Turn Little Thinking into Big Ideas
Turning Around Fortune 1000-owned
"If you terminate your contract with BellSouth, we will follow you wherever you go and to any other career you pursue. You can count on BellSouth being there to ruin you!"
Maybe this is going to be more difficult than I thought.
Up until Wright & Lopez President Rick Boyle and I walked into the BellSouth operations office in Birmingham, Alabama that Monday morning, no one had ever terminated a contract with one of the Ma Bells.
The general manager of BellSouth's Birmingham operations was dead serious. Not only did he mean to carry out his threat, but I knew he had the title and the muscle to back it up. Maybe I was in over my head. After all, who was I to be the first service provider ever to quit on a BellSouth contract?
Every BellSouth manager in the room offered his or her own version of an unfriendly smirk, while Rick and I slowly went pale. The GM was adamant he was not about to allow our company to leave BellSouth in the lurch.
At the time, neither Rick nor I fully understood what kind of disaster our withdrawal would cause BellSouth, but we were about to find out. He and I planned to meet with BellSouth executives in all the markets where Wright & Lopez had contracts with the telecommunications company. Birmingham, our first stop, was a major regional operations center for BellSouth in the early nineties.
The corporation Mike and I formed completed the acquisition of Wright & Lopez on a Friday, and the following Monday Rick and I were on center stage in the Birmingham conference room. More than a dozen executives were waiting for us when we walked in. Rick knew most of them, so the only introductions were of the top regional BellSouth officers and me as we sat around a large conference table. The meeting was formal, with no friendly smiles from either side.
As all eyes turned to me, I showed the BellSouth executives our exit clause and told them in eighty-nine days we would pull out more than one hundred fifty employees, all their related equipment, and our around-the-clock support, which was available 365 days a year. You could hear a pin drop (even though it wasn't a Sprint meeting). In a whisper that became vicious as his volume increased, the BellSouth GM made his spiteful threat to ruin me if I attempted to withdraw.
"Let me be clear," I replied. "We will be gone in ninety days because we're not making money here."
Rick and I had arranged this meeting under the auspices of introducing me as one of the two new owners, but my real purpose was to point out the explicit language in our contract that allowed us to give ninety days notice if we wanted to terminate the relationship. Prior to purchasing Wright & Lopez, I learned that BellSouth's corporate and regional offices knew Wright & Lopez was losing a great deal of money every month because of the new contract, which had been signed a year prior to my involvement.
Pleas from Wright & Lopez to BellSouth for relief from the ridiculously low prices in the contract - which should never have been submitted - fell on deaf ears. While Wright & Lopez won these contracts through competitive bidding, everyone at BellSouth knew the company was dripping in red ink, but Wright & Lopez appeared to be trapped.
As far as BellSouth was concerned, there was no way out. Like it or not, Wright & Lopez had to perform for the next three years of the contract. BellSouth was such a large customer that to do otherwise would have been suicide for Wright & Lopez, and the telecommunications management knew it. In fact, they seemed all too happy about it.
From the standpoint of our original acquisition strategy, the ninety-day deadline to cut losses was an absolute necessity. Rick's management team immediately made appointments with each BellSouth customer. Located in five different cities, each held the same basic contract as Birmingham. BellSouth was by far our largest customer, and with those contracts we simply had to stop the bleeding. If we didn't, from the ninety-first day going forward, each day of losses would be coming out of Mike's and my pockets.
The other BellSouth operations with which we had contracts were instructed to let the Birmingham office handle termination issues related to Wright & Lopez, but we continued visiting the other regional BellSouth offices, delivering the identical message. Although every one of them thought I was bluffing, I assured them they were dead wrong and shouldn't underestimate our commitment to exercise the option to withdraw. Yet no matter how strongly we stated our intentions, nothing seemed to faze them.
Early in the process of acquiring Wright & Lopez, I believed I could make two million dollars. There were many variables - among them getting BellSouth to agree to a price increase - but in the worst-case scenario, if everything fell apart with the customer and employee base, I calculated that liquidation would net at least one and a half million. I had checked my math too many times to be wrong, which is what gave me the confidence to hold firm in my chess match with BellSouth.
Patton Principle #33: Have a good fall-back position so falling back won't hurt.
Make plans to win no matter what. When your worst-case scenario still paints a profitable picture, you can move ahead confidently regardless of the "downside."
Payroll for Wright & Lopez's three hundred employees was almost five hundred thousand dollars every two weeks. The first week under Mike's and my ownership, we discovered we were liable for an additional payroll period we had not anticipated. Fortunately, I was able to get Triarc to cover the payroll funds, amazed at God's continued blessings and provision. Our deal was structured so that Triarc would provide the first ninety days of working capital since we all recognized the losses could not be stopped immediately. Like a large cruise ship, it takes time to turn to the left or right.
After the acquisition transaction was complete, Eric marveled and told me, "This is the first deal I've witnessed where we sold a business and instead of getting a check, we wrote a check."
I anticipated that most, if not all, of the Wright & Lopez contracts would not be renewed, so from day one, I began shrinking the company by selling off warehoused equipment and terminating employees who didn't have work assignments lasting more than two weeks out.
About thirty days after our meeting in Birmingham, we received a call from BellSouth's vice president of operations, inquiring about our manpower allocation plans for the next six months for the Birmingham area. Rick happened to be in my office when the call came through, and he took the call there. I stood nearby while Rick whispered mini-updates as the conversation progressed. Rick informed the man that we had less than sixty days left on our contract, and all our people and equipment would be leaving Birmingham exactly as I had explained to the management team a month ago.
I scribbled a note to Rick telling him to ask, "Didn't you guys take Patton seriously when he gave written notice of termination?" The response was a short "No," and the call ended a few seconds later. Rick and I really couldn't believe our ears as we continued the laborious process of extracting Wright & Lopez from Birmingham.
BellSouth continued to call as the deadline grew closer. During one conversation, Rick learned that BellSouth did not have other contractors in place to take over our work. The other locations faced a similar deadline.
Eighty days into the notice, Rick received a call that floored him - BellSouth wanted to meet with us again in Birmingham to discuss re-negotiations for all Bell-related contracts with Wright & Lopez. Five days later, Rick and I sat in the same large conference room where we met eighty-seven days earlier. This time, the group was much smaller, with just a handful of decision-makers in attendance.
Rick had his computer open and plugged into the company's network to give him Internet access. He busied himself, pretending not to be nervous, but in truth, we were both on edge. As the meeting started, their concerns about us walking off the jobs in six states became obvious. My nerves calmed down immediately as I realized Rick and I had the upper hand in a big way.
In preparation for this meeting, Rick and I had reviewed the current pricing on more than fifteen hundred line items. This itemized structure allowed BellSouth to have us perform tasks with both sides having a predetermined price in place. The problem with the pricing, though, was that Wright & Lopez simply couldn't do the work that cheaply and stay in business. While the contract was a bad business decision by the former owners, Mike and I were not going to get stuck with it, and lose our shirts. Our management team calculated we needed a 40 percent increase across the board for Wright & Lopez to retain all its employees and become profitable.
I wasn't listening as the BellSouth GM began with conciliatory remarks about the improvement he had seen recently in our responsiveness and quality of work. Instead, I was mentally rehearsing the speech I was about to give. We were losing three hundred thousand dollars a month in Birmingham, which soured me to the point where just being in the city made ill.
When the general manager finished, I began. "I would like everyone in this room to know I don't drive through Birmingham anymore. In fact, I only fly over it, and I still get nauseated at thirty-five thousand feet."
As the room grew deathly quiet, I realized I had their undivided attention and for the first time in my life, I felt what real authority meant in the business world.
"Please listen and listen well," I said, looking directly at the man who previously threatened to follow me from this industry to the next if I withdrew from the BellSouth contract prior to its completion.
"Wright & Lopez is withdrawing from Birmingham in less than seventy-two hours. We have already given notice to have the water and electricity turned off in our offices in three days. Why on earth wouldn't you believe I would do it?"
"We don't want you to leave," one of the executives interrupted. "We obviously underestimated your resolve."
"We anticipated you might say that because who else is going to do this work for you?" Rick and I were holding aces in a poker game with BellSouth's senior management.
"Let me stop right now and ask you a question, because this has been bothering me ever since I bought the company and saw all these losses." I turned to the GM. "Were you involved in the selection of the contractors to do this work?"
"At the time did you realize the other contractors' bids were much higher?"
"So you knew Wright & Lopez was going to get killed on this deal."
"Yes," he said with a sarcastic chuckle, "I knew it."
I wanted to wipe that mocking smirk off his face with a left hook, and in my anger I made a snap decision that would have dramatic, unintended consequences.
"The revised proposal we have here for you, which was put together after many days of careful analysis, is not complete," I said, with as much cool as I could muster. "You need to take these prices and double them across the board."
The response was swift and in rapid-fire succession.
"You have got to be kidding. That is ridiculous and extremely insulting!"
"You're out of your mind!"
"That's totally irresponsible!"
"How in the world could you ever think that would work?"
Despite the barrage, I was not the least bit fazed.
"It will take a 100 percent increase to make enough to stay," I said with the confidence of someone who has nothing to lose.
Rick couldn't hide the shock on his face at my boldness. "What are you doing?" he mouthed to me across the table.
The BellSouth executives asked to excuse themselves, with copies of our revised proposal in hand. About thirty minutes later, they returned to the conference room.
"We realize there has been some bad blood between us," the GM acknowledged. "Normally under these circumstances we would require a rebid, but we know you're not going to stay in business for ninety days without an increase. Under the circumstances, we would like to end things right here. We will give you a 100 percent increase."
After acting like we were out of our minds to expect it, BellSouth's Birmingham office had agreed to a new three-year contract with a 100 percent increase for every line item. In that one moment, we went from losing three hundred thousand dollars a month in Birmingham to making a quarter of a million a month.
Instead of earning one and a half million dollars to liquidate Wright & Lopez's assets, I suddenly had to shift gears and make plans to run the company for at least three years under a new pricing structure in which I could potentially make eight million dollars!
Rick excused himself, went down the hall to use a phone, and called Wright & Lopez's Birmingham office. "Don't fire anyone," he said excitedly. "We're getting ready to rock and roll."
As the last BellSouth employee exited the elevator and the doors closed, Rick let out the loudest "Yahoo!" I'd ever heard him utter. Neither of us could believe what had just happened, and we excitedly recalled the details as we made our way to the parking level. As the BellSouth building grew smaller in the rearview mirror, Rick and I began to lay out a plan for reviving Wright & Lopez.
Patton Principle #34: When you're well armed, stick to your guns.
"A good negotiator knows when to compromise, but if you don't have to, then don't. There's nothing wrong with winning big now and then.