Fast Talk: Time for a Turnaround

Keith Blackwell

Cofounder, chairman, and CEO
Bristol Technology
Danbury, Connecticut

How do you transform an organization during and after a legal battle with one of the world's most powerful firms? You are extremely clear about the future and who is going to get you there.

Back in 1998, when we filed our lawsuit against Microsoft, we assumed that our existing business would go away. Microsoft would cut us off from the source code for its operating system and, as a result, kill our products -- which had been growing at around 70% a year for five years. So we had to do two things. First, we had to hold on to our key people. Second, we had to transition to a new set of products.

I targeted 25 employees who were critical to our redirection. I knew they were thinking, "Do I want to stay with a company that's in an antitrust suit with Microsoft, or do I want to find the next eBay?" None of them left. The next move was to launch two R&D efforts in the hope that at least one would evolve into a new product line. Today, those two lines account for 80% of our business.

Most experts will tell you that real change only starts after a trauma, and we had that. But what we really wanted was the whole Microsoft chapter to fade from memory. We just want to be thought of as a company with great products, service, and people. At last we are on that path.

Keith Blackwell (keith_blackwell@bristol.com) cofounded Bristol Technology in 1991. Bristol's lawsuit against Microsoft was settled in 2001.

Mary Sammons

President and COO
Rite Aid Corp.
Camp Hill, Pennsylvania

You think your company needs a turnaround? Consider our situation a few years back. In 1999, I was part of a four-person team that came in to tackle the mess at Rite Aid. The company was saddled with nearly $7 billion of debt, it was on the verge of bankruptcy, and it was in the middle of an accounting scandal. And that was just what we knew going in! It turns out that there was virtually no cash flow and almost no cash, period. It was a high-anxiety situation.

I was in charge of the stores. My first move was to go to the front lines and tackle the fixable problems. They weren't hard to find. Our stores were in disarray, and our ads were a joke. There was a whole division on the West Coast that was rumored to be for sale. When in fact, we had no plans to sell it. So that became my first big project. I remodeled and remerchandised four of the larger stores and used them as examples. Within 90 days, we had repriced about 1,500 key items in stores.

People on the front lines can either be your biggest allies or your worst enemies. In our case, they needed to see and feel that we were serious about change. But the one thing I didn't do -- even though it's the one thing that everyone wants to do -- is make promises. I told people that there wasn't any structural reason why we couldn't be successful. But at the beginning of a turnaround, you're not in a position to be certain about anything. I gave perspective without making promises.

Mary Sammons (msammons@riteaid.com) and three other former executives of Fred Meyer Stores came in to turn around Rite Aid in 1999. With about 3,400 stores and annual revenue of more than $15 billion, Rite Aid is the nation's third-largest drugstore chain.

Charles Hoffman

President and CEO
Covad Communications Group Inc.
Santa Clara, California

Lots of companies in our business are hoping for a miracle -- but there are no miracles on the horizon. We spent vast sums of money on building a nationwide network and ended up $1.4 billion in debt. There was no way we were going to pay off that debt. So we bit the bullet early and made a deal with our bondholders in the form of a prenegotiated bankruptcy.

Nobody wants to be associated with that awful word. But there's no way around it: You've got to tackle the big problems first. We paid the piper and got the bankruptcy done -- and thank God we did, because this year's environment is even worse than last year's.

Meanwhile, even before I arrived at Covad, I asked each of the senior executives to send me a list of the top 10 issues facing the organization. It turns out that there was no consensus on the 10 biggest problems. So I consolidated the lists, came up with 10 strategic imperatives, and started working through them. And we worked fast. We fired the CFO during my first week and started from scratch with the finance department.

We also had to persuade people at all levels of the organization to stop worrying about the stock price and start worrying about the basics of the business. If we got the basics right, the stock might come back. So we created a performance scorecard that focused on the fundamentals: speed of installation of new lines, how quickly we answer the phone in our call centers, and the rate of churn among customers. My message is simple: As tough as the problems in this industry are, if we work on the right things, we'll end up with the right results.

Charles Hoffman (charlesh@covad.com) joined Covad, the nation's largest independent DSL supplier, in 2001. His career in telecommunications spans more than 25 years.