Saving a Company from Bankruptcy

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From 6 or 7 p.m. until 1 or 2 a.m., I would work on fixing the accounting because there was no controller on staff at the time and the accounting manager was a young person who didn't have a lot of expertise in spreadsheets and contracts. Then I'd go home, sleep three or four hours, and get up and start all over again. I did that from August to December, 2000, until I had managed to reconstruct what had happened to the firm from January, 1999, to April, 2000.

When did you know that what you were doing was working?

My first major win was getting those 19 people to go home. I finally said, "Guys, you've looked at 99.5% of what's happened. Whatever you haven't found can't be very big. Let me fix the rest of this." And they did. They did eventually do a re-audit after I had corrected all the accounting records.

How did you deal with what must have been a severe crisis in morale in-house?

I made a decision early on to be completely honest. I couldn't share 100% of what had happened with the financials, but the employees seemed to trust me when I said I would be up front with them about everything I could talk about. When I arrived, [in] the July quarter just ended we had spent $6.5 million on actual revenue of $2 million. We then spent $3 million on legal fees and forensic accounting. One of the first things I did was downsize the company from 125 to 90 employees. It was very difficult. I called everybody in the room and said, "Here's what we have to do. Some of you are leaving today, some are staying, but this is how we have do to it."

As a testament to the people in the company, they were very gracious. A couple of the executives even offered to leave so more of the lower-paid people could stay on. They said, "Take me out and keep three engineers instead." Between August, 2000, and June, 2001, I lost only one person that I didn't have to, and he had three young babies and needed a more secure situation.

How did you start rebuilding your customer relationships and loyalty?

I made a lot of personal phone calls. I worked hard on the technology side and the customer support side of the company. A couple of customers were abused in the sales process. I refunded some money in a couple of places and changed some contracts that were unfairly one-sided. A lot of our customers were thinking about alternative products, but because we had produced such great technology for 15 years, it took time for them to leave us. By the time they were thinking about it, I was calling them. One thing that helped was that customers use us for big things and they are dependent on our product.

What are some lessons you learned from this situation?

Focus on your customers. I made that decision early on, and it was absolutely right. After that, stick to your knitting. We tried to do some things that were a stretch for us, but not with great success. We've decided to stay within our historical competencies, since there's plenty for us to do in that space. Finally, be honest with your people and take care of them. We have had very little attrition. We got down to 50 employees at our lowest point and we've built back up to about 70 today. We've learned that we get as much done with 70 as we did with 120. It's amazing what you can accomplish with a small, motivated, engaged team.

Obviously it has been a long time since the crisis at the company. What have you done since then?

It's been tough, but right now our revenue is the highest it has been in seven years. We went through some changes in strategy. We sold a company, then we acquired a company that has worked out well. Our application modernization group is working in a great new market and we find customers are trusting us again. That's really the best part, for me.

Karen E. Klein is a business journalist who covers small-business issues for several national publications. She writes her Smart Answers column twice a week.