We are in the midst of daily events that would have been unimaginable only weeks ago. There is a particular aspect of the current environment I’d like to write about, and I’d like to approach it by way of a personal anecdote from many years ago.
Early in 1999, I had managed to get my little company, Prophet Financial Systems, on its feet again from a near-death experience from a few years before. The company had always been very thinly funded – – its initial starting capital was all of $3,000! – – and I had slowly and carefully nursed it from something I ran out of a spare room in my house into a real company with a real office and about a dozen employees.
The finances of the company were entirely organic. In other words, we were very old fashioned in the sense that (a) we created products; (b) we sold access to them; (c) our revenues were greater than our expenses; (d) we managed to pay everyone on time and make a little profit. How about that?
But, this being 1999, I was surrounded by a zillion startups with a zillion dollars in each of their bank accounts. Here I was, busting my butt and watching every nickel, and it seemed that any twenty year old with a PowerPoint presentation could get millions in funding for whatever idea they had. I confess I felt kind of jealous, having to be so cautious with cash and be so judicious with decisions like hiring another person.
One evening, I was over at a friend’s house, and as she was getting dinner ready, I picked up a copy of the Wall Street Journal that was next to the chair and I started to thumb through it, since my wife and her friend were chatting in the kitchen. As I was going through the pages, my eyes locked on a tiny article: Telescan Acquires Investools.
I instantly recognized the “Investools” name, since they were a customer of ours. A couple of years back, when I could barely make ends meet, I agreed to create a charting program for them. I’m not much of a programmer, but I managed to cobble together something decent, and they gave me a small fee each month…………I think maybe $500. Almost as an afterthought, they attached to the contract a warrant to buy shares in their company at a fixed price. Since I was just about broke, I had no interest in buying shares, but it was nonetheless part of the agreement.
Now that the company was being acquired, however, it occurred to me that maybe those warrants were worth something. As I was sitting there at the friend’s house, I wasn’t even sure if I remembered the agreement properly, or if the warrants had expired. And I certainly didn’t remember the particulars, such as the quantity of shares or the purchase price. I was very eager to get back home, dig up the agreement, and find out.
When we made it home later that evening, I swiftly found the agreement, and sure enough, there was a valid stock warrant that was still valid. I did the math, and I calculated that I was due to get $1.6 million. All for a crummy little stock graph program I had written years before.
Instantly, I at last felt “funded.’ I would have a seven-figure checking account, just like all the other startups. I wouldn’t have to agonize about hiring decisions. I wouldn’t have to shop around for the best deal on computer equipment. I could finally hire a real public relations firm and try to get us written up in newspapers and magazines.
Allow me to share with you a couple of lessons I learned from having a bunch of money dumped in my lap.
The first lesson is this: if you have money to spend, you will have absolutely no trouble at all finding parties that are happy to accept it in return for goods and services. The line will stretch a mile long with vendors eager to relieve you of all that heavy cash that’s making your legs go numb. A PR firm at $15,000 per month? No problem. A new database server for $40,000? Absolutely, right this way. A programmer who gets $100 per hour to write code on the cool new Palm mobile device? Yes indeed. They’re all ready for you.
The second lesson is: once you get used to spending money, it’s really, really hard to stop. In short order, I had all kinds of recurring expenses I didn’t have before. Whereas beforehand I had been extremely frugal, now I had become profligate. It’s a kick to write checks left and right. You get all kinds of shiny new stuff, and vendors have this funny habit of being really nice to you. It’s cool while it lasts.
But it doesn’t last. $1.6 million sounds like a lot, but it actually didn’t take that long before it had dwindled down to pretty much nothing. And, surprise, surprise, the ongoing expenses were still there. Paradoxically, getting all that money just about killed us. This blessing had become a curse, because I changed my habits the moment it became easy to do so. Sort of like those lottery winners you read about who go broke in a couple of years.
Leaping forward to the present, we are in a situation in which literally trillions of dollars are going to rain down on both people and businesses. Many unemployed people will actually make better money sitting at home watching Netflix than they did when they were packing boxes, serving french fries, or sweeping floors.
And businesses are going to get money that the government has already told them is going to magically change from a ‘loan” to a ‘gift”, so long as it is spent on the right things. Never before has so much money been dumped onto the country in exchange for……………..nothing.
And my belief is that both the individuals and the companies in the country are going to experience precisely what I experienced back in 1999. They are going to have a whole ton of money fall down into their laps out of the blue. They’re going to really like having it and spending it. They’re going to get used to this free money showing up. And then………..it’ll be gone. And things are going to be normal again. And they’re going to resent the hell out of it.
I can tell you from personal experience, it’s not a good feeling. And I can also tell you that I consider myself a fairly sensible, self-reflecting person, and even with those advantages, it was a pretty wretched experience to go through. If I take that experience, and multiply it by however many tens of millions of Americans are going to go through the same phenomenon, the implications to the national psyche could be terribly profound and long-lasting. Brace yourselves, because I think the change in national disposition is going to be shocking.