Case Study: Turnaround of an Optical Wireless Communications Company
Jephtah Lorch
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Client

LCI Inc./Jolt Ltd.

Problem

The company (est. 1991) operated in the US and overseas developing Free-space Optical Communications systems. It was funded by institutional investors and angels reaching the verge of bankruptcy. The company was always in trouble, time and again raising more funds, never meeting any business goals, hiring over the years ten or more consultants to rectify it. I was the last of them. Identifying a good technology and a fair market, it was clear that execution was the problem, accepting the CEOs position.



At that time the company exhausted all its financial facilities, had negative assets on its Balance Sheet, millions of US$ in debt, almost no cash flow. Gross Margin was 15% in a 40% Gross Margin industry and the shareholders lost confidence and interest in the company.



Space is to small to describe the 3 year anthropological process, its details, dramas, ups and downs., and daily struggles of converging to a long term success.

Solution

There was no time to delve into detailed studies; fast, high risk decisions had to made to increase income, convert inventories to cash and reduce costs.



Thus, secretaries were converted into back office sales, sales managers focused on reps solving pending issues and encouraging them to sell more. VP Operations was instructed to reduce costs, speed up manufacturing, exploit ALL inventory and outsource whatever possible. R&D worked on a massive cost reduction program to maximize part commonality in all systems. Not a single PO left without my personal authorization. I counted on our ability to create immediate cash.



In parallel I started planning long term including gaining control of cash flow, collecting payments due, relaxing creditors and creating growth through sales and a new product line.



Being a distressed and mismanaged company, politics were king, interest groups developed, inefficiencies were all over, energy was spent on internal friction. Every pebble I turned had a scorpion under it yet, I depended on these people and needed to shift energies to positive outcomes.

Result

After 6 months I managed to stop cash bleeding, after a year we had key suppliers on our side, a new product line with a 40% gross margin on most products and 69%! on our top of the line, unique product. We became cash positive but still had to pay back huge debts. Having no collaterals to offer, the bank assigned us a meager but welcome 50K$ line of credit.



During my three year involvement in the company we produced top quality and reliable products, gained client trust, became world renowned and were offered to cooperate with Lucent. We tripled sales (limiting factor was working capital) and kept growing, we reached profitability and we had to restructure the balance sheet through infusion of capital, this time into a healthy company. The result was that In 2000 the company was very profitably sold to MRV (NASDAQ: MRVC) for approx. M$50, over seven times the funds invested. MRV also undertook company remaining debts.