Why is it never good enough to just have an ongoing business that works?
Unless The Escapist was really losing money or about to go bankrupt, I don't know why it needed to be messed with. It's not a "growth" project, it's a journalistic outlet. Who cares if it "grows"?
It's the VC wheel. You buy a successful outfit. Saddle it with the acquisition debt. It's no longer profitable because of debt service. You need more revenue in a thin margin business. You start alienating users and dumping unrealistic expectations on employees. Company goes boom or dies like a wet fart.
I mean it was purchased by a company that unironically calls itself Gamurs Group.
Venture Capitalists do not buy existing profitable companies. They fund startups. You are thinking of private equity or leveraged buyout companies. In private equity, private equity companies buy a company (typically on credit). The private equity company hopes to make a return on its investment.
I also doubt there are a lot of deals where a previously profitable company is unprofitable after the deal. There are two reasons for this. One, it's bad business. Two, very few people are going to lend money for this type of acquisition. If it does happen, it was either probably a mistake or an error.
> I also doubt there are a lot of deals where a previously profitable company is unprofitable after the deal.
Perhaps - but the fact that a trick has become well-known where companies are acquired only to be burdened with debt from the acquisition is rather telling. And that is not helping profitability.
As someone who's less into business / financial news than eg. curling news, I know of a ridiculous amount of companies where this happened. So I really do not doubt this is a common strategy.
Without growth you would need to increase price to continue to pay for workers who want a COLA increase. Increase price and you hemorrhage customers without a growth path. Even if you kept your staff at the same level paying someone the same amount yearly would still lead to decreasing revenue due to the cost of taxes, benefits, etc increasing.
In the long run the only way to run a business is to increase growth or increase cost to consumers. Since the escapist mostly ran off ad revenue (although they did have subscriptions that im guessing helps) unless they increased viewership they likely they weren't hitting the metrics they wanted.
by no means does this means let go of the guy leading the team who is your likely biggest draw -- thats just stupid
A lot of small businesses push the price increases onward. Food distributor says all your burger patties are +10%, all your burgers are +10%, unless you think its very temporary.
One benefit of local "anything" is that the prices are often way better. Ex: Live in a small town, the land rent can regularly be $1-2/sq. ft./month ($10-20/yr) while a quick on Sydney (where Gamurs is located) runs $8-10/sq. ft./month ($90-$100/yr).
Frankly, Sydney's mostly already subdivided into work shares from what I've seen, and its difficult to even find a spot that's not just $500-1000 / worker / month rates (or "contact for price"). Its part of the reason Sydney's childcare is ridiculous, cause the space to even have a facility cost so much (and you have to have a min reg space per child).
Right, so I think people understand inflation. But apart from that? At least I didn't understand OP as meaning that growth is meant to keep lowering prices and raising wages even in the presence of inflation.
I run a small business, know plenty of small business owners and this isn't really the full story.
Small businesses do frequently fail, but it's more to do with the fact that anyone can start one than the fact that they are small. If you allowed random people with no experience to start billion dollar megacorps, they'd fail too.
And there are plenty that generate pretty serious profits, triple or more what you could earn in a traditional job.
It might be a lifestyle business (or a way to keep a rich person's spouse busy) in which case you can live on only employing family.
Also, there just wasn't inflation in some places for a few decades, so they just haven't had to deal with it. (Which also means there hasn't been wage growth.)
This seems pretty disingenuous. Keeping up with costs is just part of stable profitability and in no way implies growth at the rate modern investors demand.
The problem here is you're looking at the system as individual parts instead of the entire system.
Lets imagine an entire economic system that was steady state. Why would profitability have to increase?
Instead we have a system that profit must increase, and profit must increase in every component of the system constantly due to inflationary practices.
>He found that in 2021, corporate profits could account for about double that, nearly 60% of inflation, meaning it was not costs driving inflation. It was corporate profits. Now, some economists hear this and think this is proof that companies were just using inflation as an excuse to gouge customers.
You're talking about "profits" when you should really be talking about "costs".
At a macro level, in a large company/business, your employees expect raises for a variety of reasons (inflation, quality of life, promos, etc). A new product or feature may require hiring additional employees. If an employee exits, you may need to spend more money to hire a replacement. In addition to all of that, there are contractual obligations with vendors, your customers may be trying to eliminate product (or leave entirely), etc.
All of that raise the cost to run the business. If you want to keep your margin you need to raise your prices, cut expenses, or both.
Somebody in the new management probably needed to stir things up and show that they have a vision and direction that will take the company to new heights, which includes drastic measures like firing those holding the company back, or who were unwilling to be reduced in compensation and scope.
This. Over two decades, I have yet to see new senior management who didn't feel compelled to 'make their mark' on their new territory by changing something significant. Occassionally, they'll actually do something useful, but usually they take something that worked and break it.
I don't think it's incompetence or egomania anymore; I think it's outright sadism. Some of these corporate sociopaths (Shkreli) don't even try to conceal their intentions because nothing ever happens to any of them anyway. It wasn't the hijinks with the Epi-pen pricing that sent Shkreli to prison.
Find something sentimental to someone, and smash it while they watch. People can't coordinate resistance against you when they're emotional. Hurt them deep enough and they give up. Then you can replace them with sycophants.
Companies bind a lot of money (in assets but also less concrete goods like people and expertise).
If you buy a company you need to pay for all of that even including _"potential"_ even if realizing that potential also would likely destroy the company.
So if you pay for it with liquidity that would "just" bind liquidity.
But if you pay for it with credit you now have to _pay of the credit_ or at least pay the interests.
So if the company made 100x€ profit every month but you have to pay 200x€ in interests every month to pay it of after 20 years then the investor loses 100x€ every month. Now that is the investor not the company and after 20 years they would make 100x€ profit, but for most investors that would be a major losing deal (I mean ignoring interests on interest, inflation etc. that would be 40€ until crossing even!).
In such situation the investor has a few choices, one paying of the additional 100€ with profit from a different company bought before where any interests are payed of. But humans only life so long, which brings us to the other solution:
Forcefully raise the profit from 100x to 200x to pay of interests squeezing out the company, then either resell a "now more profitable company" for more money or if the value of the company falls have some shenanigans ready to tax write of the loss in value....
Worse similar to a mortgage you can take on a house you can (at least in the US) make a contract where you get a credit you have to use to buy a company (or more like the lender directly pays a part of the cost) and the insurance for the credit is the company itself leading to a situation where the company basically now has to itself pay the 200x interests instead of the buyer. (example Twitter).
Now I'm gross oversimplifying things, but basically our financial system is so messed up that if a sustainable company gets bought there is a good chance it gets fucked up soon afterwards in one way or another. This in turn is not sustainable for the industry as a whole.
Now you might argue what has that to do with this case as not a person but another journalistic outlet bought them, well that other outlet is for profit and is likely to act as much as described above as a person. Buy, squeeze, resell or buy gut-out and write of is as much a case there then if a unrelated 3rd party would have bought it, and gut-out works much better if the buyer is from the same industry branch.
Because "investors" expect returns on their investment and the more investors you pull in, the more money you need to generate. At some point it's no longer about how to run the business well or how to make "enough" money for yourself and your people but how to keep the investors (whom typically don't live off of their one investment) from pulling the foundation for your only livelihood out from under you if you don't deliver enough returns.
I understand what you're trying to say here, but it's extremely naive. For one, the employees definitely care, because they want their pay to keep up with cost of living. The owners want the business to be successful so they get a return on their investment.
> Why is it never good enough to just have an ongoing business that works?
Unfortunately, as soon as you employee people it is never good enough to make sure the business operates without growth. Unless, of course, you're wealthy enough to fund the business through the hard times.
We're not talking about "grow a few percent a year, combined with price increases, to combat inflation." We're talking about "grow massively in a way that makes the founders of the company rich."
That's what I am unconcerned about. Being so concerned about attaining wealth that you sacrifice the value of what you already have in a misguided attempt to do so is the naive thing.
Conspiracy theory (well, SAC theory): The people who own everything made a bunch of bad bets over the past few years, essentially on margin. Payments are due. They're squeezing everyone who will put up with it because the alternative is economic devastation.
If you put $10000000 in a company and it’s not making money and it’s not growing, you’re losing money because you could be investing that money in something that does make money, if only a bank account with interest.
Plenty of journalists have joined Substack, started podcasts, etc. They quickly realize that’s a business as well, and there’s no escaping the hustle and grind.
Unless The Escapist was really losing money or about to go bankrupt, I don't know why it needed to be messed with. It's not a "growth" project, it's a journalistic outlet. Who cares if it "grows"?