04 / 03 / 2020

Playing Chess with Death (or when the Money Men Danced in Payless Shoes)

In the classic film The Seventh Seal, a knight loses his soul to Death in an allegorical game of chess. For a popular shoe chain, a similar fate proved inevitable when the financial grim reapers started swinging their scythes.

Carey Smith | Founding Contrarian

I’ve spent years railing against the pump-and-dump mentality of private equity firms. So when a recent story in The New York Times exposed the collapse of a Midwest-based discount shoe chain at the hands of big-city PE and hedge-fund financiers, I savored every detail: how ill-informed the investors were in their decisions; how little they understood the market; and how dismissive they were of suggestions by Payless ShoeSource’s longtime, Topeka-based employees.

“It didn’t matter how great you were in your field or what other stuff you had done,” one employee told Neil Irwin of the Times. “It was, ‘You live in Kansas, so you’re an idiot.’”

The sad tale confirmed what I’ve long believed: Most investors’ understanding of business starts and ends at the bottom line. Sure, they can cut costs till the cows come home, but at some point those cows will have no barn to come home to, and no one to milk them.

The point of the Payless article is bigger than one shoe chain. It’s that finance-driven capitalism has not lived up to the hype and can be harmful. “What if the masters of financial efficiency are making choices that don’t actually create the more dynamic, productive economy they promise?” Irwin writes. “In extreme cases, what if they don’t really know what they’re doing at all?” What if, indeed. And this is not the only story posing these kinds of questions. A recent New Yorker article by Nathan Heller asked, “Is Venture Capital Worth the Risk?

Could it be that the world is finally coming to its senses? I’m not holding my breath.

In the almost two years since we started Unorthodox Ventures, we’ve met a lot of people seeking money. We’ve also met people with a goodly amount of it they’re looking to invest. But like those “money men turned shoe sellers” who brought down Payless, most of them see the world through a financial lens. They understand money but haven’t run businesses since their first-grade lemonade stands.

Our company is called Unorthodox Ventures because we take a different approach to investment, one based on decades of experience building a company and tackling every part of the job, from design to production to marketing to customer service. We understand business — very well. And while we have to make money to stay in business, we’re more interested in building companies, addressing long-term challenges and seeing long-term results. We view business not as EBITDA, but as a creative endeavor that, when done right, can create a lot of good for a community.

And we’ll always listen to people from Topeka.