Maybe It's Time to Shoot the Wounded
The proposed government bailout is
going to provide a lifeline to many companies that would otherwise be
profitable. But to so many unprofitable, undeserving startups, it's a waste of
financial oxygen.
General managing partner, G2T3V and Chicago High Tech Investors
On
Wall Street, the saying is "catching a falling knife" - a process
that always seems to end up with you getting stuck. Market tops and bottoms
have always been impossible to predict, and fashion trends aren't much easier
to forecast although today in Zoomland it's a pretty safe bet that there are a
lot more tops than bottoms.
In
Limbo competitions, and in collapsing markets, it's a question of agility and
flexibility and determining (or trying to guess) just "how low things can
go"; whether your knees and your company's needs can take the stress and
the pain; and whether there's any reasonable end in sight other than landing
flat on your back on the floor.
Today,
thousands of business - especially those less than two years old - are facing
their own variations of these dilemmas as they try to decide just how deep the
immediate cuts they need to make in their overhead, headcount, real estate
commitments and other fixed costs will be. It's abundantly clear that waiting
(as the Trump team has sadly demonstrated) never gets you to a better result in
critical times.
For
those companies that want to survive and thrive when the dust finally settles,
deep and aggressive moves are essential. If you try to make small and
piecemeal RIFs and furloughs, the "slicing the salami" approach, even
if you save the business, you'll kill the morale as well as whatever trust and
confidence in you and your management team the remaining workforce used to
have.
Millions
of other "new" businesses - especially those that are venture-backed
- are rushing to draw down their lines of credit before the banks wake up and
realize that, in too many cases to count, they're dealing with companies that
looked pretty good on March 31st in their Q1 (pre-virus) results, but are now the walking
dead. There will soon be a new term of art for these situations called
"inchoate insolvency," which means that the game is over. All the
protective covenants and loan conditions are breached, but no one wants to put
it out there or admit it just yet. In the Great Recession, it was called
"extend and pretend." It's hard to say what nobody wants to hear.
Tens
of millions of other large and small businesses in serious financial trouble
are rushing to apply for the various ill-defined, under-manned and otherwise
inscrutable government bailout programs and they too barely understand what
they're signing up for, or what the longer-term consequences will be. So far,
for the majority of the most critical applicants, we're looking at short-term
and short-dollar band-aids that won't fix anything structurally or do much
beyond postponing for a few weeks the ultimate pain. Take the money, prop up
the business for another month or so, keep your people on the payroll, and
pray.
And
so, the rush is on. The most prevalent commentary (and the poorest advice
around for startups) from investors, accountants, advisors and, of course, from
every politician, is to go for it, ask for as much as you can, do it yesterday,
and hope that the spigot doesn't run out before your turn comes around. Maybe
Trump's "miracle" is right around the corner right, along with the
Easter Bunny.
The
real problem with temporary fixes and make-shift solutions is that, in many
cases, they obscure and often hide the fundamental sources and problems facing
so many of the failing businesses and they keep them and us from addressing the
root causes and the core issues. Even more importantly, by trying to
"save" every business and spreading the peanut butter so thin, we're
doomed to do too little for the many anyway and not enough for the businesses
we really need to focus on supporting and saving.
But,
of course, that's how self-serving politicians do these things. Pennies from
Heaven rather than hard facts and tough choices. The facts are that there are
way too many businesses in trouble and way too few funds being allocated to
help them.
Here's
the reality: Thousands of these new businesses that are less than 2 years old
and basically still losing boatloads of bucks have no business remaining in
business. Because they weren't real businesses to begin with. Giving them a
month's grace instead of a reality check and some really tough love isn't doing
them or the economy a service. It's like a drunk uses a lamppost - for support,
not illumination. Someone needs to tell these people the truth and soon.
I'm
not talking about trains and planes with no passengers, hotels and motels with
no guests, or theaters and plays with no patrons. They'll be back in a while
and we need to do whatever it takes to get them through the crisis and support
their employees as well. I'm talking about the thousands of young entrepreneurs
who started their businesses in the glow of the greatest market run-up in the
last century or so when investors couldn't shovel their dough quickly enough
into anything that looked like the "next" whatever whether it made
any sense or not.
These
businesses are a waste of oxygen, scarce resources, and the limited available
assistance from the government. Instead of fruitlessly continuing to pump water
from their sinking ships - with or without state or federal funding - they need
to do us all a favor-- pack it in and get a day job if they can. If you're
wondering if the shoe, and the kick in the pants, fits your business, here are
three simple tests:
(1) It's
still a winner-take-all world. You're gonna compete with and beat those
guys at Facebook, Google, Amazon, Microsoft, etc. Forget it.
(2) There's
room for two, but not a bunch of me-toos. Jack Welch was right - be
No. 1 or No. 2 or be gone. You're the 15th company doing
foam mattresses by mail. You have a better video conferencing solution than
Zoom, Hangouts or Teams or you soon will. Save your breath.
(3) Customers,
not investors, are what make a real business. One dollar from a customer is
worth a dozen from a VC. After a year or two of trying, you have no material
revenue, but you're lucky enough to still have some bucks in the bank. Do
everyone a solid and send some money back to your backers instead
of blowing it and slamming into the wall.
The
truth only hurts when you don't tell it.
