Spinning success out of tough past
05:00 PM CDT on Sunday, July 1, 2007
A popular scheme for realizing vast wealth and unloading tainted goods is to spin off a troubled subsidiary that's outside your core product range.
Today, we're concentrating on the spinoff of the redheaded corporate stepchild - in this case, Dallas-based Idearc Inc., which was Verizon Communications Inc.'s Yellow Pages division until November.
Idearc's Cinderella story began unfolding in 2003, when Verizon opted to move into broadband. To manage this capital-intensive initiative, Verizon cut expenses in other areas, including its Yellow Pages segment.
It implemented a "voluntary" severance package, and Yellow Pages lost half its sales force, including many talented people. The average workforce tenure dropped from eight years to four.
Customer service and sales fell off precipitously. Competition started to strip away slices of the business.
All the while, Verizon was harvesting cash from its Yellow Pages division, preventing it from reinvesting in itself.
A happy ending
But every Cinderella story has a happy ending.
Through chief executive and president Kathy Harless' infectious energy and strong leadership, Idearc overcame its legacy issues to become an exceptionally successful spinoff.
Her recipe was simple: Rather than dwell on the negative, take stock of your assets, weave them into a strong and credible story, and stay on message.
Despite its less-than-storybook circumstances of a declining sales force and matching revenue, the Yellow Pages division continued to offer a compelling product array.
Circulation of its Yellow and White Pages climbed to 130 million copies in 2006, making it the second largest Yellow Pages provider in the U.S. Its Web shopping device - SuperPages.com - has 200 agreements with other search engines, making customers ubiquitous and easy to find.
And it offers SuperPages Mobile 2.0, an online search engine specifically designed for easy cellphone use. These primary products combined to generate revenue of more than $3 billion in 2006.
Ms. Harless never viewed Idearc as a Yellow Pages provider per se but rather as the leading local search and shopping resource for medium to small businesses and their potential customers.
She offered customers a complete advertising solution on paper, the Internet and cellphones.
As Ms. Harless likes to say, "We're not your grandmother's Yellow Pages."
Still, with Yellow Pages' declining financials and Verizon's demanding a $9 billion sales price, Ms. Harless had to convince cynical Wall Street investors that she knew how to turn around the stepchild enterprise.
Turning it around
She converted Idearc from a cash harvester to a growth company.
The organization took on significant debt in order to invest in itself. It added hundreds of sales representatives, started advertising and circulating more books and lavished more and better training on its salespeople.
Perhaps most important to Wall Street, the company bought an Internet tech company to better track customer clicks.
To succeed and draw attention from the investing public, Ms. Harless' pitch had to resonate with her hardened audience of Wall Street bankers and mutual fund brokers.
Here's what we learned from Ms. Harless:
Build a dream team. Don't scrimp here. Sculpt the best team of senior mangers, advisers, bankers, speaking coaches and attorneys you can find. Not yes people, but thoughtful, experienced experts who deeply understand the company and the markets. They must believe passionately in the enterprise and be entirely faithful to the cause.
As the leader, make sure that everyone knows their roles. As the student, be coachable.
Stay on message. Prepare a concise, interesting presentation that stays on message, whether it's given to investors, brokers or employees. Keep it tight; keep it right. Get your story out in less than 20 minutes. Reduce visual aids to a minimum - 10 slides are better than 300, five are better than 10. Be direct.
Practice taking questions. And don't get so excited that you fail to let people finish their questions or answer questions that are never asked.
When a question comes out of left field, finesse the answer to return the conversation to the subject at hand.
Manage by fact. Get your facts right. Don't guess, don't play games and don't shoot from the hip. Learn what you don't know. Prepare for every eventuality.
Mistakes or false assumptions at this level are poison. Before the opening question, you should know your enterprise and vision so well that every serious question is rewarded with a straight and authoritative answer.
Idearc performed many unpleasant chores before successfully moving out of the Verizon house. Leaving a big brand institution was courageous.
Ms. Harless did a beautiful job of convincing the investing public not to judge Idearc by its past. That's why Diversity Journal named her one of the "Women Worth Watching in 2006."
We expect to see more bold strokes as she goes forward - the only thing yellow about Ms. Harless is her favorite telephone book.
Pauline Graivier is president of Dallas-based Verbal Communications Inc. Rob Hoffman is a partner with Gardere Wynne Sewell LLP. (Idearc is a client of Gardere's.)
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