Leading Companies in Trouble is Easier: Bill Canady on the CEO Show

In a recent insightful episode of The CEO Show, host Robert Reiss sat down with Bill Canady, a seasoned CEO currently at the helm of two multi-billion dollar companies, OTC Industrial Technologies and Arrowhead Engineered Products.

Canady shared his unique process, the Profitable Growth Operating System (PGOS), and offered a counterintuitive perspective on leadership: leading companies in trouble is often easier than leading those doing well.

This profound insight, backed by years of experience turning companies around in private equity, provides a masterclass in how distress can simplify and streamline effective leadership.

Why Leading Troubled Companies is Easier: The Paradox of Trouble

Bill Canady immediately challenges conventional wisdom by stating, "The easiest one to lead is the company that's in trouble." He elaborates that when things are going poorly, people inherently recognize their need for help. This critical self-awareness creates an environment ripe for change and receptivity, making leadership interventions far more straightforward.

He uses a compelling analogy: "You can take a drowning sailor throw an anchor to him, he'll catch it, right? He just he'll take any help he can get." In stark contrast, a company doing "very well" may believe they are already performing optimally, making them complacent and less inclined to embrace new systems or significant shifts, thus complicating leadership.

While leading a troubled company still presents challenges, the team's inherent desire for solutions significantly simplifies the process of implementing new strategies.

Canady emphasizes that despite the severity of the situation, a leader must always approach with "respect and dignity," "thoughtfulness and caring." However, the crucial point is that a company in distress is far more likely to "embrace you and embrace your system" out of necessity.

Clearer Mandate in Crisis: The 3x Imperative Simplifies Goals

In a troubled company, the CEO's role, especially in private equity, becomes exceptionally clear, simplifying leadership focus. Canady highlights that it boils down to two core jobs: setting the goal and holding people accountable for achieving it. In private equity, this goal is "so pure"—typically, to 3x the equity invested within three to five years.

For Canady, this laser focus is a significant advantage: "You're focused on bettering that company. And by bettering that company, making it worth more." This direct financial objective cuts through the potential ambiguities often found in public or private companies with varied owner needs, providing an undeniable, urgent destination that clarifies decision-making in a distressed environment.

Before even stepping into the office on day one, Canady does his "pre-work." This involves understanding the board's specific financial goals, calculating the required earnings growth to achieve the 3x valuation based on industry multiples (e.g., 10 times EBITDA). He works closely with his CFO to ensure the necessary capital structure, debt capacity, and operating capital are in place to support aggressive growth targets. This upfront financial clarity is fundamental, providing a solid, unambiguous foundation that is readily accepted when a company is struggling and needs a clear path forward.

Crisis-Driven Alignment: No Room for Naysayers

The immediate need for change in a troubled company makes achieving rapid alignment notably easier. Upon assuming leadership, Canady's first critical step is an immediate offsite meeting with his team within the first week. The objective: to align everyone on the precise financial goal.

He notes that often, the team has "no idea what they're aiming at," but in a crisis, their receptivity to a clear target is heightened. He brings the actual contract detailing the payout structure, ensuring everyone understands their shared stake in the outcome, a powerful motivator when the alternative is continued decline.

For OTC Industrial Technologies, their goal was to grow earnings from $70 million to $200 million, requiring an astounding $130 million in growth. This specific, data-driven goal is presented as "irrefutable" and "not optional." In a struggling company, this type of clear, urgent objective is less likely to be met with resistance.

Canady dedicates significant time, sometimes a whole day, to discussing the feasibility of this growth. The aim isn't for it to be easy, but for the team to genuinely believe it's possible: "If they don't believe it's not going to happen... they have to see it in their heart in their minds that I can actually do this and I want to be part of it because it is not going to be easy." This belief is more attainable when the status quo is clearly unsustainable.

Empowered Leadership in Distress: Board Focus Simplifies Strategy

A pivotal distinction Canady makes, particularly effective when leading troubled private equity-backed companies, is that the board does not set the strategy. While boards in stable or public companies might have activist investors dictating operational moves, private equity boards are typically "purely money motivated" and expect management to lead operations.

This simplifies the leadership landscape in a turnaround scenario. Canady views this as an ideal situation for a CEO, assuming the growth target is genuinely achievable. The board's ultimate job, he bluntly states, is to "get rid of" the CEO if they lose faith in their ability to achieve the goals; otherwise, their role is to support management.

This clear, high-stakes delineation of roles empowers the CEO and their team to take full ownership of the strategic direction, unencumbered by excessive board interference, making decisive action easier when the company is in trouble.

Ownership Fuels Execution: How Crisis Drives Strategy Development

Perhaps the most unique and impactful aspect of Canady's approach is how crisis simplifies and strengthens strategy development: once the team believes in the goal, "they develop the strategy I don't actually develop the strategy." He admits he often has an idea of the right answer, but he understands the psychological barrier of imposed strategies.

As he explains, "if I force my strategy they will come back as they say see I told you this was not possible but if they own it... they'll believe it." In a troubled company, the team's urgent need for solutions makes them far more likely to genuinely own the strategy they develop.

Drawing on his military background, Canady likens the CEO to a general who sets the objective ("the hill we're going to take") but recognizes that the "troops" on the ground will see things the general cannot. He gives his team a surprisingly short timeframe—about 30 days—to devise their strategy.

The reason for this tight deadline is that they are instructed to focus on what they already do. They are not to invent new products or explore new territories, but rather leverage their existing expertise and customer base. This approach capitalizes on the team's existing knowledge and, crucially, fosters a sense of accountability and commitment that an externally imposed plan would lack, especially when faced with existential threats.

"Entitlement" in Crisis: Unlocking Immediate, Needed Growth

For a struggling company, identifying and capitalizing on "entitlement" provides a clear, simpler path to significant and much-needed growth. To illustrate this, Canady recounts a powerful exercise from his time at OTC. He asked his team to identify their top 10 customers.

Toyota, for instance, was their number one, generating $40 million annually. Then, he posed a critical question: "How much could we do?" The rules were strict: no new products, no new territories – just what they should be selling to existing customers with existing offerings within their current operational areas.

This concept, which Canady calls "entitlement," revealed astounding potential that struggling companies are uniquely positioned to pursue without complex innovation. The team collectively agreed that for their top 10 customers alone, their entitlement sales were over half a billion dollars. This growth didn't require innovation or market expansion, but simply a better capture of existing demand.

For example, they realized that by applying the 80/20 principle, focusing heavily on Toyota, they could double that business. They dedicated a whole office to Toyota, putting inventory in their facilities and having people on-site daily, ensuring immediate answers to queries. This focused effort led to massive, tangible growth simply by getting their "share of wallet," a simpler path to profitability vital for companies in distress.

Structured Success in Trouble: Leadership Types and the PGOS

In a troubled environment, clear leadership roles and a structured operating system become not just beneficial but essential and readily adopted, simplifying the path to recovery. Canady emphasizes that everyone must understand their role. He categorizes leaders into three types:

1. The Visionary: Typically the CEO, who sets the destination (the "hill we're going to take") and makes alignment "a condition of employment." In a crisis, there is no room for naysayers on this team; the urgency dictates immediate acceptance.
2. The Operators: Presidents, VPs, and others who manage the day-to-day business, "follow the process," and crucially, "own the strategy." They assemble teams and organize themselves to achieve the goal, driven by the clear need for improvement.
3. The Prophet: These are the trainers or consultants who provide the knowledge and process, "show the way," and teach the tools. Their guidance is readily embraced by a team desperate for solutions.

Canady integrates this leadership framework with the Profitable Growth Operating System (PGOS), which he developed. PGOS consists of five simple, powerful tools: talent, strategy, 80/20, M&A (mergers and acquisitions), and lean/segment.

He particularly champions the 80/20 principle, calling it an essential tool to "tell you where the math is... where the numbers are. It tells you where the money's at." This prevents the common pitfall of "throwing a million dollars at a nickel problem." For a troubled company, identifying the top 20% of customers that generate 80% of the revenue (or profit) allows for strategic resource allocation with maximum impact and minimal waste, a straightforward and critical step for survival.

A PhD in Leadership: Why Crisis Makes Leadership Easier

Bill Canady's insights offer a refreshing and pragmatic approach to leadership, particularly highlighting why leading in challenging environments can paradoxically be easier. His methodology for turning companies around, detailed during his conversation on podcast X, hinges on several critical principles that are more readily adopted when a company is in distress:

• Embrace the Challenge: Companies in trouble are inherently more receptive to new leadership and systems due to the clear necessity for change.
• Clarity of Goal: In private equity, the 3x equity return target provides an unarguable, simplifying destination that galvanizes a struggling team.
• Team Ownership of Strategy: Crisis fosters an environment where the team is eager to develop and own the plan, leading to more effective execution.
• Focus on "Entitlement": Significant, low-risk growth can be found by better serving existing customers, a straightforward path that companies in trouble are motivated to pursue.
• Strategic Use of Tools: Frameworks like PGOS and the 80/20 rule provide a clear roadmap that is immediately relevant and embraced when performance is critical.
• Defined Leadership Roles: Clear roles for Visionaries, Operators, and Prophets ensure cohesive and efficient action, simplified by the urgency of the situation.

Bill Canady's appearance on "The CEO Show provides a veritable "PhD in leadership," demonstrating that effective leadership can be simplified and even made easier when confronting the immediate and undeniable need for change in a struggling enterprise.

If you're a CEO, an aspiring leader, or simply interested in the mechanics of business transformation, the strategies Bill shares are invaluable. He is accessible through his website, BillCanady.com, and has authored books like "The 80/20 CEO" and "From Panic to Profit." We highly encourage you to listen to the complete episode of The CEO Show, for a deep dive into these transformative strategies.