Turnaround expert A. Larry Lindsey was trying to reach the CEO of an embattled company, a CEO with his name plastered across the pages of the local newspaper, a crop of angry investors, and an encircling phalanx of bureaucratic lackeys to hide him.
Then, one of the executives associated with Lindsey's Sage Group Strategies threw out a suggestion: hire a clergyman.
"The idea of having a chaplain, at first, blew our minds," Lindsey said. "Until we saw it happen, we wouldn't believe it would work.
"He is able to pick up the phone," Lindsey said. "He says, 'I'm Chaplain McKinley,' and the call goes right through. He's not on the phone trying to sell Sage Group -- but it's a fact, he's a part of our firm -- and he kind of combines his religious training with the fact that, to this CEO, who is hurting real bad, there's an answer different from bankruptcy, or shooting himself, or beating his wife."
That answer, says Lindsey, is Sage Group Strategies, a network of battle-hardened professionals based in Alameda. Sage Group is a turnaround specialist firm, contracting with former business executives, entrepreneurs, lawyers, consultants and others to devise and implement plans for troubled companies that want to avoid layoffs and bankruptcy.
Unlike consultants, they play a major role, for a time, in operating their clients' businesses. Unlike bankruptcy lawyers and corporate raiders, they have no interest in liquidating firms or harming creditors. The company bills itself as the largest turnaround company in the world, with 400 specialists on tap. By comparison, the firm helping turn around Enron employs one-tenth as many specialists, while BBK Ltd., an industry leader, claims 125.
Sage Group was started 10 years ago chiefly to give turnaround artists a network of veteran executives to draw upon for tasks such as accounting or legal representation. The company has been expanding not only its offices, which now reach into the heart of Silicon Valley, but also the scope of its network, which now includes the aforementioned chaplain and at least two psychiatrists.
The company does big business: Lindsey says it sold services to about 200 companies last year from 32 offices across the country. He says that expansion is not so much an indication of his company's prowess as it is of the eternal capacity of human emotion to muck up the best-laid plans and lay waste to the fruit of the best educations.
"Guys with MBAs are so naive about the world of business," said Lindsey, who himself has a master's in business administration from the University of Southern California. "But the real world of business is not that simple. It's people stuff."
"People are not just run on logic -- they run on logic, psychology and emotions. We're all humans. The logical aspects of a turnaround, or any other type of troubled management situation, are usually the easiest. There needs to be a debtor program, or financing, or whatever. It's the people aspects that become much more difficult. That applies not only to the psychology of the management team, but it's also the psychological aspect of the creditors, the investors, the law firms involved. This is where it gets much more difficult.
"There are two psychological factors that a troubled company goes through. One is deniability, and the other is siege mentality. Under siege mentality, a management team will kind of hunker down like a turtle, and it's a them-against-the-world approach."
That's where someone like a chaplain comes in. But even once Sage Group is at the table, and management admits there are problems, they are not always ready to take full responsibility.
"Ninety five percent of the time, it's the fault of top management. And 95 percent of the time, if people in the company got into trouble, they do not know how to get back out. So right up front, we will make statements and see how they react. If they want to deny that they are the reason the company is in trouble, and will deny that they can't get out by themselves, we'll turn them down flat," Lindsey said.
Sage Group ends up screening out about 55 percent of the companies who come seeking help. It turns down not just companies in denial but any firm considering bankruptcy or leaving any bills unpaid, even partly. Such companies, Lindsey said, would be better off with another turnaround firm, or just a lawyer. He also avoids layoffs.
Once taken on, a client signs a contract and hands over its books for inspection. Sage Group comes up with a strategy in conjunction with the client, often involving a wholesale reorientation of the business, and then asks the client to commit to it. After that is agreed upon, Sage Group will bring on its members -- they work on contract and are not technically employees -- to help implement the plan. Lindsey said the firm usually brings in between three to six professionals, usually veteran CEOs, CFOs and the like, who work with the client part time. "We are more trying to work with the client, as opposed to coming in and grabbing a specific area and trying to run up fees," Lindsey said.
Still, running a turnaround can be an adrenalin rush. Steve Gerbsman, principal of the Gerbsman Partners turnaround firm near San Rafael, says turnaround jobs can be emotionally addictive. "We're the green berets, commandos and Navy SEALS on the front line of the corporate front," he said. "We're junkies -- you do one of these, and you need to do it again. It's a rush."
Lindsey said it is occasionally challenging to keep a company on its plan once the transition is about halfway through, because a founder's ego makes it hard to watch his company changed substantially from the way he originally envisioned it or to see other people melding it. Once the turnaround is complete -- Lindsey said the vast majority are successful -- Sage Group keeps itself in reserve for if and when the company needs its help again.
Sage Group promises its clients confidentiality, so it is hard to find happy customers or, for that matter, verify many of its claims as to the scope of its operations. But there is Chris Ford, who organized a shareholder lawsuit against E-Rex, a Miami-based company that has been working to produce a portable device called the Dragonfly that can copy, print, fax, scan, and send and receive e-mails. Ford alleges that company executives squandered his investment, repeatedly missing completion dates for the Dragonfly prototype and failing to pay creditors. (An E-Rex spokesman said the prototypes won a "Best in Show" award at this year's Planet PDA trade show and were delayed by the death of the Dragonfly's inventor. He added that the company deals responsibly with creditors but has been short on cash at various points in the past and should be viewed as a risky, speculative investment.).) He has also publicly called on company management to retain Sage Group, meaning he is one of the group's few identifiable clients.
Ford said he was referred to Sage Group by a business associate in Florida, where Sage Group operates a Boca Raton office, and was hopeful he could get E-Rex to work with the company. According to Ford, Sage Group's initial suggestions were to expand the management team and take an in-depth look at the company's liabilities and the viability of the Dragonfly. He said shareholders were willing to pay for Sage Group's services, but management refused. "It would have been a miracle to have Sage Group within the company," he said.
Starting a few weeks ago, Sage Group moved to tap an unprecedented vein of troubled companies: Silicon Valley. Lindsey said the company has been serving the Valley "very well" from its four other California offices and did not want to move into the area until it found the right local, seasoned executives with connections in the community.
John Zipp is one of the two people Lindsey found who fit the bill. Zipp says he has worked with several venture capital firms to turn around or wind down about half a dozen troubled dot-com start-ups and other companies. As secretive as Lindsey, he declines to name names but says he decided to join Sage Group because business has become so brisk, he has run out of trusted contacts to bring on board for turnarounds.
"I began to run into difficulties trying to find the support structure I would need," Zipp said. "I might need a CFO or an accounting person to help me.
"I go to my Rolodex and see -- the two people I know I can trust are actively engaged. What can I do? Sage Group offers people who are vetted, which is nice. We have a common goal and objective. We speak the same language."
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