TRANSITIVE VERB: Inflected forms: un·der·cap·i·tal·ized, un·der·cap·i·tal·iz·ing, un·der·cap·i·tal·iz·es
To supply (a business or government, for example) with so little capital that operations are hindered.
I think that talking about whether a business is undercapitalized is probably one of the most emotional things a person could do. Why? Because talking about money is always emotional and talking about whether a business is undercapitalized is highly subjective.
It's certainly one of the best excuses for failure one can have. "We just never had the money to do what we needed to do to succeed in that market." Maybe, maybe not! Maybe you just weren't clever enough with the money you had. That was certainly true of so many of the dot com companies. They had money and no brains.
So, undercapitalized and incompetent are pretty hard to differentiate. (Of course, you could be undercapitalized, and not think so, in which case you are undercapitalized and incompetent, but thinking about that makes my head hurt.)
It's an important question that VC people have to ask all the time - do we pump more money into this venture, because this is a rocket that is waiting to take off, and it just needs more fuel? Or is this a rock that won't launch no matter how much fuel we burn?
Ultimately it's a judgement call. And a difficult one at that.
A friend of mine once used the phrase "running before the monster" to describe what happens to companies that find themselves in this situation.
ReplyDeleteManagement gets so tuned into just staying alive a little bit longer that no one is setting a course for the future. Rather than progressing toward a goal, the organization is just running in fear.
This is how corporate missions get compromised. It's how corporate identities get lost. It's how an organizations meaning and purpose get lost. And how employee morale is lost with it.
The thing that makes it especially tough is that while they're just trying to stretch pennies to stay alive, their competitors who aren't in the same situation can really take advantage.
Being undercapitalized is a tough place to win from.