Ken Campbell was always the type of kid who had to stick his hand into the fire to verify that it’s hot. These days, it’s companies that are on fire and Campbell is right in the middle of the heat to get things turned around.
His most recent challenge is Standard Pacific Corp., an Irvine-based homebuilder that lost $1.2 billion in 2008.
Campbell came to the company as a partner of MatlinPatterson Global Advisors LLC, a private equity firm that invested more than $500 million in Standard Pacific in May 2008. Campbell had to challenge — and change — how Standard did business to save the company from bankruptcy.
“This was a solid homebuilding company in a bad situation that was getting worse,” he says. “We knew it wasn’t at the bottom of the market — of course, ultimately the bottom was farther down than we thought.”
More specifically, 2007 revenue of $2.9 billion dropped to $1.5 billion in 2008 as gross profits plummeted from a negative $200 million to negative $697 million. The operating loss bottomed out at $1.2 billion in 2008. The stock price fell to 67 cents. By 2008, business declined from its peak by 60 percent while costs held steady. Debts were due and repayment was uncertain. The company was spending more money than it was bringing in, and the market’s downswing was only making things worse.
After seven months, the previous management stepped down. So Campbell — a turnaround expert — took things into his own hands by taking on the role of president and CEO.
“People ask me how do I figure out what’s wrong with a company, and the standard story I give is, ‘Well, I go to the receptionist on my way in the door and I ask them what’s wrong with the company, and then I go upstairs and do it,’” Campbell says. “In other words, the problems are obvious. It’s having the willpower and sometimes the resources to implement the solutions.
“It’s like when you’re 20 pounds overweight, you know you need to lose weight. The problem isn’t figuring out what to do, it’s doing it. … It was pretty easy for everybody to see that something drastic needed to be done.”
As an outsider, Campbell had to rely on employees’ input to help him steer Standard Pacific toward profitability. He learned that if you ask the right questions, then solutions can be as clear as the problems.
“Freeing them up to challenge themselves and not telling them what to do is going to make them and the company much more successful,” he says.
Keep it simple
Whether you’re new to a company or not, the first step to fix a problem is to understand it.
The answer will come from employees, but it may take a little prodding.
“Management has a vested interest in justifying the current state of affairs, which makes them less likely to volunteer radical change because they’re the source of the current solution — which is obviously not working,” Campbell says. “So the trick is to get them to acknowledge what they already know is true and do it in the open and then deal with it. I’m not an alcoholic, but it’s the same as with some kinds of addiction.”
The point is not to blame anyone but to make sure employees understand what they’re doing and why it’s not working. Otherwise, they’ll follow the same routine and get the same results.
“They’ve been doing it for 20 years,” Campbell says. “Then, a $2 billion loss later, they did all the things they were supposed to do. They paid attention to every detail. They knew a lot about the trees and not enough about the forest.”
Show them the forest by tying their efforts to the results. But keep it simple.
At his first board meeting, Campbell received three three-ring binders. Information about the company was buried in them somewhere, but the inaccessibility was proof that employees never looked at data to consider the effects of their work.
“You do have to get them out of their comfort zone because whatever they’ve done over the last three years didn’t work,” he says. “And part of that is changing the information that you look at and share with people.”
Ultimately, you want to reduce data to the pieces that have impacted the business the most. It’s not that smaller pieces don’t matter, but the big ones will make a bigger difference faster.
To simplify your data, start with broad measurements and work your way down.
“You start with revenue and profitability and ask what generates the revenue, what generates the profitability,” says Campbell, whose financial due diligence was built into MatlinPatterson’s investment process. “And then figure out what the pieces are and then what affects the pieces. It doesn’t take long before the eight or 10 things that really have an impact, you know what they are.”
Next, ask employees to explain those things. How do they perform the tasks that have the biggest impact? Are they just following a job description or is there a reason for each step?
That’s where Campbell’s lack of industry expertise came in handy. Similarly, you can admit you don’t know everything about the company and rely on your employees for the answers. Campbell assumes he’s wrong but doesn’t necessarily believe anyone else is right — unless they can explain it. Having employees simplify data is a doorway into that explanation.
“Although, ultimately, it’s all about the same thing — we’re tracking the sale and construction of homes, the purchase of land — because the reports are all done in different formats and are much simpler and reduced, they have to figure out how to address things in a different way, which forces them to be able to explain it,” Campbell says. “In other words, they can’t just go through the motions; they have to figure out: How does this work or why?”
Don’t accept their answers at face value, and be brave enough to ask the stupid questions. Put yourself in the student seat.
“The best way to learn something is to try to teach it to somebody else,” he says. “So I’ve turned them all into teachers. By forcing them to teach me, it forces them to challenge themselves. The only way I can be the coach is if I understand how the game is played.”
It’s not about making them justify their duties. It’s getting them to challenge the status quo so they can look for better methods.
“The trick is for them to take that and sort of push it down,” Campbell says. “Don’t accept looking at a spreadsheet as knowing what’s really going on. You have to get out there. Go to the site. Watch them deliver the wood and see if they really do count it, or whatever it is. Don’t just accept numbers on a page.
“If everybody challenges themselves all the time, … they’ll get better.”
With employees’ help, Campbell condensed those three binders into a 20-page PowerPoint presentation, giving them a clearer picture of how their jobs affect the business. That connection is crucial to getting them to try something new.
The faster you advance from merely identifying problems to actually solving them, the better.
“Don’t drag it
out,” Campbell says. “You could spend a lot of time doing a bunch of analysis or you could just decide over the next week or two what to do and do it. And if you make mistakes, you can fix them later.”
No matter how he looked at it, Standard Pacific’s financials were out of whack. So Campbell’s first step was cutting annual overhead costs from $280 million in 2008 to $160 million. Initially, he didn’t know if it would work or not. He just knew, given the dire circumstances, if he didn’t do something, the company would fail anyway.
Maybe your situation isn’t as extreme, but the point is you need conviction.
“You have to do it quicker than you think you need to, and you have to provide people with a solution that they can believe in. Otherwise it won’t stick,” Campbell says. “You can be wrong about the solution, but you have to be convincing.”
You’ll start to build buy-in by asking employees to participate by offering input and ideas.
“You make them part of the solution,” he says. “I just sort of state the obvious and ask them, ‘OK, so what do we do?’ Part of the trick is making it their solution, not mine.”
The rest of the buy-in comes when you convince them that they’re capable. They don’t have to do the right thing — at least right away. You just have to get them to do something.
“In order to fix a company that’s in lots of trouble, you have to force people out of their comfort zone and then give them some confidence that they can actually do this,” Campbell says. “Part of that is removing the fear of failure. In other words, if you try something and it’s the wrong thing to do, that’s OK. If you don’t try something, that’s not OK. Sins of omission are worse than sins of commission because if you’re losing the race, you’ve got to change the strategy. If you do things quickly and aggressively, even if you make a mistake, then you’ll fix them faster.”
The test came in spring 2009, right after Standard Pacific’s cuts, when the market saw an unexpected spike in home sales.
“And we sold and built the homes,” Campbell said. “So we proved it to ourselves in the real world, which is the best test.”
Once you get the ball rolling, successes will keep people on board, so make sure you communicate wins.
“There’s nothing like a little success to feed people’s confidence,” he says. “... Now the problem is we know you can do it so you’re going to have to keep doing it.”
Campbell, who says a big part of his job is keeping employees updated on the company’s progress, does frequent calls with his 780 employees and visits them all at least once a year. He also benchmarks their success against competitors so they gain a relative sense of their marketplace.
“It’s critical to keep them up to date on how they’re doing, whether they’re doing well or not doing well,” he says. “I happen to think telling them how to do better is more valuable than congratulating them for doing well.”
Actually, they may be one in the same, because recognizing people who perform well can encourage others to perform better.
“Thank you is a very powerful management technique,” says Campbell, who sends notes and small gifts as part of his thanks program. “Maybe it’s a $50 thing, but it’s a ‘recognize people’ thing.”
Instead of handing bonuses to managers, Campbell used incentives to empower them to take responsibility for the company. He replaced management bonuses with 67-cent stock options, giving them equity that would only become more valuable if they succeeded.
Now, with stocks nearing $5, they’re reaping greater rewards than if he’d paid bonuses.
“They convince themselves. When it starts to work, it feeds on itself,” he says. “Now that they see they can make money and they’re performing better than everybody else, it provides a whole other level of energy and confidence.
“It’s just like a sport. If you’re sitting over a golf ball and you know the ball’s going to go in when you’re putting it, it’s much more likely to go in.”
Success builds employees’ confidence in themselves and also in your leadership. If you guide them to a win, they’ll be more likely to follow you in the future.
“Since they’ve seen it work in ways that they were probably skeptical of at first, now they’re more inclined to take my advice and they’re more inclined to believe in themselves,” Campbell says. “So it’s easier for me to help them now. Before I had to rely on the world falling apart and now I can rely on the fact that they delivered when they weren’t sure they could. That’s the most fun thing in the world, is watching people succeed in ways that even they didn’t think they could.”
Campbell predicts that growth is still at least a year away, depending on the economy. In 2009, revenue held at $1.2 billion. But Standard Pacific is getting more profitable — with 2009 gross profit stabilizing back in the black at $141.8 million — which he counts as a success.
Still, he’s staying put until growth comes.
“If this company succeeds, it will be because they succeeded,” he says. “I just help them figure it out. Success here is me leaving. That’s when you know it’s over.”
How to reach: Standard Pacific Corp., (949) 789-1600 or www.standardpacifichomes.com