What Is a Turnaround?

In the context of business operations and investing, the term "turnaround" should remind you of a corporate U-turn. This term refers to a distressed company making a dramatic pivot toward recovery. It's a journey from the brink of failure back to profitability, a testament to resilience and strategic acumen. At the very least, it's a conscious effort to get a troubled business back on its feet again.

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K-shaped recovery. — Image source: Getty Images.

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Once upon a time, Apple (AAPL -0.39%) teetered on the brink of bankruptcy. Co-founder Steve Jobs lost a power struggle with Apple's board of directors in 1985. He moved on to found two other companies, NeXT Systems and Pixar, while Apple struggled to sell Macintosh computers in the early years of the internet era.

Eleven years later, Apple's board brought Jobs back to the CEO role. He convinced Microsoft (MSFT +0.34%) to invest $150 million in Apple, saving the company from imminent financial collapse. The deal also settled patent lawsuits between the two companies and guaranteed that the Microsoft Office software suite would be supported on Apple Macintosh systems for at least five more years.

The unexpected move was the start of a tremendous turnaround.

Radically redesigned iMac systems emerged the next summer, followed by the first iPod music players in 2001. Steve Jobs introduced the iPhone in 2007, and the rest is history.

Apple is now one of the largest and richest companies in the world. That's a textbook example of a great turnaround, changing everything in a failing business to come out stronger on the other side. The business titan you see today has very little in common with the struggling computer builder of the early 1990s.

But turnaround stories don't always have happy endings. Blockbuster was the unchallenged market leader in video rentals for a long time, but the company wasn't ready to try new ideas when Netflix (NFLX +0.98%) began disrupting the industry in the early 2000s.

Netflix's red DVD mailer envelopes forced Blockbuster to try the same idea in 2004, with a couple of twists. The Blockbuster Total Access service shipped mail-order discs from local video stores rather than building a separate network of warehouses for remote DVD rentals.

But the service often left local store shelves without copies of new releases or classic hits, and the company's success relied heavily on late fees. Disappointed customers abandoned the brick-and-mortar stores, amplifying the lack of lucrative late fees.

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Blockbuster filed for bankruptcy protection in 2010, liquidating the store network and content library in a game-changing surrender that took it from more than 9,000 locations to the place known as "The Last Blockbuster" in Bend, Oregon. Ironically, Netflix largely abandoned those Blockbuster-crushing DVD mailers the next year to refocus with a digital streaming service.

Blockbuster might have survived the DVD-mailer assault if management had been ready to drop the expensive store network in favor of a dramatically different business plan. Even so, the streaming revolution probably would have finished the job.

That turnaround story ended in tears and bankruptcy. The best-laid plans of mice and video rental specialists may go awry.

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About the Author

Anders Bylund is a contributing Motley Fool media and technology analyst covering semiconductors, cloud computing, internet infrastructure, quantum computing, and streaming media. Previously, Anders was a systems administrator for Nielsen Technology and CSX, gaining hands-on experience with enterprise-class systems. He was also a freelance writer for Ars Technica, TIME, USA Today, CNN, WIRED, and AOL's Daily Finance. He holds a bachelor’s degree in English and a master’s degree in library and information sciences from Florida State University. He believes in coyotes and time as an abstract.

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Anders Bylund has positions in Netflix. The Motley Fool has positions in and recommends Apple, Microsoft, and Netflix. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.