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Let the Good Times Stop

January 11, 2012

The Twinkie is bankrupt. (Thanks to Reason for the pointer, by the way.)

The company, which has assets of roughly $1 billion, has been struggling under the weight of a debt load of about $860 million and soaring expenses tied to its labor force. Hostess has up to 100,000 creditors, and its chief unsecured creditors are labor unions and pension funds that represent the company’s employees, according to the Chapter 11 petition filed in United States Bankruptcy Court in lower Manhattan.

At the heart of this appears to be some significant mis-management of funds, especially since Hostess had declared bankruptcy before in 2004.  Some of that is known as not learning from your mistakes.  Down a few paragraphs, we have this little number, though.

About 80 percent of the company’s 19,000 employees belong to a dozen separate unions, most notably the International Brotherhood of Teamsters and the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, Mr. Driscoll explained in an affidavit attached to the bankruptcy filing.

In particular, the company said pension and medical benefits costs as well as “restrictive work rules” were eating into profit. The company paid about $52 million in workers’ compensation claims in the fiscal year ended May 28, 2011, the affidavit said.

Again, I think this is only part of the problem, though Hostess is making this out to be a union vs. non-union issue, citing that their competiors don’t use union labor.  Honestly, if you got this far into the mess, you probably have quite a few management faults that got you there.  Agreeing to what the union wanted was just part of it.

But this does beg the question… is it worth it to grow business in today’s environment?  We already have the answer from Hungary per Lynn’s post yesterday.  But in general, does growing a company to be a national or international leader make you too much of a target for forces against your success?  What management team can you assemble these days that can work the intracacies well enough to go from zero to a billion, or even a couple million?

My wife and I own a small business, and we occasionally talk about bringing it to a storefront.  But the prospect of hiring someone to be there when we’re not usually is offputting enough that we stop right there.  Our business continues to grow, and I believe we could easily live off it alone in a few years.  But with that commitment, what else do we have to consider that could break us?  I’m not a fearful person from a business perspective… and my doubts make me all the more leary since I’m likely to call that “strategic instinct” and just stay small and think small.

For the future of US business, that’s bad.

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