The Turnaround Ace

The Boss Shouldn't Have Promoted His Sons


Editor's note: This is one of a biweekly series of case studies about business turnarounds. The name and identifying details of the company used as the example have been changed.

Problem: Bad Morale Is Sinking a Boating Business

Above Water, a New Hampshire-based business that sells parts and accessories for private boats, had decades of steady sales. Management is now so dysfunctional that it is affecting every employee's morale. The resulting drop in efficiency and productivity is starting to cut into profits. Two years ago revenue was $22 million. It has declined slightly to $20 million—not bad, considering the economy. But the profit margin has shrunk, from 15 percent to 8 percent.

Founder and owner Jerry worked hard to get the business going. His two sons, Frank and Marcus, have helped him since they left college. Deep down, Jerry knows they aren't particularly competent. They are great salesmen but they aren't shrewd when it comes to closing deals with clients. In fact, Jerry admitted to us that he didn't have a lot of faith in their decisionmaking prowess. Out of a misplaced sense of fatherly duty, he made them vice-presidents of sales and operations respectively, and gave each a hefty salary. To avoid an increase in overhead, he cut his own pay.

If anything, the moves stoked strife within this family business. The brothers do not get along. Each feels he is in charge. They bicker constantly. Since they are equal in position, no one ever backs down or compromises. Meetings almost always end the same way—with one or the other storming off the workshop floor in a huff.

The ongoing dissension is almost a daily ritual, obvious to all other employees. The kids argue in front of customers. They disagree even on the most minor details. When shouting matches flare up, the workers scatter and pretend they don't hear what's going on. In fact they're listening to every word. On breaks they talk about what a mess these kids are making of the old man's business and how uncomfortable it is to work in an atmosphere with such explosive tension. Some choose not to. The stockroom manager quit first, then Office Manager Janet had enough and gave notice. Before long, nobody was working very hard. Why should they? If the owners of a company aren't going to treat their business with respect, why should the staff?

Worst of all, no one listens to Jerry any more—least of all his sons. Each figures he's the heir apparent. They go around demanding personal loyalty from each employee. Jerry hides in his office. His workers have no clue whom to listen to. They're damned if they do and damned if they don't.

Solution: Let Them Know Who's in Charge

This case was easy. You may be the owner, but nobody cares unless you act like the boss—on every level. Jerry can't expect everyone to respect him unless he starts to respect himself. We told Jerry to give himself a raise, effective immediately. "Why?" he asked. "Because you have to let them know who is in charge, and money talks," we told him.

In any business, it's imperative to have a pecking order. Everyone has to know their place and when it comes down to it, someone has to have the final word. The workers need to know who is truly on top and they need to see an authority figure who cares about how things are done. There's also a psychological reason for the pay raise. When a boss pays himself a salary commensurate with the industry standard, it's almost like sticking a metal rod up his spine. He feels better about himself and he goes the extra mile for his business.

If he takes a cut and allocates authority to someone else, he'll never appear in control, commanding the respect of his workforce. Let's be real: In a small business, everyone knows what everyone else is making. When you pay yourself less, it's like sending a message to the rank and file that you are not worthy.

We then insisted he cut the salary of his two kids and give them very specific jobs. Whichever one did better would then get a raise. This assured fewer screw-ups and greater incentives for them to work harder. We also stripped them of their fancy titles. We let them know that they are now simply managers. If they don't pull their weight, we'll have them demoted so far down the corporate latter that they'll be sweeping the factory floor.

Setting goals and drawing boundaries is a great way to solve personnel problems and see who's really willing to earn their position. Older son Jason felt he was too good to be working at such a low level and quit. Younger son Marcus rose to the occasion and was eventually promoted. Best of all, the atmosphere at the company improved. The workers saw that Jerry meant business. Without the endless sibling quarreling, the mood improved 100 percent. Even Janet came back and commented on how much better the operation felt.

Today the business is on track to grow its sales to $23 million, and profits are steadily getting back up to the industry's top quartile. Jerry isn't taking anything for granted. He's still there every day. He still keeps an eye on Marcus, making sure his son doesn't slack off.

As long as there's a single captain, Above Water is one boating business that might just manage to stay afloat.

—with Samantha Marshall

Bios_george_cloutier_0722
Cloutier is the founder and CEO of American Management Services, a management firm that specializes in financial turnarounds and profit development for small and midsize businesses.

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