The boom of the dotcom companies drew the eager multitudes into this erroneous thinking once again. You can see where this got us. It could be labeled, from those with a clear mnd, that it was the straw that broke the camel’s back of the California economy.
It didn’t help those involved in similar businesses in what became known as Silicon Alley, a part of New York city’s business district. The attitude that you can run a business without a proper budget and not worry about profit has left a path of devastation in its aftermath. To make matters worse, they are starting to go back at it again in Northern California.
To add to this dismal outlook, we, the general public, has fawned a group of business reporters who are so awe struck by the ‘stars’ of big bucks they are making the matter worse by reporting allusions of “making it” with no investment money. Entrepreneur magazine recently did a “thing” (the kindest way I know of putting it), on the 100 hottest companies. They did few interviews, but did what I would call a boiler plate list of facts about the company. Several listed their initial investment as $0.
I picked up last month’s Business 2.0 and read a selection from a new book about the history of the launching of “Wired” magazine. The two who started it were broke. They borrowed equipment, ripped off articles and ads and produced a dummy. As soon as that happened, they hit the trail for OPM (other people’s money) and never stopped. They also recruited $100 a week interns to keep the overhead down. This was an excellent excerpt to tell the true story of what a new business is faced with.
This ridiculous notion that companies can continue without being profitable, if not halted, just might be the last hurrah for Corporate America. Another example to show how this ignorance has prevailed in our business market, is the history of Earthlink.
(I need to make a footnote here as to why I know about this ‘stuff.’ I covered the Internet and once even did contract work for Earthlink. I wrote a column and a cover story about this for Pasadena Weekly. I also wrote for Microtimes, now deceased.)
Back to Earthlink, up until 2000 they were still dripping in red ink. Their answer to bringing in more capital, when they threatened to run out was to merge with another company and acquire their working capital. (The latest figures from their start page shows that for the second quarter of 2003, they reported a net loss of $14.5 million. Granted, it was down from a loss of $34.9 million the previous year. (Currently, there start page isn’t revealing specifics, but there numbers for today’s trading are in the red.) This still amounts to the same erroneous thinking. If you are knifing some one, you are knifing them, it doesn’t matter if you do it once or a hundred times, you still get the same result.)
THIS MATTERS TO ALL OF US
It’s very simply this ridiculous method of analyzing business effects each and every one of us. As it continues, it leaves its history and effect through all markets that compose the aggregate market of the U.S. economy.
Investors end up losing eventually, unless of course, they buy in at the bottom and have the common sense to sell when it starts going south. The major effect is on the thousands who end up on the unemployment rolls when their employers come in on a Friday and announces there isn’t enough of the investment pool left to cut anyone’s check. (This actually happened to a
major venture I was doing contract work for in Northern California.)
When companies die almost over night, consumers whose business was tied to that service or product, are left without an out. They are forced to go shopping for a replacement in a shrinking market. A shrinking market means a shorter supply of a product/service and the natural result of the laws of supply and demand, a higher price.
The laws of supply and demand, and the need to earn a profit to keep a foot in the market, catch up with anyone playing the game. It’s time for America to wake up this reality before we all end up in food lines. The adage that we all hang together or we all die (the American market) together has never been more true.