Are You Doing Business with a Zombie?

If your business is struggling you’re preventing the economy from recovering – so stop it!

I just love the simplicity and ingenuity of commentators trying to identify those to blame for our poor economic performance: the recession must be someone’s fault, right? but whose? In this highly politicised game of naming and shaming the guilty, zombies have had a lot of press over the last few months. Zombies? Well “zombie businesses” to be more precise.

Perhaps it’s just the PR community’s natural preference for topical metaphors that has caused this, as I’m sure that the reference to “zombies” became much more common around the time of the most recent Twilight movie premier. Vampires and zombies coexist right? If you are one of the few people who haven’t heard of “zombie businesses”, let me explain: the idea is that it is the underbelly of poorly performing businesses, those that are struggling to survive and are being propped up by low interest rates and supportive banks (!) that are holding back the newer, more dynamic, growth-oriented businesses. Not only that but, stimulated by this success, somehow these new businesses could be leading us out of the economic stagnation we find ourselves in.

Yes, it’s all the fault of the struggling small business person and apparently the current low levels of company liquidations and household repossessions is bad; there should be more of them. Well, note to all you economists out there: it might sound good in theory, but it’s not so good if it’s your business, your job, or your house! A good sound-bite maybe, but rubbish economic policy.

So, if your business is struggling a bit and not growing you may be a zombie too and responsible for all this mess:  “Get out of the way and let companies who can do it better than you can show you how’s it’s done!” seems to be the message. I’m personally not convinced. It’s just another round of moaning by the media and politicians, calling for those entrepreneurial Merlins amongst us to do what they do best and create more business to stimulate the economy.  Apparently, the answer to all our economic problems is really that simple. To my mind there are several flaws in this line of argument:

  • If these challenger businesses are so demonstrably better than the “zombies” standing in their way, surely they would win the business anyway, wouldn’t they? Please don’t say that the non-existent lending to these struggling firms could be diverted to the “growth guys”: banks don’t lend to struggling firms.
  • In spite of how it might seem, growth is not that common; it is sporadic and short lived and most businesses are stuck, not growing at all, after a first spurt of success. It’s normal not to be growing: we have always been a “nation of zombie shopkeepers.”
  • You can’t just create customer value out of thin air, you need a differentiated proposition and they are not that easy to come by. Oh, and if there were that many valuable under exploited ideas just waiting to be rolled out in the economy wouldn’t that have happened already?
  • Much of the “churn” in the economy is about a business’s inability to adapt to change. It has always been so; it is just a little more evident these days when technologic change in particular is so rapid. So, yes, new entrants will replace the ones who can’t adapt, but only if they can also fulfil some of the above too.
  • Low levels of productivity have been highlighted as a characteristic of the zombie world and small businesses are being accused of this heinous sin right now, but it wasn’t that long ago that it was the oil and finance giants under attack for the same thing. Isn’t it the small and less productive companies doing most of the hiring at the moment, whilst the “big boys” are trying to repair their balance sheets?
  • The economy depends on much more than the sales line; the cost structure of new firms has big implications too. Culling the zombies will result in liquidations, unemployment and house repossessions, unless someone is there to give these folk work? As it is technology that is significantly changing our world, the nature and scale of employment is rapidly changing as are its entry requirements, so don’t hold your breath.

Rather than this recession not being destructive enough, as many economists seem to think, and more destruction of zombie firms and jobs and livelihoods would have had a net positive effect on the economy, I don’t think anyone would be there to take up the slack and the net effect would just be worse than what we have now. All developed economies have been buoyed-up by nonsensical economic thinking and financial jiggery-pokery that is now gone, hopefully forever, and we are just going to have to get used to it.

I would prefer to see less use of the terms “zombie business” and “zombie households” as, to my mind, it deliberately misrepresents what is going on for the benefit of various interest groups wanting to avoid blame, or win new business for themselves. I’m not in the least distressed that the insolvency industry is quiet right now.

No, you aren’t doing business with a zombie; just businesses and people struggling to survive. To quote Robin Williams in the wonderful film Good Will Hunting, speaking to a young man struggling to make his way in the world, if your business is struggling “It’s not your fault”.

Mark

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