Barry Davis’ company, Crosstex Energy Inc., had always been extremely successful since he started the midstream energy service business in 1996.
“We averaged a compounded annual growth rate of about 100 percent a year,” Davis says. “It was an incredible journey and everything was up and to the right.”
The company continued growing — going from $1.8 billion in revenue in 2006 to $2.6 billion in 2007 to $3.5 billion in 2008.
“One of the key learnings for us in this experience is whether it’s personally or as a company, sometimes our greatest strengths can become a significant weakness,” he says. “It was in our DNA to grow and be very growth-oriented. If you grow at 100 percent per year for every year for six to eight years, at some point, that gets difficult to manage.”
By 2008, the organization was showing signs of stress from the rapid ascent.
“We were thin organizationally, and that includes people and processes,” he says.
Then the financial markets began to come apart. Crosstex had a number of natural disasters hit, including a fire at one plant and a hurricane that affected its Gulf of Mexico operations. Then there was a significant downturn in commodity prices that dramatically slowed the company’s development activity.
“We had built an infrastructure with an anticipation of continued growth,” Davis says. “All of those things came together to create the perfect storm and a period where we had to regroup and really step back and reset the company, if you will.
“Had any one or two of these things happened in 2008, we would have been fine, but when you compound several, it became quite a mountain to climb.”
It was unlike anything the company had faced and was going to be incredibly difficult to overcome.
“[It was] two years of the most challenging period we may ever face as a company that really became a fight for our life as a company,” Davis says.
Talk to customers
One of the first steps Davis took to turn things around was to solidify relationships with customers during this time. The company had done so well for so many years, news of its trouble sent shockwaves throughout its customer base.
“In the middle of 2008, Crosstex had one of the most successful stories in the midstream business in the last couple of decades,” he says. “We had great good will in the industry, so we had a lot of people who were pulling for us and wanting to do everything they could. Most people were just shocked because they had seen, for a dozen years, that everything had been so positive and were just confused by what had happened, so it was important for us to share what had happened.”
So he went out and started talking to them about how their troubles had come about but also how they were going to solve the problems.
“We spent a lot of time with our customers and trying to ensure their confidence that we were going to be there and we were going to be able to provide the services they had contracted us to buy,” he says.
Davis went out and met with other CEOs to share his plan and the confidence he had in the organization going forward. He would also talk to them about how they could be helpful in that plan.
“People want to see the confidence and see into the eyes of the guy at the top,” Davis says. “Are you demonstrating that you’re going to get through it, and do you have a plan? Are you committed or are you wavering in your commitment? There was never a wavering.”
He says very few of the top executives sold any of their holdings in the company, which was a further demonstration that he had confidence in the company so the customers should, too.
“We’re emotionally invested, and in a time of challenge, it’s usually more powerful than financial conviction,” he says. “It was important for our key customers to see that all the way to the top.”
Davis decided this was also a great time to look at ways to cut costs.
“We had a lot of expense in our organization that was focused on growth,” he says. “We immediately reduced all of our resources that were being spent outside core areas. In our physical operations, we essentially took away everything that wasn’t necessary to run the business — any idle equipment, anything being spent on unnecessary things.”
They also renegotiated contracts with key vendors. The entire industry was in this mode, so they were sensitive to the battle Crosstex was fighting.
“Every organization, in tough times, has certain places to look,” he says. … “There are always things we’re investing in for the future and when tough times come, it’s all about the now. What do we need to be spending right now? For a period of time, let’s cut out the cost of the future.”
When all was done, he and his team were able to drive out $20 million in costs from the business in 2009.
Another big thing Davis had to do was trim the portfolio. The company had six major assets and it wanted to get down to three.
“It was straightforward and logical,” he says. “We needed to sell something of size.”
Its treating business was attractive to the industry. It had been started as a grassroots business in 1998, and by 2003, it was the largest treating business in the industry and had the No. 1 position in gas treating. It was sold, as were some smaller assets.
Make the tough decisions
The bigger challenge in this was parting ways with the people associated with those assets. Some of the people went with the assets that were sold, but he also had to do a reduction in force because of the reduced operations.
“In our company life, we had to be able to look back and say we did that with great excellence,” he says.
As such, they planned it thoroughly and executed it well.
“Be very clear and generous in the exit process, meaning the severance that you give people, the time you give them to find other jobs, to be generous in the support you give them in finding those other jobs,” Davis says. “Be quick and decisive in the process — these are things that need to be done in a short time frame and not drug out over a period of time. It needs to be as deep and as broad as you can think — don’t make multiple reductions. One time needs to get it done. Be generous, be supportive and do it in one time, and be very caring in the execution.”
They made the cuts in one day. Davis personally met with almost every affected employee.
“I had the opportunity to visit with them and share the emotion of the challenge we were going through together and express some good intentions for the future,” he says. “It was like family, and it was like part of the family was being left behind or separated.”
Those kinds of situations are never easy to handle, but he says there are ways you can do it so you can, in fact, look back and say you did it with excellence.
“First of all, focus on the person,” he says. “It is a relationship, so you have to focus on the person. Second, be very diligent in the planning process because the execution is critical at the time, in the moment. You have to have a great plan. Then, thirdly, be real. Be a human, be transparent and be loving. That’s a word we don’t use often in business, but I think everything really comes back to that and to love the other people just like they are family.”
As Davis met with people, he was shocked by the support employees had for each other and the amount of care they were showing for each other as opposed to themselves. This care and concern inspired Davis.
“The good news is that whatever negative emotion we experienced, for 12 years prior, we were very full as an organization and prepared emotionally to deal with a downturn,” he says. “It was the relationship, the culture, the bond that we had that allowed us to endure during that time.”
In 2009, Davis and his team began to define the future state — the end they had in mind. But he involved the people and asked them what was important to them. Recurring themes came up.
“One of the things that was always at the top was to be on the winning team,” he says. “For the 12 years, they felt like they had been on a winning team, and in the downturn, that was something they didn’t feel, so it was very compelling for them to get back to a point where they could feel like a winning team.”
As he moved the company forward, he applied lessons he learned in the middle of this crisis.
“What we learned was to manage our strengths and be more conservative in our growth,” he says. “Secondly, we learned that one of the things you have to protect most dearly is your balance sheet. We actually had too much leverage — too much debt.”
Crosstex repositioned its balance sheet in 2010 and reached a number of milestones.
Revenue increased in 2010 to nearly $1.8 billion after the decrease in 2009.
“This is where we did some of the best work we’ve ever done in our 15-year history,” Davis says. “What we did is what we’ve always done well … we simply executed everything in our plan. The market supported us in rebounding. As a result, really in a very short period of time, in 18 months, we went from the lowest point in the downturn to being repositioned.”
And this year the company announced several major growth plans, including increasing its core from three major areas to five.
“As we entered 2011, we felt it was a turning of the page to focus on the future,” Davis says.
On top of the financial success, he’s seeing a change in morale, as well.
“We’re right now at an all-time emotional high as a company,” Davis says. “The energy has returned and has grown dramatically because of the success we’re experiencing as a company.”
While they were challenging years, Davis knows that they’ll also be good ones in the story of Crosstex and sees the company’s biggest challenge ending happily ever after.
He says, “I believe we’ll look back on those as two of the richest and exciting years for our company and the richest chapter in the story of Crosstex.”
How to Reach: Crosstex Energy Inc., (214) 953-9500 or www.crosstexenergy.com
The Davis file
Barry Davis, chairman, president and CEO, Cross Energy Inc.
Education: Bachelor of business administration degree in finance from Texas Christian University
As a child, what did you want to be when you grew up?
I always wanted to be part of creating something, and my entire life I have been. I started with creating businesses — a lawn-mowing business, and ultimately in college, I started, ran and staffed baseball camps in the summer. I’ve always been about building organizations, so as a kid I wanted to be a part of creating something significant.
What inspires you to create businesses?
I think it really is about the story. I like to be a part of creating a story. I like the life that comes from doing that with other people. I believe what we have here at Crosstex is a great community of people who are doing life together. I’m driven by growth because I want to keep adding people to our team.
What’s your favorite board game and why?
I don’t play board games. One of my favorite games is the ring game that we play at my lake house. It’s a ring-on-a-string game that I love to play with family and friends at the lake, and it gets very competitive.
If you weren’t in your current position, what would you be doing?
I would be spending a lot more time in ministry. I love sharing with people the life and I love sharing the experience of more life with people. I could do that with spending more time in ministry. That goes back to the Crosstex story — our mission and right in the center of our mission statement is to improve the quality of life for our employees. On our doors, every employee has ‘more life’ boards. On those boards are represented what more life to us means. We have pictures, quotes, family stories, whatever it is that represents more life to you. You could say I’m already full time doing what adds more life, but I would do that in other places.