Wednesday, February 11, 2009

What Business are you Really in?

I got this from a friend and thought it too good not to share.  What a summary of the differences that have gotten us to this point.
My husband and I were having a conversation the other day, and he said something that went right by me at the time, but it's been haunting me ever since. I think it might be a big part of What's Wrong with the economy-- and hence, it might offer an interesting clue on a direction for change.

My husband has been creating ways for people to recover from addiction for more than thirty years. He's published a number of books that are highly respected in the field. He's developed more than a few facilities and programs targeted at particular needs of particular kinds of people. He's very good at what he does, even if it's me you're hearing it from.

A few years ago, a colleague he'd worked with some years back asked him to take on a tough project: The company his colleague worked for (I'll call him 'Jim,' not his real name) had purchased a facility in New Mexico that treated people with multiple mental health and addiction diagnoses. The facility was running in the black but ARS (not the company's real name, either) felt that its clinical program had problems, the physical plant was in bad shape, and that with good leadership it could be even more profitable. Jim recommended my husband for the job and we moved to New Mexico.

The facility, which I shall call Transformational Healing Center, or THC (not it's real name, of course) had plenty of problems, all right, but as Jim had suspected, they were the kind of problems my husband had encountered many times before. With modest support and some capital investment from ARS, he could sort things out. THC ran in the black the entire time he was there and he maintained its margin of revenues over expenses in the twenty-five to thirty percent range. The staff started coming together as a team, the administrative problems were working out, and progress was made on the physical plant in spite of an on-again/off-again commitment from ARS.

Jim, who's in recovery himself, knew that the facility was making solid improvements. But he kept telling us that "Corporate" wasn't satisfied-- they needed even more revenue growth and better EBITDA, because ARS was being bought by Moroni Capital (no, not its real name either,) for nearly a billion dollars and there would be an IPO soon if they could manage to do enough additional acquisitions and show enough additional growth.

So for two years, my husband worked his ass off to create a solid clinical program, a safe physical plant, a smooth administrative infrastructure, and a large revenue over expense margin at THC. He did extremely well at all those things, but it was never good enough for "Corporate." ARS management, under the gun from the new Moroni board members, was doing everything they could to pump up "growth" figures-- acquiring more facilities (including some real dogs), demanding that facilities add more beds, increase daily census, demonstrate GROWTH!

In spite of higher revenue-to-expense ratios than ever in THC history, fewer incidents and problems, decreases in seasonal census fluctuation, new marketing strategies that diversified referral sources and produced steadier admissions figures, it just wasn't good enough for ARS. The management style from "Corporate" was becoming increasingly hostile, demanding, and unrealistic. When it was time for his contract to be renegotiated, my husband and ARS decided that the relationship was over.

That was a first for my husband, who has previously had nothing but respect from those who employed him. He left a wake of highly successful programs designed and established, troubled programs turned around, new revenue sources, better facilities, and satisfied customers-- until ARS came along. It was hard on him to feel as though he hadn't reached the goals, even though he knew that the goals had been wildly unrealistic. He went through a lot of soul-searching and some depression. He's still not happy with the whole experience, and it left us with some real financial and career issues to resolve. New Mexico is not a great job market for any field, much less his.

He's currently working on a new short-term consulting contract, and we were discussing it over dinner the other night. I referred to ARS, and he remarked, "But they weren't in the recovery business. They were in the acquisition and growth business," and went on to respond to my point.

And I've been thinking about that ever since. ARS owns dozens of treatment facilities. Everything from methadone maintenance clinics in inner city neighborhoods to posh spa-type spreads for the self-paying elite. They're in more than a dozen states. They have hundreds and hundreds of employees whose job is to help people recover.

But they're not in the recovery business.

He's right. They didn't give a rat's ass about people who need to recover from addiction and mental illness, except as success stories for marketers to generate more business to promote GROWTH! so they could make that IPO and Moroni Capital could get their billion dollar investment back and everyone's stock options would make them rich.

There is something fundamentally flawed about the whole model. It's NOT CAPITALISM. At least, not as Adam Smith envisioned it. It's not about creating a product or service people want or need, doing it superbly well, competing successfully against others who offer similar products or services. It has nothing at all do do with creating satisfied customers in order to compete more successfully. It's about creating the appearance of a certain type of success that impresses, not the "customers"-- people who need to recover and their families, insurance companies, physicians, and other referral sources-- but other financial manipulators who want to fill a niche in a portfolio of assets to increase the value of the holding company.

People like my husband are in the business of creating real value: Services and products. They take pride in the quality of what they produce and strive to do it better and better. They try to innovate, to make their services and products available to more and more people who might need or want them.

But the people who control the financial machinery that is supposed to facilitate all that don't give a rat's ass about it. They are in the business of creating, not value, but the perception of value. In order to sustain a vast, complex network of intangible products and paper instruments that theoretically relate to real value, but actually IMPEDE the creation of services and products.

No wonder things are falling apart so fast. People who can create products and services, WANT to create products and services, care about what they do, care about the quality, care about the satisfaction of the customer, the end user... they don't matter. They don't have any power in the marketplace. And now that the house of cards has come tumbling down, they have no means of doing what they can do, what they want to do, what the rest of us need.

However we end up re-creating the economy, we have got to ensure that never again does it get so far removed from the fundamental principles of REAL capitalism.

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