5 ms·

Well this is sad. It seems to me that this should have been avoidable - along with others like airlines and cruise lines saying they're going to go bankrupt.

Well this is sad. It seems to me that this should have been avoidable - along with others like airlines and cruise lines saying they're going to go bankrupt. Why is hitting "pause" for half a year such a death sentence? As an individual, while I don't have a lot of money and my income is 0 currently, I've reduced expenses and could live off my savings for the next couple years. Why can't businesses do a similar thing -- is there some competitive advantage, in better times, that motivates businesses to keep almost nothing in reserves?

bluedino 6y ago
A lot of restaurants don’t really make much money
julianlam 6y ago
I imagine that many businesses do not retain earnings quarter over quarter because it can often be better invested in the company itself via expansion and such. However, especially in the case of restaurants, their profit margins are very thin, making them susceptible to swings in business.
jeppesen-io 6y ago
If you truly are in a position where you can have live off (non retirement I assume) savings for more than a year, you are in the tiny minority of the American population. Likely true for other countries. And just like you, very few restaurants are in the position to put that much in savings. Running restaurant is crazy hard for all but the few top percent Margins are thin. Competition is tough
switch11 6y ago
This is very easy to do when you are a person When you are a company (I speak as having worked in a trillion dollar company, a $10 billion one, and running a startup right now) 1) Office leases which you can't get out of 2) Server costs and subscription services to keep the company running 3) Salaries for everyone 4) Marketing. This is a Catch 22 situation. You cut on marketing and earnings go down. However, money for marketing becomes scarcer and scarcer 5) If you have any debt you have to service 6) One time costs - Coronavirus CREATES costs also * No one can plan for a Black Swan type event because it is a Black Swan type event * Also please keep in mind that it is a competitive situation You can't be super careful with money if all your competitors are throwing it away Think about what competitors of We Work, Uber, Tesla ($423 million in carbon credits + $1.49 billion Accounts receivable + taking $36 million out of Full AutoPilot Driving revenue in this quarter) have to do Can they be conservative? No They have to compete Then this (CoronaBlackSwan) happens Now no one has money and lots of companies die out
- pmiller2 6y ago
  A pandemic is not a black swan event: > Besides, the pandemic was wholly predictable—he, like Bill Gates, Laurie Garrett, and others, had predicted it—a white swan if ever there was one. “We issued our warning that, effectively, you should kill it in the egg,” Taleb told Bloomberg. Governments “did not want to spend pennies in January; now they are going to spend trillions.” [0] Pandemics aren't some new thing. They've been happening probably since pathogens and parasites evolved, and they'll continue to happen as long as they exist. --- [0]: https://www.newyorker.com/news/daily-comment/the-pandemic-isnt-a-black-swan-but-a-portent-of-a-more-fragile-global-system https://www.newyorker.com/news/daily-comment/the-pandemic-is...
  - s1artibartfast 6y ago
    Yes, pandemics are to be expected. The impact and magnitude of response necessary for this one is not predictable. The last one that came close was over 100 years ago.
    - pmiller2 6y ago
      Yes, so that means it's well within the range of what should be expected, albeit probability weighted. This is a classic low probability, high impact event, which is precisely one of the things insurance is for.
      - snicker7 6y ago
        Insurance systems are not good at dealing with highly correlated risks.
      - g3e0 6y ago
        Insurance companies can only afford to pay out because not everyone files a claim at once.
    - maerF0x0 6y ago
      "pandemic" is a big scary word that mostly describes the global distribution of a disease. The classical definition includes nothing about population immunity, virology or disease severity. Ebola was/is a big deal for the past 45 years off an on.
nickcorona 6y ago
No, this couldn't have been avoided. You simply cannot shutdown the economy for four months and not have a disastrous outcome. Somewhere in the economy, people will feel the effect. All you can do is shift the pain from someone to another.
- perl4ever 6y ago
  That doesn't make any sense. We can imagine a world in which going out to eat wasn't a thing, and there was no business for the pandemic to destroy. Same with haircuts and anything else that people are doing for themselves now. There's no amount of pain that's conserved. It's caused by the fact that people changed behavior that others were relying on, but that's a contingent feature of actual history.
  - smkellat 6y ago
    People are not code. People are, for lack of better terminology, messy. We are still finding unanticipated outcomes from this mess. I was reading a journal article yesterday about a separate unanticipated consequence of the coronavirus shutdowns that we may start to have trouble with weather prediction. Why? All those grounded airplanes doubled as automated airborne meteorological observation platforms to help provide the most accurate data possible. There are not enough drones with sufficient altitude rating to replace all those missing commercial air flights as to weather data capture.
    - perl4ever 6y ago
      >People are not code I have to assume that's a misunderstanding of something I wrote? I was saying that pain doesn't follow anything like physical conservation laws. If I fall down the stairs and break my leg, that's not a thing that had to happen to anyone. Statistically, a lot of people will hurt themselves in similar accidents every year until the end of time, but if I don't live in a house with a staircase, no cosmic law makes someone else get hurt to compensate.
chrisco255 6y ago
Because you can't hit pause on your liabilities. Double entry bookkeeping doesn't give a care about your virus. Your liabilities are someone else's assets. A pause in business activity on the scale we're seeing causes a chain reaction. The restaurant can't pause rent or loans (and even if they could, that just causes other downstream effects for bank balance sheets who can no longer loan out as much because their reserves are tapped, etc), or pause utilities, and when the restaurant ceases to purchase food and equipment that causes downstream effects on distributors and suppliers who have to tighten their belt which affects their creditors, employees, and suppliers, which affects everything else. Many restaurants lease or rent their equipment. There are huge capital costs to starting a restaurant. Businesses often operate on the margins, especially restaurants. They have to pull a lot of volume in order to make it selling food at $10-20 a plate. They maybe have 3% net profit margins, so they need to sell millions of dollars worth of food to make a decent income for the owners.
- wahern 6y ago
  This is the problem with everybody being leveraged to the hilt. I suspect some small fraction of property owners, however, are unleveraged, absentee, and likely willing to grant rent forbearance for quite awhile. For example, older people holding onto real estate for their children, or who simply really like their tenant and are committed to the community. Restaurants lucky enough to have such landlords, or similarly situated landlord-restaurateurs, are probably counting their blessings right now. We wouldn't have a very dynamic economy if everybody operated this way, but at least there's some heterogeneity to help us bootstrap things. No comfort for the huge number of people who have effectively lost their life savings, though.
1123581321 6y ago
If every business had that kind of margin saved up, everything would cost a lot more.
perl4ever 6y ago
Running a restaurant has a great deal of intrinsic value for a lot of people. Even if you happened to only care about making money and security, you have to compete with all the people who will settle for bare survival. So the whole industry has to run on the ragged edge of survival at the best of times because most people are trying to live out a dream, until they become completely unable.
- tonyedgecombe 6y ago
  I sometimes think the same is happening in software.
bsder 6y ago
Well, it's also a case that some owners seem to be using this to "put a bullet in the shambling zombie". The "Original Hot Dog Shop" in Pittsburgh, PA and "Threadgill's" in Austin, TX seem to have fallen to this. It seems like the people running it were doing the work but were getting a bunch of grief from within the family. So, Covid gave them the excuse to shutter the restaurant and get it off their plate without causing huge intra-family strife.

bluedino 6y ago

A lot of restaurants don’t really make much money

julianlam 6y ago

I imagine that many businesses do not retain earnings quarter over quarter because it can often be better invested in the company itself via expansion and such. However, especially in the case of restaurants, their profit margins are very thin, making them susceptible to swings in business.

jeppesen-io 6y ago

If you truly are in a position where you can have live off (non retirement I assume) savings for more than a year, you are in the tiny minority of the American population. Likely true for other countries. And just like you, very few restaurants are in the position to put that much in savings. Running restaurant is crazy hard for all but the few top percent Margins are thin. Competition is tough

switch11 6y ago

This is very easy to do when you are a person When you are a company (I speak as having worked in a trillion dollar company, a $10 billion one, and running a startup right now) 1) Office leases which you can't get out of 2) Server costs and subscription services to keep the company running 3) Salaries for everyone 4) Marketing. This is a Catch 22 situation. You cut on marketing and earnings go down. However, money for marketing becomes scarcer and scarcer 5) If you have any debt you have to service 6) One time costs - Coronavirus CREATES costs also * No one can plan for a Black Swan type event because it is a Black Swan type event * Also please keep in mind that it is a competitive situation You can't be super careful with money if all your competitors are throwing it away Think about what competitors of We Work, Uber, Tesla ($423 million in carbon credits + $1.49 billion Accounts receivable + taking $36 million out of Full AutoPilot Driving revenue in this quarter) have to do Can they be conservative? No They have to compete Then this (CoronaBlackSwan) happens Now no one has money and lots of companies die out

pmiller2 6y ago
A pandemic is not a black swan event: > Besides, the pandemic was wholly predictable—he, like Bill Gates, Laurie Garrett, and others, had predicted it—a white swan if ever there was one. “We issued our warning that, effectively, you should kill it in the egg,” Taleb told Bloomberg. Governments “did not want to spend pennies in January; now they are going to spend trillions.” [0] Pandemics aren't some new thing. They've been happening probably since pathogens and parasites evolved, and they'll continue to happen as long as they exist. --- [0]: https://www.newyorker.com/news/daily-comment/the-pandemic-isnt-a-black-swan-but-a-portent-of-a-more-fragile-global-system https://www.newyorker.com/news/daily-comment/the-pandemic-is...
- s1artibartfast 6y ago
  Yes, pandemics are to be expected. The impact and magnitude of response necessary for this one is not predictable. The last one that came close was over 100 years ago.
  - pmiller2 6y ago
    Yes, so that means it's well within the range of what should be expected, albeit probability weighted. This is a classic low probability, high impact event, which is precisely one of the things insurance is for.
    - snicker7 6y ago
      Insurance systems are not good at dealing with highly correlated risks.
    - g3e0 6y ago
      Insurance companies can only afford to pay out because not everyone files a claim at once.
  - maerF0x0 6y ago
    "pandemic" is a big scary word that mostly describes the global distribution of a disease. The classical definition includes nothing about population immunity, virology or disease severity. Ebola was/is a big deal for the past 45 years off an on.

nickcorona 6y ago

No, this couldn't have been avoided. You simply cannot shutdown the economy for four months and not have a disastrous outcome. Somewhere in the economy, people will feel the effect. All you can do is shift the pain from someone to another.

perl4ever 6y ago
That doesn't make any sense. We can imagine a world in which going out to eat wasn't a thing, and there was no business for the pandemic to destroy. Same with haircuts and anything else that people are doing for themselves now. There's no amount of pain that's conserved. It's caused by the fact that people changed behavior that others were relying on, but that's a contingent feature of actual history.
- smkellat 6y ago
  People are not code. People are, for lack of better terminology, messy. We are still finding unanticipated outcomes from this mess. I was reading a journal article yesterday about a separate unanticipated consequence of the coronavirus shutdowns that we may start to have trouble with weather prediction. Why? All those grounded airplanes doubled as automated airborne meteorological observation platforms to help provide the most accurate data possible. There are not enough drones with sufficient altitude rating to replace all those missing commercial air flights as to weather data capture.
  - perl4ever 6y ago
    >People are not code I have to assume that's a misunderstanding of something I wrote? I was saying that pain doesn't follow anything like physical conservation laws. If I fall down the stairs and break my leg, that's not a thing that had to happen to anyone. Statistically, a lot of people will hurt themselves in similar accidents every year until the end of time, but if I don't live in a house with a staircase, no cosmic law makes someone else get hurt to compensate.

chrisco255 6y ago

Because you can't hit pause on your liabilities. Double entry bookkeeping doesn't give a care about your virus. Your liabilities are someone else's assets. A pause in business activity on the scale we're seeing causes a chain reaction. The restaurant can't pause rent or loans (and even if they could, that just causes other downstream effects for bank balance sheets who can no longer loan out as much because their reserves are tapped, etc), or pause utilities, and when the restaurant ceases to purchase food and equipment that causes downstream effects on distributors and suppliers who have to tighten their belt which affects their creditors, employees, and suppliers, which affects everything else. Many restaurants lease or rent their equipment. There are huge capital costs to starting a restaurant. Businesses often operate on the margins, especially restaurants. They have to pull a lot of volume in order to make it selling food at $10-20 a plate. They maybe have 3% net profit margins, so they need to sell millions of dollars worth of food to make a decent income for the owners.

wahern 6y ago
This is the problem with everybody being leveraged to the hilt. I suspect some small fraction of property owners, however, are unleveraged, absentee, and likely willing to grant rent forbearance for quite awhile. For example, older people holding onto real estate for their children, or who simply really like their tenant and are committed to the community. Restaurants lucky enough to have such landlords, or similarly situated landlord-restaurateurs, are probably counting their blessings right now. We wouldn't have a very dynamic economy if everybody operated this way, but at least there's some heterogeneity to help us bootstrap things. No comfort for the huge number of people who have effectively lost their life savings, though.

1123581321 6y ago

If every business had that kind of margin saved up, everything would cost a lot more.

perl4ever 6y ago

Running a restaurant has a great deal of intrinsic value for a lot of people. Even if you happened to only care about making money and security, you have to compete with all the people who will settle for bare survival. So the whole industry has to run on the ragged edge of survival at the best of times because most people are trying to live out a dream, until they become completely unable.

tonyedgecombe 6y ago
I sometimes think the same is happening in software.

bsder 6y ago

Well, it's also a case that some owners seem to be using this to "put a bullet in the shambling zombie". The "Original Hot Dog Shop" in Pittsburgh, PA and "Threadgill's" in Austin, TX seem to have fallen to this. It seems like the people running it were doing the work but were getting a bunch of grief from within the family. So, Covid gave them the excuse to shutter the restaurant and get it off their plate without causing huge intra-family strife.