The great shake out

It has always been a self-evident truth that any business which failed to generate gross margin greater than or equal to its expenses was doomed to fail after a period of time. Failure, however, is not a binary issue rather it is a progressive one that hits stockholders first, employees second, trade creditors third, lenders fourth and (ironically) managers last. The irony of course is that the managers tended to be the group that made the decisions that demolished the value of all the other stakeholders.

There are many brands that continue to exist despite the utter destruction of the interests of almost all of those that funded their creation.

So as we look at the world today with banks changing hands for pennies, with governments taking direct ownership of the bastions of the free market one can only wonder what happens to the hundreds of digital marketing businesses whose working capital is shareholder funds rather than real revenue.

It seems inevitable that some, or many, will disappear, that others will change ownership and that staff and investors will take the pain. The most bitter pill is that many of these businesses have operated at losses and at the same time severely dented the value of truly worthwhile enterprises whose own revenues have been decimated by being undercut by offers that had no commercial justification.

Hubris has always been a dangerous thing and never more dangerous than when excercised by those who also have the influencing abilities of the Pied Piper. 

It’s an ugly game in which no one wins. Paper value is just as ephemeral as it sounds. Things that appear too good to be true often are just that. Even those that got short term gain from the half baked promises of others suffer the unintended consequence of diminishing the capacity of the partners that really offered value.

A book might be written today about how the web undermined advertising, destroyed the value of content and intellectual property, created an expectation of free everything, disintermediated real businesses staffed by real people and gave back a little convenience in exchange. It should be dedicated to the bookstores in which people browse and write their Amazon shopping lists, to the banks that went bust by responding to ‘we compete to lend you money’, to the builders of the telecommunications infrastructure who can’t collect tolls for usage and all the others.

It might be called ‘How the internet changed the world and bought America to its knees.’

As the Family Guy would say ‘it’s time to get back to those good old fashioned values on which we used to rely’

1 Comment

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One response to “The great shake out

  1. Dear Rob:

    You are quite right. This banker (NOT OWNER OR CUSTOMER) – driven scale automation blather/spirit has made it unfashionable to be profitable in digital – with few exceptions businesses have been built to sell quickly rather than built to succeed for the long term. The rallying cry was spend more, more quickly, and buy customers with losses. This way, bankers could re-fund the desperate children they birthed and take commissions, leaving founders with small fractions of their own enterprises. However for those that have have built businesses brick by brick with customer money, and provide a real value, this is quite a happy time. No amount of money from a bank could have given us the opportunity to destroy so many competitors and get the noise out of the system. In the long run, you can not buy customers, you must earn them. That is as it should be. And for those left, now will be a good time to get wreckage at cents on the dollar. Creative destruction is a just outcome.

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