Rescuing Struggling Company Requires Matching Skills, Personality to the Firm

When Beta Optical’s bankers invited prospective buyers to take a look at the ailing fashion eyewear manufacturer, most people saw a company nearly $15 million in debt and in foreclosure.

But when Beta’s bankers asked C. J. Hoff to take a look, the former Bausch & Lomb executive and turnaround expert saw a potential gold mine.

Despite the heavy debt, Hoff said the North Attleboro, Mass., company had an attractive line of products, loyal customers, experienced workers and tremendous production capacity.

In May, 1988, after less than a week of intense negotiations, Hoff acquired the company’s assets for about $3 million. Two years later, the company has paid of its loans, secured a line of credit, rehired 60 workers, caught up with its back orders and restored its tarnished image.

“There isn’t any greater high than taking something that nobody else sees value in and making it work,” said Hoff, who has been involved in the turnaround of seven companies.

Entrepreneurs such as Hoff say they prefer the challenge of rescuing a drowning business to starting one from scratch. And with thousands of small businesses in need of capital and expert guidance, there are limitless opportunities to be a white knight.

When Hoff acquired Beta Optical’s assets, but not the debt, he renamed the company Universal/Univis. Hoff changed the name because those two companies, with 50 years of reputation behind them, had been merged into Beta Optical in 1985.

In 1985, the company had been a leader in the U.S. eyewear industry with sales of about $55 million a year. But when Hoff was called in by the bankers, sales had plummeted to $18 million and the company had been forced to lay off 25% of its workers.

Hoff said the company’s previous owners concentrated their money and energy on new, experimental products while the core business suffered. They also took on an unbearable amount of debt that soon dragged the company down, according to Hoff.

His first job was to restore confidence among the company’s 180 employees, who had already suffered through layoffs and a 15% pay cut.

“People become disbelievers because they’ve been lied to,” said Hoff, who serves as chairman and chief executive. “You have to go right out on the floor and tell them what’s needed. The most important quality by a mile is for the leadership to project confidence.”

Within six months, Hoff was able to restore their full salaries and offer 6% quarterly performance bonuses. To further secure the support of his management team, Hoff gave them a 25% share of the company.

After pulling the troops together, he set out to recapture the confidence and support of disgruntled customers, vendors and suppliers.

“We were willing to pay vendors cash up front and had a strong materials manager who re-established our credibility,” said Hoff.

Within nine months, Hoff turned the day-to-day duties over to Ron Chabot, the company’s president and chief operating officer.

“To do this kind of turnaround you have to be willing to live with conflict,” said Chabot, who was wooed away from 22 years in the corporate world by Hoff. “It’s not like we came here and pressed some magic button and it turned happy and good. We are still slugging it out.”

But Chabot said turning around an ailing company is extremely rewarding if you are able to take a personal and financial risk.

Walter M. Kaye, a Pasadena attorney who specializes in investing in and fixing troubled small businesses, agrees with Chabot.

To be a successful rescuer, Kaye suggests matching your skills and personality to the venture.

“You have to focus on what you are good at,” said Kaye, who learned how to solve business problems while helping his clients with their legal woes.

Kaye invests both money and time in the businesses he rescues. But before investing a dime, he figures out how the particular business should be operating.

For example, when he was asked to help revive a trendy downtown Los Angeles bar and restaurant, he sought the advice of an accountant who specializes in dealing with restaurants.

“I spent six hours learning about the cost ratios you need in the restaurant business,” said Kaye.

With his new education, Kaye said he was not surprised to see the troubled restaurant’s cost ratios way out of whack.

The first time Kaye toured the kitchen, he watched the chef scoop handfuls of lobster on to the plates instead of weighing each portion. His first executive decision was to fire the chef. Today, Kaye’s auditor visits the restaurant to keep daily track of the operations.

Kaye met with all the employees, seeking out the ones with the most restaurant experience. Based on his interviews, he promoted the bartender to general manager.

In recent years, Kaye has rescued a private label pharmaceutical company and a luggage company. He is also advising a large real estate syndicate.

“I don’t have the desire to own anything by myself and I don’t want to be involved in day-to-day operations,” said Kaye, who is presented with about 10 potential deals a week.

Once he fixes the businesses, he usually cashes out or stays on as a member of the board. And he always follows his own advice:

“Don’t fall in love with your investments.”