Not If it Eats or Moves...

A banker friend of mine has always told me he has a strict policy when it comes to accepting collateral for a loan: if it moves or eats, he’s not interested. He’s rarely been wrong.

They had a feature on NPR the other day that made me think of him. They were talking about the fact that the summer concert business has changed over the years and is now consolidated in the hands of two or three very large companies who control every aspect of the industry. They were making the point that there are so many ways to charge people for things (from beer to souvenirs to lawn chairs to the tickets themselves) that there is an absolute fortune flowing through the treasuries of these major players.

If you’ve ever paid $9.50 for a beer or $7.00 for a bottle of water you understand what they mean. At these outrageous prices these concerts must make an absolute fortune.

Then I thought of my friend, which made me think of all the people in this world who look at gross revenue without thinking of the real cost and complexity of actually earning it. That’s why my banking buddy is so astute: if it moves he’s not sure where it is all the time and if it eats he’s not sure how big an appetite it has.

The banker’s saying that it’s too risky to loan to a business that is constantly moving around and if it eats he wants to make sure it only eats its own lunch and not his too. In other words, the more complicated a business concept is the more likely it will be difficult to keep tabs on (and, therefore, to eke out a profit).

For example, a company that buys a product from one guy, never takes physical possession of the product and then sells that same product to another guy is the simplest of businesses. You can make it even simpler if you can take an order from a buyer and only then go looking for the product to fulfill the order. It’s kind of like specialized shopping.

Now, compare the simplest of businesses to the summer concert business. While the former makes me feel warm and fuzzy, the latter makes the hair on the back of my neck stand at attention.

Imagine the chances of failure when the easiest part of the business is hiring an over-priced prima donna to entertain a group of 40,000 semi-sober overage teenagers in a confined space on a 90 degree day. That’s just the beginning.

Imagine the lighting and the sets and the instruments. It all has to be set up and broken down in 40 different cities with varying licensing ordinances, power supplies and highway access. You need two dozen 18 wheelers and a half dozen busses and they all have to arrive within a 2 hour window so rush hour traffic isn’t snarled.

But, if NPR featured the guys who had to dig fence post holes and set up 10,000 folding chairs people would think they were whining. Especially since the guy who started the company in the first place gets to touch the massive amount of money that comes in…at least until he has to spend it making things work.

rjs