4 ms·

Death spiral

96 points by bearwithclaws 17y ago

jwb119 17y ago
extending your cash flow runway does not have to mean degrading your product
- mahmud 17y ago
  After reading the article I felt myself thinking "meditation is far easier than field leadership, Mr. Godin", but he does have a point. To his defense, I would say that the first indicator of growth is found in your own mind. If you think you're headed for better things, none of these difficult times will matter; you would still run your business, frugaly of course, but you would also have that life-giving spark, the hope necessary to see far into the future. I would say take his positive energy and run with it! Heh, listen to me, meditating.
briancooley 17y ago
Cost cutting can be an effective strategy when all your competitors are struggling as well. The game becomes one of survival, not of growth. Survivors in a market receive a large discrete boost when their competitors fail.
- iguanatom 17y ago
  I would agree if all things were otherwise static, but instead, one of your smart competitors are going to actually change (improve) how they conduct business and make your sliderule shop obsolete. Just because the economy is sluggish doesn't mean ideas are. "Desperation is the mother of all invention" - somebody profound.
- hcayless 17y ago
  Yeah but if you're a local newspaper (which is what this post makes me think of), your competition isn't the other local papers (if there are any). It's Craigslist, Google, etc. You aren't going to beat them because they aren't playing the same game as you. Being the last local paper standing isn't going to win you anything.
ratsbane 17y ago
To summarize, if your business is in a positive-feedback loop make sure it's one that's going up and not down: http://en.wikipedia.org/wiki/Positive_feedback http://en.wikipedia.org/wiki/Positive_feedback
keltecp11 17y ago
Newspapers should never have disbanded their R & D Departments...
- jrwoodruff 17y ago
  Not all of them have: (old-ish article, but I think it's still around) http://www.niemanlab.org/2009/05/at-the-new-york-times-preparing-for-a-future-across-all-platforms/ http://www.niemanlab.org/2009/05/at-the-new-york-times-prepa... but not nearly enough kept them alive, or ever had them in the first place.
mrbgty 17y ago
Why do costs get created in a company? Generally it seems that we create a cost because we think it will result in revenue greater than that cost or because we think that cost will prevent some other larger cost (such as fines from the gov't). I'm all for efficiency and maximizing the revenue we gain from each expense but we've still gotta realize that when we cut costs, we're losing something that was intended to generate revenue. I've seen this happen in a large company where they cut a ton of expenses thinking they are going to be profitable (and they are in the very short term) but all those expenses were there for a reason. A few months later, revenue drops like a brick.
- jbrun 17y ago
  Evolution anyone? Who has heard of an organism adapting to change by cutting their limbs off? People like stability. In fact, we are predisposed (through evolution) to think that the world is inherently stable. They think that if something has been working for 10, 20, 30 years there is no reason that it should not keep working; thus, a downturn in their business is a temporary abnormality that will correct itself. Sometimes this is true, usually, it is not. Often, with new technology (internet) and markets (china), costs get demolished. A business that relied on the previous cost-price ratio simply cannot compete. Things change - usually for the better - and companies who fail to adapt, die. Their failure to recognize genuine change is their own failure and no amount of cost cutting will change an organization for the better.
  - rimantas 17y ago
    Seth Godin has dropped the ball recently (imho), but talking about evolutionary angle there is one his book I highly recommend: "Survival is not enough". Somehow I get an impression that this book is undervalued. Or maybe it just me reading to much into it.
  - bendotc 17y ago
    Are you saying you still have a tail? ;-)
  - TrevorJ 17y ago
    "Who has heard of an organism adapting to change by cutting their limbs off?" Like this? http://www.sciencedaily.com/releases/2009/03/090325170604.htm http://www.sciencedaily.com/releases/2009/03/090325170604.ht...
jlees 17y ago
I wonder what prompted this.
- mahmud 17y ago
  His clients cutting back on their marketing budget? (or perhaps slashing the funds for the annual corporate party and doing without the motivational speaker; Tears for Fears were cheaper, plus their songs are catchy.)
- SamAtt 17y ago
  Given it's basically one paragraph of advice stretched over 5 I'd guess it had something to do with the need to write something every day. When you create artificial deadlines like that for yourself (as he does) I'd imagine most of your writing is done more out of obligation than inspiration.
  - jlees 17y ago
    Oh, I know that latter well enough. I used to blog for AOL (Weblogs Inc), and it's the reason I left.
silentOpen 17y ago
This also occurs with semi-public services (at least in the US). For example, the MBTA ("T") in Boston serves largely those without cars: college students, tourists, people with low income. Unfortunately, due to extreme mismanagement, the T regularly decides to cut services and increase fares... and things just get worse from there. If you're a private business, you have to find a way to escape the spiral. If you're a government service, you need a government that isn't incompetent, corrupt, and myopic.
- poiuytrrew 17y ago
  Pubic transport is one of the prime examples of this. We need to save money: OK we will cut routes, put up fares, reduce number of trains/buses. So there are now fewer people wanting to use the more expensive overcrowded unreliable service, OK we will have to make more cuts. Eventualy you aren't actually running any trains but are still paying for all the fixed cost infrastructure.
  - Tangurena 17y ago
    Here in Denver, the public transportation is heavily subsidized by sales taxes. Depending on whose statistics you listen to, 20-40% of the cost of running RTD comes from farebox revenue (the rest comes from mostly a sales tax levy and some from federal grants). City route buses get about 4mpg, and they use so much fuel that every 1/10 of a cent rise in diesel comes out to $100,000 annually. The worst waste is required by ADA. AccessiRide (those short buses for the severly handicapped) cost RTD about $45 per trip.
    - poiuytrrew 17y ago
      Subsidizing public transport isn't necessarily bad - if there were no buses how much sales tax would it cost to build enough bridges/freeways/parking-lots etc so that everybody could drive into downtown. What about in Manhattan? The point was that it is one of those areas were making cuts to save money gets counter productive very fast.
synnik 17y ago
There are two false assumptions in his analogies: 1) That corporations don't already know this: I think most do, and cut their costs on infrastructure, overhead, and process, not on areas that impact quality and customers. 2) That the recession is permanent: Accepting a slow downward spiral temporarily while waiting for a recovery probably could make sense to the risk analysts in some corporations. The trick comes in predicting what the company's losses will be vs. recovery time for the economy, and then the company. In short, smart companies look at all options. Their long-term cost to keep quality up and maintain customers might actually be more than shrinking for a year or two, then recovering. Professing that one approach is always the right one is incorrect. It depends on too many factors to generalize.
- billswift 17y ago
  Infrastructure and overhead DO impact customers, just not immediately. Overhead actually impacts more customers than any other single item or department, since it is the total of support costs for all departments.
mediaman 17y ago
When a company is struggling, reversing the trend through sales growth is usually not the answer. That's certainly an important component after the emergency turnaround stage, but you have to get the business on a stable cash flow footing before doing that, and that means intelligently cutting costs. There are many, many businesspeople who think "selling more" is the best way out of a turnaround situation. Most of them fail.

Death spiral

96 points by bearwithclaws 17y ago

jwb119 17y ago

extending your cash flow runway does not have to mean degrading your product

mahmud 17y ago
After reading the article I felt myself thinking "meditation is far easier than field leadership, Mr. Godin", but he does have a point. To his defense, I would say that the first indicator of growth is found in your own mind. If you think you're headed for better things, none of these difficult times will matter; you would still run your business, frugaly of course, but you would also have that life-giving spark, the hope necessary to see far into the future. I would say take his positive energy and run with it! Heh, listen to me, meditating.

briancooley 17y ago

Cost cutting can be an effective strategy when all your competitors are struggling as well. The game becomes one of survival, not of growth. Survivors in a market receive a large discrete boost when their competitors fail.

iguanatom 17y ago
I would agree if all things were otherwise static, but instead, one of your smart competitors are going to actually change (improve) how they conduct business and make your sliderule shop obsolete. Just because the economy is sluggish doesn't mean ideas are. "Desperation is the mother of all invention" - somebody profound.
hcayless 17y ago
Yeah but if you're a local newspaper (which is what this post makes me think of), your competition isn't the other local papers (if there are any). It's Craigslist, Google, etc. You aren't going to beat them because they aren't playing the same game as you. Being the last local paper standing isn't going to win you anything.

ratsbane 17y ago

To summarize, if your business is in a positive-feedback loop make sure it's one that's going up and not down: http://en.wikipedia.org/wiki/Positive_feedback http://en.wikipedia.org/wiki/Positive_feedback

keltecp11 17y ago

Newspapers should never have disbanded their R & D Departments...

jrwoodruff 17y ago
Not all of them have: (old-ish article, but I think it's still around) http://www.niemanlab.org/2009/05/at-the-new-york-times-preparing-for-a-future-across-all-platforms/ http://www.niemanlab.org/2009/05/at-the-new-york-times-prepa... but not nearly enough kept them alive, or ever had them in the first place.

mrbgty 17y ago

Why do costs get created in a company? Generally it seems that we create a cost because we think it will result in revenue greater than that cost or because we think that cost will prevent some other larger cost (such as fines from the gov't). I'm all for efficiency and maximizing the revenue we gain from each expense but we've still gotta realize that when we cut costs, we're losing something that was intended to generate revenue. I've seen this happen in a large company where they cut a ton of expenses thinking they are going to be profitable (and they are in the very short term) but all those expenses were there for a reason. A few months later, revenue drops like a brick.

jbrun 17y ago
Evolution anyone? Who has heard of an organism adapting to change by cutting their limbs off? People like stability. In fact, we are predisposed (through evolution) to think that the world is inherently stable. They think that if something has been working for 10, 20, 30 years there is no reason that it should not keep working; thus, a downturn in their business is a temporary abnormality that will correct itself. Sometimes this is true, usually, it is not. Often, with new technology (internet) and markets (china), costs get demolished. A business that relied on the previous cost-price ratio simply cannot compete. Things change - usually for the better - and companies who fail to adapt, die. Their failure to recognize genuine change is their own failure and no amount of cost cutting will change an organization for the better.
- rimantas 17y ago
  Seth Godin has dropped the ball recently (imho), but talking about evolutionary angle there is one his book I highly recommend: "Survival is not enough". Somehow I get an impression that this book is undervalued. Or maybe it just me reading to much into it.
- bendotc 17y ago
  Are you saying you still have a tail? ;-)
- TrevorJ 17y ago
  "Who has heard of an organism adapting to change by cutting their limbs off?" Like this? http://www.sciencedaily.com/releases/2009/03/090325170604.htm http://www.sciencedaily.com/releases/2009/03/090325170604.ht...

jlees 17y ago

I wonder what prompted this.

mahmud 17y ago
His clients cutting back on their marketing budget? (or perhaps slashing the funds for the annual corporate party and doing without the motivational speaker; Tears for Fears were cheaper, plus their songs are catchy.)
SamAtt 17y ago
Given it's basically one paragraph of advice stretched over 5 I'd guess it had something to do with the need to write something every day. When you create artificial deadlines like that for yourself (as he does) I'd imagine most of your writing is done more out of obligation than inspiration.
- jlees 17y ago
  Oh, I know that latter well enough. I used to blog for AOL (Weblogs Inc), and it's the reason I left.

silentOpen 17y ago

This also occurs with semi-public services (at least in the US). For example, the MBTA ("T") in Boston serves largely those without cars: college students, tourists, people with low income. Unfortunately, due to extreme mismanagement, the T regularly decides to cut services and increase fares... and things just get worse from there. If you're a private business, you have to find a way to escape the spiral. If you're a government service, you need a government that isn't incompetent, corrupt, and myopic.

poiuytrrew 17y ago
Pubic transport is one of the prime examples of this. We need to save money: OK we will cut routes, put up fares, reduce number of trains/buses. So there are now fewer people wanting to use the more expensive overcrowded unreliable service, OK we will have to make more cuts. Eventualy you aren't actually running any trains but are still paying for all the fixed cost infrastructure.
- Tangurena 17y ago
  Here in Denver, the public transportation is heavily subsidized by sales taxes. Depending on whose statistics you listen to, 20-40% of the cost of running RTD comes from farebox revenue (the rest comes from mostly a sales tax levy and some from federal grants). City route buses get about 4mpg, and they use so much fuel that every 1/10 of a cent rise in diesel comes out to $100,000 annually. The worst waste is required by ADA. AccessiRide (those short buses for the severly handicapped) cost RTD about $45 per trip.
  - poiuytrrew 17y ago
    Subsidizing public transport isn't necessarily bad - if there were no buses how much sales tax would it cost to build enough bridges/freeways/parking-lots etc so that everybody could drive into downtown. What about in Manhattan? The point was that it is one of those areas were making cuts to save money gets counter productive very fast.

synnik 17y ago

There are two false assumptions in his analogies: 1) That corporations don't already know this: I think most do, and cut their costs on infrastructure, overhead, and process, not on areas that impact quality and customers. 2) That the recession is permanent: Accepting a slow downward spiral temporarily while waiting for a recovery probably could make sense to the risk analysts in some corporations. The trick comes in predicting what the company's losses will be vs. recovery time for the economy, and then the company. In short, smart companies look at all options. Their long-term cost to keep quality up and maintain customers might actually be more than shrinking for a year or two, then recovering. Professing that one approach is always the right one is incorrect. It depends on too many factors to generalize.

billswift 17y ago
Infrastructure and overhead DO impact customers, just not immediately. Overhead actually impacts more customers than any other single item or department, since it is the total of support costs for all departments.

mediaman 17y ago

When a company is struggling, reversing the trend through sales growth is usually not the answer. That's certainly an important component after the emergency turnaround stage, but you have to get the business on a stable cash flow footing before doing that, and that means intelligently cutting costs. There are many, many businesspeople who think "selling more" is the best way out of a turnaround situation. Most of them fail.