4 Lessons Entrepreneurs Can Learn from Detroit’s Bankruptcy

Detroit

Detroit’s bankruptcy is a sad chapter in the city’s storied history, and a warning sign for government entities across America.

Small business owners and entrepreneurs should also use it as a “teachable moment” for how to avoid the same problems with their companies that Detroit’s politicians failed to do with their city.

Here are four such lessons entrepreneurs can learn from Detroit:

1) Just because things are great today, doesn’t mean they’ll be good tomorrow.

As noted reporter John Stossel recently posted on Facebook:

“In 1950, when I was three-years-old, Detroit was the richest city in America. Now it’s the biggest U.S. city ever to declare bankruptcy.”

Cities such as Detroit, and states across the country, were flush when the economy was good — but they spent their money, didn’t plan ahead and now are in some pretty deep fiscal holes.

The streets of American entrepreneurship are littered with companies and startups who did the same thing — experienced success fast, grew too quickly, hit rough times, and hit the skids.

2) Don’t spend money on ‘swag’.

As “Shark Tank” billionaire and uber-investor Mark Cuban advises start-ups:

“A sure sign of failure for a startup is when someone sends me logo-embroidered polo shirts.”

As Cuban says, such spending is “a sure sign of failure” and shows that you “have no idea how to spend your money.”

Detroit has learned about extraneous spending on such extraneous “swag” the hard way.  To wit: In the midst of the Motor City’s bankruptcy, city officials have approved $285 billion in taxpayer funds to build a new … hockey stadium.  The stadium may look nice, it may make people feel good, but it’s a waste of money.

As the aforementioned John Stossel also points out, Detroit spent $60 million on a New Public Safety Headquarters (and, yet, still has one of the highest murder rates in the country, with an average wait time for police of 58 minutes).

Neither the hockey stadium nor the public safety headquarters was needed, and they aren’t helping Detroit’s bottom line — they’re putting the city in a deeper hole.

3) If you’re in too deep, call in some help.

Detroit’s politicians have been able to dig the city out of it’s deep fiscal hole which, to be sure, was created by decades of mismanagement.  Now, the experts (the governor and appointed emergency manager) have taken control and are working to set things straight.

Now, hopefully, your business never gets in a hole as deep as Detroit’s, but we all face challenges that sometimes are beyond our expertise to fit. Seeking outside help — whether from friends, colleagues or even paid consultants — isn’t a sign of weakness, it’s a sign that you’re serious about fixing the problem.

In Detroit’s case, this help had to be forced on the city. Don’t let that happen to you. Get help early and stem the tide of the problem.

4) Cut costs, cut costs, cut costs.

Okay, this last one may seem obvious — and is probably covered by some of the other points on this list.  But it’s still vital.  Detroit has spent its way into the current crisis — promising too much money to its employees, and spending recklessly, while its tax base fled the city.  The city has also learned (although the politicians probably won’t admit it) that raising taxes can make the problem worse.

Your business should learn from this example.  Your tax base (i.e., your clients) won’t always be around and, besides, you can’t just snap your fingers to raise more income like a city can raise taxes.

Cut your overhead. Go lean. Don’t hire too fast. Work from home (or co-share an office).

Do whatever you can to keep those costs low.

It’s questionable whether politicians in Detroit, and across the country, will learn anything from the Motor City’s downfall — but you’re smarter than they are, and I know you will apply these simple lessons to your small business.

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