The Bain of Newt’s Existence

Truth is, not all companies, not all business ideas, can make it on their own. 

It’s easy to say that a good idea will automatically lead to a successful business. But it’s a lie.

Apple did not become Apple without investors.  Sure, there are some examples of businesses that flourished without financial help.  But not many. We’ll never know the wonderful ideas that died in their owner’s garage for lack of financing. 

Markkula offered to guarantee a line of credit of up to $250,000 in return for being made a one-third equity participant. Apple would incorporate, and he along with Jobs and Wozniak would each own 26% of the stock. The rest would be reserved to attract future investors. The three met in the cabana by Markkula’s swimming pool and sealed the deal. “I thought it was unlikely that Mike would ever see that $250,000 again, and I was impressed that he was willing to risk it,” Jobs recalled.

Isaacson, Walter (2011-10-24). Steve Jobs (p. 77). Simon & Schuster, Inc.. Kindle Edition.

A lot of people with ideas turn to government for investments. Why a business person with an idea would go to government for funding is obvious: poor scrutiny, below market interest rates, and (seemingly) unlimited funds. Ideas requiring big investments and heavy risks tend to seek out government help.  (See Aerotropolis.)

But the private sector has its own method of bringing great, but risky, ideas to market: venture capitalists and private equity. 

Venture capital and private equity firms pool their money together and invest in start-ups or small businesses seeking to grow, or salvage existing companies that suffer from bad management.  These firms employ experts and risk-takers who help push ideas over the top. 

Most importantly, private equity firms are like Bailey’s Building & Loan—they give us an alternative to the Mr. Potter of government.

bain-mitt

It’s absurd to criticize Bain Capital for its practice of salvaging failing businesses.  It’s absurd and silly to criticize Mitt Romney for laying off people from dying companies. Even some Democrats get this:

Should bad, poorly-managed companies be allowed to destroy value?  Should fast-growing, innovative businesses receive capital and support to accelerate their growth?  And should hard-working pensioners and retirees be allowed to invest their savings in an asset class that outperforms nearly every other one available?  Private equity has an important role and should be lauded, not lambasted.  The WSJ does a nice job of making this case here

I am a strong proponent of business considering all stakeholders, not just shareholders, as vital corporate interests.  I’ve written about Creating Shared Value in the past. I believe that mass layoffs shouldn’t happen simply to boost quarterly or annual numbers. 

When Bain Capital bought a business, the damage had already been done.  Bain didn’t buy thriving companies and gut them; it bought failing businesses and saved them.

Sometimes layoffs are necessary to avoid outright closure.  That’s why business leaders get paid big dollars—because we rely on them to save as many jobs as possible by making brilliant strategic decisions. 

While I have a lot of difference with Mitt Romney and with business executives who treat employees like pawns in their personal empowerment games, I believe that Romney’s actions at Bain were necessary and compassionate, not callous and self-serving.

Were it not for private equity firms like Bain and venture capitalists in general, ideas like the Apple II would die in Steve Jobs’s garage.  Entrepreneurs, inventors, and troubled companies would have nowhere to turn except government.

Newt Gingrich made a big mistake attacking Romney’s role in saving failing companies. In fact, his error was so big it might have sealed the nomination for Romney.

0 thoughts on “The Bain of Newt’s Existence

  1. First, I am not a Romney fan. At this point, I am no one’s fan. But I WILL vote for whomever floats to the top.  If it means we have a one term president, so be it. It isn’t that voters have not used this tactic in previous elections. Then in ’16 we will have another chance at it, and personally I feel we have some very promising candidates developing right now, it is just too early for them.

    Bain, and Romney’s position with that company is fine by me. Just because a business idea is tried, does not mean it is a good one, or needs to stand at any cost (ie Solendra). According to what I have heard, 80% of the companies benefited from Bain’s involvement. That is pretty good percentage, I think. I don’t care how much money Romney may have made or the taxes he did or didn’t pay. It is all legal, and until it is not, shut the hell up! I also have heard Romney donated heavily to charity, he reportedly put his money where his mouth is. I think that is extremely admirable.

    Newt needs to shut up and stop the hateful destruction of our potential candidates. I am a Newt fan, he is the smartest guy in the room, BUT he should get over himself! He, is not entitled to the nomination, nor is anyone else. He always had a reputation of being divisive, and he is verifying that rumor now. It is time to start attacking the real enemy, and that goes for all those on that stage.

    We need to gather our forces and win this election for the sake of our country. If BO is reelected, there will be nothing left for our children and grandchildren, and that is on my mind at every moment.  There are people in this world that are evil and these people are truly evil.  This IS our last opportunity to save our country and our way of life. We had better wake up.

  2. First, I am not a Romney fan. At this point, I am no one’s fan. But I WILL vote for whomever floats to the top.  If it means we have a one term president, so be it. It isn’t that voters have not used this tactic in previous elections. Then in ’16 we will have another chance at it, and personally I feel we have some very promising candidates developing right now, it is just too early for them.

    Bain, and Romney’s position with that company is fine by me. Just because a business idea is tried, does not mean it is a good one, or needs to stand at any cost (ie Solendra). According to what I have heard, 80% of the companies benefited from Bain’s involvement. That is pretty good percentage, I think. I don’t care how much money Romney may have made or the taxes he did or didn’t pay. It is all legal, and until it is not, shut the hell up! I also have heard Romney donated heavily to charity, he reportedly put his money where his mouth is. I think that is extremely admirable.

    Newt needs to shut up and stop the hateful destruction of our potential candidates. I am a Newt fan, he is the smartest guy in the room, BUT he should get over himself! He, is not entitled to the nomination, nor is anyone else. He always had a reputation of being divisive, and he is verifying that rumor now. It is time to start attacking the real enemy, and that goes for all those on that stage.

    We need to gather our forces and win this election for the sake of our country. If BO is reelected, there will be nothing left for our children and grandchildren, and that is on my mind at every moment.  There are people in this world that are evil and these people are truly evil.  This IS our last opportunity to save our country and our way of life. We had better wake up.

  3. By their attacks on rum-knee’s work at Bain, both gingrinch and big ricky have proven they have no more business being the leader of the free world than the Kenyan-Hawaiian currently pretending to be. rum-knee has plenty of baggage that disqualifies him from becoming the White House occupier, but attacking any American for making an honest buck without a taxpayer handout is beyond the pale. That only leaves two RINOcrats still under my consideration: little ricky and the old guy. If any of the ‘big three’ get the nod, I see no reason not to vote third party as the ultimate choice will have devolved to one between Shemp and Curly.

  4. Correction! Bain bought companies AFTER they crunched the numbers to decide upon which businesses they believed they could invest in and profit from. If they invested and later realized they were losing the battle, they stripped the companies to still make a profit and walked away. However, there is ample evidence that they may have decided they could make huge profits from stripping at least 4 companies that they rationalized would die anyway. This is the question Newt asks. Newt knows ALL about this business as he is still involved with Forsam, look it up.

    FOX interview: Gingrich explains charge on Bain http://bit.ly/xa4jXe

    The mistake is not with Newt asking the obvious question that Mittens claims his entire validity in running for the presidency on, the mistake is about the pundits and other ‘king makers’ pushing a Mittens nomination and believing we’re not educated enough to know better.

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