Hennessy's View

Truth is, not all companies, not all business ideas, can make it on their own. 

It’s easy to say that a good idea will automatically lead to a successful business. But it’s a lie.

Apple did not become Apple without investors.  Sure, there are some examples of businesses that flourished without financial help.  But not many. We’ll never know the wonderful ideas that died in their owner’s garage for lack of financing. 

Markkula offered to guarantee a line of credit of up to $250,000 in return for being made a one-third equity participant. Apple would incorporate, and he along with Jobs and Wozniak would each own 26% of the stock. The rest would be reserved to attract future investors. The three met in the cabana by Markkula’s swimming pool and sealed the deal. “I thought it was unlikely that Mike would ever see that $250,000 again, and I was impressed that he was willing to risk it,” Jobs recalled.

Isaacson, Walter (2011-10-24). Steve Jobs (p. 77). Simon & Schuster, Inc.. Kindle Edition.

A lot of people with ideas turn to government for investments. Why a business person with an idea would go to government for funding is obvious: poor scrutiny, below market interest rates, and (seemingly) unlimited funds. Ideas requiring big investments and heavy risks tend to seek out government help.  (See Aerotropolis.)

But the private sector has its own method of bringing great, but risky, ideas to market: venture capitalists and private equity. 

Venture capital and private equity firms pool their money together and invest in start-ups or small businesses seeking to grow, or salvage existing companies that suffer from bad management.  These firms employ experts and risk-takers who help push ideas over the top. 

Most importantly, private equity firms are like Bailey’s Building & Loan—they give us an alternative to the Mr. Potter of government.

It’s absurd to criticize Bain Capital for its practice of salvaging failing businesses.  It’s absurd and silly to criticize Mitt Romney for laying off people from dying companies. Even some Democrats get this:

Should bad, poorly-managed companies be allowed to destroy value?  Should fast-growing, innovative businesses receive capital and support to accelerate their growth?  And should hard-working pensioners and retirees be allowed to invest their savings in an asset class that outperforms nearly every other one available?  Private equity has an important role and should be lauded, not lambasted.  The WSJ does a nice job of making this case here. 

I am a strong proponent of business considering all stakeholders, not just shareholders, as vital corporate interests.  I’ve written about Creating Shared Value in the past. I believe that mass layoffs shouldn’t happen simply to boost quarterly or annual numbers. 

When Bain Capital bought a business, the damage had already been done.  Bain didn’t buy thriving companies and gut them; it bought failing businesses and saved them.

Sometimes layoffs are necessary to avoid outright closure.  That’s why business leaders get paid big dollars—because we rely on them to save as many jobs as possible by making brilliant strategic decisions. 

While I have a lot of difference with Mitt Romney and with business executives who treat employees like pawns in their personal empowerment games, I believe that Romney’s actions at Bain were necessary and compassionate, not callous and self-serving.

Were it not for private equity firms like Bain and venture capitalists in general, ideas like the Apple II would die in Steve Jobs’s garage.  Entrepreneurs, inventors, and troubled companies would have nowhere to turn except government.

Newt Gingrich made a big mistake attacking Romney’s role in saving failing companies. In fact, his error was so big it might have sealed the nomination for Romney.

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David Brooks—the former conservative—skewered the University of Missouri St. Louis yesterday.  Brooks wasn’t aware, and UMSL administrators don’t read. But some of us caught it.

Brooks wrote of The Missing Fifth. Did you know that 20 percent of American men in their primes don’t work?

Americans should be especially alert to signs that the country is becoming less vital and industrious. One of those signs comes to us from the labor market. As my colleague David Leonhardt pointed out recently, in 1954, about 96 percent of American men between the ages of 25 and 54 worked. Today that number is around 80 percent. One-fifth of all men in their prime working ages are not getting up and going to work. [Emphasis added.]

How sad. How embarrassing. I’d say “how shameful” except the Supreme Court ruled shame unconstitutional, or so it seems. We’ve had that feeling, shame, removed from our souls.

Men who do nothing are deadbeats, much more so than people who try to pay their bills and can’t.  We’re talking about able-bodied men who simply choose to sit on their asses and sponge of others—off of foolish women, in many cases.

Brooks errs in his proposed solution, of course.  Brooks thinks American education the solution. He hasn’t been paying attention. I have some other ideas.

Higher education isn’t the solution to our problem; education is the problem.

The University of Missouri’s wing schools, UMKC and UMSL, offer the course “Introduction to Labor Studies.”  This course is why 20 percent of men believe that sitting on their brains is their right—nay, their duty—as young, able-bodied American men.

Leaving aside the communist party recruitment activity for a moment, UMSL’s Labor Studies course is a lesson in lying, lazy, and license.

In Labor Studies, professional derelicts Don Giljum and Nancy Ancel teach students how to avoid work, how to destroy a company’s profits, and how to harass and intimidate managers.

Think about this: the state of Missouri uses tax dollars to teach Missouri students how to rip off employers.  Knowing that, why would you hire someone who went to a public university in Missouri?  Why would you open an office or business in the state?  What could be more foolish than to expect Missouri to encourage business?

Here’s a solution.  It’s a tiny, tiny step, but it’s a step in the right direction: Shut down the damn Labor Studies course in the University of Missouri system.

An alternative solution if that’s too radical for our legislature: rename the course “Introduction to Deadbeat Studies.”

But do something before "Men at Work" becomes nothing more than a trivia question.

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In the tech world, I meet a lot of brilliant, ambitious, hardworking entrepreneurs. These folks are committed to their dreams, working 100+ hour weeks, and paying themselves as little as possible. They stretch investors’ dollars to the limit and hunt for more VC to make dreams come true. They want to create jobs and better lives for many. 

Over drinks, these young capitalists talk about three things:

1. Easier access to capital.

2. Lower taxes so they can reinvest in the next generation of their products.

3. An expansive, wealth-distributing, world government.

Huh?

Yeah.  These people who are sincerely and devotedly capitalistic about their own businesses are totally socialistic about everything else.  Their top-shelf educations have thoroughly brainwashed them into believing that a start-up in Silicon Valley (or Cleveland) is not subject to Obama’s plan for unified world economic management. 

We can win them over.  Ask them if they would accept some professor’s point of view on whether or not their software idea was feasible.  (They would not.)  So why accept some History professor’s view of the world?

Make a deal:  I’ll support lower taxes on entrepreneurs, if you’ll support less government regulation on small businesses. (Make them think.)

America leads the world in technology innovation (if not production) because we are free to pursue happiness. The young geniuses in Silicon Valley have access to VC because America produces wealth and lets (for the most part) the people decide how to invest that wealth. 

As Obama’s policies worth through the economy, opportunities to start new businesses, to build new dreams, to design and create great stuff vanish. Let’s win the minds and hearts of the brightest, boldest innovators.  They’ll fix Washington so they can get back to their dreams.

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So says Yale economist Nouriel Roubini in an interview today on CNBC.

“There are some parts of the global economy that are now at the risk of a double-dip recession,” said Roubini, head of Roubini Global Economics. “From here on I see things getting worse.”

Roubini’s comments came in response to a 376 point drop in the Dow Industrials. Nasdaq and S&P 500 were off significantly as well.  All three indices are at or near correction territory, having fallen about 10 percent from their peaks.

The reasons for the nosedive are pretty obvious:

• Uncertainty in the future of finance because of Dodd’s financial takeover package
• Fear of sovereign debt as seen in Greece, Spain, Portugal, and the USA
• Continued unemployment in the US
• The Obama Administration’s unquenchable thirst for borrowing
• Talk of the collapse of the Euro
• Weakness in Asian economies, including China
• Unexpected jump in unemployment claims
• Unexpected drop in the Index of Leading Economic Indicators

In short, if the news isn’t uncertain, it’s bad news for economic growth.  Other economists see weakness in the US economy, as in this Yahoo News story:

“The economic recovery story has started to look like a mirage and the new reality is a return to credit crunch conditions” like those seen during the financial crisis, said Tom Samuels, manager of the Palantir Fund in Houston. “If that’s correct, stock prices are well ahead of economic reality.”

Buckle your seatbelts.  It looks like Obama’s second recession is on its way.

*UPDATE*

The stock sell-off continues in Asia on Friday.  Major indices are down about 2.5 percent from yesterday’s close.  The Senate tonight voted to place massive controls on banks and finance, a move sure to spoil investors’ appetites.  This Congress and this administration are bent on controlling every aspect of our lives.  Alexis de Tocqueville predicted this outcome 180 years ago:

Above this race of men stands an immense and tutelary power, which takes upon itself alone to secure their gratifications and to watch over their fate. That power is absolute, minute, regular, provident, and mild. It would be like the authority of a parent if, like that authority, its object was to prepare men for manhood; but it seeks, on the contrary, to keep them in perpetual childhood: it is well content that the people should rejoice, provided they think of nothing but rejoicing. For their happiness such a government willingly labors, but it chooses to be the sole agent and the only arbiter of that happiness; it provides for their security, foresees and supplies their necessities, facilitates their pleasures, manages their principal concerns, directs their industry, regulates the descent of property, and subdivides their inheritances: what remains, but to spare them all the care of thinking and all the trouble of living?

Please read the rest of Democracy in America, Volume II, Section 4, Chapter VI.

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No, General Motors did not pay back its debt to taxpayers. Edward Whitacre is a liar. Instead, Whitacre paid the Visa bill with his MasterCard.  But both cards were issued by the same bank.  So you, the banker, are still on the hook for the full amount.

Now we know why Obama hand-picked Ed Whitacre to “lead” GM: Whitacre will do the president’s bidding.

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