Death spiral • Hacker News Board

Re: Death spiral

#11

Post by jbrun » Wed, Jul 22, 2009, 3:30 PM UTC

mrbgty wrote: post #9

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 ge…

Evolution anyone? Who has heard of an organism adapting to change by cutting their limbs off?

People like stability. In fact, we are predisposed (through evolution) to think that the world is inherently stable. They think that if something has been working for 10, 20, 30 years there is no reason that it should not keep working; thus, a downturn in their business is a temporary abnormality that will correct itself. Sometimes this is true, usually, it is not.

Often, with new technology (internet) and markets (china), costs get demolished. A business that relied on the previous cost-price ratio simply cannot compete.

Things change - usually for the better - and companies who fail to adapt, die. Their failure to recognize genuine change is their own failure and no amount of cost cutting will change an organization for the better.

Re: Death spiral

#12

Post by jakarta » Wed, Jul 22, 2009, 3:32 PM UTC

mrbgty wrote: post #9

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 ge…

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)

Re: Death spiral

#13

Post by rimantas » Wed, Jul 22, 2009, 3:48 PM UTC

jbrun wrote: post #11

mrbgty wrote: post #9

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 ge…

Evolution anyone? Who has heard of an organism adapting to change by cutting their limbs off? People like stability. In fact, we are predisposed (through evolution) to think that the world is inherently stable. They think that if something has been working for 10, 20, 30 years there is no reason that it should not keep working; thus, a downturn in their business is a temporary abnormality that will correct itself. So…

Seth Godin has dropped the ball recently (imho), but talking about evolutionary angle there is one his book I highly recommend: "Survival is not enough". Somehow I get an impression that this book is undervalued. Or maybe it just me reading to much into it.

Re: Death spiral

#14

Post by brk » Wed, Jul 22, 2009, 3:53 PM UTC

jakarta wrote: post #12

mrbgty wrote: post #9

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 ge…

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…

So I think that Godin makes a huge overgeneralization

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

Re: Death spiral

#15

Post by silentOpen » Wed, Jul 22, 2009, 4:00 PM UTC

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.

Re: Death spiral

#16

Post by mahmud » Wed, Jul 22, 2009, 4:07 PM UTC

jlees wrote: post #10

I wonder what prompted this.

His clients cutting back on their marketing budget? (or perhaps slashing the funds for the annual corporate party and doing without the motivational speaker; Tears for Fears were cheaper, plus their songs are catchy.)

Re: Death spiral

#17

Post by bendotc » Wed, Jul 22, 2009, 4:17 PM UTC

jbrun wrote: post #11

mrbgty wrote: post #9

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 ge…

Evolution anyone? Who has heard of an organism adapting to change by cutting their limbs off? People like stability. In fact, we are predisposed (through evolution) to think that the world is inherently stable. They think that if something has been working for 10, 20, 30 years there is no reason that it should not keep working; thus, a downturn in their business is a temporary abnormality that will correct itself. So…

Are you saying you still have a tail? ;-)

Re: Death spiral

#18

Post by TrevorJ » Wed, Jul 22, 2009, 4:19 PM UTC

jbrun wrote: post #11

mrbgty wrote: post #9

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 ge…

Evolution anyone? Who has heard of an organism adapting to change by cutting their limbs off? People like stability. In fact, we are predisposed (through evolution) to think that the world is inherently stable. They think that if something has been working for 10, 20, 30 years there is no reason that it should not keep working; thus, a downturn in their business is a temporary abnormality that will correct itself. So…

"Who has heard of an organism adapting to change by cutting their limbs off?"

Like this?

http://www.sciencedaily.com/releases/2009/03/090325170604.ht...

Re: Death spiral

#19

Post by synnik » Wed, Jul 22, 2009, 4:21 PM UTC

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.

Re: Death spiral

#20

Post by SamAtt » Wed, Jul 22, 2009, 4:23 PM UTC

jlees wrote: post #10

I wonder what prompted this.

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.