(Photo by my brother in Denver)
Last time I opened with:
Most of us are taught that business should be about providing a product or service in return for a reasonable profit. It seems that in some circles an entirely different set of aspirations and rules are being taught.
There’s another aspect to the behavior of megalithic businesses, wannabe imitators and ultra wealthy individuals. They feel entitled to be subsidized by those who have less than they do.
If you have a business that is anything other than big, you are at a disadvantage. If you are an individual who does not have high net worth, you are at a disadvantage.
They’re getting somebody else to pick up part of their tab in ways that you can’t. In one way or another, some of them have their hands in your pockets.
Taking What Isn’t Theirs
Sometimes it’s straightforward. When dealing with smaller companies, big ones can and sometimes do take what isn’t theirs.
One of my smallish clients scrimped and sweated for years to develop a software system to provide a major quality control advance for an entire industry. Their largest customer insisted that they collaborate with a big competitor on a “proof of concept” project. Appropriate legal agreements were signed to promise confidentiality, protect each company’s intellectual property, and so on.
The competitor stole a copy of the source code. When my client asked their customer to intervene, the customer shrugged it off, saying it wasn’t their problem. Then the customer bought the system at a cheaper price from the competitor who had taken a copy of it. The competitor still markets it as their own. My client discovered too late that legal agreements are only enforceable if you have buckets of money for lawyers. The episode nearly drove my client out of business.
Demanding Freebies
In the years since then, I have often worked with people who had a bright idea but needed an investor to kick in enough to take it to market. Going from prototype to factory manufacture of a product you can put on shelves requires some resources.
When an innovator takes a space engineer along to meet with a multinational’s executives or with a high net worth individual, nobody questions how the project will be run. Everyone in the room feels comfortable that I will handle it. They focus on production ramp-up, market entry, cash flow projections and return on investment, which is exactly where they need to focus in order to get to market as soon as possible.
Given that they aren’t stuck on worries about execution and the meetings wouldn’t happen at all without projections of ample profit, why do very few of these projects go forward?
Because they snag on freebies the investors demand before they are willing to put investment in. As an example, one high net worth individual demanded that an inventor deliver £70,000 worth of additional development before he would invest a couple hundred thousand, from which he stood to make at least a million in profit. There was no rational need for the additional work. The investor simply wanted it.
If it had only been a matter of donating labor, the inventor might have taken a chance on whether the investor would honor his word. Unfortunately, it required materials and tools that cost money. The investor had already sunk his savings into developing the prototype we demonstrated, which was well polished and only needed to be put into production. He couldn’t fund the freebie the investor demanded. It would have been pocket change to the investor, but the investor wouldn’t budge.
After a little more than a decade, someone else brought a similar device to market. The inventor and investor I met with missed the window of opportunity.
I’ve seen this routine play out between small innovative companies and big companies, too.
The scenario is not at all unusual. Big companies and high net worth investors can afford to pass up opportunities this way. Enough opportunities come to them where the supplicant is somehow able and willing to kick in whatever freebie is demanded.
Getting Subsidies from Taxpayers
Then there are various ways big companies get taxpayers to cover some of their costs.
Sometimes it’s direct, such as a tax break to entice a large company to build a new facility in a particular area, especially popular in the USA. In the UK, government grants are more common. Where an American company looks for investors to start a new venture, a British company tends to look first for some type of government grant.
Sometimes it is not so direct. It is common for enormous companies to pay a tax rate that is hardly more than a faint shadow of what more ordinary businesses and people pay. Often, behemoths get away with paying nothing or next to nothing in tax, even when bringing in more money than the entire budget of some countries.
At the same time, many such companies employ workers on such low pay that the workers have to get support from the government to survive. In the UK where I live, that is now Universal Credit. In the USA it is more of a hodgepodge. The companies get taxpayers to pay for a portion of their workforce.
Being employed does not provide at least a basic standard of living. Increasing numbers of people are ending up homeless. In both of my countries, it is most visible in big cities. In the UK, even in cities it is usually kept relatively unobtrusive, although it is prominent in some places such as Brighton. But in the USA, it is burgeoning.
The last time I visited my brother in Denver before moving to the UK, a bit over 15 years ago, Colfax could be an awkward street to be on. A homeless man saw my beloved 20 year old pickup truck as a sign that I could spare a few dollars for him. But I don’t recall seeing actual camps there.
Last year my brother sent a short video of one side of Colfax, block after block of tent after tent, jammed close to each other, filling the ground between sidewalk and street. Now homeless camps have spread closer to the city’s heart. The image accompanying this post is just a few blocks from Colorado’s capitol building, taken from above so no one can be readily identified.
These are not all people without jobs. Some of them are working, holding on as best they can. A tent beside a public street is all they can afford to live in. It’s a disturbing dichotomy, workers living like this when large corporations and the wealthy people who own them are booming.
Unsustainable
This is not sustainable.
The condition of a company is most often discussed in terms of profitability and financial performance. The condition of a nation is most often measured in terms of Gross Domestic Product and the size of its economy.
We already know it is imperative for us to inflict a lighter environmental burden on the planet. Part of that requires slowing, eventually halting, population growth. Those factors mean we cannot continue to strive for ever-higher financial numbers.
The resource picture is also becoming more and more top heavy, concentrating more and more of our resources in the hands of a small elite among businesses and people.
Top heavy things fall over eventually.
When that happens, it will be messy. Those mooching hands will not be in your pockets so much, but there will be a lot of financial rubble to pick your way through.
What do I suggest? Set yourself up for resilience. Those who are resilient will generally get through the disruptions best. Opportunities await on the other side of the economic reset that is coming. Let’s be ready for them.