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News & Blog

News & Blog

Asset-Based Lending, The Dark Side of the Financial Community

July 28, 2020

Asset-Based Lending, The Dark Side of the Financial Community

Last month we compared the training and mental disciplines of the Navy SEALs to the mindset of an asset-based lender. Perhaps a stretch intellectually, but worthy of consideration. Your responses were enlightening! This month we thought we would shift our focus from the thought process and discipline to the nature of the organization that endeavors to dwell in the shadows of asset-based lending. So what organizations would be suitable models to compare an asset-based lender to?  Congress, whatever your political views, is dysfunctional. Large multinational corporations? Too big. Local Chambers of Commerce? Too small. What would be a comparable organization in terms of scale and scope that could be used as a useful model for an asset-based lender be?… Of course, the Galactic Empire! The Galactic Empire strikes us as the “quintessential example of how not to effectively run an organization.”*

Why the Galactic Empire (the “Empire”)? Well, let us consider the following mistakes the Empire has made:

 

  • Mistake I: Building an organization around particular people, rather than institutions;
  • Mistake II: Depriving people of the chance to have a stake in the organization;
  • Mistake III: Having no tolerance for failure and failing to learn from mistakes; and
  • Mistake IV: Focusing all of the organization’s efforts into a single goal and failing to consider alternatives.
While these may seem self-evident, there is relative certainty your organization can be accused of at least a single mistake or worse, multiple. Let us consider the implications of each one.

I. Building an organization around particular people, rather than institutions. For this comparison, the Emperor can be substituted for any senior executive; it’s the preservation of power (authority, sole decision making) that is the downfall. As the Star Wars saga shows, consolidating and preserving power (authority) in the hands of one strong leader, perhaps disbanding the “Senate” or in our case, the Investment/Credit Committee in favor of dutiful lackeys, or yes men (and women) in today’s parlance, can only lead to single-minded thinking. Emperor Palpatine relied solely on Darth Vader and their only succession plan was to poach Luke Skywalker and bring him to the Dark Side. No better analogy for asset-based lending than calling it the dark side. After the death of Emperor Palpatine and Darth Vader, all opportunities for a successful succession plan were eliminated. By eliminating the two-key people in the org chart, the entity was destined to fail.  And it did.

Lesson to be learned: talent at all levels must be developed in order to ensure that on the departure of any key individual, there is bench strength to step in. Bringing someone in from the outside, young Luke, for example, to run an organization he has not been involved with is not a long term solution. Interim management is a viable stop gap measure, but cannot unto itself, guarantee a successful succession plan.

II. Depriving people of the chance to have a stake in the organization. By consolidating his power, the Emperor didn’t just ensure that his organization wouldn’t survive his death, he also deprived his employees of a feeling of having a stake in the success of the organization. The Emperor disbanded the Galactic Senate. He wiped out all references to the Force so there was no longer any guiding ideology. The Emperor or Darth Vader gave orders and that was it. No further discussion.

Lesson to be learned: Fear, combined with a sense of powerlessness, only inspires the bare minimum amount of work. In order to get the most out of people in your organization, you need to engage them in the decision-making process and ensure that they have a stake in the success of the organization.

III. Having no tolerance for failure. Decisive punishment of failure is a huge error of management. First of all, mistakes are inevitable — especially in times where quick decisions are needed to be made on incomplete information. People would be afraid to offer feedback or suggestions, choosing instead to follow direction to the letter. This ensures that decisions are made at a very high level, and anyone under those levels will lack initiative or the ability to act on their local knowledge. The quickest way to promotion in the Empire is for your boss to make a mistake, so it was in your own best interests to ensure that he (or she) does.

Lesson to be learned: Failure is a cylinder in the engine to success. Learning from them increases the chances of not making them again. And again. Organizations must be flexible and able to adapt to changes even if that means making some mistakes along the way.

IV. Focusing all of the organization’s efforts into a single goal. When it came to the success of the Empire, the Emperor had one single idea that he was absolutely obsessed with: building the Death Star. At no point do we ever see any alternatives broached. The only other goal we ever see the Emperor pursue, apart from the destruction of the Rebels, is to get Luke Skywalker to turn to the Dark Side and succeed Darth Vader and possibly the Emperor himself.  As discussed above, having only one succession plan, based entirely around getting a key player from a rival organization, showed remarkable lack of foresight. This single-minded obsession with one way to succeed is something that undermined not only the Empire, but also many other organizations.

Lesson to be learned: It is vital to be flexible and adaptable to changing circumstances. Always consider alternatives to your current course of action and develop multiple plans for achieving particular goals in case one or more plans do not pan out.

The Empire failed as an enduring organization because of incredibly flawed leadership at the very top. By building an organizational culture based on fear, lack of independence and an unwillingness to adapt to changing circumstances, the Emperor set the stage for his own inevitable failure.* How many of us can say we have not seen any or all of this in our own organizations? Perhaps that is a reason we have left that organization in search of the utopian land across the street? Every organization thinks they have the winning formula, model, secret sauce.

Whether it is the people, the mindset, the financial strength, the market presence, the leadership or even the better mouse trap, it is fair to say, the lessons learned from the failures of the Empire can easily be failures which our own organizations here on Earth can fall victim to. May the Force be with You.

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* Forbes, Alex Knapp; Management Lessons to Learn from “Star Wars,” 2/22/2012

 

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