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How the government shutdown would play out at a startup

The current government shutdown may make sense to some people, but comparing it to how the real world operates boggles the mind.



The government shutdown would never work in real life

I’m fed up with our government, especially Congress. The super-partisan behavior totally forgoes basic economic principals, common sense and tenets of public service in general. To further illustrate Congress’ incompetence, and more to have a little fun and provide an outlet for my own anger surrounding current events, let’s transplant some of the egregious behavior in DC into a startup environment and see how it looks.

1. Freezing cash flow

Action: The government has shuttered many revenue producing, cash flow positive attractions, and the Department of Defense even considered cancelling the Navy-Air Force football game (one of the surest revenue positive events that exists).

Comparison: Startups are often cash-strapped. That is a reality that many of us entrepreneurs face. This is not when management shuts down the few efforts that actually make money, though.

Let’s say a company makes ice cream and they are struggling. The company has a stand in Central Park set up – and already paid for – that generates $1,000 a day in revenue. It costs $100 in ingredients/goods and $200 in salary to open and fund the stand for a day. No entrepreneur would shut down that stand down to save the $300 of daily operating expenses knowing that at the end of the day he’d have $700 in net income (provided the business in general is remaining open, of course). But our government is doing this!

2. Bickering over credit

Action: The government is threatening (again) to not raise the debt ceiling.

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Comparison: A small business has an operating line of credit, and the parameters of this line are such that the business can access additional credit at this time if the Board of Directors votes to do so. The company has bills due and interest obligations to meet. The Board knows they are spending too much money, though, and enters intense interdepartmental negotiations to figure out how to cut future spending from the different business units. Until a new, lower budget is agreed upon they will not vote to access their additional credit.

As a result, the company defaults on obligations. Vendors then eliminate credit terms or make them worse, the banks reduce credit limits and increase interest, and the company 401k plan is not funded. Employees are upset. Vendors are upset.

The same credit line that was accessible before is no longer easily available, and when money is borrowed (which is inevitable in this business), it costs the company significantly more money. The company is in far worse financial shape than it was, and operationally it has been wounded too. Even though the Board had the ability to avoid this scenario totally in it’s own control. Ouch. That was stupid.

3. No pay or benefits unless you’re management

Action: Congress’ failure to fund the government leads to a shutdown. That same Congress continues to pay itself full salaries while more than 800,000 federal employees are furloughed, essential aid programs are reduced or cut entirely and services across the country are drastically reduced.

Comparison: An exciting startup has grown from five people to 50 in less than a year. Management screwed up and has spent ahead of investment dollars and revenue. The company doesn’t have enough money to make payroll.

Management announces to employees that they will not be getting paid, and asks them stay on board to help the company get fixed. Management is hopeful that the employees will be paid in the near future.

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At this same time, executives pay themselves a full salary; management also cancels health insurance and other benefits for everyone outside of management. Ethics, anyone?

How the real world works

Please forgive a few liberties I have taken in drawing parallels, but there is no mistaking how counterproductive Congress’ behavior is right now. But you didn’t need me to say that, or illustrate it, either. I’m sure you already had the same conclusion. At least 90 percent of you did. Who are these 10 percent of people polled that approve of Congress right now, by the way?

One serous note to take from this: Owners should be the last people paid, management should be next to miss out, and employees should always be first. That is a philosophy all entrepreneurs should take to heart and a rule I hope you all live by, no matter the example set by our government.

Written By

Hoyt David Morgan is an entrepreneur, angel investor and business strategy leader. He is an investor and/or adviser to a handful of exciting and high growth companies, and has been a part of several high-value exits. He is passionate about customer experience, smart business and helping innovative companies grow... and sailing.

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