7 ms·

Business owner here. First, let me dispel the myth that business owners are wealthy. All of my friends from school have more liquid assets than I do. I am utter

by ttul 7y ago

Business owner here. First, let me dispel the myth that business owners are wealthy. All of my friends from school have more liquid assets than I do. I am utterly broke unless you count for the paper wealth of my company shares. When COVID hit, within a week we had customers dropping out of our sales funnel. Half of our expected revenue growth disappeared as customers decided to reduce risk and stick with existing solutions. This is what happens when the market goes “risk off”. My company, like most, is leveraged. If I don’t earn positive cash flow, covenants on my debt will trigger a default, instantly ruining the firm. One default cascades to all the facilities, because that’s how debt works. So, if I need to get to cash flow neutral, I am going to lay people off. I have no other option. It’s either that, or ruin. This is why the government is supporting businesses by effectively becoming a lender of last resort. By tapping government loans, I can maintain my employees while we wait out what will probably be a short period of downturn. The money I have been offered is three year. Three years from now, we have either figured this thing out or we are living in caves. I’ll pay back the loan and my employees will keep their jobs. That’s how this works. If I could provide feedback to policy makers: government should get something in return for the largesse. A small stake in each company, for instance, that we have the option of buying back at cost later. Because if society is supporting my business, society should have a stake in its recovery. I have not seen that happening anywhere.

pdeuchler 7y ago
If a 50% drop in expected revenue _growth_ causes you to default on your debt you are either a startup that had trouble raising money, in which case now you know that you do not have a viable business plan, or you are running a completely unsustainable business that only existed because of easy access to cheap debt the past couple of years.
- ttul 7y ago
  Common misconception. It’s not uncommon for companies to use leverage to fuel growth. High yield venture debt is often tied to growth metrics. It’s not a mistake to operate a company using venture debt. In a highly competitive market, if you don’t lever up, your competitors will eat your market.
  - Ericson2314 7y ago
    This is what the VCs want their dependents to do, to keep them suckling at the teet. It doesn't make sense otherwise.
  - mst 7y ago
    Something I often explain to customers (shadow.cat is a consultancy so we usually don't arrive until several years into a company's life) is that, yes, they've accumulated a shitload of technical debt, and yes, I get they're embarassed about it, but if you don't cut some corners in the early days your competitors who do will drive you out of business before it ever matters. Then I politely point out to them that they're still in business, and their codebase is doing something sufficiently useful to customers that it's making enough money to be able to support a budget for us to help, so clearly they did something right and I'm not going to hold against them the choices without which they'd've never become a customer anyway. (anybody doing similar work please feel free to steal my spiel, it's so nice to get the in-house developers to realise they're not going to be judged because it makes it much easier to get on with the part where you work with them to unfuck the codebase :)
  - mistermann 7y ago
    > It’s not uncommon for companies to use leverage to fuel growth. Seems true. > High yield venture debt is often tied to growth metrics. Seems true. > It’s not a mistake to operate a company using venture debt. Is this true, or might it be more accurate that particular people, depending on their situation, would like to have us believe it is true? If a company is operating using venture debt, or operating in any arbitrary fashion for that matter, and then a disruptive incident occurs and the company's finances are insufficient to sustain itself and must shut down (in turn losing at least a significant portion of the initial investment), is it accurate to say that "no mistakes have been made"? If the business in question then goes hat in hand to the public (whose constituents are often lectured to "save money for a rainy day", and who also have serious financial issues of their own), asking for a bailout with this story as a justification of sorts, does this not seem a little bit absurd? Am I looking at this the wrong way, because it kind of seems counter-intuitive to me? > In a highly competitive market, if you don’t lever up, your competitors will eat your market. Seems true.
- goatherders 7y ago
  Not true at all
- edanm 7y ago
  > or you are running a completely unsustainable business that only existed because of easy access to cheap debt the past couple of years. Or you planned for revenue growth by doing things like buying extra equipment, hiring more workers, increasing office space, etc. When operating a business, you have to plan for growth, or lack of growth, or even for revenue to fall. And your planning often costs money, or commitments to pay money. If reality suddenly doesn't match your planning, then you are in trouble. And I totally don't get why people are so negative on debt. If I'm running a relatively new company, and realize I have a good product that is going to increase in demand next year, but I don't have the money to build out a new factory - I can get a loan. If I happen to be, say, Apple, I don't necessarily need a loan - I can finance it myself using cash reserves from previous years. Why is it better to live in a world where the only companies who can build up for future growth like this are huge companies like Apple?
  - pdeuchler 7y ago
    Uhhhhhh, are you talking about bank term loans? Bank term loans have repayment periods over decades (usually), and use the physical assets as collateral. Not what OP is talking about.
speleding 7y ago
If you pay your employees and you pay taxes then saving your company is already a worthwhile investment for the taxpayer. Governments are typically not very good at owning companies.
- ttul 7y ago
  They don’t have to own the whole thing. However at some point owning a small non voting stake... I just don’t see the downside. You want cheap money? Uncle Sam is going on your cap table.
  - mst 7y ago
    I'd been thinking about this. My thought was that rather than going straight onto the cap table, the government would get a sort of option set where either you pay back the loan with interest or if for whatever reason you need to defer/reduce payments then they get the shares. Not honestly for your benefit so much as because accounting for and disposing of that shareholding is not something the government is set up to do efficiently so avoiding them needing to as much as possible seems sane. (also a business owner here, but a purely bootstrapped one hence my vagueness around the terminology - but hopefully the idea makes some sort of sense and if it actually sounds useful then somebody who does grok the cap table side of things can flesh it out ;)
- Ericson2314 7y ago
  The government could push for policies policy, like workers boards, with it's equity. We should nationalize and then spin off as coops. Something needs to break the anti-democratic workplace. Or I'll put it this way: The government policy should be that capitalists might rather go bankrupt than be bailed out with concessions.
the8472 7y ago
> Half of our expected revenue growth I am guessing that restaurants would be pretty happy if that's all they were facing.
- ttul 7y ago
  Restaurants are levered differently.
Findeton 7y ago
"Show me the incentive and I will show you the outcome" Charlie Munger. Socialism, or socialist measures like these, create perverse incentives. If by laying off more people than you need to the company gets more benefits from the government, it would be against their incentives not to do so. I'm not saying this is a good thing because this kind of crisis can't be easily tackled without government intervention, but that doesn't mean socialism is going to magically work.
mistermann 7y ago
> A small stake in each company, for instance, that we have the option of buying back at cost later. Because if society is supporting my business, society should have a stake in its recovery. If businesses can buy it back at cost later, is this not a textbook example of moral hazard? Now I in no way believe you, or business people like you, are responsible for this debacle any more than the average person on the street - rather, it is these gigantic but incredibly fragile corporations that have optimized for profitability at the expense of stability/resiliency who have put the entire country in an extremely precarious place. Again. 12 years after the last one, which a lot of "non-expert" people saw coming, while the "expert" economists and policy makers poo-poo'd these warnings, patting these people on the head as if they were children who are unable to think on the same level as them. Technically, they are right, in a way - us regular folks truly do not think on the same level as them, in that we tend to not posses the magnitude of arrogance and self-confidence it requires to drive straight into a clearly visible wall at top speed, while ignoring all warnings. Will we learn anything this time? I predict we won't, and I speculate that the core reason is that we have a fundamental problem in our culture. Our cultural axioms (the way we believe reality is, the way we believe society and commerce should be structured, etc) contain imperfections. Until we are willing to consider this possibility, and then proceed with a serious[1] post incident analysis, with a goal of honestly identifying shortcomings and setting out to fix them for good, I'm afraid we will repeat this whole process over again within 20 years. Think about the magnitude of the aggregate intelligence that exists within the HN community, with broad expertise across many domains. And not just HN, but all the various communities out there. Imagine if these "non-experts" were to one day say: "We have had enough. Let's stop fighting among each other, put our heads together, and start writing policy papers of how this should be done, go through a standard process of review, criticism, refinement, etc (just like we do on any engineering project), and then publish and publicize the results of this work widely. Let's use our combined minds, and voices, to once and for all put some detailed and implementable ideas out into the public domain, and shine a light on them for all to see. Then, when "the experts" come up with their self-serving plan, we can start a process of compare and contrast, pointing out in extreme clarity, in words understandable to both layman and domain expert[2], exactly where they have hidden their backdoors." Granted this is no small task, but is it impossible? And if we don't do it, what are the consequences of that choice (because doing nothing is a choice). [1] By serious, I mean: no restrictions on access to information (and therefore no restrictions on who can get involved in an analysis - "many eyes"), no restrictions on speech, no single entity (corporations, lobbyists, mainstream media) dictating the narrative to citizens). The post 2008 analysis is not what I would call serious. A more appropriate word for that would be "theater", not unlike many other rituals our society engages in. [2] Ideally, the information would be presented in various levels of detail, catered to different demographics, not that dissimilar to those who do contribute documentation to open source projects.
travisporter 7y ago
You may be a good CEO but is there any clause that prevents employers from firing everyone and taking the loan for themselves?
- ttul 7y ago
  Some governments are wisely tying their bridge loans to requirements that companies not do layoffs.
emaz1ng 7y ago
"My company, like most, is leveraged". Which is exactly why they should have never even exist in the first place. You and the ones you're refering to are part of the bigger problem. This is just a cycle and it will happen again.

by ttul 7y ago

pdeuchler 7y ago

If a 50% drop in expected revenue _growth_ causes you to default on your debt you are either a startup that had trouble raising money, in which case now you know that you do not have a viable business plan, or you are running a completely unsustainable business that only existed because of easy access to cheap debt the past couple of years.

ttul 7y ago
Common misconception. It’s not uncommon for companies to use leverage to fuel growth. High yield venture debt is often tied to growth metrics. It’s not a mistake to operate a company using venture debt. In a highly competitive market, if you don’t lever up, your competitors will eat your market.
- Ericson2314 7y ago
  This is what the VCs want their dependents to do, to keep them suckling at the teet. It doesn't make sense otherwise.
- mst 7y ago
  Something I often explain to customers (shadow.cat is a consultancy so we usually don't arrive until several years into a company's life) is that, yes, they've accumulated a shitload of technical debt, and yes, I get they're embarassed about it, but if you don't cut some corners in the early days your competitors who do will drive you out of business before it ever matters. Then I politely point out to them that they're still in business, and their codebase is doing something sufficiently useful to customers that it's making enough money to be able to support a budget for us to help, so clearly they did something right and I'm not going to hold against them the choices without which they'd've never become a customer anyway. (anybody doing similar work please feel free to steal my spiel, it's so nice to get the in-house developers to realise they're not going to be judged because it makes it much easier to get on with the part where you work with them to unfuck the codebase :)
- mistermann 7y ago
  > It’s not uncommon for companies to use leverage to fuel growth. Seems true. > High yield venture debt is often tied to growth metrics. Seems true. > It’s not a mistake to operate a company using venture debt. Is this true, or might it be more accurate that particular people, depending on their situation, would like to have us believe it is true? If a company is operating using venture debt, or operating in any arbitrary fashion for that matter, and then a disruptive incident occurs and the company's finances are insufficient to sustain itself and must shut down (in turn losing at least a significant portion of the initial investment), is it accurate to say that "no mistakes have been made"? If the business in question then goes hat in hand to the public (whose constituents are often lectured to "save money for a rainy day", and who also have serious financial issues of their own), asking for a bailout with this story as a justification of sorts, does this not seem a little bit absurd? Am I looking at this the wrong way, because it kind of seems counter-intuitive to me? > In a highly competitive market, if you don’t lever up, your competitors will eat your market. Seems true.
goatherders 7y ago
Not true at all
edanm 7y ago
> or you are running a completely unsustainable business that only existed because of easy access to cheap debt the past couple of years. Or you planned for revenue growth by doing things like buying extra equipment, hiring more workers, increasing office space, etc. When operating a business, you have to plan for growth, or lack of growth, or even for revenue to fall. And your planning often costs money, or commitments to pay money. If reality suddenly doesn't match your planning, then you are in trouble. And I totally don't get why people are so negative on debt. If I'm running a relatively new company, and realize I have a good product that is going to increase in demand next year, but I don't have the money to build out a new factory - I can get a loan. If I happen to be, say, Apple, I don't necessarily need a loan - I can finance it myself using cash reserves from previous years. Why is it better to live in a world where the only companies who can build up for future growth like this are huge companies like Apple?
- pdeuchler 7y ago
  Uhhhhhh, are you talking about bank term loans? Bank term loans have repayment periods over decades (usually), and use the physical assets as collateral. Not what OP is talking about.

speleding 7y ago

If you pay your employees and you pay taxes then saving your company is already a worthwhile investment for the taxpayer. Governments are typically not very good at owning companies.

ttul 7y ago
They don’t have to own the whole thing. However at some point owning a small non voting stake... I just don’t see the downside. You want cheap money? Uncle Sam is going on your cap table.
- mst 7y ago
  I'd been thinking about this. My thought was that rather than going straight onto the cap table, the government would get a sort of option set where either you pay back the loan with interest or if for whatever reason you need to defer/reduce payments then they get the shares. Not honestly for your benefit so much as because accounting for and disposing of that shareholding is not something the government is set up to do efficiently so avoiding them needing to as much as possible seems sane. (also a business owner here, but a purely bootstrapped one hence my vagueness around the terminology - but hopefully the idea makes some sort of sense and if it actually sounds useful then somebody who does grok the cap table side of things can flesh it out ;)
Ericson2314 7y ago
The government could push for policies policy, like workers boards, with it's equity. We should nationalize and then spin off as coops. Something needs to break the anti-democratic workplace. Or I'll put it this way: The government policy should be that capitalists might rather go bankrupt than be bailed out with concessions.

the8472 7y ago

> Half of our expected revenue growth I am guessing that restaurants would be pretty happy if that's all they were facing.

ttul 7y ago
Restaurants are levered differently.

Findeton 7y ago

"Show me the incentive and I will show you the outcome" Charlie Munger. Socialism, or socialist measures like these, create perverse incentives. If by laying off more people than you need to the company gets more benefits from the government, it would be against their incentives not to do so. I'm not saying this is a good thing because this kind of crisis can't be easily tackled without government intervention, but that doesn't mean socialism is going to magically work.

mistermann 7y ago

> A small stake in each company, for instance, that we have the option of buying back at cost later. Because if society is supporting my business, society should have a stake in its recovery. If businesses can buy it back at cost later, is this not a textbook example of moral hazard? Now I in no way believe you, or business people like you, are responsible for this debacle any more than the average person on the street - rather, it is these gigantic but incredibly fragile corporations that have optimized for profitability at the expense of stability/resiliency who have put the entire country in an extremely precarious place. Again. 12 years after the last one, which a lot of "non-expert" people saw coming, while the "expert" economists and policy makers poo-poo'd these warnings, patting these people on the head as if they were children who are unable to think on the same level as them. Technically, they are right, in a way - us regular folks truly do not think on the same level as them, in that we tend to not posses the magnitude of arrogance and self-confidence it requires to drive straight into a clearly visible wall at top speed, while ignoring all warnings. Will we learn anything this time? I predict we won't, and I speculate that the core reason is that we have a fundamental problem in our culture. Our cultural axioms (the way we believe reality is, the way we believe society and commerce should be structured, etc) contain imperfections. Until we are willing to consider this possibility, and then proceed with a serious[1] post incident analysis, with a goal of honestly identifying shortcomings and setting out to fix them for good, I'm afraid we will repeat this whole process over again within 20 years. Think about the magnitude of the aggregate intelligence that exists within the HN community, with broad expertise across many domains. And not just HN, but all the various communities out there. Imagine if these "non-experts" were to one day say: "We have had enough. Let's stop fighting among each other, put our heads together, and start writing policy papers of how this should be done, go through a standard process of review, criticism, refinement, etc (just like we do on any engineering project), and then publish and publicize the results of this work widely. Let's use our combined minds, and voices, to once and for all put some detailed and implementable ideas out into the public domain, and shine a light on them for all to see. Then, when "the experts" come up with their self-serving plan, we can start a process of compare and contrast, pointing out in extreme clarity, in words understandable to both layman and domain expert[2], exactly where they have hidden their backdoors." Granted this is no small task, but is it impossible? And if we don't do it, what are the consequences of that choice (because doing nothing is a choice). [1] By serious, I mean: no restrictions on access to information (and therefore no restrictions on who can get involved in an analysis - "many eyes"), no restrictions on speech, no single entity (corporations, lobbyists, mainstream media) dictating the narrative to citizens). The post 2008 analysis is not what I would call serious. A more appropriate word for that would be "theater", not unlike many other rituals our society engages in. [2] Ideally, the information would be presented in various levels of detail, catered to different demographics, not that dissimilar to those who do contribute documentation to open source projects.

travisporter 7y ago

You may be a good CEO but is there any clause that prevents employers from firing everyone and taking the loan for themselves?

ttul 7y ago
Some governments are wisely tying their bridge loans to requirements that companies not do layoffs.

emaz1ng 7y ago

"My company, like most, is leveraged". Which is exactly why they should have never even exist in the first place. You and the ones you're refering to are part of the bigger problem. This is just a cycle and it will happen again.