By EMILY MALTBY, Small Business Writer – The Wall Street Journal online.

Small businesses expected 2011 to be the moment a years-long credit freeze would finally begin to thaw. But borrowing has only gotten worse.Loans outstanding to small businesses totaled $609 billion at the end of March, an 8.6% drop from a year earlier, according to the most recent data from the Federal Deposit Insurance Corporation, which analyzes loans of less than $1 million.

Another lending analysis, by the Federal Reserve Bank of Kansas City, shows that big banks’ outstanding loans to small businesses dropped 14% between March 2010 and March 2011, while loans by smaller lenders fell 3%.

Business owners rank access to capital as the most important issue facing privately held companies, according to a poll of 1,221 entrepreneurs released this month by Pepperdine University. In the past six months, only 17% of loan-seeking businesses with less than $5 million in annual revenue landed bank financing, the study found.

“This area of the economy is in such crisis,” says John K. Paglia, a finance professor and senior researcher for Pepperdine’s report. The lack of credit “is improperly penalizing companies that will be very successful down the road.”

The situation is also quite different for larger companies. About 37% of respondents from privately held companies with revenue greater than $25 million have successfully secured bank loans in the last six months, according to the Pepperdine study.

The numbers for smaller businesses also stand in sharp contrast to what had appeared to be a recent rebound in lending.

Last summer, after years of tightening standards, a majority of banks reported they had eased underwriting criteria for small businesses, according to a quarterly survey of loan officers from the Federal Reserve.

In the 2011 first quarter, a majority reported stronger loan demand from small firms, reversing a multiyear trend.

But most of the loan recipients appear to be the largest of independent businesses—such as those with multiple revenue streams and ample loan collateral—rather than smaller companies. Commercial and industrial lending, an indicator of business-loan demand, totaled $1.26 trillion in May, up 3% from a year ago, according to the Federal Reserve.

However, March data from the FDIC shows that commercial and industrial loans of less than $1 million, which are generally issued to small firms, dropped 10% from a year earlier.

Rick Kimsey, 57 years old, is seeking to expand his business, a medical-clinic franchise called Doctors Express Urgent Care, but since January six banks have rejected his loan requests.

Mr. Kimsey says the business, open since late 2010, has done well enough for him to sign with the franchisor to open six new locations. The loan applications haven’t passed muster, he says, because he rents office space in Sarasota, Fla., and doesn’t have real-estate collateral.

Discouraged by the bank process, Mr. Kimsey says he has learned to “have a contingency plan in place” and is now trying to secure capital from a private investor.

For their part, banks say that they are trying to comply with federal regulators, who want to ensure that the financial collapse—in part caused by lenient underwriting—doesn’t happen again.

“It’s a misnomer that we don’t want to make small-business loans,” says Paul Merski, senior vice president of the Independent Community Bankers of America, a lobbying group in Washington, D.C. “The role of banks is to take on risk. That’s how banks survive. That’s how banks make money.”

The main issue facing lenders, Mr. Merski says, is that regulators are asking for proof that the loans will be repaid. That can be tricky with smaller, historically riskier businesses, particularly in an uncertain economy where property—often used as collateral for loans—keeps falling in value.

Further, he says, regulators are requiring banks to hold more capital in case loans default, leaving them with less to lend.

Indeed, according to the Pepperdine study, more than three-quarters of bankers said they felt increased pressure from regulators, and 61% of those bankers reported that they have rejected loans they otherwise would have made to please the federal overseers.

That’s hampering many small-business owners’ plans for growth. John E. Durante of Durante Rentals LLC, a Bronx, N.Y., construction-equipment rental company, got a $45,000 credit line two months ago. But it’s far from what he ultimately needs.

Last year, five banks turned him down for a $1 million loan he sought to buy construction equipment.

Without the loan, Mr. Durante was forced to rent the machinery. “My competitors made $300,000 off of me because I couldn’t get financing,” says Mr. Durante, whose business had $2.4 million in 2010 sales and is on track to top $3 million this year. “That broke my heart.”

In Yorkville, Wis., Skydive Midwest Skydiving Center Inc. hasn’t seen any credit relief. Keith George, who bought the company in 2008, says he has boosted business 20% each year and topped $1 million in revenue in 2010.

Six banks in the past year have turned down his request for a $2.2 million loan to finance a new airport hangar, a plane and additional camping facilities.

After a year of trying, he says, he “kind of gave up” and sought funding elsewhere. Through alternative financing sources, he purchased the aircraft and the new hangar, but Mr. George is still having trouble getting a $390,000 property loan. Without it, he says, there won’t be enough facilities to accommodate more customers.

“It’s overwhelmingly frustrating,” he says.

ABOUT THE AUTHOR  [from LinkedIn Profile - Edited]

Emily is currently part of a dynamic small-business team at the Wall Street Journal. She contributes to WSJ.com’s small-business blog daily. On a weekly basis, she also is responsible for in-depth feature stories that appear both on the site and in print. Her focus currently is financing, but she covers a variety of small-business topics including management, policy, franchising, startups, family business, technology and legal issues.

Emily’s journalism career began when she landed a summer internship at Fortune Small Business Magazine in the summer of 2005. Emily’sy first project was to help direct the magazine’s Student Business Plan Competition. Later, as a full-time reporter for FSB, she orchestrated the “Best Schools for Entrepreneurship” cover story which took months of reporting and data mining.

In 2007, Emily became FSB’s web reporter and was responsible for maintaining the site. That segued into a writer position at CNNMoney.com, where she wrote some 200 articles — most of which covered the state of small businesses during the credit crunch and the recession. Additionally, while reporting stories such as the wild-fruit business in Brazil and the economy in Massachusetts, Emily utilized her film-shooting and editing knowledge to produce videos, which accompanied the written stories.

Small and mid-sized businesses have long been recognized as growth engines following prior United States recessions. Yet the ignition for these engines — investment in research and development, new product initiatives, and expansion — is nonexistent because of oppressive bank debt. Instead, what little cash flow is available has to be directed to principal and interest payments, leaving us with a painful and predictable economic scenario: company revenues stagnate because fewer goods and services are purchased by ever more cautious consumers. That means no revenue growth, no expansion, and no hiring.

After three difficult years, most businesses have likely given up hoping for a quick return to a growth environment. Burdened by high bank debt with credit lines fully drawn, they have no further borrowing capacity and probably insufficient collateral for repayment. What’s worse, their creditors know it. The banks’ response, though, has not been to restructure debt and recognize loan losses when the debt matures. Instead they have chosen to “amend and extend” the maturity date of the debt. Since companies pay interest on the debt, banks can treat the notes as performing obligations, thereby avoiding higher loan loss reserves. This practice has become so pervasive that some distressed investors now refer to this practice as “amend and pretend.”

Instead of taking their medicine, banks have decided to kick the can down the road, with apparent benign approval by Federal Reserve and U.S. Treasury auditors. Distressed asset buyers complain that banks would rather hold on to the distressed note than take the required loss on the sale, thereby avoiding a charge against capital. In addition, unlike other cycles, little market activity exists in the normal buying and selling of small- and middle-market toxic assets on the books of banks. As a result, an increasing number of companies and banks that once had life have now become, for all intents and purposes, zombies — the “walking dead.” Zombie companies cannot borrow the funds that would be their sustenance, and the zombie banks can’t lend. This is why amending and extending loan maturity dates offers nothing for an economy in need of restoration.

In the meantime, nonperforming loans and reserves for loan losses have increased substantially since the start of the great recession. If the actual losses were realized, including those related to commercial real estate loans, the financial system would be put at significant risk of collapse. Edward I. Altman, professor of finance and director of the credit and debt markets research program at New York University’s Salomon Center, estimates the current face value of this defaulted and distressed debt approximates $705 billion as of December 31, 2010.

One need only study economic trends of the last three years to conclude that extending loan repayment will not bring value back — not during a sputtering economy. Yet there is an option, and although it may seem unrelated, its model could serve as a foundation for job creation. It’s the Resolution Trust Corporation, the entity created by Congress in the late 1980s to resolve the savings and loan crisis. According to the Encyclopedia of Business, the RTC managed approximately “747 S&L closures and sell-offs valued at $460 billion in assets and $225 billion in deposit liabilities” before absorbing into the FDIC and permanently closing in 1995. The Heritage Foundation estimated costs to taxpayers from RTC operations and S&L sell-offs at $124 billion. The speed at which the RTC operated allowed the economy to quickly recover.

Obviously, there is no way either taxpayers or Congress will stand for that kind of cost on top of an already bloated deficit. But under this proposal, they won’t have to. That’s because this reconstituted RTC would be funded solely by proceeds from the sales or workout of toxic notes provided by the banks. No taxpayer dollars are necessary.

Here’s how an RTC option would work. The banks would take the toxic loans off their books and turn them over to the new RTC at par value. Hedge funds, insurance companies, and private equity firms can evaluate what these assets and loans are worth and price them accordingly, leaving the RTC to sell the notes either individually or in pools. “Dry powder,” the uninvested capital in private equity, insurance companies, and hedge funds, can provide the liquidity necessary to purchase these distressed assets. Estimates of these uncommitted funds are as high as $1.5 trillion.

Should the sale come at a loss, the cost will be absorbed by the banks and not the taxpayers. So will the RTC’s operational costs. Even if these losses and costs are amortized and charged back to the banks over a three- to five-year period, a revived economy in the short term is a better result than the economically inert environment we have today.

Removing these loans from the banks frees them to offer more business loans, enabling the 5.9 million small- and middle-market American companies to start planning for growth and hiring people — the whole point of eliminating the heavy bank debt that stymies growth at present. A fresh start, including more realistic company capital structures, is far more preferable than the quagmire these companies and their managers face today. It’s the very incentive essential for a job creation environment.

The point is that the banks today are not voluntarily writing down their toxic assets. Instead, they are amending and extending to avoid said write-downs. An RTC solution would work out or sell these notes, most likely over a four- to six-year period. During this time, banks would be able to make new loans, the former zombie companies could grow again, and, as a result, the banks would become healthier because they would be properly supervised by the Fed and U.S. Treasury auditors. As the banks become healthier, they can then absorb the losses imposed on them through the restored RTC.

Understandably, no one wants to see another government agency, but at the same time, no one can argue that what we have at present is working. The new RTC gives us the opportunity to resolve the job-killing bank debt burden without turning it into another taxpayer bailout.

The banks knew the risks when they made these toxic loans. They should be held responsible for cleaning them up. The Federal Reserve and United States Treasury should forego consideration of new regulations and simply manage and enforce their existing regulatory practices, which would force regular write-downs by banks of future toxic assets. This new RTC would enable the routine enforcement of bank capital ratios and help us avoid future threats to our entire financial system. Once it completes its work, the RTC can quietly ride off and disappear into the sunset, just as its predecessor did sixteen years ago.

While no one disputes the urgency of deficit and debt reduction, sustainable job creation is every bit as important if we are serious about achieving a return-to-growth economy. Without job growth, we cannot conquer the debt super-cycle plaguing all Americans. Yet we remain stuck in neutral with dire projections of no increase in the employment rate for several years despite massive federal stimulus efforts and Federal Reserve policies supposedly designed to help us out of our jobless misery. True, the United States created 1.1 million jobs in 2010 according to the Bureau of Labor Statistics, but that is woefully short of where we need to be.

Small and mid-sized businesses have long been recognized as growth engines following prior United States recessions. Yet the ignition for these engines — investment in research and development, new product initiatives, and expansion — is nonexistent because of oppressive bank debt. Instead, what little cash flow is available has to be directed to principal and interest payments, leaving us with a painful and predictable economic scenario: company revenues stagnate because fewer goods and services are purchased by ever more cautious consumers. That means no revenue growth, no expansion, and no hiring.

After three difficult years, most businesses have likely given up hoping for a quick return to a growth environment. Burdened by high bank debt with credit lines fully drawn, they have no further borrowing capacity and probably insufficient collateral for repayment. What’s worse, their creditors know it. The banks’ response, though, has not been to restructure debt and recognize loan losses when the debt matures. Instead they have chosen to “amend and extend” the maturity date of the debt. Since companies pay interest on the debt, banks can treat the notes as performing obligations, thereby avoiding higher loan loss reserves. This practice has become so pervasive that some distressed investors now refer to this practice as “amend and pretend.”

Instead of taking their medicine, banks have decided to kick the can down the road, with apparent benign approval by Federal Reserve and U.S. Treasury auditors. Distressed asset buyers complain that banks would rather hold on to the distressed note than take the required loss on the sale, thereby avoiding a charge against capital. In addition, unlike other cycles, little market activity exists in the normal buying and selling of small- and middle-market toxic assets on the books of banks. As a result, an increasing number of companies and banks that once had life have now become, for all intents and purposes, zombies — the “walking dead.” Zombie companies cannot borrow the funds that would be their sustenance, and the zombie banks can’t lend. This is why amending and extending loan maturity dates offers nothing for an economy in need of restoration.

In the meantime, nonperforming loans and reserves for loan losses have increased substantially since the start of the great recession. If the actual losses were realized, including those related to commercial real estate loans, the financial system would be put at significant risk of collapse. Edward I. Altman, professor of finance and director of the credit and debt markets research program at New York University’s Salomon Center, estimates the current face value of this defaulted and distressed debt approximates $705 billion as of December 31, 2010.

One need only study economic trends of the last three years to conclude that extending loan repayment will not bring value back — not during a sputtering economy. Yet there is an option, and although it may seem unrelated, its model could serve as a foundation for job creation. It’s the Resolution Trust Corporation, the entity created by Congress in the late 1980s to resolve the savings and loan crisis. According to the Encyclopedia of Business, the RTC managed approximately “747 S&L closures and sell-offs valued at $460 billion in assets and $225 billion in deposit liabilities” before absorbing into the FDIC and permanently closing in 1995. The Heritage Foundation estimated costs to taxpayers from RTC operations and S&L sell-offs at $124 billion. The speed at which the RTC operated allowed the economy to quickly recover.

Obviously, there is no way either taxpayers or Congress will stand for that kind of cost on top of an already bloated deficit. But under this proposal, they won’t have to. That’s because this reconstituted RTC would be funded solely by proceeds from the sales or workout of toxic notes provided by the banks. No taxpayer dollars are necessary.

Here’s how an RTC option would work. The banks would take the toxic loans off their books and turn them over to the new RTC at par value. Hedge funds, insurance companies, and private equity firms can evaluate what these assets and loans are worth and price them accordingly, leaving the RTC to sell the notes either individually or in pools. “Dry powder,” the uninvested capital in private equity, insurance companies, and hedge funds, can provide the liquidity necessary to purchase these distressed assets. Estimates of these uncommitted funds are as high as $1.5 trillion.

Should the sale come at a loss, the cost will be absorbed by the banks and not the taxpayers. So will the RTC’s operational costs. Even if these losses and costs are amortized and charged back to the banks over a three- to five-year period, a revived economy in the short term is a better result than the economically inert environment we have today.

Removing these loans from the banks frees them to offer more business loans, enabling the 5.9 million small- and middle-market American companies to start planning for growth and hiring people — the whole point of eliminating the heavy bank debt that stymies growth at present. A fresh start, including more realistic company capital structures, is far more preferable than the quagmire these companies and their managers face today. It’s the very incentive essential for a job creation environment.

The point is that the banks today are not voluntarily writing down their toxic assets. Instead, they are amending and extending to avoid said write-downs. An RTC solution would work out or sell these notes, most likely over a four- to six-year period. During this time, banks would be able to make new loans, the former zombie companies could grow again, and, as a result, the banks would become healthier because they would be properly supervised by the Fed and U.S. Treasury auditors. As the banks become healthier, they can then absorb the losses imposed on them through the restored RTC.

Understandably, no one wants to see another government agency, but at the same time, no one can argue that what we have at present is working. The new RTC gives us the opportunity to resolve the job-killing bank debt burden without turning it into another taxpayer bailout.

The banks knew the risks when they made these toxic loans. They should be held responsible for cleaning them up. The Federal Reserve and United States Treasury should forego consideration of new regulations and simply manage and enforce their existing regulatory practices, which would force regular write-downs by banks of future toxic assets. This new RTC would enable the routine enforcement of bank capital ratios and help us avoid future threats to our entire financial system. Once it completes its work, the RTC can quietly ride off and disappear into the sunset, just as its predecessor did sixteen years ago.

ABOUT THE AUTHOR

David L. Auchterlonie  is the Chairman and Chief Executive Officer of The Scotland Group, Inc.  With offices in Newport Beach, San Francisco and Dallas, the firm specializes in assisting underperforming and distressed businesses through hands-on corporate turnaround management. 

Mr. Auchterlonie has recruited, mentored and supervised CEOs serving the firm’s clients in multiple industries, all in highly distressed settings. Further, he has provided his turnaround expertise as CEO to clients in retail, healthcare, consumer products, transportation, food, manufacturing, distribution, and telecommunications, among other industries.  Under Mr. Auchterlonie’s leadership, The Scotland Group, Inc. has served over 200 clients since its founding in 1986, including representation of companies, bank groups, creditor committees and equity sponsors both outside and inside bankruptcy proceedings. 

Prior to forming his firm, Mr. Auchterlonie was a financial officer for three public companies and spent 12 years with Price Waterhouse in its audit practice.  He is Past-President and Chairman of the Turnaround Management Association (TMA), and serves on the Board of Advisors of an internationally based distressed debt fund.  He is a past Board member of TMA (12 years) as well as the Association of Certified Turnaround Professionals (6 years).

He is a Certified Public Accountant, a member of the AICPA, a Certified Turnaround Professional (CTP) and a frequent speaker at seminars related to corporate renewal and turnaround management. He was inducted into TMA’s Hall of Fame for his involvement in successfully growing the association both domestically and internationally.

Entrepreneurs are well positioned to become the new leaders, because they perceive problems as opportunities, and have the mental mindset to innovate and execute. They have the required passion, perseverance, and work ethic. What they don’t have by default are the skills required, or the relationships. These don’t come automatically with the CEO title.

Schutzler’s view of leadership is different than many academics and executive coaches, who feel that leadership is an innate character trait. He urges people to focus on developing a few key relationship skills, and I agree. Here are some key conclusions:

• Leadership is a learned behavior, not a character trait. Good judgment, for example, is certainly a hallmark of exceptional leadership, but it isn’t something you are born with. “More than anything, good judgment comes from listening,” he says. It also comes from paying very close attention to every situation, and learning from it.

• Listening is the most important skill for a leader. We need to pay attention to the words and actions of others while suspending judgment long enough to allow your intellect to catch up with your instincts. Why? Because as leaders, if we speak too soon, we shut off creation. We shut off contribution. We force the adoption of our ideas.

• Communicating and storytelling. This is not a skill everyone is born with, but it’s a skill we can all develop. People on your team want to believe! They want to believe you know where we are going, or you will get us there even if you aren’t sure of the exact path at this moment. They want stories that compare what they are doing with others.

• Acknowledging contribution. This is necessary to sustain motivation during the hard times. It’s not hard to do and doesn’t require a lot of effort or expensive gifts. A thank-you note or peer recognition is enough most of the time.

• Negotiation is a practical skill for every leader. Negotiation is often misunderstood to be the domain of clever deal makers. It’s actually really simple. Make very clear requests for a promise. Understand exactly what the promise is – what is being done, when, and what the standard of excellence is, and then check up on the status to make it happen.

• Too many leaders are focused on personal ambition. He believes that we need leaders who use power as a tool for inspiring others to create a better future, not as a tool for retaining their position or perks.

The middle four points are the essential skills for great leadership, inspiring excellence, and building a successful business. They are easily practiced, and serve as the foundation for successfully attracting talent, reaching consensus, making tough choices, and harnessing ambition.

In this fashion the general leadership deficit is really an “opportunity” for new aspiring entrepreneurs in business. So practice the leadership skills needed, and step in when you are ready. Now is your golden opportunity – let’s see how many of you are up to the challenge. We need you all.

Marty Zwilling – Author, Business Startup Expert

For that, you need an objective outsider — such as a business coach. Or, if that doesn’t work for you, customers who are willing to speak freely about what they like and don’t like about your company.

Scott Cook, the co-founder of Intuit (Quicken, QuickBooks, TurboTax), lists as one of his biggest regrets as not hiring a business coach earlier in his career.

That was remedied some time ago. For the past five years, Cook has used a coach to give him “360 feedback” — a type of coaching in which the coach gathers feedback from everyone around you, then reflects back to you others’ perceptions. The coach also works with you to help you see weaknesses that may need correcting.

“My current guy is an outsider who comes in and does the 360 with everyone, then feeds back to you the impact you’re having with others, both the good and the not-so-good,” says Cook.

Cook decided to start using a business coach about five years ago; when he realized that he was the only person in the company not getting regular performance reviews. (After all, who reviews the boss?) Cook thought 360 coaching looked interesting and decided to give it a try.

“Boy, did I learn a lot,” he says. “I could see through the 360 review that there were a lot of things I needed to change — things where I had bad impacts on people in the company. Founders can do that. If you’re the founder, you can wreak havoc on people’s ability to focus and get their job done.”

Due to his coaching, says Cook, his management skills have “improved mightily — and it feels so much better. I wish I’d done it 25 years ago. Intuit would be an even better place and I’d be a better leader… I really need a coach and I think that’s true of all of us.”

Ready to look for a coach of your own? Cook recommends you find “somebody who can be honest and unbiased, who can tell you the truth as other people feel it but aren’t willing to tell you, and who can help you deal with it and help you be a better leader and people person in your company.”

Those who don’t want or can’t afford business coaching can instead turn to customers for feedback, says Cook. However, customers may have trouble being critical if they are asked to give opinions face-to-face. Cook suggests letting customers submit reviews in writing and anonymously to ensure the most honest feedback.

About the author: Lorna Collier

Lorna Collier is a business and technology writer who has contributed to the Chicago Tribune, CNN.com, Crain’s Chicago Business, Smart Computing, and many other websites, newspapers and magazines. This was originally published in the Intuit blog February 28, 2011

The key differentiator is that a coach works with individuals and is accountable as such in the coaching agreement whereas the consultant works through individuals for a client organization governed by an engagement agreement. Generally coaching is a voluntary action, while consulting may be involuntary and levered by an outside creditor or stakeholder.

Definition of Turnaround Coach

So what box can the turnaround coach be placed in?  Good question, but with a not so straight forward explanation.  The answer is more like describing non purebred dogs.  A mixed breed canine may be labeled a “Heinz 57” after Heinz’s 57 varieties of products at the end of the 19^th century (actually it was more than 60 in reality), and that number became attributed to the description of hundreds of pooch mixes.  Now turnaround coaches aren’t dogs and don’t have 57 varieties but the attributes of this type coach require more than 57 skills (some not even coaching).  Some key turnaround coaching points:

• Turnaround coaching is considered facilitative – that is, coaching paves the way to a deeper awareness of the issues at hand, and requisite action or corrections needed in a definite path forward.  Turnaround coaching is not indirect or passive with the client in any way, shape or form. The relationship is direct and continuous in collaboration with the individual or principals, achieving common goals in defined, usually short, spans of time.

Generally turnaround coaching is a sub-set of business coaching but with smatterings of the following:

• Executive coaching – liberates mind numbing, stuck-in-the mud personal orientation of embattled business owners or principals; using continuous feedback and trial-error-adjust-and-act follow through; moves boldly forward with encouragement and backing of the coach that translates to more effective leadership in a troubled environment.
• Corporate coaching – facilitating organizational change and transformation through the individual or client’s understanding of the parameters to success or failure of the enterprise, where the client ultimately becomes the coach to his or her own organization.
• Leadership coaching – engaging in personal accountability that translates into effective decision-making and leadership skills in times of extremis that are imparted to the organization through exemplary actions.
• Operational and financial coaching – this entails identifying root causes with client and supplanting obstacles and roadblocks stemming  from either partial illiteracy of tangible knowledge (accounting, financing, asset control, human resources, operations, etc), or a void in which focal point learning was never utilized or learned. The path forward is usually much changed from that in the rearview mirror; remediation is clearly a mandatory part of the coach-client collaboration. But the efforts are focused on the individual client who in turn coaches and directs his or her own organization forward.

Turnaround coaching displays both convergent and divergent thinking.  In convergent thinking, the coach and client locate the problems at the “center” of the focus and then gather peripheral resources to bear down on the issues. So the collaborative resources “converge” on the problems.  In divergent thinking, rather than gathering information and converging it on the central problem, the coach and client branch off (diverge) and shoot for novel ideas, new perspectives and creativity in critical problem solving.  Instead of a single correct answer, there may be a whole host of possibilities[1].  This is of paramount importance in helping the client re-think and adjust their business plan, course of action or method of managing.

The Coach versus Consultant by Analogy

Taking a step back it helps to understand by simple analogy the difference between the orientation of the turnaround coach and consultant.  Imagine, if you will, these variables:  A car represents a company; the driver represents the individual client; a ditch – well you probably guessed it – the place where the business is sitting, literally.  Ergo, the car is now “in the ditch.”

The consultant, at significantly greater expense, shows up with a tow truck (and possibly helpers) where the driverless car is in the ditch.  With experience PULLING cars (companies) out of the ditch, irrespective of whether a driver is engaged or not, the consultant applies those skills, experience, and judgment to either succeed or fail getting the car out of the ditch, based upon personal efforts alone; then leaves. There may or not be helpers and a tow job is never considered cheap.

On the other hand, our hapless driver and his car are both in the ditch attempting to drive out but not quite successful at the task. The coach goes into the ditch, assesses what is needed, and determines that with a significant effort the car and its driver together can be PUSHED out of the ditch.

Consulting is about pulling, and coaching is about pushing the client. Not all cars can be pushed or pulled out of ditch if the conditions are such that the car is wrecked or otherwise inoperable.

Characteristics of Turnaround Coaching

Coaching will use specific reality-based, transformational decision making; personal accountability rules; organizational and financial restructuring skill-sets; interpersonal communications; goal setting that can be channeled through the client, with continuous empowerment, encouragement, adjustment and feedback by the coach.

Clearly, not all clients are coachable, nor are all situations conducive to a coaching alternative.  But for many small businesses laid threadbare in uncertain economic times (with little financing), the relationship with a competent coach can be life changing for a business that might otherwise perish, with little fanfare or headlines to follow its demise.  But getting to that point has its distinct stages, each an obstacle or “milepost” to overcome.

Stages of a Turnaround

As the case with turnaround consulting, coaching focuses on analysis, planning, negotiation, restructuring and remediation which entails getting to the root causes and then weighing the practical realities of whether a business can be transformed by change, or must be liquidated to memorialize value that will ultimately erode if the status quo is maintained.

Coaching also assists the individual to be positive in the face of adversity and use challenges and mistakes as facts that serve to prime change even when confidence has been eroded.

The coach relies on personal skills to enable, empower, encourage and remediate in collaboration with the client. The stages of the turnaround process are…..[2]

• The Evaluation and Assessment Stage – situational and viability analysis
• The Acute Needs Stage – usually relates to elimination of expense and raising of liquidity
• The Restructuring Stage – usually when client and coach re-order the assets and liabilities to workable levels including the change in business plan and workforce.  It is also a determining factor whether the company can be fixed outside or inside bankruptcy or liquidated.
• The Stabilization Stage – usually expressed in curtailment of “burn” or consumption of cash yielding breakeven results and reversal of key negative trends.  A second factor is that outside stakeholders accept the practical realities that their investment in company is altered and there is agreement to move forward under revised terms.
• The Revitalization Stage – The Company has renewed its business plan as evidenced by a return to modest growth and perception that the company would no longer be classified as troubled or lacking in viability.

Summation

The smallest troubled companies and those with competent but uninformed owners or managers may represent an opportunity for specialized turnaround coaches possessing many skills including technical knowledge and multiple coaching styles.  Key determinates are clients who are “coachable” and can collaborate effectively to achieve a turnaround with decisive, timely follow through.  The coach PUSHES where the consultant PULLS the client through the five stages of turnaround: Evaluation, Acute Needs, Restructuring, Stabilization and Revitalization. The argument consultants post that turnaround coaching is an oxymoron or a self-canceling statement may not be true. There are, in fact, a certain number of cases where solid coaching and attentive, collaborative clients can work through a difficult process together. Coaching is a viable and cheaper alternative to consulting teams that are largely levered into situations when creditors have lost confidence in management, whether factual or not.  To coaches with the mettle and qualifications to enter the fray, turnaround can represent an opportunity that can be a significant challenge and immensely interesting work.

About the Author

Jim Mayer is Managing Member of DiversiCorp LLC, a revival of a firm he originally founded in 1985 devoted to consulting, coaching, advising and financing services delivered to small companies both public and private.  Mayer wrote extensively during the 1990’s on various topics including: turnaround, cross border asset based lending, collateral management and topics about small business. Since 1985 he has advised or coached more than 150 companies directly and several times that number indirectly, through advisory teams he has managed or directed.  At present he is facilitating a keener understanding of turnaround brought into the world of coaching.  He is a member of the Turnaround Management Association, The International Coach Federation and The Institute of Management Consulting.  Mayer lives in the western suburbs of Chicago.

[1] http://www.ehow.com/how_2158036_convergent-thinking-versus-divergent-thinking.html. How to Understand Convergent Thinking versus Divergent Thinking, by Michael Motta, 2010

[2] ”The Process and Players in a Turnaround”, by Jim Mayer, Bankruptcy Law Review, Turnaround column, Falkner and Gray, Volume 1 num 3, Fall 1989 (as updated by author 1/2011) see: http://en.wikipedia.org/wiki/Turnaround_management