A Work-out You Don’t Need

The next few months will test whether you’re seriously in business or just playing at it.

The battle over getting paid has begun in earnest.

Getting paid has always been a problem in the marketing business. In every downturn I can remember the first bills that savvy payable chiefs put off until next month were those to outside vendors selling non-tangible services.

Let’s face it. If you put off the rent or the phone bill or the electric, you’re out of business pretty quick. The same is true if you fail to pay salaries families are depending on you. But the ad agency or the consultant who did their work for you last month, or the magazine spread that ran last month let ’em wait.

Many people in the ad business were expecting this treatment months ago. Even during the height of the boom, agencies and TV stations were demanding up-front payments from dot-com clients. Now those who didn’t do this regret it.

What happened? When the stock market fell down and couldn’t get up, a lot of things happened. Public companies found themselves without equity and began looking at their cash hoards the way the Cubs look at late-inning leads. (However much we have, it’s never enough.) Private companies pulled back from their own IPOs and, when they returned to their VCs for more funding, encountering a whole new attitude.

The attitude is described well in “A Man in Full,” Tom Wolfe’s novel set in Atlanta. The honored client, who previously gave bankers orders, is now the “shithead” at a “work-out session.” “Think of this as an AA meeting,” the work-out man tells the “hero,” a developer in the hole for $500,000. “Now that the spree is over, we wanna see some real self-awareness here.”

The aim of the work-out man, of course, is to put the fear of God into the shithead, and extract the bank’s money from the client by any means necessary. (If you really need your bills paid, you want one of these folks working for you.) Does the company have a private jet or a home on the company books? We’ll take that, or you can sell your worthwhile assets at pennies on the dollar, and we’ll take the jet and house later.

A lot of honored clients are going to turn into shitheads this summer. Those who bragged a few months ago on their “burn rate” now see that cash for what it is, and see it’s running through the hourglass faster and faster. So what bills can we put off? Will you take half now and half later? Help me out here. (No way, your work-out man replies. Shithead.)

If you hold a loan backed by collateral (like the work-out man in Wolfe’s book), you can seize assets. If you own stock in this dot-com outfit, even if you bought it at $90 and it looks grossly undervalued at $9, you’re a shithead.

This happens in every business and I’ve backed some of these dogs. Equity investment goes to the end of the line. It’s the first guy at the table to take a “haircut,” or to have their chips wiped off the board entirely. What looked a few months ago like “money out the wazoo” can turn to worthless paper when the “hero” you invested in becomes a “shithead” in a work-out meeting.

Once I had a web site. Made it run. Made it race against time. Once I had a web site. Now it’s done. Buddy, can you spare a dime?

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