When our children were in high school they both worked, after school and weekends, at a local fast food restaurant. It wasn’t a McDonald’s/Burger King national franchise; it was a small, one-of-a-kind mom-and-pop place that specialized in bar-be-cue sandwiches.
The owners, a young couple whose dream it had always been to own such a place, roasted their own turkeys, hams, beef and pork in the natural juices and served them on a variety of homemade rolls, from sourdough to poppyseed. They also served up a small number of side dishes (fries, onion rings, etc.), beverages, and ice creams for dessert.
Combining the above with curbside service (i.e., the servers would take your order at, and deliver it to, your car), that was it. A simple menu, but one that was unlike any other offered in the area, and one that was mostly ‘homemade’.
The place was extraordinarily popular. The parking lot was always full. And the business was well run, with one or the other of the owners generally there overseeing the operation, and half a dozen high school students or young adults manning the cash register and preparing the orders.
Then the owners began to set their sights on ‘improvement’.
The menu was changed, adding many new items – items that all of the other fast food franchises served. Emphasis on ‘variety’ became the business motto, and, in the process, the simple uniqueness of the place evaporated. Many more part-time workers were hired, and the place simply became a lot more hectic, and less well organized.
Over time, the atmosphere in the restaurant became the typical frenzied one seen so often elsewhere. The young employees became overworked, under-dedicated and disillusioned, and the owners became increasingly frustrated with demands on their time and the new and different procedures that had to be developed in order to cope with the addition of so many new items on the menu and the new distributors with whom they had to deal.
Customer loyalty began to wane, as the business struggled to survive, and, a mere year after the ‘expansion’, the once-thriving eatery closed, leaving a forlorn and crooked ‘For Sale’ sign as the only lingering evidence that it had ever existed.
Why do so many of us insist on fixing that which isn’t broken? Why do we not acknowledge and value the kind of pride in accomplishment that should be engendered by being both useful and unique? Why are so many of us determined that bigger means better? Why do we refuse to recognize the blessing of successful simplicity?
Over-extension and bad management decisions.
Along a similar vein to my own personal recollections above, but capable of exerting a significantly larger negative influence on countless lives, fortunes, and futures …
What was General Motors thinking when they started lending money to high-risk, low-credit-rated people to buy houses? I can easily comprehend the business logic and appeal of providing financing for the purchase of GM cars, but ... houses? Talk about moving from a focused winning strategy to a diversified losing one.
In 2006 General Motors appeared to have resurrected itself, thanks in part to selling 51% of its best-performing division -- GMAC -- to buyout firm Cerberus Capital Management. But instead of printing money, the finance company is now courting disaster because of its mortgage operation, Residential Capital (ResCap), a lender whose subprime mortgages comprise a full fifth of its revenues.
At GMAC's investor conference last month, CEO Eric Feldstein assured attendees that subprime lending is being slashed, but he also acknowledged that ResCap could weigh down all of GMAC for the rest of the year, and beyond. This admission marked a major shift from 2005, when ResCap accounted for nearly half of GMAC's net income.
Over-extension, and bad management decisions.
What was H&R Block thinking, while engaging in the same thing? Offering short-term loans against tax refunds is brilliant, nearly risk-free, and extremely lucrative, but it's a giant leap from there to becoming immersed in subprime mortgages.
After suffering a major financial beating, H&R finally unloaded its subprime mortgage division, but got a bargain basement price for dumping it. H&R had valued the division at $1.3 billion as recently as this past srping, but the buyer offered a H&R less than 40% of that amount, and bought it for what would once have been considered a song.
Multiply the above two subprime debacles a hundredfold, and you are able to envision the ultimate in what one could call ‘ill-conceived product extensions’. Actually, I see little difference in what I believe the ultimate effects will be between victims of the short-sighted subprime expansion and the fate of our local mom and pop restaurant – except that the far-reaching subprime debacle will have financial tentacles whose negative effects will cause much more than the vision of a small, deserted mom-and-pop store in rural Lancaster County with a crooked, aging ‘For Sale’ sign hanging in the window.