What Went Wrong?

Every once in a while it’s interesting to drop by the “Autopsy” website and take a look at some of the entries in their collection. The last time I was there the site as just over 100 entries; these days they’re up to 160 and still growing. If you have any interest in how entrepreneurial projects fail – and why they do, even when the idea behind them seems brilliant – you owe it to yourself to take a look at some of the stories here, and the liked articles that explain them. If you’re considering starting up your own business, regardless of your concept or area of interest, I’d have to say that you owe it to yourself, your business partners, your investors, your vendors, your customers, any anyone else who can be even tenuously considered a “stakeholder” in your venture…

Some of the entries in the “Reason for Failure” column are more predictable than others. The site isn’t searchable – it’s just a basic spreadsheet, really – so I can’t give you an exact tally, but the most common problem seems to be poor or insufficient capital at the start of the project. It’s really difficult to estimate the costs or durations of tasks you’ve never done before, and even if you are an experienced entrepreneur there is still a very strong motivation not to borrow (or raise) more money than you will be able to pay back, or allocating too much of your product’s service life to the development phase. I would point out, however, that leftover funds can be invested in any number of useful ways, including paying down the company’s debts – and no one will mind if you launch early, but going too long without generating revenue will kill any company…

Almost as common on the list are variations on the theme of marketing failure. In some cases, it might be because the product is too innovative and the founders underestimated the time and effort needed to create a market for something that has never existed before. In other cases, it might be because there were already too many competitors in the market, or because the number of customers who could possibly want/use the product was just more limited than the output of the firms trying to provide the product. And there is a definite mixture of products that no one could possibly want, products that could not be produced at any price people would be willing to pay, and business models where the cost of acquiring customers was higher than any realistic amount of sales that could be made to those customers…

Product concept failure also comes up a lot – some of the entries just say things like “product failure” or “complex and buggy product,” while others lament “crappy business model,” “focused on engineering first & customers second,” “too much time building it for ourselves & not getting feedback,” and “lack of product-market fit, and everything else in between.” And then there are the entries that don’t offer details (you’d probably have to read the linked article about the project) but which speak to the life of an entrepreneurial start-up, like “We were naive idiots,” “people really didn’t really LIKE anything about our product,” and “technical co-founder quit & pulled the code out from under me.” Some things really are harder than they look, after all…

This isn’t the only place on line that you can find such stories, of course. Just about all of the crowdfunding sites have pages about projects that did not succeed in getting funded, and stories about companies that did get funding but failed anyway. There are also a huge range of business database services that can give you both the narrative details and the financial information about some of these unfortunate stories, if you’re willing to subscribe or if you can get access to a research library that already does. I’m not suggesting that it would be possible to find examples of any type of business venture you were considering launching and review the ones that have already failed, or that doing so would automatically enable you to avoid making the same mistakes. As a business instructor, however, I can tell you that I could put together an entire class on entrepreneurial business failures directly from the Autopsy website and the hotlinks available there – and if they ever let me teach entrepreneurship I might do just that. I’m also suggesting that if there are examples available of companies that tried to do exactly what you are trying to do and failed, and you don’t at least go and look for those examples, you won’t need to be mocked by scruffy bloggers like me in order to feel like an idiot…

Release the Vultures!

By now you’ve probably heard about Toys-R-Us shutting down, either on the news or by seeing someone standing on a street corner holding one of those black-and-yellow “Store Closing” signs. You may also have seen video footage, online or on the news, about long-service employees, in some cases people who have been with the company for 30 or 40 years, being let go with no severance pay. But if you’ve been tempted to blame the failure of the company on Amazon or Wal-Mart, or showrooming, or any of the other scourges of retail businesses these days, I regret to tell you that the answer is much, much, worse – and far sadder…

You can find any number of stories and files online that go into detail about this, but I thought the article on Boing Boing did a good job of summing up the situation. I don’t have much to add to Cory Doctorow’s excellent reporting, but I thought the point ought to be made (again) about who is responsible for this travesty. Basically, what happened to Toys-R-Us was that a cabal of venture capital firms bought it, used the company’s assets to borrow a huge amount of money, took out a reported $200 million for their personal enrichment, and then defaulted on all of the loans. In addition to announcing that they wouldn’t be honoring the loans, the VC firms also revealed that they wouldn’t be keeping any of the commitments them made to their employees…

If you’re wondering how they got away with this, I regret to tell you that as far as I can tell none of the venture capital firms have broken any laws. It’s possible that one or more of their creditors may choose to sue them for defaulting on their loans, but if they’ve worked this out right there should be enough proceeds from the bankruptcy sales to cover most of it, and the lenders can write off whatever is left on their taxes. It’s also possible that the employees might be able to recover something through their own legal efforts, but in any case all of these are civil matters; no one has been charged with a crime – or is likely to be…

This class of financial banditry is sometimes called “Vulture Capital” and the firms involved are referred to as “Vulture Capitalists,” although I have to say I think that the nickname is unfair to actual vultures, who (as previously noted) never bother anything that is still alive. There are no laws to prevent this sort of thing, partly because it would be difficult to prove the difference between somebody doing this in order to extract money and then crash the company and somebody who just borrowed too much money and then failed in their attempt to run the company. You can’t realistically make it a crime to be bad at management (or finance, one assumes), nor would you want to throw people who were actually trying to do the right thing in jail because they overestimated their abilities…

Unfortunately, that means that people like the vultures in this story can abuse the system for their own ends. The other reason no one has been able to establish a standard for distinguishing vulture capitalists from garden-variety incompetents, or implement a law to stop them, is because (as you might expect) a lot of very wealthy people have spent a lot of time and money to prevent it. It might be possible for more progressive political forces to combat this, assuming that there were any and that anyone in the general public cared about this issue before their employer of thirty years was purchased and carved up by vultures. But until such time as the American people start demanding greater accountability, from their political leaders if not from their business leaders, this sort of thing will probably just keep happening…

So the sad truth is, that the people responsible for this travesty, and all of the others like it, are us…

Keep the Contract

The other day I was reading an article about why people steal office supplies from work and reflecting that the author was either missing or deliberately avoiding half of the picture. I’m not disputing that the majority of people make personal use of company equipment or supplies; I’m not even disputing that entirely too many people take supplies home or even sell them. And I’m not in a position to dispute that “shrink” of this type accounts for an average loss of 1.4% of a company’s revenue, although I’d want to take a look at those numbers before I committed to anything. But I’m not sure I agree with the corrective actions the author is recommending…

Writing for the website The Conversation, Professor Yannick Griep of the University of Calgary suggests that people consider (usually minor) benefits and potential (often severe) risks of stealing office supplies, at least for the purpose of “getting even” with their employer for wrongs real or imagined, and instead try to take a more constructive approach to solving the underlying problems. I can’t argue with any of that; even very extensive theft of officer supplies is unlikely to compensate you for any major wrongdoing on the part of your employer, and even very trivial theft may cost you your job, your career, or jail time. What I feel that Professor Griep is avoiding here is the company’s side of the situation…

As the Professor correctly notes in the original article, many employees have some amount of grievance stemming from violation of the implied psychological contract between management and their workers. If representatives of the company promised an applicant that there would be flexible working hours, regular raises, or opportunity for advancement, and what the employee ends up with is a dead-end job with no chance for promotion this side of retirement and a 1% cost-of-living adjustment every other year, then the company has broken that implied contract, and many people will feel that they are no longer obligated to keep up their end of the bargain – e.g. showing up on time, doing the work assigned to them, and not walking off with anything that isn’t bolted to the floor. What I think is unrealistic here is expecting the employees to be the ones to take corrective action…

While it would be facile to suggest that all managers are essentially the villains in a 19^th Century melodrama, it is difficult to deny that most companies do want to get as much work done for as little salary as possible – that’s how expenses work in a free-market economy. The problem occurs when the employees have a different idea of what the implied contract includes than the one from which management is working. Even if you are adhering to the letter of everything you have ever promised an employee, if they feel that they are being treated unfairly they are going to act accordingly – and that may not mean appropriately…

This is not to suggest that a manager couldn’t just wait and see what the employees want to bring to their attention regarding promises they feel you haven’t kept but what I’m getting at here is that they shouldn’t have to. Management is an active process, and a key part of any supervising manager’s job is to know his or her people and their expectations of the job and the company. If your people are underperforming, or if the atmosphere around the office appears to be hostile, or if individuals appear to be disaffected or unsatisfied, it is your job to find out why, and to see what you can do to improve the situation. Or, failing that, explain to your employees why you can’t…

I also don’t want to suggest that thieves aren’t a thing, because they most definitely are. Sooner or later you are going to encounter an employee who has been treated well and given everything you promised them who is stealing from the company because of greed, need, or any of the other common motivations for theft. But given that estimates of the percentage of employees who routinely take office supplies without permission runs from 75% to nearly 100% depending on whom you ask, it is probably worth considering what might be motivating your people to take some petty revenge on your company before you start implementing measures to stop them…

Not Even Trying Anymore

When I realized that I wasn’t even freaking out about the most recent crony capitalism scheme from the current administration I’ll admit I was a bit disturbed. Generally, when government leaders implement a scheme that will harm the people they nominally govern, the country where those people live, or the world in general they will make some effort to explain or rationalize the move; when the scheme enriches their political supporters at the expense of everyone else in the affected industries they will go to much greater lengths to bury their tracks in order to avoid a very real risk of lawsuits. But in the case of the Federal intervention to keep obsolete coal, oil, and nuclear power plants operating for at least another two years which was announced on Friday, the administration doesn’t even seem to be trying to hide the corruption…

If you have an unusually strong stomach you can pick up the ABC News story about this action, but don’t say I didn’t warn you. As announced, the initiative will keep these elements of our national power grid active, regardless of local need or cost-effectiveness, as a matter of National Security. Why, exactly, power generation units that can’t be operated at a profit are critical to the security of the United States isn’t explained in the memo that turned up on Friday. The Department of Energy merely claims that nuclear, coal, and oil-fired power plants are a “critical” part of the national grid, and without them we might be vulnerable to… Well, to something; they didn’t specify what. You’d have to be a real cynic to suggest that this action is being taken solely to curry support from the people who own obsolescent power plants and coal mines – and the people who work in those industries, of course…

Regrettably, the people at ABC News are apparently that cynical, as are industry watchdog groups, government accountability groups, environmentalist groups, and the Energy Information Administration, all of whom have criticized the announcement as nothing more than a political move intended to make good on a campaign promise from the last Presidential election. The truth is that use of coal for electrical generation has been dropping every year for over a decade, decreasing by over 20% in just the last year, and it would be redundant to specify the costs of using oil for power, or the environmental consequences of nuclear power and nuclear waste. Requiring companies to keep those plants open, and (effectively) requiring utility companies to keep purchasing the output from those plants, will result in higher costs to consumers and benefit no one except the coal companies and whoever owns the obsolete power plants…

What makes this particular story so remarkably nauseating is that no one in the Administration has denied any of this, or offered any support for the contention that maintaining these facilities has some strategic or defense purpose. It’s not exactly surprising, given the other abuses of power for personal enrichment that we have seen from this Administration, or given the fact that our current Secretary of Energy does not believe that we need a Department of Energy, or given the fact that our current head of the EPA is openly an industry flak who (apparently) believes that air and water pollution are good for you. It’s just exceptionally brazen, even for American politics, and exceptionally lazy for anyone in this 21^st Century…

I normally stay away from political issues in this blog because, as previously noted, it’s not my area of expertise and I feel there are already more than enough blogs offering political opinions written by someone without any particular qualifications. I’ve also stated for the record that I believe that cronyism, corruption, and pork-barrel politics are an unavoidable part of any representative democracy, and as long as we can keep them down to no more than a slightly regrettable level we will still be doing far better than any other system of government enacted to date. But when the party that is nominally in favor of small government, free-market capitalism, and responsible fiscal policy starts doing things this blatantly self-serving I think we are all justified in complaining about the incompetence, if not the actual policy. Face it, folks, these people aren’t even trying anymore…

Personal Shoppers for Whom?

The concept of personal shopper services isn’t a new one; several major retailers have offered such a service for years now. For customers who are either very busy or simply hate shopping in person, and can afford the service charge, being able to call your personal shopper on the telephone and tell him or her to go find you a new suit, matching shoes, and a present for your 12-year-old niece and have all of them in your office by the end of business today is an attractive idea. But I have to admit that while I’m familiar with personal shopper services being offered by a number of premium and super-premium retailers, the story about Wal-Mart launching such a service did catch me by surprise…

You can consult the MSNBC story if you’d like, but the basic idea isn’t that complicated. Wal-Mart has been beta-testing a new personal shopper service, which they call Jetblack, in New York for the last few months. Updating the concept a bit, the Wal-Mart version includes the ability to put in shopping orders by text message, upon which your personal shopper will text back pictures of various options for your consideration. Jetblack service will include messages to the user from their personal shopper regarding special deals, sales, or other opportunities, which could in theory keep you from having to read Wal-Mart advertising or keep track of upcoming sales. The service will also provide access to merchandise from other retailers, with Saks and Pottery Barn listed in the initial wave, and others to come…

The big question, as I see it, isn’t so much whether customers who fit the primary demographics for Wal-Mart will be able to afford $50 per month for a shopping service, or even if they would want such a thing in the first place; Wal-Mart does have some higher-end customers, and they wouldn’t need all that many of them to make a personal shopper service viable. The issue is whether Wal-Mart can develop enough of a presence in high-density population centers to make such a service profitable. The company avoided big cities, and even larger towns, for many years and has had trouble establishing itself in urban areas even when it tried to change that focus. Going into a city means more expensive real estate, higher operating costs, and far more competition than the company has traditionally faced or wanted – but in order to make a personal shopper service work they may have to crash some of those larger markets…

Now, we should probably note that despite all of the jokes made at their expense (see the People of Wal-Mart site if you don’t believe me), Wal-Mart is still the largest retail business in the world, and there isn’t much question that they could enter whatever markets they would need to in order to reach customers for the Jetblack service. It also seems possible that they could offer the service in parts of the country where they don’t actually have any retail store presence – all they really need for this is a warehouse to store their merchandise and a set of delivery personnel (and vehicles) fancy enough to qualify as “white-glove” to their customers. This is essentially the same model that Amazon is using for its real-time home delivery business, and that seems to be working so far. Wal-Mart should probably stay away from delivery drone technology, though…

Wal-Mart could also try to expand their shopping service to include groceries; this would take them into competition with companies like Hello Fresh and Fresh Direct, but it would also give functionality to their service that companies like Nordstrom’s and Macy’s can’t offer. A more interesting question is how they will do against Amazon Prime, which doesn’t (yet) offer as much personalized service, but is about four times cheaper, and has access to even more products than Wal-Mart. The whole business model might seem a bit bizarre to people who are only familiar with Wal-Mart as a small-town retailer frequented mainly by rednecks, but in a world where Amazon is opening brick-and-mortar stores and at least two other companies are selling cars from vending machines, it’s getting harder to say what is surprising anymore…

The Ethics of Protests

There has been a great deal of commentary flooding the airwaves over the last few weeks regarding the decision by the NFL to prohibit their players from kneeling during the National Anthem in protest of injustice in America, and specifically the excessive use of force against Americans of African ancestry. I don’t propose to comment on the political or ethical issues surrounding either the injustice or the protests themselves – I don’t actually believe there is any debate that the treatment of persons of color in this country is deplorable, or that the First Amendment to the Constitution gives the players the right to protest the situation. But the NFL ruling itself is being described and defended as a business decision, which brings it into the scope of this blog. I thought we should take a closer look…

First off, it is important to recognize that for all that it acts like a Federal institution, the National Football League is a business, owned and run by private citizens. Functionally it is more like a collective than an actual franchisor, despite the individual team organizations being called “franchises,” but that does not change its legal status. As long as the restrictions are applied equally to all groups and parties within their workforce, the NFL telling the players not to protest something while on the job isn’t really any different from another business telling its employees not to wear MAGA hats while at work, for example. Or, for that matter, asking its personnel to wear clothing that covers any tattoos during working hours…

One could reasonably argue that the NFL’s claim that allowing the protests to continue is bad for their business is not convincing. So far, at least, I haven’t seen any data that suggests that people who are specifically opposed to these protests will stop watching the games, or that any of the advertisers will stop sponsoring the broadcasts. Likewise, the argument that other groups will start demanding equal time is rather dubious; to date no one seems to be staging protests that there aren’t enough people of color being randomly shot by the police, or that First Amendment rights are somehow a bad thing. In fact, over the last few decades there have been any number of players – and occasionally entire teams – wearing special colors or graphics in support of various causes, and this does not appear to have impacted the League’s business success, either…

At the same time, it doesn’t seem unreasonable to suggest that the League is under no obligation to provide their employees with a public forum in which to promote their position, either. If the NFL wants to require their broadcast partners not to air footage of the players kneeling, or deny access to the games to journalists and sportswriters who describe or display pictures of the protests, they would appear to be within their rights to do that. If they attempted to prevent their employees from talking to the press about the protests, or from holding rallies and/or giving speeches in support of their position there might be some difficulty, but if any of the teams or their owners have tried to implement such a restriction there hasn’t been any mention of it so far…

The issue is being complicated by the fact that the issue is inherently political in a way that wearing pink in support of breast cancer awareness or airing commercials in favor of youth sports and fitness is not, to take only the most obvious examples. It is also being complicated by the fact that both the League and the teams make use of the names, uniform numbers, and likenesses of certain players for promotional purposes, in which case the promotion of any particular cause by a player can be interpreted as support for that cause by the NFL itself, if the observer cares to see it that way. But despite these and other complications, the basic question is fairly straightforward…

Does the NFL have the same right to restrict the political and/or social protest activities of its employees while they are in uniform and actively working for League members that any other business has under the same conditions? Does the fact that their employees are public figures, and that the NFL itself has contributed to producing and maintaining those public identities give them rights over the actions or speech of their players that would not apply to other companies? It doesn’t seem reasonable to allow retail associates at The Gap to run through the store with “Free Tibet” banners, or to require McDonald’s to allow its employees to wear PETA regalia while on the job. Should NFL players have greater or lesser freedom of speech than any other American workers? Or should the teams and the league avoid all political and social commentary (at least on camera) and just produce and display athletic competitions?

It’s worth thinking about…

Would You Buy That?

At first glance, the owners of a major company looking for buyers is nothing special. Most people thing of acquisitions as starting from the buyer’s side – somebody finds a company that they think can create synergy with their existing assets and puts in an offer to buy it – but it isn’t at all unusual for an ownership group to decide that one or more business units are not going to become profitable in the future and look to sell them off. It is somewhat more uncommon for such an offering not to get a single bid, even one that dramatically lowballs the value of the company being offered and is extended just to see if the seller is serious. What makes the story from earlier this week so remarkable is that the seller in question is a national government – and the company being offered for sale is their national carrier…

If you missed it, the Times of India article is available here. Why exactly the offer hasn’t drawn any bids isn’t entirely clear – it can be very difficult to explain things that didn’t happen – but a few parts of the deal seem a bit unworkable. Assuming the debt owed by the company being acquired isn’t unusual in this sort of transaction, but when there’s a lot of it (as in this case) it can serious impede efforts to recoup the cost of the purchase. Taking responsibility for an inappropriately large work force can also be problematic, given the costs in both severance pay and public relations that will be involved in cutting down the number of employees to a manageable level. But what really sounds like the deal-breaker to me is that the Indian government is only looking to unload 76% ownership of the company…

Now, let me stress that I don’t have anything against public-private partnership arrangements in general. In this case, however, the national elections in India are apparently less than a year off, and there is no guarantee that the government will continue to cooperate with an acquiring company if the party currently in power does not retain control following the election. In fact, if I’m reading this article correctly, there’s no telling what a new government might choose to do regarding the sale. There is always some degree of uncertainty in an acquisition project, but it’s hard to blame any potential buyer from being skittish about having to work with a minority partner whose identity, let alone policy, could change at any moment…

Why, exactly, the government wants to retain a 24% interest in the airline isn’t clear in the story, although I’d expect it has something to do with this having been the national carrier up until now. Also unclear in this reporting is the question of why the government believes that Air India would have been an attractive takeover target in the first place. The industry isn’t quite as volatile outside of the US, where only one major airline (Southwest) has consistently made money over the last 30 years, but neither jet fuel, landing rights, or airliners are getting any cheaper, while the world of international travel is becoming increasingly dangerous. And the fact that all of the relevant unions have been opposing the sale definitely doesn’t this offering any more attractive…

Operating an airline that hasn’t made a profit in years would be difficult enough without adding a significant debt load and an unpredictable minority partner to the mix, let alone all of the other issues that appear to be in effect. Unless the government can identify some other selling point for Air India, it seems likely that they’re going to be stuck running the airline as a public entity for some time to come. Maybe things will improve after the elections, or perhaps they can bring some intangible factors (National pride? Love of air travel?) into the mix. But unless they can find some way to make the acquisition more attractive, they may eventually just have to shut down the company, sell off the remaining assets, and hope that the hit to national pride won’t be any worse than having to deal with the fact that no one seems to consider their national carrier worth buying in the first place…