Too Small to Fail…Still Cool in 2012.

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  • on December 23rd, 2011

In October 2008, I think I coined ‘Too Small to Fail‘. The next week, a blogging idol of mine – Seth Godin – game me credit and added this:

One secret of being a large financial institution is that you can take huge risks because you’re too big to fail. If you hit craps and lose it all, don’t worry, because you’ll get bailed out.

One secret of ‘small is the new big’ thinking is that you won’t fail and you can’t fail and you don’t need to worry about a bailout. Not because you’re small in headcount or assets, but because you act small.

A small acting bank would never have invested in tens of thousands of loans that they hadn’t looked at. And a small acting startup wouldn’t hire dozens of people before they had a business model… and then have to lay off a third of them just because their VC firm showed them a scary PowerPoint.

I’ve always been frightened by big-firm accounting. The sort of financial legerdemain in which skilled accountants work hard to make the numbers look the way the CEO wants, instead of making them clear. Cash accounting run on a simple bookkeeping system is the small way to do it…even if your company is huge. That’s because sooner or later, management has to know what’s actually happening as opposed to what they can pretend is happening.

If you act small and think big, you are too small to fail. You won’t need a bailout because your business makes sense each and every day. You won’t need a bailout because your flat organization (no matter how large it is) knows about problems long before they’re too big to deal with.

Since 2002 I have been practicing ‘Too Small to Fail’ and 2012 will be another huge year for the strategy and mantra.

I have carried my first shoebox safe around with me since I was 7 in 1972.

That just seems impossible to me because I lose a pair of headphones every day.

I open it up every year and show it to Max. It is full of coins, stamps, my first bank deposit books from The Royal Bank of Canada, $2 bills from the US and Canada and a lot of European currency. This year he looked at it for the first time with wonderment….’This is History!’

It’s awesome, but he won’t know any of this because he has an iPhone an ATM card. A bank is like a hospital these days, filled with unhappy visitors who would like to be anywhere else, sick people and disease.

I am still pissed about TARP. Every freaking day we are reminded of it if we have a bank account or try to wire money or do something that should be insanely easy for a bank to do given the technology explosion. But, there are banks that did not need TARP. Take a look at Bank of the Internet in San Diego $BOFI. Thankfully, major innovation is happening while the thieves repaper, reshuffle and look over their shoulders for prosecutors and the angry mob. Joe Fahmy reminded me today with his post and quote:

“In 1923, seven men who had made it to the top of the financial success pyramid met together at the Edgewater Hotel in Chicago. Collectively, they controlled more wealth than the entire United States Treasury, and for years the media had held them up as examples of success.

Who were they? Charles M. Schwab, president of the world’s largest steel company; Arthur Cutten, the greatest wheat speculator of his day; Richard Whitney, president of the New York Stock Exchange; Albert Fall, a member of the President’s Cabinet; Jesse Livermore, the greatest bear on Wall Street; Leon Fraser, president of the International Bank of Settlement; and Ivar Kreuger, the head of the world’s largest monopoly.

What happened to them? Schwab and Cutten both died broke; Whitney spent years of his life in Sing Sing penitentiary; Fall also spent years in prison, but was released so he could die at home; and the others—Livermore, Fraser, and Kreuger, committed suicide.”

—Donald McCullogh, Walking From The American Dream

We get it up the wazoo with hidden taxes from ‘penny spreads’, the overuse of the word ‘quant’, and high frequency trading, but to survive you adjust your style or die. I trade less and try to go longer term with bigger trends.

I watch little TV, I go outside a lot, I practice ‘Social Leverage’ for hours a day and I make cold calls.

If you practice all four and make them your routine, you too will have a great 2012. Let’s do that.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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