Turn Little Thinking into Big Ideas
Turning Around Fortune 1000-owned
Companies
"If you terminate your contract with
BellSouth, we will follow you wherever you go and to any
other career you pursue. You can count on BellSouth
being there to ruin you!"
Maybe this is going to
be more difficult than I thought.
Up until Wright
& Lopez President Rick Boyle and I walked into the
BellSouth operations office in Birmingham, Alabama that
Monday morning, no one had ever terminated a contract
with one of the Ma Bells.
The general manager of
BellSouth's Birmingham operations was dead serious. Not
only did he mean to carry out his threat, but I knew he
had the title and the muscle to back it up. Maybe I was
in over my head. After all, who was I to be the first
service provider ever to quit on a BellSouth contract?
Every BellSouth manager in the room offered his or
her own version of an unfriendly smirk, while Rick and I
slowly went pale. The GM was adamant he was not about to
allow our company to leave BellSouth in the lurch.
At the time, neither Rick nor I fully understood
what kind of disaster our withdrawal would cause
BellSouth, but we were about to find out. He and I
planned to meet with BellSouth executives in all the
markets where Wright & Lopez had contracts with the
telecommunications company. Birmingham, our first stop,
was a major regional operations center for BellSouth in
the early nineties.
The corporation Mike and I
formed completed the acquisition of Wright & Lopez on a
Friday, and the following Monday Rick and I were on
center stage in the Birmingham conference room. More
than a dozen executives were waiting for us when we
walked in. Rick knew most of them, so the only
introductions were of the top regional BellSouth
officers and me as we sat around a large conference
table. The meeting was formal, with no friendly smiles
from either side.
As all eyes turned to me, I
showed the BellSouth executives our exit clause and told
them in eighty-nine days we would pull out more than one
hundred fifty employees, all their related equipment,
and our around-the-clock support, which was available
365 days a year. You could hear a pin drop (even though
it wasn't a Sprint meeting). In a whisper that became
vicious as his volume increased, the BellSouth GM made
his spiteful threat to ruin me if I attempted to
withdraw.
"Let me be clear," I replied. "We will
be gone in ninety days because we're not making money
here."
Rick and I had arranged this meeting under
the auspices of introducing me as one of the two new
owners, but my real purpose was to point out the
explicit language in our contract that allowed us to
give ninety days notice if we wanted to terminate the
relationship. Prior to purchasing Wright & Lopez, I
learned that BellSouth's corporate and regional offices
knew Wright & Lopez was losing a great deal of money
every month because of the new contract, which had been
signed a year prior to my involvement.
Pleas from
Wright & Lopez to BellSouth for relief from the
ridiculously low prices in the contract - which should
never have been submitted - fell on deaf ears. While
Wright & Lopez won these contracts through competitive
bidding, everyone at BellSouth knew the company was
dripping in red ink, but Wright & Lopez appeared to be
trapped.
As far as BellSouth was concerned, there
was no way out. Like it or not, Wright & Lopez had to
perform for the next three years of the contract.
BellSouth was such a large customer that to do otherwise
would have been suicide for Wright & Lopez, and the
telecommunications management knew it. In fact, they
seemed all too happy about it.
From the
standpoint of our original acquisition strategy, the
ninety-day deadline to cut losses was an absolute
necessity. Rick's management team immediately made
appointments with each BellSouth customer. Located in
five different cities, each held the same basic contract
as Birmingham. BellSouth was by far our largest
customer, and with those contracts we simply had to stop
the bleeding. If we didn't, from the ninety-first day
going forward, each day of losses would be coming out of
Mike's and my pockets.
The other BellSouth
operations with which we had contracts were instructed
to let the Birmingham office handle termination issues
related to Wright & Lopez, but we continued visiting the
other regional BellSouth offices, delivering the
identical message. Although every one of them thought I
was bluffing, I assured them they were dead wrong and
shouldn't underestimate our commitment to exercise the
option to withdraw. Yet no matter how strongly we stated
our intentions, nothing seemed to faze them.
Early in the process of acquiring Wright & Lopez, I
believed I could make two million dollars. There were
many variables - among them getting BellSouth to agree to
a price increase - but in the worst-case scenario, if
everything fell apart with the customer and employee
base, I calculated that liquidation would net at least
one and a half million. I had checked my math too many
times to be wrong, which is what gave me the confidence
to hold firm in my chess match with BellSouth.
Patton Principle #33: Have a good fall-back position so
falling back won't hurt.
Make plans to win no matter
what. When your worst-case scenario still paints a
profitable picture, you can move ahead confidently
regardless of the "downside."
Payroll for
Wright & Lopez's three hundred employees was almost five
hundred thousand dollars every two weeks. The first week
under Mike's and my ownership, we discovered we were
liable for an additional payroll period we had not
anticipated. Fortunately, I was able to get Triarc to
cover the payroll funds, amazed at God's continued
blessings and provision. Our deal was structured so that
Triarc would provide the first ninety days of working
capital since we all recognized the losses could not be
stopped immediately. Like a large cruise ship, it takes
time to turn to the left or right.
After the
acquisition transaction was complete, Eric marveled and
told me, "This is the first deal I've witnessed where we
sold a business and instead of getting a check, we wrote
a check."
I anticipated that most, if not all, of
the Wright & Lopez contracts would not be renewed, so
from day one, I began shrinking the company by selling
off warehoused equipment and terminating employees who
didn't have work assignments lasting more than two weeks
out.
About thirty days after our meeting in
Birmingham, we received a call from BellSouth's vice
president of operations, inquiring about our manpower
allocation plans for the next six months for the
Birmingham area. Rick happened to be in my office when
the call came through, and he took the call there. I
stood nearby while Rick whispered mini-updates as the
conversation progressed. Rick informed the man that we
had less than sixty days left on our contract, and all
our people and equipment would be leaving Birmingham
exactly as I had explained to the management team a
month ago.
I scribbled a note to Rick telling him
to ask, "Didn't you guys take Patton seriously when he
gave written notice of termination?" The response was a
short "No," and the call ended a few seconds later. Rick
and I really couldn't believe our ears as we continued
the laborious process of extracting Wright & Lopez from
Birmingham.
BellSouth continued to call as the
deadline grew closer. During one conversation, Rick
learned that BellSouth did not have other contractors in
place to take over our work. The other locations faced a
similar deadline.
Eighty days into the notice,
Rick received a call that floored him - BellSouth wanted
to meet with us again in Birmingham to discuss
re-negotiations for all Bell-related contracts with
Wright & Lopez. Five days later, Rick and I sat in the
same large conference room where we met eighty-seven
days earlier. This time, the group was much smaller,
with just a handful of decision-makers in attendance.
Rick had his computer open and plugged into the
company's network to give him Internet access. He busied
himself, pretending not to be nervous, but in truth, we
were both on edge. As the meeting started, their
concerns about us walking off the jobs in six states
became obvious. My nerves calmed down immediately as I
realized Rick and I had the upper hand in a big way.
In preparation for this meeting, Rick and I had
reviewed the current pricing on more than fifteen
hundred line items. This itemized structure allowed
BellSouth to have us perform tasks with both sides
having a predetermined price in place. The problem with
the pricing, though, was that Wright & Lopez simply
couldn't do the work that cheaply and stay in business.
While the contract was a bad business decision by the
former owners, Mike and I were not going to get stuck
with it, and lose our shirts. Our management team
calculated we needed a 40 percent increase across the
board for Wright & Lopez to retain all its employees and
become profitable.
I wasn't listening as the
BellSouth GM began with conciliatory remarks about the
improvement he had seen recently in our responsiveness
and quality of work. Instead, I was mentally rehearsing
the speech I was about to give. We were losing three
hundred thousand dollars a month in Birmingham, which
soured me to the point where just being in the city made
ill.
When the general manager finished, I began.
"I would like everyone in this room to know I don't
drive through Birmingham anymore. In fact, I only fly
over it, and I still get nauseated at thirty-five
thousand feet."
As the room grew deathly quiet, I
realized I had their undivided attention and for the
first time in my life, I felt what real authority meant
in the business world.
"Please listen and listen
well," I said, looking directly at the man who
previously threatened to follow me from this industry to
the next if I withdrew from the BellSouth contract prior
to its completion.
"Wright & Lopez is withdrawing
from Birmingham in less than seventy-two hours. We have
already given notice to have the water and electricity
turned off in our offices in three days. Why on earth
wouldn't you believe I would do it?"
"We don't
want you to leave," one of the executives interrupted.
"We obviously underestimated your resolve."
"We
anticipated you might say that because who else is going
to do this work for you?" Rick and I were holding aces
in a poker game with BellSouth's senior management.
"Let me stop right now and ask you a question,
because this has been bothering me ever since I bought
the company and saw all these losses." I turned to the
GM. "Were you involved in the selection of the
contractors to do this work?"
"Yes."
"At
the time did you realize the other contractors' bids
were much higher?"
"Yes."
"So you knew
Wright & Lopez was going to get killed on this deal."
"Yes," he said with a sarcastic chuckle, "I knew
it."
I wanted to wipe that mocking smirk off his
face with a left hook, and in my anger I made a snap
decision that would have dramatic, unintended
consequences.
"The revised proposal we have here
for you, which was put together after many days of
careful analysis, is not complete," I said, with as much
cool as I could muster. "You need to take these prices
and double them across the board."
The response
was swift and in rapid-fire succession.
"You have
got to be kidding. That is ridiculous and extremely
insulting!"
"You're out of your mind!"
"That's totally irresponsible!"
"How in the world
could you ever think that would work?"
Despite
the barrage, I was not the least bit fazed.
"It
will take a 100 percent increase to make enough to
stay," I said with the confidence of someone who has
nothing to lose.
Rick couldn't hide the shock on
his face at my boldness. "What are you doing?" he
mouthed to me across the table.
The BellSouth
executives asked to excuse themselves, with copies of
our revised proposal in hand. About thirty minutes
later, they returned to the conference room.
"We
realize there has been some bad blood between us," the
GM acknowledged. "Normally under these circumstances we
would require a rebid, but we know you're not going to
stay in business for ninety days without an increase.
Under the circumstances, we would like to end things
right here. We will give you a 100 percent increase."
After acting like we were out of our minds to expect
it, BellSouth's Birmingham office had agreed to a new
three-year contract with a 100 percent increase for
every line item. In that one moment, we went from losing
three hundred thousand dollars a month in Birmingham to
making a quarter of a million a month.
Instead of
earning one and a half million dollars to liquidate
Wright & Lopez's assets, I suddenly had to shift gears
and make plans to run the company for at least three
years under a new pricing structure in which I could
potentially make eight million dollars!
Rick
excused himself, went down the hall to use a phone, and
called Wright & Lopez's Birmingham office. "Don't fire
anyone," he said excitedly. "We're getting ready to rock
and roll."
As the last BellSouth employee exited
the elevator and the doors closed, Rick let out the
loudest "Yahoo!" I'd ever heard him utter. Neither of us
could believe what had just happened, and we excitedly
recalled the details as we made our way to the parking
level. As the BellSouth building grew smaller in the
rearview mirror, Rick and I began to lay out a plan for
reviving Wright & Lopez.
Patton Principle #34:
When you're well armed, stick to your guns.
"A good
negotiator knows when to compromise, but if you don't
have to, then don't. There's nothing wrong with winning
big now and then.
