The Economy, The Election, and Entrepreneurship

Like every other American, the economy has been on my mind a little more lately than I would like.  This post isn’t really put together with much of a “point”, more so just a collection of thoughts I have on everything that’s been going on.

—-

James Hong, co-founder of Hot or Not, wrote the following in a post on his blog, which I happen to think is dead on:

Ideologically, I don’t like the idea of a bailout. But I also understand that if there is no bailout, the economy might collapse faster and harder than we can deal with. I agree that we need to do things to slowly ramp things down to avoid massive shocks, but we can’t put a bandaid on things and hope to just go back to business as usual either.

Our economy is fundamentally in trouble right now because we Americans have gotten fat and lazy. Over the past few decades, banks and other credit lenders have had every incentive to get people to spend more and owe more. When deregulation happened that enabled the credit originators to securitize debt and sell the risk to someone else, the credit originators had even more incentive to SELL SELL SELL credit cards, mortgages, etc.. to you and me, the American public.

The worst part of it all is that not only did we collectively sign up for more and more credit, we got used to it. And now like a salesman with a large expense account who just got fired, we have to live with the fact that all we can REALLY afford is ramen.

To be honest, part of me feels that a depression is exactly what this country needs. . because just like a drug addict who has to go through withdrawal the hard way before becoming well again, we can’t expect things to be easy. We’ve been living large for decades now, and unfortunately it’s time to pay the piper. But don’t worry, it’ll be just the wakeup call we need. We’ll wake up poor, start working hard and smart again, and rebuild ourselves. We’ve done it before, we’ll do it again.
So accept the bailout, but accept the fact that our markets are also still probably inflated and let it drop, and depression may be headed our way no matter what.. because bailout or not, I don’t see credit loosening anytime soon.

—-

Mark Cuban has done an exceptional job covering the bailout from a totally different perspective, that of a self-made billionaire.  Not for everyone, but I certainly enjoy it.   One interesting point he made in a post the other day:

Sec Paulson has asked for authority to spend what he needs to save our financial, and possibly the world’s financial system. There is only one problem. Sec Paulson may not be in charge of the Treasury for that much longer. So in essence we are giving carte blance spending authority to some unidentified person.

If the Sen Obama wins, then the Democrats will have the Presidency and the Congress under their control. Which will give them the right to appoint just about anyone they want to run the Treasury.

Let me say that again. A Democratic win could give them the right to appoint the King of the Financial World and let that person spend whatever they want, up to 700 Billion dollars. Have you heard anything scarier in your adult life?

—-

How do these hard times impact your company?  I’ll tell you how:  not much at all.  Remember my book review of Stall Points:

Most companies don’t fail/stall due to outside factors. In fact, of the companies who “stalled” (defined as a significant downturn in revenue growth) only 13% were due to “external factors”. In short: business owners who blame the economy, or claim market saturation, or the government for failing are usually full of shit. Most of the reasons companies fail are because they have internal strategic or organizational issues. Stop worrying about the economy or the competition and start focusing on making your company great. The overwhelming reason that most companies have internal failures is because of the poor business assumptions that they make. In the beginning, something worked. Then it worked again. Pretty soon it was etched into everyone’s mind that “our customer only want X” or “the market will always react positively to Y”. Years pass, times change, technology changes, people change, but everyone still holds the assumption to be true. Unfortunately it isn’t.

A shitty economy isn’t going to effect your business as much as you think…unless of course you continue to harp on how bad the economy is and then it becomes a self-fulfilling prophecy where you blame every mistake or bad turn on the poor economy.  Even when the economy is good, companies still go through hard times and ultimately fail.  It’s the nature of entrepreneurship.  Don’t forget that.

It’d be easy for us to say that Detailed Image might suffer in sales because it’s a commodity item.  But we own a very small portion of the online detailing pie, and even if said pie decreases by 10%, 20%, or even 30%, our growth will likely continue because we’re only occupying a small percentage of a market that generates tens of millions of dollars and contains a lot of incumbents who have stagnant growth.  I personally don’t think we’ll stall at all, and if we do I certainly am going to analyze the situation long and hard before I think about blaming the economy.

—-

How does all of this impact you personally?  If you weren’t being conservative and cautious with your money, you probably should start doing so.  Cut back on the $100 nights of drinking or the daily $5 latte.  But if you spent soundly before, you probably will continue to spend soundly and be just fine.  If anything, this should just reinforce the importance of living within your means and not deriving happiness by constantly spending money on a new toy you don’t need.

—-

Finally, this election is probably even more important because of the recent market collapse and subsequent bailout.  I always try to look objectively at the candidates (which is really hard given all of the bias out there) and Entrepreneur Magazine has been a huge help in both of the last two elections.  Their print and online-only sections do a good job of quickly and objectively breaking down the things that business owners care about most.

Small businesses like ours are important to the economy.  By growing a successful small business we are positively contributing to this country.  If you’re a small business owner like us, make sure don’t forget that.  It’s very important.  As both citizens and business owners you owe it to yourselves to put a little time into making a decision that you believe benefits yourself, your company, and your country.

—-

To that point however, I have a personal question:  if you truly believe in your heart of hearts that each candidate has an equal chance for success (albeit by different means), should you still vote?  Because that’s kind of where I’m at right now.  It’s not like there’s a “both” or “neither” lever in the voting booth…

6 comments on The Economy, The Election, and Entrepreneurship

  1. nethy says:

    Hi Adam,
    Well posted. I have to say that I have don’t have much of a grasp on any of this. I don’t fully understand the problem, never mind the solution(s).

    But I did read one comment (can’t remember where) that got me thinking: This is not a 87 or the Tech bubble. This is fundamentally different situation.

    They where incidences where stocks where overvalued. ‘The market’ realised it suddenly & stock prices dropped. That meant that a lot of people lost money. But that was really a paper loss. A lot of the companies trading where actually in the business of producing stock, not wealth so they went out of business. The owners & employees of those companies got hurt. But the ‘real’ economy kept going without too much hassle.

    If you had a company that sold shoes online you may have been valued at 10X what it was worth. But if you weren’t running the business by selling stock (eg paying in options), the collapse changed nothing. You continued to pay rent, buy inventory & pay salaries out of sales revenues which went on same as always. Expenses – No change. Revenue – No change. Your balance sheets should have little or no sign of a stock market collapse. Any spending reduction or recession, your above logic applies.

    Most businesses don’t pay rent from the stock market so rent keeps getting paid regardless of the stock market. This is a different sort of an issue. Businesses do pay rent & stock shelves from the credit market.

    I can’t say I know how that filters down to the practical level. My econ1001 logic says that interest rates in The States need to spike. But I haven’t heard any predictions of that so I can’t say I think that’s what’s going to happen.

  2. Adam McFarland says:

    Nethy –

    Good to hear from you. Insightful comment as usual. Much like you, I’m no economist :) but you bring up a great point that this is fundamentally different.

    We are one of those businesses who “stocks shelves and pays rent” with our credit. We have established credit and aren’t looking to drastically expand our credit lines any time soon, so I don’t think we’ll be impacted too much. We’ve always paid our bills on time and in turn we’ve had our limits slowly increased, so my guess is that that’ll continue for companies like us. Now, if you’re starting a company today and you don’t have good personal credit, you’ll probably have trouble.

    The optimist in me thinks that it won’t get nearly as bad for the average person/business owner as is being speculated, but maybe I’m being unrealistic. The businesses and people who over-extended themselves will be the ones to suffer most, and to some extent that’s how it should be. While I don’t wish ill will on anyone, the market had to turn around at some point and there always will be repercussions for risky decisions.

  3. Adam,

    Thanks for the props on Stall Points. You are spot-on with the relevant message from our book for managers in the current economy: bad times can create bad strategy. Price increases can cause longtime customers to trade down and then trade away, behavior that can harden into changed loyalty. Across-the-board salary freezes make your best talent vulnerable to poaching by signalling them that their best days with you might well be over. And a defensive crouch is a horrible posture for a leader in uncertain times, perpetuating those poor assumptions you cite.

    Your readers can take a free test at our website called a “‘Red Flags’ Diagnostic” if they are interested in assessing their own company’s vulnerability to a growth stall. If it’s your policy, please feel free to point them to http://www.stallpoints.executiveboard.com.

    Thanks,

    Derek van Bever

  4. Adam McFarland says:

    Thanks for taking the time to comment – always cool to hear directly from the author! I really enjoyed reading Stall Points. I get quite a few books sent to me and this is one of a handful that I really wanted to pick up and read every day. The most impressive part was the shear amount of data that you compiled…having an engineering statistics background I can appreciate how difficult and time consuming it is to acquire and organize that much data, yet alone draw the types of conclusions you guys did.

  5. Adam McFarland says:

    Another good resource I just found http://www.inc.com/election/

  6. [...] I am very grateful to be in the position that I am in with our company.   Our business hasn’t been impacted hardly at all – we’ve still been growing very fast, which probably would have been happening irrespective of the economy at large, much like I predicted. [...]

Leave a Reply

Your email address will not be published. Required fields are marked *

Commenting Rules

I'm honored that you found this post interesting enough to leave a comment. Before posting, I have a few ground rules:

  • Please keep your comments as relevant to the post as possible.
  • No personal attacks or any other nastiness.
  • Your first comment is subject to my approval.

Thanks!