I spoke to a potential future client (PFC) for a few years, giving them insights into their company’s operations, some recommendations, but they never asked for assistance from our firm based on those recommendations, just called for advice. The PFC was a service company in the healthcare industry, hiring healthcare professionals in clinical research. They were profitable at or more than the expectations of ownership. Management was paid very competitive six figure salaries. Employees were paid above industry norms. Our observation was that 90% of their nearly $5 million business was now with one major international publicly traded company (MIPTC) and perhaps it was time to put together a sales plan to mitigate that concentration of business risk. This recommendation was made year after year for three years to PFC with no action response from the PFC. In general, PFC agreed as to the problem, but they were getting new contract after new contract repeatedly from MIPTC. PFC was a respected employer, offered at home work, and capacity was relatively easy nationally to expand. PFC was performing so well, over so many years, for MIPTC that the managers of MIPTC who contracted with PFC stated that PFC was critical to their future work, and stated that more work would come along.
One day I received a call from PFC, they said they needed help and PFC became a “CLIENT”. MIPTC Procurement had contacted former PFC “CLIENT” that all contracts within 30 days would be reduced by nearly 30% in paid revenue, with the same services expectation. “CLIENT” asked, if MIPTC could do that. I responded that likely not legally, but if you fight it you will spend money. MIPTC will use other contractors and “CLIENT” will be out of business. Now, I realized that this change would create losses and ultimately put “CLIENT” out of business. I suggested that the management team, ownership, and I should convene in a mutually convenient city hotel with a business services conference room for rent as all were traveling. The purpose was to see whether the “CLIENT” should cease all contracts now and liquidate, or to see if we could find a solution without litigation. Personnel at “CLIENT” corporate in Phoenix, AZ were on standby to provide any information, as well as, “CLIENT” attorney by phone for HR and contract legal insights.
The determination that every existing business plan meant out of business should have been easily accepted by “CLIENT”. However, it took the morning session to have them recognize that this was like starting over a business again and it required a new business model that ensured a minimum acceptable profit to ownership, and was both valid (would keep them in business) and more importantly achievable (will it work with existing company assets, employees, customer needs, and industry compliance needs).
We created the new business plan. Unfortunately, all employees of “CLIENT” working in the old plan needed to have their employment terminated immediately. Nearly all the employees terminated had to be rehired immediately by “CLIENT”. All employees were rehired with a 35% average hourly wage decrease, coupled with a performance compensation incentive plan that kicked in after reaching a revenue level annually that assured a minimum profit agreed to by ownership. “CLIENT” management stated that it seemed impossible to accomplish the employee termination and rehire process. I stated that the plan will work if management is focused on meeting the achievable new revenue levels they believed they could meet, even if all new business was at the reduced contractual rates from their clients whether they were MIPTC or another healthcare industry customer.
Termination letters were printed the next day for all employees. New employment offer letters were provided for all current employees about to be terminated. A performance based incentive plan was drafted, with a roll-out plan for employees, and examples of how it would work. All management and consultants made plans to be in the two cities east and west of “CLIENT” to present the termination and rehire/incentive plan to all employees.
Of all employees affected, 1% declined the hiring offer after termination. At the end of year one, “CLIENT” had exceeded revenue projections at higher revenue rates than expected. “CLIENT” grew in MIPTC business, along with reducing the percentage of concentration of MIPTC revenue. All employees of the company were paid with incentives slightly more than their pay had been before termination one year earlier. The plan had worked completely by the end of year one. By the end of year two the concentration of MIPTC had declined to 70%, and by year three it approached 60%. Employees and “CLIENT” continued to thrive in sales, profit, and compensation.
Take away from this that businesses rarely fix serious problems when they don’t perceive that they are losing money. Businesses usually wait until the financial pain of the now raging problem leaves them no choice. The cost of inaction, in this situation, was minor as the fix worked with only one employee being lost, no business lost. The fix was radical but worked. It worked because:
- The employees trusted the process,
- The management team finally realized that they could accomplish growth and reduced concentration of revenue source risk
- “CLIENT” came to realize that without an accountable business plan that addresses potential problems with urgency, that “CLIENT” could lose all
- Accountability means knowing what your Plan of Revenue/Profit defines as Good; Recognizing when Good exists and Repeating that process of creating Good results as defined by the Plan; and Urgently correcting problems. Those are the hallmarks of an accountable Business Plan.
There are solutions to nearly all problems if your company is still viable. I have never seen a problem that could not be fully understood and corrected, if the CLIENT was a going concern, still able to operate, and was humble and trusting enough to listen. The cost of correction will always be lower than the cost of inaction. If it is measurable, it can be accountable.
- In each case the correction issue was:
- Urgent response with personnel
- Outside assistance that understood the problem
- A Company open to solutions that were not the norm to the “CLIENT”.
In this case the employees had nothing currently to lose, as compensation with cuts was a lessor evil than unemployment and uncertainty of employment, and the process and facts were truthfully presented by Company Management and the Consultant. Management had to change its understanding of information that was always available and respond with urgency to identified problems. Sometimes it takes being faced with complete failure to act, that in and of itself was a huge risk in and of itself.
CLM Advisors LLC