Insights & Opinions


Is Turnaround Worth the Effort?

by Charlie ChengPolyhedron Managing Director

By the time most board directors think about turnarounds, multiple unsuccessful attempts have been made to grow the business. Naturally, the questions would be: Why would it work this time? How does a turnaround specialist evaluate a business in crisis in a way that’s different from a growth executive?

When we look back at all the turnaround situations we’ve encountered, three factors matter the most in realizing a successful outcome:

  1. Sufficient operating runway,
  2. Sound (but often poorly marketed) technology, and
  3. The presence of under-utilized talent.

If all three elements exist, there is a reasonable chance the turnaround will be fruitful.

Three factors matter the most in realizing a successful turnaround.


Let’s start with the easiest factor, runway. If the board has completely run out of patience, and the company doesn’t have any cash left, the business should be sold or shutdown. The distressed liquidation process is a specialty practice all to its own and not our definition of a turnaround. Instead, we look for a board who still has faith in the technology and is willing to give the business 12 months to make that turnaround.

With one turnaround client, the board believed in the company’s potential because of its vast patent portfolio and found a way to protect runway. When the company’s venture debt source had to call in the loan because it, too, was under financial stress during the 2009 recession, the investors stepped in and arranged a bridge loan to partially pay for the venture debt. While the board did not extend the runway, it reduced the shortening caused by an external factor. This short-term help gave the management team just enough time to turn the business around.

Look for a board who still has faith in the technology, and is willing to give the business 12 months to make the turnaround.


The second factor illustrates why technology turnarounds are different from turnarounds in non-tech industries. In many turnarounds, investors or executives look for hard assets that can be monetized to extend the runway or pivot to a new business. In technology companies, the technology itself is the most valuable asset, and yet it is not generating enough income to grow the business.

In all our successful turnarounds, the critical factor has been the ability to radically improve how the technology is marketed. At Iomega, it was promoting the reliability of an otherwise heavy and slow removable hard disk drive. After all, what’s more important in a disk drive than making sure the data is not lost or corrupted? At Kilopass, it was pivoting away from the largest (but crowded) market to serve another market which was not the previous management team’s target.

In cases like these, the board’s challenge is to, first, believe marketing is the problem. After all, the management team had diligently reached a different conclusion. The board or new management team then needs to determine why the technology is not currently marketed correctly, and find new ways to reach the right target customers who would pay for the technology.

In one of Polyhedron’s 2019 turnarounds, the U.S. subsidiary of an Asian company had chosen to market the simplest, easiest products to sell in order to streamline the support requirements. However, this resulted in lower ASP, fierce competition, little stickiness with customers, and, ultimately, revenue stagnation. The solution was to market the parent company’s high-end, differentiated products to a few leading-edge customers. Admittedly, this was a higher-risk approach, as it required U.S. expertise for a longer and in-depth technical engagement with potential customers and the acceptance of the business risks associated with doing a small number of deals. However, it resulted in a fivefold increase in sales. So, in this case, taking the difficult path was the key product strategy pivot which enabled the turnaround.

In all our successful turnarounds, the critical factor has been the ability to radically improve how the technology is marketed.


The last factor, under-utilized talent, is the one that is the most different between growth and turnaround phases. In a growth phase, executives evaluate talent from the top down and focus on career-growth paths. In a turnaround, the top-level executives’ strategy has not succeeded, despite their best efforts. While it’s possible some re-configuration of the C-suite is the answer, we argue the solution often rests in the middle layer of the management team. This is the layer that has the most direct interaction with the products and customers and has the best feel for what changes would work. In fact, if the middle-layer of the business has the confidence and the desire, the turnaround has a good chance of success.

At Kilopass, in the middle of the global recession in late 2008, a young Application Engineering Manager stood out with both her poise and business clarity. She, along with the company’s CTO, became the core of the turnaround team to great success, and she eventually became the GM of the largest business division for the company.

In another case in 1994, Viewlogic’s simulation division was mired in political squabble. Strangely, none of the responsible executives had concrete data on which to base decisions, and instead regurgitated basically the same third-party data. In this case, the talent had to come from outside. We hired a technically savvy product manager who was recently a customer. Through his effort, the company regained its product vision and was able to gain back the market share it had lost.

In one of Polyhedron’s 2019 turnarounds, we met the technical brain trust of the client and realized the business strategy in the U.S. grossly under-utilized its Asia headquarters’ capability. We also noticed the disconnect between the Taiwan product strategy and the U.S. marketing tactics. Addressing both elements was key to the fivefold increase in business.

The solution often rests in the middle layer of the management team.

So, Is It Worth It?

Going through a turnaround is an emotional and stressful process, so the decision to embark on one should not be based on the money/time already invested. Instead, it should be based on the three factors mentioned above: runway, technology marketing, and talent. The turnaround team must include a new market vision, enough time to execute the vision, and a turnaround team that combines new leadership and existing talent. With these elements in place, the turnaround has a much higher chance of success and is likely worth the effort.

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