Over the past week, I’ve been reading about the failing fortunes of the once mighty Channel Nine. As unlikely as it seems, the story holds a valuable lesson for start-ups.
If you haven’t been following this story and subscribe to Crikey, there’s an excellent background piece on how Nine Entertainment – previously PBL Media – got into its current predicament, while Cara Waters has done an excellent job of following the story at SmartCompany.
In short, after a leveraged takeover of the company between 2006 and 2007, Nine’s private equity owners loaded it with debt. While a tough advertising market and the loss of the network’s ratings supremacy certainly haven’t helped its situation, they also aren’t the main reasons why the company is in its current predicament – overloading an otherwise successful business with debt was.
By around about now, you’re probably complaining, “Yeah, but what does the current mess have to do with start-ups?” I say quit complaining – it has plenty to do with start-ups. Here’s why.
Debt is an important source of capital for growing or buying a business. However, it also creates risk, as the situation at Nine reminds us. If overloading a business with debt to an unsustainable level can threaten to bring down a media giant like Nine, it will almost certainly bring down your start-up.
In short, it’s the financial equivalent of natural gas. Managed properly, it serves a useful purpose. Poorly managed, it’s potentially explosive.
Late last year, Marc Peskett wrote an excellent article about using debt in your start-up. If you’re looking for finance – as many of us are – it’s essential reading. If you haven’t read it, do it now! If you have read it, read it again!
Then take a look at your current business situation and make sure your business is cooking with gas, rather than playing with fire.
Get it done – today!