Closing my company was painful

I never thought closing my company would be such a relief.

Three years ago, about this time of the year, I was preparing the final documents for the very last Annual General Meeting for my company. I was doing so as both the (sole) company director and the CEO. Before that, I had already sent the accountant all the payment receipts, invoices, the company cheque book and other finance related documents for review and to generate the financial statements (to be presented to the stakeholders during the AGM).

The only agenda of the AGM was to accept or reject the closing of the company.

On the fateful day of the AGM, I waited in the appointed room for the other two stakeholders. They were business partners only in name, but legally speaking they were considered stockholders.

There was one particular business partner that I hoped fervently did not appear for the AGM.

When the other business partner arrived, I breathed a small sigh of relief. I needed *this* business partner to appear and that the other business partner to *not* appear.

If at this point you’re thinking that I’m doing some sort of subterfuge, you’re right. I hated to have to do it, but it was necessary because that other business partner had been giving me trouble to no end.

Legally speaking, I needed a majority from the stockholders to approve of the closing of the company before I can proceed to close it. You’d think I have the majority of the stocks but you’d be wrong. I was fairly sure I could convince the amiable business partner to agree, since we’ve already decided beforehand that it was best for the both of us and for the company.

I told my secretary the amiable business partner had arrived. That business partner, my secretary and I waited in the room. 15 minutes passed the appointed time. Half an hour passed the appointed time. I called for the AGM to proceed without all the stockholders present.

I presented to the amiable business partner the financial statements of the company. The partner reviewed the documents, and asked me and my secretary questions, including why the other business partner wasn’t present.

I’m not going to tell you how I managed to get the other business partner to not appear. It’s still painful (even after 3 years) and I hope I never have to do something like that ever again. Well maybe in a future post, I’ll talk about it…

In any case, the amiable business partner agreed to the closing of the company. I closed off the AGM and thanked the business partner for coming. I discussed with my secretary the final document preparation of the closing of the company. Then I left the office.

I don’t remember what I did after that, but I *do* remember the immense weight that was lifted off my shoulders. I might have stood still and shivered. I might have cried a little.

Because it was the first time in a long time that I felt… free.

Don’t get me wrong, I don’t regret running the company. I had to work with the venture capitalist organisation that funded the company project. I had to make payroll (it was sobering to see how much money was draining from the company bank account every month). I learnt to do company taxes and all sorts of company admin work (that only I as the CEO/director could do).

I was also doing consultancy work and running my own private business at the same time. Because I didn’t get paid anything for being the CEO nor being the company director. I was doing the equivalent of three jobs. I had trouble sleeping. I had to sometimes consciously remind myself to breathe because my breaths were so shallow. And my blood boiled every time I thought of that troublesome business partner.

It was not a good way to live.

Next time, I’ll tell you of the heart attack I almost got when the bank closed the company bank account with a final figure that did not tally with that from my accountant.

The sparrow is complete

It is a time of change. Some people give up and wait for changes to happen to them. Some people take action and make changes happen. Don’t be the former.

Previously, I summarised the recent developments in the online business world. Despite the opportunities available, it’s still easier to just sit back and do what you’ve always done.

There’s a quote from Twyla Tharp, a dance choreographer about creative blocks.

Do something. Anything.

The point is to get something done, even if it doesn’t specifically solve the problem you have right then. That gives you a sense of accomplishment, a feeling of progress, and you can channel that into doing more actions and eventually you’ll get to fixing your creative block.

Some people wait for the stars to align before doing anything. Some people wait for all the traffic lights to turn green before doing anything.

Sure your financial situation isn’t ideal. Sure your mother-in-law keeps breathing down you neck. Sure your work hours aren’t quite what you want. Sure you might like to have more space in your home.

But if you wait for everything to be perfect, you’ll never get to making that baby. Do you want to make babies or not?

There’s a Chinese saying that goes something like “The sparrow may be small, but it has all 5 major organs.” I don’t know what those internal organs are, probably heart, lungs, brain, kidney, liver?

The point is that the sparrow is complete, small as it is. It functions. It can fly, it can eat, and it can continue to make small baby sparrows.

In the business context, people almost always want to know more before starting. But the only real way to find out if you need to know something, is to start and then find out that you need it. Until you’ve done a task yourself and find it distasteful, you don’t really need to outsource it. Until you’ve answered customer questions, you don’t know how your customer service officers should behave.

Make a sparrow first. You can tweak it into an eagle later on.

Recent waves in online business world

By “recent”, I mean maybe up to the last couple of years or so. Let me start a little earlier than that.

When blogging became hip, there were programs (read: paid products) that teach you how to blog, how to write effectively, how to get your blog to be read.

And on the last note, website traffic became important. So there were programs (read: paid products) that teach you how to get traffic to your website. More importantly, how to get targeted traffic, because casual passers-by were next to useless for business purposes. Just look at all the traffic from Digg and StumbleUpon and Reddit and other social media sites. People come, look at your post, then leaves. That’s pretty much useless.

So creating an email list became imperative. You want to capture people’s email addresses so you can talk to them. If they sign up, then they want to hear from you. This is what Seth Godin would call permission marketing. But beware! There were some WordPress plugins that set annoying pop-ups that has a sign up box for people to put their email addresses. This pop-up happens either on finishing reading a post, or worse, on leaving a page. That would be “annoyance marketing”.

Then came teaching programs (read: pai… ok, you get the idea), that teach you how to teach a topic. The main one is Teaching Sells. The idea is that people will want to pay to learn something useful (and probably turn it into something profitable).

And on that note, videos were becoming popular, what with the increased bandwidth that most people have. And that some people like to see a person talking to them, instead of reading text or hearing audio files. So there was this product called Video Boss (I think). It teaches you (see previous paragraph) how to shoot, edit and upload a video. There were all sorts of information in that product, going so far as the minute details such as making your video visually interesting and lighting setups and so on.

Then there was the app craze, popularised by the iPhone. “Create apps. Become millionaire.” says some paid products (or to that effect anyway). If you’re a developer (which you probably are if you’re reading this blog), then be aware of what you’re creating. Create and sell apps if that’s your thing and that it’s working for you, not because someone says it’s the in thing.

Then there was the Kindle revolution, changing how people read. You can now self-publish on Amazon and push your ebooks out to millions of Kindles in the world. And make a bit of money from every ebook you sell.

The app thing and the Kindle thing have two things in common. They both relieve you of payment processing, and they both let you leverage an existing platform. Apple’s App Store for iPhone/iPad, Windows Store for Windows apps, Google Marketplace for Android devices, BlackBerry App World for Blackberry devices. And Kindle for well, Kindle devices.

Somewhere in those times, there was a need to know how to launch your product. I’m not talking about hype (or just hype anyway). I’m talking how to get sales from your product launch, how to get maximum impact. There’s this product called Product Launch Formula (by Jeff Walker) that teaches you how to do this.

I subscribe to many of these people’s email lists, so I get emails whenever whatever. Some are useful, some are interesting, some I just delete because it’s an obvious sales email (after you receive as many emails of such nature as I do, you can tell from the subject line or within a couple of sentences in).

There’s a point to all this. And I’ll tell you in the next post.

Still like coding

I’ve been on both sides of the employment fence. I’ve been an employee at a startup, a software company and a telecommunications company. I’m currently working for myself. Of all the activities, I still like coding. Because it allows me to solve problems of a nature that’s programmatically solvable.

Customer service

I’ve worked with customer service officers. They are the front-line of the business, and they tell me how my software is working. Is the customer having problems with logging in? Or with downloading transactional records?

Now, I talk directly with customers. They tell me this part is good, or that part is funny. They ask me questions, and I answer them (whether it’s directly a programming problem or not).


I’ve talked with sales people, and they’re driven and friendly and outspoken. And they tell me what their clients and customers want, because the customers sometimes talk directly with the sales people instead of the customer service officers. Yay me for multiple channels of input.

Sales people want to know sales figures, monthly commission reports and revenue numbers. Well, specific to their own targets anyway.

Now, I keep track of my own revenue and sales. Let me tell you, it’s very sobering.

Marketing and Product

Frankly speaking, everything is integrated into the main sales channel. But marketing and product creation are related enough.

Imagine this. There are people hired to come up with new products for a company to sell (product managers). And people hired to convey the benefits of having said products to the consumers and customers (marketers). And people hired to sell these new products (sales people). And people hired to make sure customers are happy with their purchase (customer service).

Everything is linked.

The mish-mash

As a one-man show, I handle everything. I do market research to see if there’s actually a demand (although I might still create the product). I create the product. I write the sales copy on the sales web page. I upload the information products to the hosting server, and make sure the purchase links are working and correct. I’ve written ad copy (and it’s hard). I’ve written educational, marketing pieces of writing to promote my products. I set sales prices based on the value of what the customer will get (let me tell you, this is ridiculously hard and complicated). I talk with customers. I answer questions (sometimes free of charge). I handle taxes.

Out of all of them, I like the coding part the best. An ebook with a bunch of source code attached is basically a programming guide like one of those For Dummies programming books. I don’t mind writing the source code to teach people how to do something. I don’t even mind writing the ebook to explain some of the concepts, because it’s like a really long extended code comment.

But the other parts are hard. Possibly even distasteful.

However, I recognise the importance of those parts. Every single part is needed. And every part affects every other part.

You don’t know what benefits to convey in your sales copy if you don’t have it in your product. If the market doesn’t want a feature, that feature shouldn’t be in the product.

Of course, everything I’ve said presupposes that your product has a software component. But it really applies to the part that you’re good at and really like doing.

Maybe you’re really good at baking muffins, but you’re not really good at telling people why they should buy your muffins. Or you don’t like the tedium of keeping track of muffin sales. Or packaging your muffins so they really look good (you need to convince people that your product is good, even if it’s really good).

Are you afraid to start your own business because…

you’re afraid people will ask for refunds, and you don’t make any money at all.

If you have a steady paycheck, the company paying you your salary is not going to ask for your salary back, right?

But if you have your own business, and if your customers ask for a refund? Then you’d have rendered a service or provided a product, but you don’t get paid.

If that’s the case, why are there so many food stalls here in Singapore? Singaporeans are notoriously picky eaters. It can’t be that every single food stall sells delicious food, right?

What are you truly scared of?

$100 Startup bundle

I respect Chris Guillebeau a lot (possibly even a raving fan). His book $100 Startup is going to be on sale soon. But the more important reason is that you can get that together with a bunch of business-y stuff at Only72 right now for $100 total (yes, that’s totally an affiliate link).

Out of all the products in the bundle, I’m interested in the “How To Make iPhone Apps With No Programming Experience” ebook, the small business infrastructure ebook, and guide to publishing ebook.

You want to start a business? This’ll get you started. Hurry, it’s only on sale for 72 hours (hence the name).

Can’t wait to read Chris’s new book. Have I mentioned that’s a hardcover that will be shipped anywhere you live if you buy the bundle now?

Cost of an MBA

Here’s an infographic on the cost of an MBA.

And steep tuition is continuing to climb further while salaries stay stagnant.

That applies even if it’s just a normal degree.

Less people are hiring MBAs

Really? It might have something to do with being overqualified.

Of all US Presidents, only 1 has an MBA: George W. Bush

That’s interesting. Maybe a political career takes too much out of a candidate for him/her to take up studies.

What’s an MBA?

MBA stands for Master of Business Administration. I don’t have one, so I’m going to make a general assumption. You study how to administer a business, right? Accounting, finance and whatnot.

I don’t know the actual course curriculum. Does it focus mostly on administering a medium to large sized company? Does that appeal to you? Will what you learn benefit you as a startup founder?

I would even go so far as to say you’d be learning to administer other people’s money. You’d have bar charts and pie charts and business matrices to support your argument to your superiors that they should go about their business this way, or handle their finances that way, or streamline their product lines in such-and-such way.

But it’s not your money. It’s not your money on the line. You’re not worried. If your proposition fails? The worst that can happen is you get a pay cut. Possibly even get fired.

I’m all for getting a degree (but start a business on the side too). But an MBA seems like an overkill.

After over 2 years of running my own business, I’d say nothing gets you up to speed on how to administer your finances than having your own money on the line. And it cost me less than my degree, let alone an MBA.

Get an MBA if you feel it’s worth your time and money. Just don’t get one because everyone’s getting one (or telling you to get one). Make your own decisions.

Thanks to Tony Shin for telling me about this.

Why I say NO by default

I have a very sensitive uh, BS detector, bordering on paranoia. It didn’t used to be that way.

There were a couple of times where a stranger walked up to me and asked me for $10. He lost his wallet and his bicycle, and he needed to get home. By taxi (or cab for you Americans). Really? There’s no one you know that you can call for help? The transport system in Singapore is fairly connected. You don’t need $10. $5 is already plenty, and you can always walk a little. Hey you’re down on your luck. You can walk.

There were also a couple of times where a child walked up to me and asked me for money. One boy of about 10 years old in school uniform asked for money so he could buy a hamburger (I was at McDonald’s then). Another boy, also in school uniform, asked for money because he didn’t have money in his EZ-Link card (a transportation card like the Octopus Card in Hong Kong, or Oyster card in England). He asked for $10 (that’s the minimum top-up amount). Wait, you couldn’t call your mom? Hmm… Haven’t I heard that one before…

But the point came that I started to distrust by default when I almost got hoodwinked into handing over my money every month for no good reason. It was many years ago (but still haunts me…) while I had a job. I had dreams of travelling the world and visiting places.

Then one day, I got a call saying I could get some free goodies if I attended some event. I don’t know how they got my phone number (we’ll talk about this later on). Ok, I’ll go.

The event was to get people buying time share properties. Basically, you pay some money every month to “own” a property that you can stay at when you travel. Or something. You’re sharing time on that property, because other people do the same thing. So all of you are paying for the privilege of possibly staying at that place in the future.

I just finished paying off my student loans. I dreamt of visiting and staying at new places. “I could stay at a castle!” And I mean, the sales person could write upside-down! She seemed very friendly and knowledgeable and have I mentioned I could stay at a castle?

It was after I signed on the dotted line that something didn’t feel right. The next day, I told my colleagues about it. One of them said he always go for such events, but never sign up. He went to get the free goodies only.

I want to cancel the whole thing. Apparently, it’s not that easy. I can live with losing the deposit I placed, but it seemed that I was still “under contract” to continue giving the company money for something I no longer want. I would have lost over $10000 that way before I could terminate the contract.

So I turned to the commerce mediating organisation in Singapore. They’re like the FTC in America, but with (much much) less power. But it’s better than nothing.

Long story short, eventually I could terminate the contract. I even got my deposit back.

Since then, I never buy anything or jump into any monetary contract without fully understanding what it means. And I’m a fairly minimalist person, which means practically everything.

I even got paranoid about my phone number. How had the time share company gotten hold of my phone number? Only through people who knew me, because I gave up helping people with surveys that also required my contact information (eventually, I stopped asking if the survey needed my contact info. I just said no).

Right now, if some company calls me up, I am very negative about it. Because the only people who has my number are close friends and family. And maybe remnants of people who can be loosely called acquaintances. And my bank. Hmm.

So I almost had a heart attack when I saw a letter from said time share company yesterday. I had to open it immediately, otherwise I wouldn’t be able to sleep. Are they going to ask me for money? Did I leave out something in the contract in fine print? You can tell I thoroughly distrust this company already.

It was a letter telling their customers (I no longer consider myself their customer) that there’s been some company changes. Corporate buyouts, change of address, that sort of thing. The funny thing was it’s dated 1 April, so I don’t even know if I should take it seriously.

Interestingly, there was some stress on NOT contacting certain staff for certain matters. No reason was given. This just reinforced my (already low) opinion of the company and its staff. Are the staff working in a cut-throat environment? I have received a letter saying I was to pay the amount “owed” to the company retroactively once. I believe that letter was sent by someone who got hold of my information (from within the company), and blackmailed me. That person probably left the company, and thought they could squeeze some money out of the company (and by extension, me). I ignored the letter. And I can totally imagine this kind of person working in the company.

So this is why I say no by default to people asking me for time, money and help. It’s not that I’m a selfish jerk. It’s because I’ve had too many bad experiences before.

That said, I’m open minded enough to at least consider the request. Generally, I don’t even consider the nature of the request first. I look at the person. Do I trust that person? Is that person trustworthy, or needy enough, that I want to help?

And then, and only then, do I consider what it is I’m to help with.

Man in long-sleeved shirt or woman in business attire asking me to help fill in a survey? Nope. Teenager holding out a tin can with stickers asking for donations? Probably. Child asking for money to buy food or go home? Depends. Singapore is a fairly prosperous country. Our poor aren’t even really that poor. You can buy a good meal with just $2 (about USD 1.63 with the current low exchange rate. America, what’s up with that?). What are you buying to eat, latte and cheesecake?

I understand there are legitimate trustworthy business people out there. So I make sure to read the fine print. I read their work and determine if I trust them. Because I’ve been burnt too many times.

Have I told you about the time when I bought a product that promised that I’ll make USD 1000 in 30 days? I felt totally scummy.

Prepaid Postpaid Convergence

What’s one of the most important concerns of any business? Getting paid.

What’s the next most important concern of any business? Getting paid on time.

There’s this concept called the “prepaid postpaid convergence”, which hailed from the telecommunications industry (where I spent the majority of my professional life in). You’re probably on a postpaid mobile phone plan, where you’re charged for what you used in the previous month. Or you might be on a prepaid plan, where you dump a bunch of cash into your plan/phone/card/thingy and you can text and call until your money runs out.

This is a particular problem in the telecommunications industry because billing customers is challenging. It’s difficult to bill in one generic way to handle both prepaid and postpaid charges.

Think of it this way. I could dump $50 into my prepaid card and not use my phone for 6 months. But for 6 months, the company has to keep track of that $50. The worst thing is, depending on the billing requirements and laws in the country, the company may not include that $50 as “revenue earned”. The company can only include any monetary amount after I used some of that prepaid cash. Say I used $11.25, then the company “earned” $11.25 (even though I’ve paid $50 upfront).

Prepaid billed amounts are “future money”. Postpaid billed amounts are “past money”.

There are 3 general payment modes:

  • You used a product/service but haven’t paid yet.
  • You pay at the point of usage.
  • You pay first, but haven’t used the product/service.

The timing is important. For the purposes of this article, we won’t be strict about the point of usage and point of payment. In some restaurants, you get to eat first before you pay. I will consider that as “payment at the point of usage”, unless you intend to get a free meal and bolt the moment you get a chance to.

So why is this important to you?

The business models are different

Let’s consider the Apple App Store. You find an app you like. You purchase it. 2 business models come into play.

First, Apple charges you immediately on your credit card. You pay immediately upon purchasing the app. Apple gets the $0.99 from the credit card company, and can report that $0.99 on their profit/revenue report.

Second, the credit card company bills you the next month, including that $0.99 app you bought. You’ve enjoyed using the app first, before actually paying for it.

Apple and the credit card company have 2 different business models, even though the “product” is the same. (technically, the credit card company isn’t selling the app, they’re selling you the service of having a credit card, but to you it’s the same thing)

Web hosting companies use the prepaid model (that I know of). They may charge you for 3 years worth of hosting your website. You pay for 3 years first, then you get to have your website hosted. Even if you decide to cancel after 6 months, and you might get a 2.5 year refund back (depending on whether the web hosting company has this policy. Please check), but you still had to have paid for 3 years upfront.

I’m assuming you’re a developer. The trend is that the Internet is going to be a big thing. Let’s say you’re a startup founder. Choose your business model wisely, because it’s going to be hard to change it.

The Amazon S3 service lets you store stuff. You pay for what you use (the more data transfers made, the more you pay). This is postpaid.

iStockphoto lets you buy credits which you can then use to buy images. You pay first (in a large lump sum) then you buy images with the credits (that were bought with cash). This is prepaid.

Prepaid has this annoying thing…

It’s called “keeping track”.

Let’s say a text message costs $0.10, and you bought a prepaid card for $10. That means you can make 100 text messages.

A postpaid customer will be billed $0.70 for the 7 messages she sent in the last month. She will also be billed $1.00 for the 10 messages she sent this month (in the next month).

You on the other hand, won’t be billed. Because you already paid $10. Theoretically, you could hold onto that $10 value in your phone card for eternity. Depending on the billing requirements, the telecommunications company might include that $10 as revenue. But since you haven’t actually sent any text messages (or phone calls), it’s kinda shady since the company hasn’t rendered any services to you yet they “earned” $10 for nothing. In any case, you’ve paid $10 for nothing (since you didn’t use it).

The worst part is the telecommunications company has to store that $10 as a line entry in a database somewhere. And without any corresponding entries to “deduct” that amount. That database entry will stay there forever without resolution. The telecommunications company now officially hates you.

This is why most prepaid items have an expiry date, even if they’re virtual products and won’t decay over time. For example, iStockphoto credits last 1 year. Vouchers from movie theatres, supermarkets, restaurants also typically have a 1 year expiry date. They’re vouchers, it’s not like they’re going to wither away. But companies need to keep track of them.

When the prepaid items expire, the companies can then include the value of the items into revenue, because the customer at that point can no longer use the item, hence it’s taken as the customer had already used it.

Imagine you have to write a program and design a database to support the prepaid billing structure. Your program has to keep track of anything the prepaid customer does, and deduct the corresponding amount from the stored value in a database. Every single text message and phone call the customer makes, the program has to go check if there’s enough in customer’s stored value. Technically, there’s a switchboard that bars the customer from making a text message or phone call before the text message or phone call can be made (that’s the hardware check). Then your program breathes a sigh of relief when the stored value is gone or expired… And then the customer tops up his stored value with $50. Your program grows an unreasonable hatred for this customer.

Final thoughts

A postpaid model requires you to trust that the customer will pay you. A prepaid model lets you get money first, but keeping track might pose a small challenge.

With the Internet being real-time, the better model for online products and services is the “pay immediately” model. You don’t have to keep track of inventory (if at all) and you get the money immediately to your bottom line.

I know there’s also the subscription model. But do you charge customers for the month they haven’t yet used, or for the month they’ve already used?

I’m pretty sure I left something out, or haven’t explained something properly, so leave a comment or send me an email.

Optimising only for profit is a lousy strategy

I felt sorry for the woman when I heard she was going to be let go by the company. I felt even more sorry when I heard that she would be replaced by 3 graduates in China. Seriously, graduates were that cheap in China?

This reminds me of a Chinese phrase. “In the past, having a degree was a big deal. Now, the whole street’s filled with graduates.” Not all degrees are created equal.

Let’s start off with a few baseline understandings…

Infinity and beyond

John Cook said this about infinity,

Problems are often formulated in terms of infinity to make things easier and to solve realistic problems. Infinity is usually a simplification. Think of infinity as “so big I don’t have to worry about how big it is.”

(Emphasis mine)

Companies like infinity. Particularly when it comes to describing (theoretical) growths and market share. This is false. More on this later.

Basic economics

We will assume this simple generalised equation for the purpose of this article:

Profit (or earnings) = Revenue – Cost

You can think of revenue as the price of an item. Cost covers everything from the cost of manufacturing an item to storing the item, to paying employees, to paying rent (for use of space), to paying utilities.

Just keep in mind that profit is calculated from 2 components.

The gold standard and Bretton Woods

Back in the old days (way way back), the value of money was static. If you held on to a dollar, 10 years later, that dollar was still worth a dollar. That’s because the value of money was tied to gold.

Historically, a bank was legally responsible to give anyone gold in exchange for the money bill given. That means if you handed the bank 100 dollars, the bank had to give you 100 dollars worth of gold. This meant that banks had to keep large reserves of gold, just in case.

The invention of the money bill dollar note thingy just made it easier so you don’t have to carry around nuggets of gold. Gold’s heavy.

In July 1944, the Bretton Woods Agreement was signed. Basically, many countries agreed to tie their currency to the US dollar. The US dollar was tied to the gold standard, so this wasn’t a problem. (This was part of the reason why US rose to be a dominant force in the world in the early days, because practically everyone was using the US dollar as a reserve currency)

In August 1971, the United States stopped the convertibility of the US dollar to gold. It might have something to do with funding the battles of the Vietnam War. The US ran out of funds. To continue funding, the US needed to print money out of thin air. And you couldn’t do that if your currency was pegged to gold. (Note: I’m not bashing on Americans. I read this in an economics book. No I can’t remember which book… you should know me by now…).

This also “freed” the other countries from tying their currencies to the US dollar. Which (probably) gave rise to the idea of foreign currency exchange rates.

The dissolution of the Bretton Woods Agreement also meant the creation of fiat money. Meaning that dollar you have there is worth what the government say it’s worth. Printing money out of thin air also gave rise to the concept of inflation. Meaning that dollar you have there is probably worth less than a dollar a year ago.

Saturation limits

31 October 2011 was designated as the day when the world population became 7 billion. It’s a big number, but it’s not infinity.

Which is where the companies made their mistake.

In the post-World-War-2 era, everyone wanted a better life. We’ve sacrificed enough. We’ve suffered enough. We want a better life! (baby boomers, hello!)

Babies were made. Population grew. Household appliances made their ways into homes. Henry Ford created the automobile. Product categories multiplied. Industries boomed.

Revenue was up. Sales quintupled. Profits were up.

Just when local markets seemed exhausted, globalisation came and opened up the world. International trade continued the seemingly upward trend.

People started expecting growth as a natural consequence. Companies started paying more attention to Wall Street and upholding shareholder value.

“We just need to capture 1 more percent of market share!”

That started to get harder. The customers who wanted to buy your product had already bought your product.

I read that in America, there were more licensed vehicles than licensed drivers. Meaning there were more vehicles than people who could drive them. I understand there’s a surplus of 31 million of such vehicles. Supposedly, every man, woman and child in Canada could have a vehicle from this surplus.

There are probably more cell phones than cell phone users. There’s more food produced than needed to feed every person in the world (yet there are millions starving).

What happens if Microsoft succeeds in placing a computer (with Windows, naturally) on every desktop and in every home? What happens if Apple succeeds in placing an iPhone/iPad in everyone’s hands? What if everyone has already bought Angry Birds on their iPhone/iPad? What happens if McDonald’s succeeds in getting everyone to eat at their restaurants? What if everyone used an Oral B toothbrush? What if everyone used Body Shop products? What if every male used Old Spice?

What if every business person is already flying with your airline? What if every Harry Potter fan already has all 7 books? (that’s probably a rhetorical question…) What if every C# programmer already owns a copy of your C# programming book? What if every tea lover in your area is already frequenting your tea house?

What if every possible customer already has your product? What if every possible customer already maxed out his/her rate of consumption of your product?

The natural limit is population. The next limit is rate of consumption. Every company hits these 2 limits. The limits just weren’t as prominent a couple of decades ago.

Revenue started stalling

When you hit those natural limits, the company growth stalls. To give the illusion of growth, we go back to that equation again.

Profit = Revenue – Cost

The outside world (mainly Wall Street and the stock market) views growth in relation to profit. The assumption is that if a company is making a profit, it’s still healthy. As in it’s still bringing in revenue.

But if you’re not bringing in revenue, it means you’re not making any more sales. Maybe it’s because your customers switched brands. Maybe your customers switched to a cheaper version of your product (which cannibalises on your own sales, but hey at least you didn’t lose that customer).

But in today’s hyperconnected world, the reason is probably that your customer “market share” is already saturated. You might think 7 billion people is still a lot of people, but a large part of those people are in poverty. They simply cannot buy your product. Or those who can buy your product, don’t want your product.

Some new startup shows up and gets millions of users within a month. It continues at a steady pace and then… stops. The natural equilibrium is reached.

The company CEO has to do something to show that the company is still growing (because the people watching Dow Jones is breathing down her neck). So if revenue doesn’t increase as much, what can you do to increase profits? Reduce costs.

Cost reduction policies

I’d say as a broad generalisation, there’s only so much you can do to reduce costs. Rent space? Consolidate people and equipment in fewer locations. Equipment maintenance costs? Have less equipment, or more efficient equipment, or just get rid of the whole thing.

But one of the most costly line items (if not the most costly) is hiring people. (Be honest. Tell me when I said “cost reduction” you didn’t think of “layoffs”)

Let’s see. The world population is growing (albeit more slowly now). Generally speaking, more people are working (I know the current economy sucks with few jobs being created. Stay with me). Less people are dying. More people are having longer lives. Less opportunities to move up the corporate ladder (because the high level managers are still there).

Yet people still expect pay raises every year. I’m not pro-Malthusianism, but the supply of money is kinda limited… Wait, good thing the Bretton Woods Agreement was dissolved.

Since people have feelings (and machines and raw materials don’t), companies hesitate to fire people (in case of major backlashes). So something has to give.

Outsourcing (the bad kind). Mergers and acquisitions (probably where the term “wholly owned subsidiary” came from). Subtle changes in accounting books (which is illegal, don’t do it).

Anything to create the illusion of growth and profits. (And with the fiat currency system, money itself is kind of an illusion. But that’s another topic…)

It’s made people commit suicide to make an iPhone. It’s made people to over-consume (creating obesity as a problem and the dieting industry to exist). It’s made people buy houses they couldn’t really afford. It’s made people to allow those people who couldn’t afford houses to buy houses.

It’s made people look for shallower qualities in marriage partners (diamonds, big car, big house, big breasts [I hesitated on including this one], big paycheck), which caused increasing divorce rates, which increased the number of divorce lawyers needed, which increased the number of real estate agents needed (to split the property).

It’s caused the dot com bust. It’s caused tech startups to look for the fastest exit strategy, because the venture capitalists backing the startup forced the founders to do so (so the VCs could get their return on investment).

Optimising only for profit is a lousy strategy.