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Tuesday, January 15, 2013

Entrepreneurs experience piling on

Piling on in football implies that the opposing team members have jumped on the pile of bodies of a tackled runner after the end of a play.  Great energy and enthusiasm causes the team to over react and incur the penalty.  Piling on is an event that may occur to entrepreneurs on their startup playing field.  It occurs when numerous people or groups follow the herd after some company event.

Some events can be great for the management and the company.  For example, a company has an extremely exciting and valuable technology and finds that potential partners, investors, or consumers clamor for rights or access.  Consumers will flock to the stores to purchase the product and the company books huge increases in the sales and earnings.  Developing great business deals when multiple companies want to partner allows for optimization of the deal structure to provide the maximum return. 

Companies with the greatest excitement command the highest prices at the time of IPOs.  Facebook for all the problems after the IPO was an oversold offering.  This was due to the large number of investors wanting the equity. Apple produces products that are so desired that lines form at their stores just to be the first to obtain the latest and greatest device.  This form of piling on has a benefit to the company.

The reverse can occur and piling on can be negative.  Make investors unhappy and huge numbers will sell the shares out of fear or anger.  Indicate a slowdown in production and the share price will drop like a rock due to the massive amounts of selling.  In these situations, management must identify changes that will bolster public opinion and confidence.  Stabilizing and reversing the trends are possible when the underlying business is sound.

The case where the underlying business is not sound brings out the sharks.  People smell blood in the water and come after management and assets.  Shareholders and debtors may take the management to court claiming activities that caused the loss of value.  Debtors learning of a potential default go after assets in court trying to collect.  Any news of problems causes many individuals that feel disadvantaged to pile on.  Surviving and rebuilding the company becomes extremely difficult when this occurs.

Employees can become unhappy with management or feel compensation or conditions are unfair.  They tend to approach management one at a time.  Once some event triggers greater concerns, the problem escalates and employees become more organized or approach management in mass. 

Managing the positive events is so much easier than the negative events.  Balancing the positive becomes maximizing the return for the company.  Dealing with the negative events becomes crisis management and survival.   The management team may be able to tackle the issues one at a time, or handle the greatest concerns first followed by lesser concerns.  Remember, it is possible to screw up great situations or to make the bad ones even worse.  Your best bet is to always remain calm and approach all situations rationally.