Tough Love

“Treat them mean, keep them keen” – not the most endearing Valentines Day message, but a form of love advice that is said to work (until it collapses in a big heap). There are many business owners and managers that are feeling on the receiving end of this at present.

In the space of a week, Godfrey’s and Beaurepairs (both in business for close to 100 years) went into Administration and are hoping for a white knight. That was followed by news of 34 year old builder St Hilliers Contracting and a few more smaller construction companies going under. A bellwether of the slowing discretionary market was that the manufacturer of Stessco tinnies (25 years old) as well as Icon Caravans (joining several other established Australian caravan manufacturers experiencing tough times) joined the growing list of leisure related company failures. The notable trend here is that these otherwise stable household names have weathered ups and downs many times before but have been sunk this time around.

Why? One reason is debt – control debt or it will control you. But interest rates now are still well below long term averages, so these companies have managed worse debt environments before.

Another argument could be that these businesses were old school and didn’t keep up with the times. To an extent that probably applied to Godfreys (didn’t partner with market leader Dyson), but not to the others. Beaurepairs were a major player in tyres supplying a still growing vehicle population with a consumable item. Their buying power alone should have help protect them in a notoriously tough market segment. People still need vacuum cleaners, tyres and houses. One problem is that input costs are rising so fast whilst the sales prices haven’t risen fast enough. Many “new school” businesses never make any money, but hoover in a lot of capital based on pie-in-the-sky growth prospects. The only thing I admire about for instance Atlassian (supposedly worth nearly $AUD100 billion) is through 20 years of continuous losses they have found ways to raise capital to keep the doors open. As they say, there’s a sucker born every minute. Enough of the vacuum cleaner references… (Ok, one more, one of the worst advertising campaigns ever must have been “Nothing sucks like an Electrolux”).

No, these companies, and many more, are going down due to a simple accumulation of lots of seemingly small and “insignificant” changes that cumulatively make it impossible to operate a business profitably. The burden of reporting and compliance just keeps on growing.

As an example, the Federal Government has now passed the “Right to disconnect” legislation. This is really a “solution” to a near non-existent problem. On the face of it, it seems innocuous enough, the boss can’t call you outside hours. And if they do, the employee can run off to the Fair Work Commission (FWC, creating a requirement for a bigger bureaucracy needing more taxpayer money) who can check if the contacts were acceptable. If FWC deems it unacceptable, the manager/owner can face jail time (oops, a lot of the ALP members who voted yes to this legislation didn’t read this part (mustn’t have been on the first page) that was inserted by the Greens, so now they are working on an amendment already to remove this threat. And we wonder why businesses can’t stay on top of all legal requirements?).

This kind of legislation can only work in places like the public service and can only have been designed by people who have never run a business, especially a small or medium business. If someone calls in sick, you can’t contact someone else to come in and fill in. What if your business is say an electrical contractor and gets a call for a breakdown that shut a whole factory? What about a natural disaster requiring the urgent despatch of insurance assessors? Or if you deal overseas or even have to manage the time zone differences between Australia’s East and West Coast?

There are very few Managers that have unreasonable expectations about responding to emails or phone calls outside of hours. Everyone has a life (even the Manager!), and the priority is unlikely to be to annoy the people you work with unless necessary. In the past, this worked based on give and take. Anyone who gives credible relationship advice will tell you that trust and communication is key, and when communication breaks down or stops the relationship is stuffed. This new legislation is likely to kill this arrangement, and everyone will be worse off. Why let someone duck off to the bank, check social media or make a personal call on work time if the accessibility isn’t reciprocated? It’s important to remember that what you put in is usually what you get out.

How this legislation will work in practice is anyone’s guess. 72% of Public Servants in Canberra still work from home. How will an employer know if their staff are working or uncontactable? Does that mean constant monitoring will take over (don’t think anyone wants that)? Looks like this is creating yet another reporting and recording nightmare for employers, for no benefit whatsoever.

All these cumulative costs and inefficiencies mean that businesses become unviable and close down, and people are reluctant to start a business in the first place. Others close down voluntarily to avoid the BS, and some simply outsource overseas.

The end result is people losing jobs. Looking at the insolvency trends, it is clear that Australia has some tough times ahead. Business has been treated mean and we still have the impact of the new IR laws to flow through.

If this becomes a recession, it is not one we needed to have, it will be entirely self-inflicted from over-milking the good times. We’ve demonised the industries that keep Australia going (mining, agriculture, construction, manufacturing) and replaced it with in many cases non-jobs. These are roles that don’t actually produce anything of value. Have a pretend job or pretend to work, and don’t be surprised if eventually someone pretends to pay you. Combine that with the trends to NOT work (“working from home”, disconnecting from the workplace, demands for flexible hours for “work/life” balance without considering the viability to the business etc), and the tough love reset will be felt most strongly by those who prioritise their “rights” over give and take.

Words from the wise

“Don’t be upset about the results you didn’t get from the work you didn’t do” – unknown source.

“Tough love means being firm but kind while setting boundaries and sticking to them” – unknown source.

As always, Onwards and Upwards!

Fred Carlsson

General Manager

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