The Entrepreneur Interview: Evan Chrapko
Cool Companies magazine, 2007 Vol 2 Issue 1
Canadian serial entrepreneur Evan Chrapko has rescued or started – and successfully exited – three companies almost single-handedly, and he helped get a fourth one on its way to a successful $50 million sale. His most well-known success is DocSpace Inc., a document management ASP that Evan co-founded with his brother and others, built (as the company’s President and CEO) and sold after just 30 months for $811 CDN million in 2000. It was the largest sale of any pure Internet company in Canada in the dot-com era, an era which ended just one day after Evan’s deal closed (March 9, 2000).
Evan’s approach to turnarounds
“Turnarounds are different from blank-slate startups. [How?] Hmmm. Well, I guess it starts with the fact that a failed management team and/or a bad product have tons of baggage…all of which needs to be ditched. Also, many of the stakeholders are probably in a deep state of denial. And if they’re calling me in, their momentum is probably negative, instead of merely neutral…but it’s definitely not positive! (chuckles).
The turnaround CEO’s issues are parallel to hospital emergency room protocols: focus on the basics (ABC – airway, breathing, circulation). AFTER you stabilize the patient, you can work on taking it up from there. In a business crisis, “ABC” stands for: 1. Attitude, 2. Burn Rate, and 3. Customers.
1. A is for Attitude
You have to set the tone for morale and expectations of the company’s employees, shareholders and suppliers…fast. Be brutally honest with them. It’s easier to do this if you actually put the company into bankruptcy. Unfortunately for me, I prefer to be – how shall I say this? – Mr. Nice Guy. Too often, though, unless you’re dealing with truly selfless people, nice guys tend to finish last. So don’t prevent the company from ACTUALLY failing. Why? Because AFTER you’ve burned your candle at both ends to stop their ship from sinking, you’ll have a bunch of people hanging around who – get this – believe they know a thing or two about running a successful company, seeing as how “their” company never ACTUALLY went bankrupt…and who won’t be shy about telling you on a daily or weekly basis what they think you should be doing next. Talk about an anchor around your neck in terms of go-forward velocity! So lesson #1 is “Start by forcing your near-bankrupt ‘rescue project’ into actual, legal bankruptcy proceedings if the entity hasn’t already bit the dust.” Lesson #2 is “Don’t sugarcoat the bad medicine.” Tell everyone what you expect and what you need from them, even if it means more sacrifice from them. For example, it may mean asking them to write off your account in exchange for some equity instead [re: suppliers, landlords, etc]. Yes, this’ll mean you lose employees and others. But you’ll be left with people and partners who understand your vision, have a strong idea of what’s required and who are up to the challenge. You’ll have the real “doers”, who can work smart and hard, and not the ones who are mostly in it for themselves or their own personal ego gratification.
2. Burn rate is tricky
Solving this part of the turnaround puzzle involves moving quickly but it also requires the courage to cut deeply in order to save the patient. We’ve all heard it a million times before, but it sure is amazingly hard to execute, isn’t it? Lesson #1 about category “B” (burn rate) is “Cut out all extraneous costs and activities overnight, cutting twice as deep as you think is ‘healthy’.” In a turnaround, you always risk going too deep with your scalpel, but a far more fatal risk lies in keeping a fly in the ointment or protecting a bad apple…like a sour employee or partner, or like a money-losing product offering. The corollary to this is that you need to make these decisions ten times faster than you think is possible. In this vein, ethical ruthlessness is a virtue. The very next day [after finishing severe cost cuts], your orientation needs to switch from cutting to creativity. You need to employ every creative bone in your body on every single front. Obviously, “Buy used” or “Buy on eBay” is more creative than buying necessary [furniture and filing cabinets] brand new, for example. But how about this: we scavenged office furnishings from garbage dumpsters! It was perfectly serviceable stuff. What’s the old saying about one person’s garbage being another person’s treasure? Absolutely true. And it gave us breathing room to address real business issues with our limited cash resources.
3. Customers
If you don’t engage with customers directly, as the new “turnaround” CEO, you may as well be driving with a blanket over your windshield. As well-meaning as all the internal stakeholders will be when they try to advise you of what needs to happen, there’s only one ultimate authority for most businesses that I know, and it’s the “C” in ABC: customers. Listen to what THEY want your company to deliver, to stand for, to charge them and so on. The usual reason I see for why companies have failed is a disconnect between management and the customers. And get this into your playbook: the real customer is not a nebulous brand represented by a logo or that company’s HQ. It’s the decision maker on the other side of the desk, the person with purchasing authority who is looking at you and your company and who is delegated with the task of deciding whether or not they should buy stuff from you. Period. (long pause). THAT’S your “customer”. (another pause) Know him. Love him. Get into his head. And he’ll tell you everything you need to know about what he wants, what he needs, and what he’ll be willing to pay you. Then your job is simple. (chuckles). Find the smartest way to deliver on your customer’s instructions. Here’s a tip, though…make sure your troubled company delivers nothing more, and not one inch less than the customer’s ‘ask’. Note that, at the outset, this approach may mean deconstructing some of your technology or services or products as they currently exist. Acting on customers’ input can be scary stuff, indeed! Later on (soon, say within 6 months), you can go about adding – judiciously – onto your main offering. Your mission then shifts to “over-delivering” on customer expectations.
Trust your gut on the company’s mission and vision
In turnarounds especially, don’t be too deferential to failed management individuals or teams. Regarding turnarounds, in the first one [CEL Corp] I knew that I wasn’t as technical as the founders. Even though I was the one brought in to set them straight, I let them use their technology prowess against me in our strategy setting sessions and it caused me to pull some punches instead of insisting “we-shall-go-this-way” on several business issues. So while I had some ideas for clarifying the essence of the company – what it should be doing, at its core – I was too deferential to the already failed management group. It meant I wasn’t honoring my instincts, and I wasn’t putting my foot down and saying “No, THIS is the way we are going.”
With the benefit of hindsight, the company should, indeed, have taken even more of the strategic directions that I advocated. After I left the company, one of the original, gifted founders and several other key managers also abandoned ship to preserve their own careers…it seemed clear that the original founders were likely to go back to some of their old, bad habits. So even though we [Evan, his brother Shane and his sister Xina] had spectacularly rescued a technically bankrupt software company, I know it could have been a much bigger, much faster commercial success if I had simply been more forceful. I think CEL might be OK in the end, but it will be a too-small success in exchange for the extent of their too-long struggle [the Chrapkos exited after turning around CEL in 1996; the company has continued to exist, but its shareholders and new investors have not yet enjoyed a major exit event].
For my second turnaround [Time Industrial], five years later, I definitely did not pussyfoot around. Because I had a very clear technology vision and a simple business-model for the company – and I insisted on it over the protests of several opinionated, otherwise qualified insiders – it meant that employees and prospective customers weeded themselves out as to whether or not they were on board with my new, clear mandate. Ditto investors and suppliers. It would have been impossible to successfully meet my extremely aggressive, optimistic timeline for going public if I allowed for ambiguity and clutter about the direction the company was taking. To put this lesson another way: trust your gut on the big things. The little things will follow.
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