The problem is not that the telecommunications industry is in really bad shape – most of us already know that. The problem is that too many people bustle about in a constant state of denial, failing to acknowledge that the industry has collapsed. We can help educate them and make them well. Let’s start today! I’ve compiled a list of things to watch for in such cases. I hope it can be used to help readers spot warning signs and early symptoms – a handy guide to industry denial, if you will.
- 1) Debt Denial Syndrome – This syndrome most commonly afflicts executives at large telecommunications carriers. In its formative stages, it begins something like this: Overeducated accountants explain complex new financing options as if they are forms of art. There's a grim fascination in the way some carriers speak of their debt as if it were a personal treasure: “Hey, have we got more fancy, complicated debt than anybody, or what?!”
Be careful when dealing with DDS sufferers. When you actually do some homework and point out how much this fancy, complicated debt costs and how the combination of interest payments and shrinking revenue are resulting in massively escalating losses, the spinmeisters at such carriers are prone to angry outbursts: “Hey, don’t talk about our debt as if it’s something bad!” they say. “That’s not fair!”
Just about everybody in the telecom carrier market has demonstrated these symptoms. For some strange reason, it is very hard for anybody with this syndrome to realize they are losing truckloads of money.
I’ve thought of an interesting experiment that might bring to light the consequences of such behavior. Next time you’re out with a new date, try this line: “Hey, did you know I’ve run up a $38,000 bill with Visa?” See how far it gets you.
Debt Denial Syndrome often evolves into...
2) Deluded Bankruptcy Syndrome – Also known as What, Me Worry? Why can nobody admit that filing for bankruptcy is bad? Period. If your team scores fewer points than your opponent in a basketball game do you say, “On many levels, we’ve actually won!”
This is a common affliction that strikes nearly all outgoing CEOs of bankrupt companies. It becomes particularly acute in the case of venture capitalists who back such companies. Admit you lost, for goodness sake! What’s the big deal?
Take Jerry Parrick, the former CEO of Yipes. Parrick spoke of filing for bankruptcy as if it were like going to the corner store to pick up some milk. "Bankruptcy gives us another vehicle with which to restructure our balance sheet,” said Parrick. A week later, he was unemployed. Restructure that!
Here’s a handy rebuke for somebody afflicted with DBS: “Hey, if it’s so great, why is the stock worthless?”
Common warning sign: Look for shocking displays of wealth and name-dropping in the face of financial crisis. Hobnobbing in Beverly Hills with Hollywood celebrity friends is a sure sign that this syndrome is entering its last stages, which are often crippling.
3) IPO Denial Syndrome – This syndrome is common among bubble-era optical IPO companies. Typically, the onset of the syndrome precipitates the delusion that just because you had an IPO, you are massively successful. Wrong!
Victims of IDS have never quite adjusted to the fact that an IPO is, in fact, an event in which you take millions of dollars of other people’s money. You’re supposed to use that money to make more money and give those investor folks something back. If you burn other people’s money – rather than making more money with it – those investors get very, very angry. It’s amazing how few people can grasp this basic concept: Public investors aren’t often thrilled by the fact that you’re flying a Gulfstream bought with money from their 401Ks.
This syndrome is quite common, found among the executives at just about any optical systems startup that has completed an IPO (but still hasn’t earned a penny of profit).
Proposed solution for dealing with people afflicted by this syndrome: Tell them to just shut up and make some money. In such a scenario, recovery is full and prosperous.
(A dangerous and potentially lethal financial situation results when you combine this syndrome with syndrome #1.)
Common warning sign: Long strings of expletives laced with references to the stock price (commonly confused with Tourette's Syndrome).
4) Engineering Denial Syndrome – Here's the good news: There's proof that the various denial syndromes can be fought with a little dose of economic reality.
At one time this Engineeering Denial Syndrome was widespread. It arose when a superbly financially engineered company built a crack marketing staff, spent all sorts of VC dough on neat parties and staff, charmed the trade press into writing puff pieces... only to realize that they had forgotten to develop a product, or worse yet, that somebody might not want to buy or use their nonexistent product, even if they had successfully developed it. This was by far the most common affliction in the industry. Studies show it struck more than 70 percent of optical networking companies.
These days, many of the victims of such syndrome have moved on to work in the fast-food industry. In other cases, the victims have become aware of their EDS and have sought rehab. There is mounting evidence that former victims can go back to work and lead productive lives after treatment. For example, take a certain former IPO startup that has gone quiet on the marketing front and is now back to working on its product with customers.
Still, EDS exists in pockets, and several startups remain plagued by this crippling disease today. And even if the threat of an EDS epidemic has largely waned, it's sure to emerge in the next VC investment binge.
Common warning sign: Look for absurdly effervescent comments in the face of obvious bad news: “I think the fact that our next-generation optical crossconnect burst into flames and killed three people is a serious demonstration of our customer traction!”
— R. Scott Raynovich, US Editor, Light Reading