
Death spiral - bearwithclaws
http://sethgodin.typepad.com/seths_blog/2009/07/death-spiral.html
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mrbgty
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.

~~~
jakarta
I think it's important to look at costs as investments in the business. And if
that investment will not yield a good return, why make it?

Buffett famously did this over at Berkshire, where he realized that there
would be no future for domestic textile mills. He took the cash flow the
company was throwing off and invested it in other companies.

So I think that Godin makes a huge overgeneralization, especially when he
mentions newspapers. The economics of that business have drastically changed
and allocating capital to keep things the way they are is probably a recipe
for failure. They'd be better off using the newspaper's cash flow by cutting
current costs and allocating that cash elsewhere (new lines of business)

~~~
brk
_So I think that Godin makes a huge overgeneralization_

You have basically just summed up Seth's entire blogging history.

~~~
rjurney
Its actually impossible to make a good point on the internet without giving
someone, somewhere the ability to call it an over generalization. It turns out
though, that pointing out exceptions to generalizations is the lamest comment
one can make on the internet, because of course, any statement to a wide
audience will have exceptions that someone, somewhere on the internet can
point out. Pointing out over generalizations is like pointing out spelling
errors, albeit less constructive.

You can't get any traffic to your blog if you don't make generalizations,
because you won't appeal to a broad, _general_ audience.

Of course, thats all just a generalization ;)

~~~
brk
_Its actually impossible to make a good point on the internet without giving
someone, somewhere the ability to call it an over generalization._

No, it's really not. The Internet gives you the ability to publish as much
data and detail as you choose. It allows you to target a selected audience and
provide information and discussion topics that relate to a specific audience
that would not have been cost effective to reach in the past.

However, if you're more trying to promote yourself or your own "brand" vs.
trying to provide actionable valuable data, then yes, you must generalize
heavily.

~~~
rjurney
Every writer wants to reach more than 5 people in the tiniest sub-segment of
any given topic of interest, which is about where you're at if you write
generalization-free.

Which is to say that what you wrote is a terrible generalization! Its not
always true - its only true for writers that are writing for groups of people
numbering less than five.

~~~
qu1j0t3
My own writing has adapted to this. I now ONLY make brief generalisations,
because I've learned that argument or reasoning or evidence is a waste of
effort. People either already agree with you, or as far as they're concerned,
you're wrong and always will be wrong. And furthermore you're a fat stupid
troll and so is your momma.

------
briancooley
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.

~~~
hcayless
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.

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synnik
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
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.

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ratsbane
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>

------
silentOpen
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
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
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
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.

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jlees
I wonder what prompted this.

~~~
SamAtt
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
Oh, I know that latter well enough. I used to blog for AOL (Weblogs Inc), and
it's the reason I left.

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jwb119
extending your cash flow runway does not have to mean degrading your product

~~~
mahmud
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.

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mediaman
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.

------
keltecp11
Newspapers should never have disbanded their R & D Departments...

~~~
jrwoodruff
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-
prepa...](http://www.niemanlab.org/2009/05/at-the-new-york-times-preparing-
for-a-future-across-all-platforms/)

but not nearly enough kept them alive, or ever had them in the first place.

