I have a good friend named Craig. He is a two-time cancer survivor. About 5 years ago, he contracted a staph infection. The doctors gave him a choice...lose your legs or lose your life...not much of a choice - lose or lose. Now Craig had plenty to live for (a wife, three incredible young kids, lots of loved ones and a phenomenal charity that has helped thousands of kids to pay for college)...he chose to lose his legs...he didn’t want to...but it had to happen if he was to survive to love/fight another day...
This week I’d like to start by telling you a story about a company.
This start-up company was founded by some really smart people who had come together as individuals each with their own skills and talents as well as their own wants, needs and ideas of success. These people knew that if they tried to start their own individual businesses they would not become as successful as they would by banding together.
The company had a rough start in the beginning. They were undercapitalized and didn’t have much credit. The management was untested and inexperienced. They found themselves in very competitive markets going head-to-head with much bigger and well established companies.
The management team had some really innovative ideas, a well thought out business plan, a mission statement and a set of core values.
The small start-up assembled a great hard-working production staff who shared many of the same entrepreneurial ideas as the company.
Together the management and staff work long hours and many years to create a series of successes. They fought off several hostile takeovers, made some strategic acquisitions, and opened new markets.
Each person of the small company worked extremely hard to make it a success. The company rewarded their employees with a good living wage, educational benefits, access to health benefits, and promoted people from within based on merit.
Soon, employees from competitor companies wanted to join the new startup as opportunities in their own companies were lacking. Competition for the better jobs was fierce and those who worked the hardest and the smartest typically had more success than those who didn’t work so hard or take advantage of the educational opportunities before them.
The many years of hard work finally began to pay some dividends. The managers of the company soon had some profits to which they were able to invest in new machinery, tooling and computers. This modernization program allowed the company to grow very rapidly and due to some poor management by their closest competitors, the company was able to gain significant market share during this time.
After a few market transitional periods and the introduction of some new innovative products, the little company found themselves on top of the market with a growing market share. The little company wasn’t so little any more. Life was good for everyone.
A few years went by, and profits continued to roll in. However, the new-found profitability seemed to change the people at the company.
The management team, who always seem to do what is right for the company began paying themselves large bonuses, while enjoying lucrative perks and taking more time off. They forgot about the company and the average worker and began thinking solely of themselves.
This didn’t sit well with the hard working production staff which began seeing the management team as greedy and self-serving. The workers decided to organize a collective and demand better working conditions, higher wages, free healthcare and early retirement from management.
The workers, over the years, had amassed large blocks of stock, and if the top management didn’t cave into their demands, the workers would band together and replace the entire management team (which they actually did from time to time just to show management who was calling the shots).
During this time, new competitive start-ups were beginning to take root in some markets. Market share began to slip away from the big company. These new start-ups were hard working and copied many of the early management characteristics of the now big company.
Profits at the big company began to erode as the management and their staffs now worked less hours and were generally less productive than their upstart competitors. Free lifetime health care benefits were lavished upon workers and their families. Due to worker demands and high management turnover, the workers were able to negotiate an early retirement program where they would be paid a portion of their former wages for the rest of their ever-increasing lifespan. These worker benefits were not significant, at first, but became a larger and larger burden to the company.
The management team was no longer a cohesive unit but had broken into hostile competing factions. Each faction rewarded their own friends and supporters with rich and profitable contracts at the expense of the company. In addition, there were several hostile takeover attempts being made by and against the company using precious company resources.
The company, with increased costs and more competition, continued to lose market share and profitability. The company, needing to create more revenue, decided to raise prices for their very best customers, create new handling fees, and start charging for shipping. The theory was that their customers could afford to pay more so why shouldn’t they. This new pricing structure worked for a while but soon their customers began to revolt and started purchasing their products from the company’s competitors whose prices were much less than the company’s.
Soon the company’s revenues were not large enough to pay all of its expenses so it began to borrow money...at little at first...but then considerable amounts later on. A very large portion of this borrowed money (about 45%) went to pay for former-workers benefits (because these former workers had a considerable amount of voting stock and would threaten management with removal if they didn’t keep paying these benefits).
The interest payments on this debt continued to climb (now about 6%). The amount of money fighting off hostile takeovers was now consuming 25% of the all expenditures. The expenses and competition were becoming too great of a burden so management decided to layoff some workers but continue to pay them a portion of their salary as severance.
The company is now on the brink of bankruptcy if it doesn’t radically reorganize its fundamental operational structure. Its revenues are budgeted to be $2.2 trillion dollars in 2011 but its expenses were estimated at $3.7 trillion dollars. 76% of the expenses were spent on benefits for former workers (45%), defense (and offense) (25%), and debt service (6%).The other 24% is spent on education (3%), transportation (3%), low income / jobless benefits (12%), other programs and general government (6%)
It can’t continue this way for much longer...we need to cut expenses or raise taxes $1.5 trillion dollars to create a balanced budget. Additionally, we now have some major competition from all over the world so gaining additional revenues from increasing market share isn’t going to happen any time soon.
Those are the cold hard facts...no politics...no finger pointing...
There is still time...we can fix it...but it won’t be easy...in fact it’ll be downright painful for ourselves...our friends...our neighbors...and for our loved ones...but we can do it if we try...we have the competitive spirit inside us...
We can chose to die or we can live to fight/love another day...
Thank you very much for supporting OptiFuse where we acknowledge the entrepreneurial spirit inside each of us.
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