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When it comes to real business survival, think turnaround, not rescue

Misconceptions about ‘business rescue’ may be causing SA entrepreneurs to lose their businesses

Internationally rated business turnaround expert Michael Dorn, founder and CEO of the multinational turnaround firm RTgroup, has been involved in some of the biggest business survival stories in corporate history. His experience has taught him that legalistic ‘business rescue’ more often than not leads to liquidation, rather than turnaround, especially in the South African context. But it doesn’t always have to be that way, he says. He shares his insights.

 

 

The interpretation of business rescue in South Africa is often wrong

“In my experience, having worked with distressed South African businesses for more than a decade, business rescue in this country does not always mean saving a business,” says Dorn. “Once a business is placed in ‘business rescue’ here, it often triggers a legalistic exercise involving lawyers, consultants, liquidators and courts, that leads to the business being broken up, liquidated and its assets being sold off for the most money possible. Very few practitioners in the field in South Africa are truly interested in saving businesses and turning them around, which is quite tragic.”

For Dorn, true business rescue is about proactively intervening to turn around a business’ bad fortunes, to ultimately save the business.

“In the South African business rescue context, what we often see is that practitioners will turn to legislation and follow a step-by-step legal process often leading to a wind down of the company. I don’t agree with this approach. I believe if, as turnaround experts we come into businesses with an entrepreneurial and proactive mindset, it’s mostly possible to find opportunities that can ensure the survival of the business.”

Dorn says the same conservative mentality prevailed in Germany some years ago, but today real business turnaround is gaining greater traction. “The USA is even more progressive. If a company is in distress there, often a Chief Restructuring Officer is appointed and this person will take a proactive, future-focused approach to saving the business.”

Business failure is not the end of the line

“Being an outsider, I am noticing a cultural phenomenon in South Africa around business failure. South African entrepreneurs who are coming close to failing or who have failed, often feel an immense amount of pain and shame, and will often allow a liquidation and/or sequestration to go ahead, so that they can go hide somewhere and lick their wounds.”

Looking at Silicon Valley and the  USA, with its popular mantra of “fail fast forward”, and it’s culture’s celebration of failure and resilience, it is evident that many top companies and business leaders there have faced hard times but found ways of trying again, to great success, says Dorn. One such example is Tesla. Elon Musk’s business went through a two-year period of turnaround where the company shifted resources, produced and launched new products, and completed a new round of funding before the business showed profits.

“I have a lot of empathy for South African entrepreneurs. True business turnaround takes a lot of energy, emotional intelligence, grit and resilience, which is a greater challenge in South Africa where banks and investors are more impatient than in other parts of the world. But even in these circumstances, I believe if an entrepreneur is committed to making it work, keeps calm, and finds the right business turnaround support, survival is possible in most cases.”

The practice of true business turnaround looks at the health of a business – terms of its balance sheet, products and culture – as well as where it is in terms of its growth or decline trajectory. After getting a clear picture of the challenges and opportunities of the business, a seasoned turnaround professional will be able to help the company’s leadership to initiate new cycles of innovation, growth and renewal related to the people and numbers of the business.

“Proactivity is the key to business turnaround,” says Dorn. He believes challenges create fertile ground for opportunity, and with a proactive mindset, most challenges can be overcome.