Miscellaneous Dispatches & Predictions

Consolidation
The local newspapers have been deliberately promoting consolidation in their stories over the last year. They would like to see fewer, bigger governments and bigger school districts. Even the Governor has gotten on board, promoting consolidation of purchasing activities with the Vikings across the river.

Yes, aggregating purchasing power can lead to lower pricing, but counter to what many think, consolidation of governments actually leads to higher costs. But how can that be? Consolidation of school districts and municipalities would reduce the number of high paid managers, they say.

Here’s how: When governments consolidate, residents start demanding more services, like busing, social programs, etc. Unions also demand representation once a government or school district reaches a certain size. Unionization then leads to higher pay and more costly benefits.

Just compare smaller villages and towns with larger municipalities; towns and villages operate using a lot of volunteer labor. Cities tend to purchase the stuff they need, whereas towns and villages frequently solicit
donations. Voluntary boards become paid councils. Head counts go up.

Compare any city to any village or town and you’ll find thousands of additional expenses, many not critical to the core operation of the city.

Consolidation also leads to lower quality services. Just look at our mega high schools: more kids fail to graduate. Wouldn’t we be better off with more numerous and smaller neighborhood schools? Wouldn’t parents be better off if their kids could walk or bike to school and the parents could likewise walk to parent-teacher conferences?

Managers Frozen in Fear
Over the last year I’ve noticed a scary phenomena; some business managers frozen in fear, unable to make decisions, not knowing where to turn during these dramatic times. In all fairness, these are tough times and the nearest road map is 75 years old and didn’t work then either. But we have to face reality. If something is not working at your company, don’t just sit there, change it. And what worked during an economic boom will not work during this financial crisis. This is a game changer.

As managers, we need to be proactive and have a higher sense of urgency and a higher sensitivity to what is happening around us. We need to become more aware of our surroundings, both business and economic. And no longer can we ignore what happens in New York or Washington. Lesson: We need to get engaged.

And don’t stick to “the plan;” get a new plan. After my company closed on an institutional investment in late 2007, I approached our new board and informed them we needed to throw out the plan we developed in 2007 and start over, because the economic environment was going to change dramatically. They agreed, and we stopped development and focused on preserving cash. In 2009, we’ll focus on taking advantage of the distressed economic circumstances in our industry by focusing on acquisitions. In 2010, who knows?!

You have to act fast in this economy. You have to be comfortable with change. You can’t just stick your head in the sand and pretend that you won’t be affected.

I urge you to listen to your gut. Stop listening to those investment managers who tell you to “ride it out” or “we believe in the long-term.” That sounds nice, but your job is to survive the short-term! Take the steps you need to in order to survive this year; stop waiting for the government to fix this
problem. If you can survive 2009, you can survive anything.

Government Bailout
To date, the government bailout has focused solely on the supply side, i.e. suppliers of capital, suppliers of insurance, of cars, etc. But nothing will change until the focus shifts to the demand side. The feds can bail out the car companies, but if they’re building too many cars year after year, no bail out of the manufacturers will change the demand for autos.

The only solution is to build fewer cars. Likewise, the feds can throw all kinds of money at the banks, but unless loans are requested (and made), nothing will change.

If the new administration wants the economy to recover, they’ll have to spur demand, and the way you do that is with a permanent tax cut in order to put more money in consumers’ hands, so that they’ll have the confidence to go out and spend it.

DNR at it Again
Well, that was fast! My company applied for another permit and surprise, the same guy, Mike Frielander, sent us virtually the same list of conditions as before, even though he was forced to issue us a written apology because his demands were illegal. I guess the DNR must abide by the old saying, “if at first you don’t succeed, try, try again.”

The Economy
2009 will be a long dark year, but we may see a glimmer of light come summer, given the financial stimulus that the Fed and the new administration have and will throw at the problem. 2010 will bring further improvement, with 2011 the first full year of a recovery.

Business Tip: If you have cash, get ready to look for buying opportunities this summer.