Turning around troubled companies is what Michael Canty does best. In fact, it’s how he landed his current job: owner and CEO of Alloy Bellows & Precision Welding. 

“The company had gone from 120 employees down to 25 and was heading south very quickly,” says Canty, who invested in the flailing business in 2006. “I didn’t know it at the time, but they had already gone to one of their key customers to ask for a $300,000 loan to survive. I’m glad I didn’t know that.”

Canty embraced the challenge, and within three years, Alloy Bellows was worth five times its 2006 valuation and back up to 120 employees. In July 2009, Canty bought the remaining 60 percent of the company, which he continues to lead today.

So, how did Canty execute a strategy to get Alloy Bellows & Precision Welding back on its feet? And what are the perils of investing in struggling companies? We spoke with the turnaround titan to learn more.

Understand the problem

How deep in the hole is this company? I turned some companies around that were pretty deep. You want to be able to see a path. One of the things I’ve always been able to do — and entrepreneurs can normally do this, some better than others — is to see a vision. I had done a little bit of internet research and had already come up with a crude vision of where this company could go, before I even came to the interviews. After I did the walkthroughs and spent two or three hours talking to people, I refined it. Then you look back at the financials and make sure it’s doable.

Come up with a couple reasons why this company hasn’t done well. Walk through the plant, look in peoples’ eyes and talk to them. See whether they are busy. You can see the age of the equipment. You can see what they are doing and how they are operating. How has it been run? Who does the decision making? Are people engaged? Within a couple hours, you should have a good sense of what is taking place.

Have a clear understanding of what you’re looking for as a potential business owner and where you can go. If you’re buying into an industry that you hate, you’re not going to succeed. If you’re buying a product line you hate, you’re not going to succeed. Those are the kinds of evaluations that I do.

Make sure you have enough capital. It doesn’t mean you have to be flush. Most companies in this situation are not flush. You have to make sure you have some sense of capital to start the winning process and then start quickly cutting those areas out that are draining the company dry. Even if they might be a longer-term good product line or service, if it’s draining the company dry and you have different focuses, turning around a company with six or eight different focuses is going to be tough. You want to narrow it down to a couple. Be successful with those couple areas, and then if you want to go back and revisit the other ones or do something new, then do that. But your first focus is stabilization. Sustain a basic business model with revenue and profitability and then grow.

Chart a new course

The morning I came in, no one knew who I was other than the owners who had relinquished full control to me. I put everyone in a lunchroom and I introduced myself. You could tell they were scared, kind of demoralized. They had dropped from 120 people down to 25 in a 2 ½-year period. They wouldn’t have survived the rest of the year. At that point, you need to shore up their sensibilities. It couldn’t continue the way it was.

One of the first questions I asked was how many of you want a full-time job? They were shocked by that kind of a question. They all had their hands up. I said, ‘Starting today, you all have a guaranteed full-time job with two requirements. One, you’re willing to cross-train and do what I need you to do. We clearly have work to do. The second is that you do a good job and do it in a good framework. You do those two things and you’re going to have a job. So let’s put the job security to rest.’ You could see a big weight come off their shoulders because they had seen so many of their friends go out the door.

Believe in your troops, be willing to invest, and sometimes, just get out of their way so they can do what they need to do. We put a lot of money into equipment, and everything we sell, we make here in Ohio. We export, depending on the year, 20 to 30 percent of everything we make. I’m a big believer in domestic manufacturing and a big believer that U.S. manufacturers can compete and compete very well. We sell to India, to China and to Europe. You can compete. You just have to be willing to invest and stay current with technologies. Not just with equipment, although that is important. You need to invest in processes and in people.

The Last Word

Sometimes there is a reason to have an older piece of equipment. But most of the time, it’s so inefficient and noncompetitive that you’re better off getting modern equipment with the latest technologies. It just pays huge dividends. And then big companies — and we sell to a lot of big companies — when they come walking through your plant, they see it clean, which is important. But if they see you reinvesting in your equipment and your people, they look at you and they want you to be part of their business.