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The Walking Dead of Silicon Valley
Frisky070802 writes "CNN has a column about a liquidator who refers to thousands of Silicon Valley startups as the walking dead. It states: 'Pichinson, a self-described "doctor of reality" who helps liquidate companies, says he wouldn't have moved from Los Angeles to Palo Alto a few months ago had he not smelled more high-tech trouble looming.... "There's still another 6,500 to 7,500 companies out there who are among the walking dead."'"
how is having hostage negotiating skills going to help out management?
I imagine the managers of failing tech firms may have the same desperation and confusion that a hostage taker might. Letting go of the failing business model would be analogous to giving up the hostages.
Hostage negotiation is getting people to listen and talk when they are feeling hostile towards you.
Quite a useful skill if you have it.
An alternate theory is that it's a gimmick, just like the gimmick of many of the .COMs, that he pulls out every media encounter he gets to validate what he does. It really took the cake when he compared his organization to a hospice -- that is a hospice that takes $75,000 or 7.5% of the sale value, whichever is more...
Let's not forget restaurants, bookstores and coffee shops actually sell things. Many of the dot-bombs didn't have any products and seemed to be just money-laundering houses for venture capitalists.
Behold the power of google ... This article describes a specific study about restaurants in central Ohio, but has a quick blurb about businesses overall:
... but you probably don't have the skills to make your product/idea stick in the marketplace.
"(H.G. Parsa, the report's author) reviewed other published studies that also suggest failure rates of restaurants to be closer to 60 percent or less after three years to five years."
This is compared to the oft-cited conventional wisdom of a 90% failure rate in restaurants, and 70-80% for other businesses. An early-90s Inc. article says failure rates are inflated because researchers didn't account for changes in ownership -- in other words, just because a business comes under new management doesn't mean that the business has failed:
"after eight years, 54% of start-ups still survive in some form: 28% have the original owners, and another 26% survive with new owners"
Now, that Inc. article may be a little dated post-boom, but the basic concept still holds: *you* may have a great product or idea, and a business you launch has perhaps an even-money chance of surviving
(I'm wondering what Alan Cox will come up with after he finishes his MBA.)
Why do companies fail?
Because they fail to make profits?
No.
Because the run out cash. People demand to be paid right away, and don't care about your booked orders or even your receivables.
What's the biggest cash outlay for a business? Almost alway payroll. And the biggest hits on the payroll are usually the founders, who have a massive ego investment in the survival of the business.
This gives a very small business considerable resiliency. Take a ten person company with two founders who account for a third of the payroll. If they get into trouble, the two founders can take themselves off the payroll for a month or two and work hard to make the cash come in. Try getting 33% of the payroll of a large company to come into work for free AND work extra hours.
Post may contain irony: discontinue use if experiencing mood swings, nausea or elevated blood pressure.
Most of the failed tech companies had doomed business models in the first place. Rather than plan for a conservative, common-sense approach, they opted for the "whore model" where they gave out products and services at a loss, thinking that at some point they would later get customers to pay. Even companies like Amazon.com, that has whored itself out and hemmoraged money since day one, with substantive market share, still can't quite figure out how to turn things around so the company is on solid ground.
There are still a lot of solid, tech companies that are growing, but these are companies that didn't dine on the magic mushrooms being handed out by VCs and other people who were only in it for the short-term payoff at the expense of shareholders, the greedy public and their common sensibilities.
As the owner of a successful "dot com", I deal with customers every day who wonder why I don't charge "whore" prices for hosting and other services. And they wonder why their cheap-ass services blink on and off or the company they've chosen isn't around a few months later? It used to be that businesses were afraid of dealing with small Internet companies for fear they wouldn't be around or would leave them hanging. Now it's the other way around: they don't trust the big companies, and rightly so!