July 28, 2010

Fundamental Fixes for Today’s “Broken Benches”

According to the Online Etymology Dictionary, the term bankrupt originated in the 1530s from the Italian banca rotta, which means "a broken bench"; this phrase is derived from banca, which means "moneylender's shop” (bench), and rotta, which refers to "broken, defeated, interrupted" and was remodeled on the Latin rupta, "to break." The verb bankrupt was first recorded in the 1550s, and characterized the Italian practice of breaking the marketplace benches of bankrupt merchants.

The American Bankruptcy Institute reports that 60,857 businesses filed for bankruptcy in 2009, up from 43,546 in 2008. The bankruptcy filing rate for early 2010 appeared to keep pace with quarterly levels seen in 2009, with 14,607 filings recorded in Q1.  A recent article in The Economist points out that bankruptcy law has evolved in favor of corporate debtors, and the complexity of CLOs and other similar debt structures more frequently leaves lenders opting to wait to collect until the borrower’s situation turns around.

An effective plan for emerging from bankruptcy in today’s economy should favor repair, not disposal, of the “broken bench.” Reconstruction initiatives might include these core areas:

• Anchoring loose legs more firmly in detailed financial information on business operations and cash flow
• Repairing cracks on the surface by upgrading talent
• Eliminating wood-boring pests of inefficiency by undergoing fundamental business process reorganization with fewer fixed and more variable costs

There may currently be a  glut of  “broken benches” in our modern marketplace, but The Economist’s viewpoint suggests today’s conditions may offer bankrupt businesses a unique opportunity to get back on a solid platform for growth.

July 15, 2010

Survivors Emboldened by Surviving 

I’m sensing a change in attitude in the minds and actions of a subset of our business community:  CEOs and business owners who have come through the aperture of 2009 are now growing emboldened by their survival.  This increased confidence is akin to the boost gained from completing a marathon or making that clutch hit in the bottom of the ninth when the game is on the line.

Investments in technology and process improvements are being made. Serious considerations of bolt-on acquisitions are being acted upon. Management teams are being upgraded. 

This enhanced boldness is not quantifiable in any analyst’s report, but as I talk with executives about their businesses, I can sense confidence in the air – to a degree that is similar to how one could sense the danger in the air two years ago. Many business leaders underestimated the extent of our economic vulnerability in 2008, and we must avoid underestimating the emerging opportunities in 2010.

Anita Roddick, a British businesswoman and founder of natural beauty products company The Body Shop, once said, “Nobody talks of entrepreneurship as survival, but that's exactly what it is and what nurtures creative thinking.”  CEOs and business owners thinking beyond survival today are those who have converted their bolstered confidence into action.  What about you?