elitefts™ Sunday edition

The Business Restructuring Cycle

A Different Kind of Cycle

The Holy Grail for a Wall Street analyst is a company that produces earnings he or she can predict. It is OK for a company to miss the predicted numbers, so long as it is to the upside and always by the same percentage. This makes the analyst look tough, but reasonably accurate and makes the company appear to be effortlessly outperforming expectations. Unfortunately, 99% of organizations aren't going to display such steadfastness. The process that ensues is when these expectations are not met is pathetic.

It starts when times are good. Margins are strong, growth has a positive sloping trend line and bonuses exceed target. Sales meetings are at four star hotels, Wall Street analyst gatherings are full of back patting and ball holding and all is good in the world – then it hits. Raw material prices increase just as the competition finally gets that new plant online, increasing industry capacity by 20%. Margins squeeze, profits evaporate, sales meetings are put-on-hold and that trip the CFO was taking to New York is cancelled.

Senior management then disappears for a week to an undisclosed location that costs more per night than an average employee’s weekly wage. A retreat is held to redefine strategy and re-prioritize corporate resources. They may even take a look at re-wording the good old vision or mission statements if the agenda allows.

This meeting of the minds results in decentralizing the supply chain (or centralizing it, depending on what you did after the last retreat) and streamlining corporate resource groups (which is really just a way to offer early retirement buyouts and fire people who decide not to take the early buyouts in order to claim headcount reductions that are inevitably back filled with new headcount within three years). Divisions once merged together in the name of leveraging cost structures are separated in order to be more market-focused (or vice-versa depending on what was done last time around). As a bonus, the phrase ‘customer-centric’ is somehow inserted in the vision statement that nobody in the company has ever read or knows exists.

This activity yields what the accountants refer to as 'restructuring costs,' which are marketed to analysts as one-time items and not counted when developing long-term share price models. Analysts go along with a wink in return for continuing to get those one-on-one meetings with management in the future, where real dirt might be dished in advance of informing the market (the market, by the way, is what average investors are called). The accountants are then asked to scour the financial statements and reclassify every last expense they can possibly argue with the auditors to be a restructuring costs. As you might guess, many of these costs have nothing to do with one-time restructuring and are a ruse to mask the real problem of deteriorating business fundamentals.

If management is good, they will boldly state that these complex game-changing initiatives will take three years. Coincidentally, this is also the time it will take for forecast industry demand to catch up with existing supply. After three years of one-time costs, macro factors of the industry create a more favorable environment. Margins eventually fatten again, management credits their own genius, bonuses exceed target and all is good with the world. Then the cycle begins anew like springtime on the prairie.

Training and Meet Time

The meet for which I’ve been training has come and gone since the last MBA Meathead article hit the Sunday Edition. The back half of the program is shown below. The training program was solid, I was supposedly ready, then went out and promptly bombed for the first time ever. I badly underestimated the difficulty of training alone in a garage for a geared competition and what that meant for meet planning. By straying from the program more often than I should and not taking heavy weight consistently enough leading up to it, I left myself unprepared. I opened too high, missed and blew away months of preparation.

I still have difficulty articulating why I do this – especially after the utter failure that was my last meet. Why I compete. Why I train hours on end enduring torn callouses, bloody shins, blown blood vessels, pulls, tears, strains, and near death experiences that come with moving heavy weights for zero money and sometimes significant out-of-pocket costs. I touched a bit on this in my initial article in December, but the best I can come up with is a two-part answer.

First, I enjoy lifting heavy weights and being big. When I look around at the general public, I cannot fathom how they choose to go through life at such a physical disadvantage. Weak individuals who have difficulty with simple tasks in life that involve moving things or even themselves. These are the people who spawned the rolling briefcase, the ultimate surrender of the human race. God dammit, carry your laptop from your car to your cubicle – you lazy bastard. Not to mention how their lack of self-confidence from being frail leaves them vulnerable to those who derive pleasure from acting the bully many years after high school has passed (also known as senior management).

This is not how our species was meant to evolve. We should be bigger, stronger and faster than our ancestors. Hell, a large chunk of the training population does so with a goal of being small and weak. Our society refers to as an ‘Ironman’ is an all-day activity with a slew of 130 pound men swimming, pedaling and running at a moderate pace. There is a name for animals in the wild that move in a straight line at medium speed for long periods of time – LUNCH. You ever see a Silverback gorilla run a marathon? I didn’t think so. They don’t need to.

Second, I enjoy progressing in whatever I'm doing. I don’t read fiction books because I feel they're a waste of time. If I'm going to take time to read, it's going to be something that will cram a few extra pieces of data into my head to help progress in whatever I'm interested in at the time. With respect to training, I want an independent method of measuring my progress. That is what a meet is. I couldn’t give two squirts about beating some random dude who happens to approximately weigh the same as me. Similarly, I don’t much care to hit some arbitrary number deemed by someone else to be elite or whatever. I will determine for myself what is an elite performance. I just need a reasonably credible organization to provide judges to tell me if I performed a lift properly.

Then, I will be able to judge whether my standards were met from a performance standpoint. And even though my last performance was an abject failure, I will get up, dust off and be back on the platform again.

Before someone says that they can’t understand why I would be risk my health by carrying the extra weight of a big bloated sweaty back-pump-having powerlifter, I call B.S. My health metrics check out better than 90 percent of the population and even if they didn’t, I’d rather live a higher quality life by my definition and die at 60, than be weak and live to be 100 years old.

Looking Ahead

I need to work for a few months on conditioning and tons of accessory work to bring up weaknesses. Luckily for me, there are plenty of weaknesses to bring up right now...kind of like low hanging fruit. Then, I will pick a meet and outline a training cycle that is more garage-friendly and includes more trips to the elitefts™ compound. As always, I welcome any suggestions on what to cover in the next MBA Meathead edition.