Two months into his role as president of American Beverage Corp., Kevin McGahren-Clemens was looking at a company that had realized a $40 million loss. The 500-employee, $150 million beverage company was in a dire situation.
It was January 2009 when American Beverage’s parent company, Royal Wessanen, had trouble with its European business. In order to raise cash to focus on that area, the company decided it would need to sell its U.S. divisions, starting with its strongest, American Beverage. That April, American Beverage’s previous president left the company for a job with a competitor. McGahren-Clemens, who had been hired in 2006 to aid with some of Wessanen’s other divisions, was called on to run the day-to-day operations until American Beverage was sold. However, within a couple of days on site, he realized the business wasn’t in good shape.
“Due to poor fundamental management over time, results were becoming impossible to deliver so financials began to be increasingly manipulated to achieve targets,” McGahren-Clemens says. “No reliable financials existed, meaning no clear picture of profitability by product line, channel or customers existed either.”
Not only did the company have an unclear financial picture but prior management also had built an organizational structure with little involvement, communication or transparency with the broader work force and its focus as a consumer products company was wrong.
“The company had been managed for quite some time with a very short-term focus of delivering quarterly earnings instead of building any sustainable value for the long term,” McGahren-Clemens says. “Very little time or money was ever invested in consumer research or marketing as the organization’s focus was on short-term sales customers and not relationship building with consumers.”
The company was taken off the market and a turnaround effort began with McGahren-Clemens at the helm.
Evaluate the business
American Beverage’s previous president led the company behind closed doors. Since very little information was shared throughout the organization, McGahren-Clemens had to evaluate everything within the business to understand where to start.
“It was a situation where we really had to start from scratch because this person who was running the company, everything went through him and he was now gone,” he says. “In some ways it was easier that way. We literally just revisited and challenged everything. Basically, we just took the company apart over the next three to nine months to really understand what we had.”
Since a lot of information was unclear, McGahren-Clemens had to prioritize and become clear on the fundamentals.
“I put together a top 10 ABC priorities list, and that’s literally how I explained to everybody what we were going to do,” he says. “The first step literally was confirm and clarify financials because we had no idea what we were working with. Nothing was as it seemed. Things weren’t as possible as they looked and thoughts were not in the right place, and everything was manipulated. It was like driving a car that had no speedometer, no gas gauge, no anything, yet you had to operate it day to day.”
Establishing those fundamentals was critical, but the way to do that was to make sure everybody in the company was involved, which was not the way things were set up before.
“It was really getting everybody involved, breaking down walls between functions, making sure everybody was talking, making sure everybody had input, gathering information from everybody we could,” he says. “Everybody knew a piece, but they didn’t know how it all worked together. So it was gathering all the information and getting all the brutal facts on the table so that we could say, ‘What do we have? What do we go do?’”
When your employees are not clear about how the company is performing or what is truly driving the performance, you have to gather that information.
“It’s kind of a combination of doing your own analysis and getting as much information as possible and just objectively looking at it versus what does everybody think it is,” he says. “You have to look at customer lists, your profit by customer, your product line, what’s selling and what isn’t selling. In time, you really do have to contact all the people in the company who have knowledge and have more of a dialogue with them and try to pull out of them what’s working and what isn’t working. How else will you know beyond the numbers and what the numbers are telling you what’s working and what isn’t working? There’s no manual for gathering this information when it’s not clear what’s true and isn’t true.”
Before going any further, ABC needed a new senior leadership team to help turnaround the company.
“I started by first working on ultimately gathering the strongest senior team possible because you can’t do anything difficult within a fairly large organization alone,” he says.
“As we stand right now today, there’s only one holdover, which was the HR person. Operations, sales, marketing, finance, and IT all turned over. There’s usually a transition period like that because in a situation like this or anywhere, it’s hard to really attract the talent you want until you have some stabilization. You have to work with what you have, and that’s what we did for a while. As we began to get some stabilization and I had a better handle on the situation, I could go out and recruit people. I could very clearly explain what they’re getting into and, at the same time, explain the opportunity, which was fantastic because it is a lot of fun being apart of building something from scratch.”
The next step in the turnaround was to confront the brutal facts and communicate those throughout the organization.
“The key is being very objective about the state of the business absent biases about what it used to be or you want it to be — you have to focus on what it is now,” McGahren-Clemens says. “In my mind, this is the single most critical step in any recovery because nothing matters if you don’t fix the right things. Next, with the help and full buy-in of the senior team, you need to set very clear priorities as a team that, in turn, are clearly communicated to the entire organization in a very candid, transparent way. It is important to then create a true dialogue with everyone in the entire company by truly maintaining an open-door policy and walking around a lot to gain input, answer questions and dispel rumors. And then provide regular updates, both by e-mail and in person about your progress.”
To do this McGahren-Clemens met with 100 of the company’s employees one-on-one to gain a better understanding of what could be done and explain where the company needed to go.
“I believe the key is engaging everyone in an ongoing dialogue about how they personally fit into the big picture and why elevating their own game is crucial to our success going forward,” he says. “Once our situation had stabilized and moved out of crisis mode, since I only had around 100 salaried employees, I felt it important to sit down with each person individually for about an hour to connect directly. I would start by asking each person if they knew what had happened and why and whether they understood where we now were and what challenges we faced. Inevitably, people underestimated the seriousness of our situation, both past and present. Most importantly though, I would then ask everyone what performance barriers or morale issues they face plus what they thought we still needed to do to improve the company and our ability to complete a full turnaround and begin driving profitable growth.”
He had to be careful during this process not to scare his best employees away from the company but also make it clear that the company needed a change.
“From the very beginning, it was always challenging striking the right balance between creating a sense of urgency by explaining to people how dire the situation really was without being demoralizing or scaring people,” he says. “It’s a balance of painting a picture of, ‘This is a very, very challenging situation, but we can get out of this,’ and, ‘There is a lot of upside for people who help us with that.’ With the one-on-ones, you can tailor that message and tailor the questions much more specifically by reading the individual. How much do they understand or not understand? Some of them just had no idea how much the company made before or how little we made now or what the problems were. Some people want to know, and some people don’t want to know, and the reality is you’re trying to get a read on who those people are because that’s who you need going forward.”
To help get ABC to sustainability, McGahren-Clemens needed to find those individuals within the company who had the ability to be leaders.
“One thing I’ve always found to be true is, in general, there are some hidden gems within your organization that can move up to the next level,” he says. “Don’t immediately think you have to do everything externally. It’s going to be better if you can pull somebody from within who has some knowledge of the organization. Who’s acting without asking and doing the right things? When you really ask around and start to talk to people, they all know who’s who and who’s pulling their weight and who makes a difference and the same names begin to come up. You have to get out there and ask because it’s not going to be necessarily evident, but in times of crisis, it becomes a little more evident than normal.”
Now that a leadership team was in place, the right people were found and brought in, and progress was being made on understanding the circumstances of the company’s struggles, it was time to start putting plans in motion.
“It was very clear to me from day one that it wasn’t a situation where we could just cut our costs. It was about fixing the business and growing out of it. I believe all sustainable growth begins with a thorough knowledge of target consumers combined with engaged employees who have full access to information and the necessary tools to do their job — such as clear priorities and budgets — and none of those conditions existed.”
McGahren-Clemens had to switch the focus of the company from the short term to a long-term focus on branding and consumers.
“In the consumer marketing world of products, it always starts with spending, and there is a delayed gain on the profit because you’re going to have to invest first in market research to understand consumers, understand your competitors, understand what your product brings to the party, what gaps there are and its further investment to go fix those gaps,” he says. “We had products we had to improve the quality of. We had to add vitamins to our juice products, we had to change the packaging, we had to add benefits, and that’s time and money based on the consumer research. Then you have to go out to the market and support those products. Those are the basic steps that most brand companies do ongoing, but we literally had to start.”
Not only did the focus of the company need to change, but the employees needed to start thinking differently as well.
“It was getting everybody internally to understand that it is ultimately what the consumer thinks that matters, not customers,” he says. “Customers are very, very important, but those retailers and distributors care most about what the consumer says too. We had to go out and say, ‘We don’t know how good our products are. Let’s go do taste tests. Let’s get consumer thoughts.’ There were a lot of brutal facts that came up that you have to go out and be willing to hear. That commitment was something we had to build internally.”
With McGahren-Clemens’ leadership, the hard work of ABC employees and a renewed focus, the company has made a rebound.
“The company has been totally made over, and we have a great foundation from the ground up,” McGahren-Clemens says. “You can go in and renovate a house or you can take the whole house off and start over and that’s what we did. We know all the pieces and feel very good about the infrastructure and the talent and processes and the potential, and we feel we are just starting to scratch the surface. All of the investments we’ve made in consumer research, product enhancements, innovation and marketing the last three years are just starting to bear fruit.”
The journey from 2009 to today has been a long one. It took teamwork, communication and a unified focus to get there. The biggest key for McGahren-Clemens was to never let the task at hand bring him down.
“Don’t get too caught up in the enormity of the situation or the challenges or the tasks and just take it one day at a time,” he says. “Focus on ultimately where you want to be and know you can be and just work toward that. Trying to stop and think about how much has to be done can be overwhelming.
“I wish there was one clear formula or one sequential order of steps that would make it very cut and dried for people in a similar situation, but I liken it to a football game where you’re calling audibles along the way. You have a game plan, you practice it, you have a lot of ideas, you’ve studied your opponent, you know what has to happen, but the reality is you’re still going to have to make adjustments throughout. You have to be flexible enough to do that. You have to have a series of steps you’re ready to pursue and an order to them and a way you’re going to approach things, but you also have to be open to reading new information as it arises because it’s going to arise all the time.”
HOW TO REACH: American Beverage Corp., www.ambev.com
You need evaluate the business to understand what the problem areas.
Once you know the situation and where to start, communicate those facts to your employees.
Once you have buy in, put your plans in motion.
The McGahren-Clemens File
American Beverage Corp.
Born: New York City
Education: Studied economics at William and Mary and received a MBA from Northwestern
What were your biggest fears during the turnaround?
Looking back, I didn’t really think that much about it because it wasn’t productive. But if some of our biggest customers had said, ‘We’re not going to buy your product anymore.’ We wouldn’t have been able to get through the stabalization period. If Wessanen had not supported us and just decided to shut it down, but they did support us and were great throughout. Or if a lot of our talented people had walked out saying, ‘This is too big a risk. I don’t know how it’s going to turn out; I’m just going to leave.’ Any of those scenarios, particularly losing the talent we did have, would have been very damaging.
What has been the best business advice you’ve ever received?
I remember having a manager once where we were in a pretty bad business situation where things weren’t going the right way. We were managing a cheese business at the time and he just stepped back and said, ‘All right everybody, remember it’s just cheese.’ The whole room just burst into laughter. I’ve used that so many different times and kind of had to use it in this situation.
What is your favorite American Beverage product?
It would be the one that’s selling the best right now; the Daily’s Frozen Pouch. It really is a great product. I also like the Little Hugs. I buy cases of it for my kids and the whole neighborhood drinks it and I drink it as well.
If you could switch places with somebody for a day, who would you switch with?
It would be fascinating to be the chairman of the Communist Party of China right now. They are such a hybrid between old-line communism and new-age capitalism and there’s no script for what they’re trying to accomplish as they become a global power economically, but at the same time their social freedoms are lagging behind. It’s fascinating how that’s going to play out and I would love to understand all the different tensions within the country.