A Friend's Job Situation - Part 2, The Followup

Life's not fair, especially when dealing with unscupulous pricks.

When I last observed Nerdco and my friend MacG's situation there, I had done so assuming that the company was well managed and simply going through a tough time due to a difficult market environment and over-expansion.

It appears I had given the management of Nerdco too much credit, and apparently their banks have made the same mistake. This week I learned that MacG isn't sure he will get a paycheck.

As I understand it through MacG's eyes, Nerdco was top heavy on management, and in retrospect poorly led from the top. As a private company, Nerdco's finances are not transparent, and thus subject to *ahem* interpretation.

The story, as understood by the skeleton staff which is left, is that Nerdco's owner/CEO has bonused himself a boat, several houses, etc., and this has stressed the finances of the small company in an already tough year. I would expect that in a booming market, environment, these excesses would not have been so obvious or detrimental to the health of the company. The situation calls to mind the whole Tyco/CEO/toga party fiasco from several years ago, on a much smaller scale.

This is not the first time I have personally witnessed a private company's finances stressed by the indulgent behavior of its entitled owner.

MacG says Nerdco's bank has cut off access to their accounts. I assume he means their revolving credit is frozen, and that's why he's not sure he'll be paid this cycle. Merry freakin' Christmas and a Happy F-you from your devoted management, MacG.

Let's take a moment to re-examine the graphic I had studiously prepared last discussion in the assumption that people running companies could put personal excess below the welfare of the company and their employees. A silly concept, I know.

Simple Chart Time™!

While I had previously placed the company's complete closure at the "bad" and "unlikely" quarter of the graph, I should now move it to the "highly likely" and "bad" quadrant.

Old, Foolishly Optimistic Chart

New, Angry-at-Humanity's-Fallibility Chart

So there. I try to be realistic in my observations and assessments of the stuff I see. But there is no accounting for the combination of risk and greed.

MacG's best case scenario now is hoping his immediate manager will be able to lay him off so he can get unemployment benefits. I don't know how this stuff works, but apparently there are ways a company can fall apart through no fault of most of its staff, and they can lose their jobs but not be eligible for unemployment benefits. I don't understand the vagaries of these things.

MacG is packing his things, planning to move back halfway across the country. Luckily for him, the poor housing market made him unable to sell his old house back east, and he will be re-inhabiting it by the end of January and hoping his unemployment benefits kick in.

As for Nerdco and its remaining 30-odd employees? Who knows. MacG is not optimistic about their future there. He is just hoping to jump ship while there are still some life boats available.

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A Friend's Job Situation - Part 1

A friend of mine (we'll call him MacG) works in a national computer certification training and education company (we'll call them Nerdco) which has just closed 11 locations, leaving his as one of the 15 remaining. MacG is concerned about his job. Here's my thinking on the subject.

Nerdco has already closed 11 facilities, so one would assume they closed the worst-performing ones, and/or the ones with the highest overhead costs. MacG should feel good that he is in one of the better-performing locations. Now the question is, compared to the 15 remaining, how does his location perform? Are they hitting their numbers for enrollment and certification?

It seems the company has several options at this point:

1. Ride it out with the existing locations
2. Downsize some more in order to survive
3. Close all remaining locations and call it a day
4. Merge with a competitor or a company looking to expand its value proposition
5. Take on debt to acquire a competitor or augmentative business
6. Get acquired

Let's take a look at these possibilities

1) Ride it Out
If I were an owner/board member of Nerdco, this might be where my thinking is at this point. Some of those 11 closed locations may have been ones that were opened in expansion markets, planned and built during better economic conditions, but now obviously underperforming in a harsher environment.

That would leave a core set of mid-to-high performing locations which could see the company through this tough period. The company is now lean and mean.

2) Downsize More
If Nerdco's remaining locations show two quarters of poor performance next year, I would assume MacG's location might be on the chopping block by mid-summer. If MacG's location can show good performance, then he should perhaps feel safer in a continued downsizing environment.

3) Close up Shop, Call it Quits
Not likely, IMHO. The owners would gain very little from this scenario, except for whatever they can get from selling remaining assets (computer and office hardware, courseware, real-estate property [not in this market], intellectual property). In short, I think closing completely would be in indication of a serious lack of imagination in the leadership of Nerdco.

4,5) Merge/Acquire a Competitor or a Company with Augmentative Services
I think the M&A activities are a strong possibility (4, 5, & 6). If I were an owner/board member, I've have this on the table as an option to investigate. Nerdco can survive by using this opportunity to join forces with a competitor in a similar situation. Or if capital can be raised/accessed, Nerdco can acquire a competitor to gain their client base and market share, while also adding new intellectual property and market advantages to the existing value proposition.

A bolt-on business line could be a possibility here too, if Nerdco decides that there is a market it would like to expand into, but has not had the resources to develop. Something like computer expert consulting and support services (Geek Patrol for corporations) in addition to education services. This would allow Nerdco to take on a service contract-based business line which helps project revenue better. Which leads us to the last option in my discussion...

6) Get Acquired
Or Nerdco could be acquired for the same reasons stated above. In my experience, it's better to be employed with the buying company than to be in the one that's bought.

As much as the buyer may want to keep everyone employed with the acquired company, there are bound to be overlaps at least in operational functions, if not in other business functions too.

I think if Nerco were acquired, it would be better for MacG if the buyer were doing it to add a new business line, rather than to augment a similar business. MacG is in a better position to keep his job or transition to a new one if his expertise is unique and desired at the new combined company.

Otherwise, a business that does the same stuff as Nerco would be more likely to value the gains in market share, clients, and intellectual property first, with employees as a secondary concern. Obviously, the new company may keep some of Nerco's employees around after the deal in order to continue servicing the new, larger client base. But this would be a more competitive environment for MacG and his job.

Conclusion
What have I missed? Let's help MacG to cope with this difficult market.

To recap, MacG's scenarios discussed are plotted below; best/worst, likely/not. The dot is where these possibilities fall on the x and y axes IMHO:

I think MacG should update his resume and try to ride it out where he is. But he should start the job search just-in-case while he's still in safe harbor. If he doesn't lose his job, hey that's great, at least he was prepared.

Analysis I've seen as an armchair observer seems to indicate a slow 2010 all year, but that things should still be better than 2009. The biggest fear (which we don't know yet until we've seen some solid growth for several quarters) is that this could become a double-dip recession, where we bounce up (like we might be doing now) and then bottom out again before fully regaining growth steam. In that case, we are witnessing the "dead cat bounce" right now. (Apparently Wall Street logic says that dead cats bounce when they hit the ground after being thrown out a window. Weirdos.)

The November gov't job report looked good compared with the way things have been through the year. The US manufacturing reports have been positive lately. Observations of our clients at my job indicate that budgets are going back up again next year. Hopefully that is an indication of the rest of the country and other industries, which would mean we've reached bottom and are on the upswing.

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Let the Chips Fall Where They May

My mom had asked if her favorite UTZ potato chips are threatened by the company's recent acquisition by competitor Snyder's of Hanover.

I think the potato chip line will continue to exist, but the UTZ brand's days are limited. No matter what Snyders says about keeping the UTZ brand alive, I doubt it will be used much longer.

From a marketing perspective, once the value of the acquired brand is transferred to the parent brand, it's most efficient to eliminate any sub-brands that compete for mindshare. We'll see how this one works out.

Some companies maintain a gaggle of brands (like Procter & Gamble) and that is their thing. But my guess is that the Snyder's brand is small enough that they have no desire to maintain a large brand portfolio. This doesn't mean the chips will change. They just may be renamed something like "Mama UTZ's Classic Potato Chips, by Snyders." And in 5 years they will just be called "Snyder's Classic Potato Chips."

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