Written by Bill Leebens

Is there such a thing as economy of scale? If you put 10 similar companies together, can you succeed by offering, as a friend suggested, the VW variations? Audi, Skoda, VW, all mostly the same, but with different features and levels of luxury, at differing levels of profitability and filling slightly different market niches?

The whole idea of packing disparate companies together with vague hopes of “synergy” started back in the ’50s with a Dallas electrical contractor named Jimmy Ling. Ling put together a bunch of unrelated companies with the idea that as long as the profits exceeded the considerable debt required to assemble the conglomerate, everything was hunky-dory. At one point Ling’s Ling-Temco-Vought group included audio company Altec along with everything from aerospace contractors to meatpackers.

It worked for a while. Stock analysis in that period was not terribly sophisticated, but eventually the debt caught up with the group, Ling was out, and it all went to hell. Truth to be told, we’ve seen similar borderline-scam groups appear dozens of times since then—anyone remember Beatrice Foods?

The allure of a fast buck never gets old.

The opposite extreme is putting together a bunch of very similar companies, with the idea that suppliers can be shared along with distribution channels, and profit margins will be mo better. We’re seeing a lot of that in audio right now.

I don’t buy it.

Let’s say you buy up 5 previously independent companies that make very similar A/V receivers. How many different outlets do you think there are for such things? If each company had a presence in Best Buy/Magnolia, will the profitability and market share improve by having only one person to deal with the Minnesota folks, rather than five?

You might eliminate a few salaries, but any cross-competitive advantages vanish, and Big Blue has you by the short and curlies. Does this make sense? Is this worth accumulating hundreds of millions in debt—or more?

I am admittedly the child of Depression survivors, old-fashioned when it comes to notions of profitability and corporate structures, and I can’t read pre-IPO S-1 reports from companies like Sonos, Lyft, and Uber without wondering if I’ve landed in an alternate universe in which debt is the sole arbiter of success.

Hey, business is tough, and the audio business is particularly tough. I just don’t see how owning a whole bunch of very similar audio companies improves one’s chance of success. Beyond that, will those companies retain whatever individuality they have? I strongly doubt it. It’s like GM, once Chevy-Buick-Olds-Pontiac-Cadillac all had the same 350 Chevy engine. Where’s the beef?

I could very well be wrong. My dear old dad used to say, “if you’re so smart, how come you’re not rich?”

I guess it’s a valid question. Coming soon: Leebsy, with no physical assets and a very likely possibility of never turning a profit. All I need to do now is figure out how to rope in a couple billion in venture capital.

I’ll let you know how it goes.

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