  2. Implementation
  3. Consolidation

Inception and Planning

The first stage was to identify key business drivers and critical issues within the business. Which of the many products and services were profitable and had a future and which should be suspended. This would also indicate whether or not the business was capable of being profitable in the future.

In parallel, plans to manage an administration were prepared which involved:

  • identifying key suppliers that were vital to providing a service in the future and
  • negotiating a viable agreement with the insolvency practitioner

It was also realised that although the company had a book-keeping system it provided little if any useful management information. This would be needed immediately to ensure a start-up could be successful.

Implementation

Non-core departments were closed straight away as none were profitable nor did any of them contribute positively to cash.

A culture change programme was started to shift the former secretive, family first approach and to eliminate the excessive spending behaviours remaining from previous good times.

An open management style was chosen as a solution to the morale problems. This involved among other things holding frequent staff meetings to communicate plans, progress and to answer the many questions that arose during the turnaround.

A functional structure was created for the business so everyone knew who was responsible for what. Procedures were developed to introduce best practice to many activities and training was provided to enable staff to operate effectively.

Consolidation

To prepare the business to return to normal commercial life, a succession plan was developed. This meant that Nick Winton could step down as CEO and pass the baton to the son.

To provide additional support other key operational roles were strengthened as was the board of directors.

Outcome

When the time came for the handover the business was profitable, cash positive and with a culture that would support future business objectives.