To Pat Marso, the vistas of artwork, rich mahogany, and fancy electronics that he found in the executive offices on the upper floor of a St. Paul warehouse were a perfect symbol of what went wrong at Minnesota Diversified Industries, Inc.

MDI is a 45-year-old nonprofit organization with a mission to provide employment for disabled and disadvantaged people. In 2007, it suffered a near-death experience. Marso insists that the painful reorganization he helped engineer to rescue MDI should never have been necessary. The enterprise’s woes “didn’t come from the usual causes,” he says. “It wasn’t competitive pressures or imports from China or product evolution. It was just an example of poor leadership at its worst.”

Marso is a turnaround specialist, a principal with Manchester Companies, a Minneapolis-based management advisory and investment banking firm. In June 2007, MDI’s volunteer board of directors asked Manchester to look into the nonprofit’s operations and finances. Manchester’s investigation confirmed that MDI was losing $1 million a month on projected 2007 revenue of $22 million. It also revealed a business model so deeply flawed that things could only decline further. The situation was an “utter disaster—way worse than anyone anticipated,” says Marso, who became interim CEO a month into Manchester’s intervention. James Geiser, another Manchester principal, became assistant treasurer and later interim CFO.

The drastic steps they took saved the enterprise from oblivion. A year later, Manchester’s work at MDI won the 2008 Turnaround of the Year award from the Upper Midwest Chapter of the Turnaround Management Association.

Marso still gets angry at the thought of the partial second floor of MDI’s warehouse, which was security protected and off limits to most employees. The management crew that went out the door as Manchester came in spent untold sums on those lavish offices; the cost was buried within a $4 million renovation of the building in 2004, Marso says: “Then they loaded up [the offices] with executives. And it was all to position themselves as something they weren’t.”

The leadership group, he asserts, lost sight of the organization’s mission. “I think they saw MDI’s nonprofit status as a stigma, and it went up their craw,” he says. “It wasn’t as sexy [as the for-profit sector.] So they were going to build an empire.”

If so, they went about it in a distinctly unprofitable way.

Stamps and Totes

MDI was founded in 1964 as the Occupational Training Center, an offshoot of a St. Paul school for children with disabilities. It took its current name in 1978 and officially defined its mission: “to serve people with disabilities and disadvantages by offering progressive development and job opportunities in a competitive business enterprise.”

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