No debt.? Who could have know'ded?

Interesting series of articles in the Oregonian: "Life after the Bubble: From boom to bust."

I refrained from commenting on yesterday's entry, which had as it main poster children a couple who built themselves a 2600 sq. ft. house, then mortgaged it to the hilt to start their business, and who, when they finally threw in the towel, owned 3 cars, including a 2008 pickup.

Can't reporters find people who are real victims, instead of these people who really don't appear to deserve our sympathy?

Anyway, today's article discusses the take-over of Harry and Davids. Typical corporate pirates took over the company, looted it, and then drove it into bankruptcy, in the meantime driving their workers into the ground. Nothing new there.

Second feature as about a chain of stores based in Portland called Storables.

"Dodd Fischer founded the company in 1982, and over the ensuing 27 years he built it into a small but consistently profitable chain with nine stores in five states.

Fischer, cautious by nature, built his business strictly out of cash flow. When other companies were leveraging themselves to their eyeballs, Storables had no bank debt.

But it didn't matter.

When the economy really got frightening in September 2008, when Lehman and Washington Mutual were failing and something truly cataclysmic seemed inevitable, Storables' sales plunged.

"They just went off a cliff," Fischer said."



O.K. Fair enough. So far, I'm sympathetic. I too built four stores with ever increasing sales. I didn't do it completely with cash-flow, but had a couple of bank loans. But the loans weren't draconian, and were well within cash-flow, if you will, as long as the stores were "profitable." It's hard to resist the urge to expand when you're successful.

It goes on:


"Fischer kept on thinking and hoping that the trend would begin to reverse itself. But it didn't.

What Fischer and his team didn't appreciate at the time was that their company had been the beneficiary of a housing bubble and consumer spending spree fueled by a towering wave of consumer borrowing."


Again, I can relate. When my sales started falling off the cliff back in the early 90's, I too, held on thinking the trend would "reverse itself." It never did.

It was the following quote that really caught my eye. Again, I can remember thinking the same thing.



"There were times when we couldn't explain why our sales were going up," said Greg White, Storables' longtime chief financial officer. "We knew that people were refinancing and that interest rates had been dropping. We just didn't understand the scale of it all."



A couple of things I learned, in hindsight.

1.) Increasing your overhead is a form of debt. If it's obligations you can't easily cut, such as long-term leases, it's the same has taking on a loan.

2.) If you don't understand why your business is increasing, WATCH OUT! Your instincts are telling you somethings wrong, and you'd better pay attention.

I have a new rule of thumb. If business increases by more than 10% a year, somethings out of whack.

That's why I'm not sanguine about the increases in my own business over the last month and a half. Some of it actually can be explained by the year to year comparisons to the 90 pound weakling that was last fall. But some of it seems overly exuberant, if you know what I mean.

The last thing I noticed about this article is that they imply that the owners of Storables took steps to extract money out of the business at the same time as they tried to drop leases. I was never that prudent. I kept throwing money, eventually money borrowed from credit cards, at my obligations. It was the ethical thing to do, but it nearly brought me down.

I've not been faced with that choice again, but I wonder if I wouldn't be more self-protective the next time. I see owners go out of business who seem to walk away with money still in their pockets, and I wonder how they do it.

But who am I to judge?

Personally, I think the economy tanking is one of those things that periodically happen, and should be planned for. There are no victims in business, except perhaps to fraud and corporate pirates. (The employees, not the management who are stupid bastards who would sell out to a Wasserstein.)

Ultimately, business mistakes can be laid at the feet of the owner.