CEO JOURNAL DAN MARCUS, TDC CONSULTING INC., PRESCOTT, ARIZONA


Death of a Foundry M


etalcasting businesses close all too frequently and for all kinds of reasons. But


one foundry closure, which happened not too long ago, was different. Tis company and its owner were clients at the time he decided to shut things down—a first for me. Also, the busi- ness could have been saved without too much difficulty. So why did this metalcasting business have to die? In a word, ego. When I first came to know this


business, I was asked to participate in the due dili- gence process to see if it was a suitable acquisition candidate. It was not. My initial examina- tion revealed extremely weak financial performance (not a deal breaker), lots of debt (a big-time deal breaker), and an offering memorandum that was a joke—a typical amal- gam of traditional accounting mumbo-jumbo, obfuscation about the plant’s physical con- dition, and gross exaggeration about potential sales growth. A closer examination


himself more than fully capable of turning this troubled business around. Fast forward one year. Unsurpris-


ingly, our would-be hero had, to that point, not been able to turn the busi- ness around. Moreover, he had just scratched the surface of addressing the issues identified during the due diligence process as life-and-death ones. Tat said, he had managed to acquire the company under the condi- tion that the previous owners and the bank settle virtually all of the com-


industry norms, enable the business to operate at a profit, and generate the cash essential to its immediate improvement and ultimate survival. Tere were two main reasons he


Dramatic bottom line


improvements are almost always possible if CEOs are willing to set aside their egos and let go of outdated ideas about profit-making.


revealed a history of seri- ous mismanagement, which accounted for the red-ink- drenched financial statements and the very serious debt problem. Te state of the plant was shameful, too. However, most of those problems were mainte- nance-related and could be fixed with a modest cash infusion and substantial amounts of lean-inspired sweat equity. Other problems, especially high scrap rates, were process related; these re- quired more sustained investment but still nothing debilitating. In the end, I recommended that the potential investor not acquire the business, but he wouldn’t listen. He was besotted with the place and starry-eyed with the romantic ideal of “producing something tangible” in a heavy indus- trial business. Moreover, and despite the fact that he had no experience in manufacturing and knew next to nothing about our industry, he thought


42 | MODERN CASTING August 2016


pany’s debts. Tis was quite a coup, I thought. All things considered, I was warming to the idea that the business could be turned around by imple- menting some simple (but not easy) changes. But quick and bold action was required to generate the cash needed to make it all happen. At that stage I was asked to


develop a written turnaround plan and a set of action steps for revers- ing the company’s still-declining fortunes, which I did and sent along with strong exhortations to move with all possible speed. But once again ego intervened, as he would not implement a cornerstone of the recommended turnaround program— targeted price increases. Tese were vital to bring the company’s extreme- ly outdated pricing into line with


would not raise prices. First, I was the only person telling him the company’s pricing was too low. Telling him otherwise was his similarly egocentric (and Wall Street-trained) business partner, who had outsized confidence in his own notions about price. Also, and unsurprisingly, most customers routinely complained that prices, which had not been raised in nearly a decade, were already too high. Turns out my opinion and data were perceived as counter- balanced by all that contrary “evidence.” Second, I could not


convince him to raise prices because he believed do- ing so would put volume at risk. Unfortunately, he held on tightly to an old-school sales-oriented management mindset, and couldn’t stand the thought of losing a single customer or 1 lb. of even the most unprofitable business.


Moreover, he and his partner were prisoners of traditional account- ing thinking. Tey believed profit growth came from sales growth and that whatever volume the company had—no matter its obviously negative impact on the bottom line—must be held onto at (literally) all costs. When it was all said and done, the


new owner simply could not accept an understanding of profit-making that was different from his own failing ap- proach and preferred to give up on the business and its customers, employees, and community rather than let go of long- and dearly-held beliefs. See what I mean? Ego.


Keep the conversation going. Reach the author at tdcconsulting@outlook.com to comment on this or any CEO Journal column or to suggest topics for future columns.


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