Are any of you as bothered by these bailouts as I am? It seems everyone is now in line for a government handout. First it was the banks, now it's the auto industry. Who's next? We've talked to business leaders in other industries who jokingly (we think) say this a perfect time to be forgiven for all the sins of the past and take advantage of a fearful government to load up on some cash and live to fight another day. No plan required. Just enough mass to create an environment of fear that your failure will lead to others.
In nearly any other time, the kind of things that went on in Washington over the last month around the auto industry bailouts would have been laughed out of any rational financing discussion. Let's see. My current business is a disaster. I don't make products people want to buy. My costs are high and future obligations substantial. I have no idea how to turn this around but what I would like is for you to give me a bunch of money to figure it out. And we're doing it!!!
How tuned out is that?
The cold, harsh realities is that these bailouts are going to have little to no impact because these businesses are flawed at the core. And nothing is being done in the process to change the fundamentals. This is the type of funding strategy has only been proven to fail about every time it's tried. How different are these bailouts than the typical corporate merger or acquisition? We know from experience that 9 out of 10 of those fail right? Why do they fail? Fundamentally, it's because there is a misalignment from the start. They're too often based on inside out views of market share math or financial statement math while the leaders putting together the merger ignore the fact that this is a living, breathing business that is supposed to create value.
The misalignments are all over the map:
- People and cultures don't fit together.
- Key strategies exist in each entity that can never work together.
- Execution philosophies and priorities are different.
- Financial objectives are made up and not based on reality.
It's the misaligned expectations that kill mergers and acquisitions. And they occur despite months to years of deep due diligence.
What makes us think that a merger of the government with banks, auto industry, real estate, maybe health care and others is going to work? Are we all nuts? What alignment do we expect the government to have with business practices in lending, building cars or buying homes? How long before the governance functions take on a whole new meaning and the basic strategy of the business is changed into something it was never designed to be and can't execute?
This is not only a top-down perspective only we're talking about here. For a view of the bottom-up perspective from a GM supplier, checkout Knox Machinery's response to Tony Clark (President of GM North America) and his request for support of the bailout plan. They want no part of it either.
What a mess. We're early in the game and for the most part and the relief of surviving a near death experience is overwhelming good sense. It won't be long though before reality sets in and the expectation that many have that we'll be OK will be replaced by a realization that all we've done is bail a little water out of a sinking ship. Nothing about the fundamental value that businesses create has changed since they got bailed out. It no doubt will get worse before it gets better.
So, besides my ranting, what does all of this mean to you? Simply this. Stop treading water with your business and get focused on getting tuned in to a money making opportunity for today's market. This bailout nonsense will end soon and the businesses that build value will survive. Those that don't will die, no matter how much money naive investors throw at them.
