Competing against the government

Discussion in 'Growing and Managing a Business' started by C. De St. Croix, Jun 10, 2012.

  1. C. De St. Croix

    C. De St. Croix
    uix_expand uix_collapse
    New Member

    Joined:
    May 8, 2012
    Messages:
    3
    Likes Received:
    1
    What do people here think about starting a company to rival amtrak? They simply seem to have no ability to run on time, possibly because they constantly break down, the track is almost always under repair. Assuming capital was not the issue, can any one here wiser than I tell me opinions on roadblocks I might have specifically trying to start a company that competes directly with something like a government owned entity? Thanks!
     
  2. sayitproud

    sayitproud
    uix_expand uix_collapse
    Member

    Joined:
    Jun 7, 2012
    Messages:
    89
    Likes Received:
    18
    Well a competitor that was more efficient and had better customer service might do well. But that is a pretty massive undertaking! I'd do a ton of research (like you're doing here) before taking that amount of risk. I also imagine there must be people who have thought of or even tried this as it's such a fundamental idea. So look into previous attempts and what happened.
     
  3. C. De St. Croix

    C. De St. Croix
    uix_expand uix_collapse
    New Member

    Joined:
    May 8, 2012
    Messages:
    3
    Likes Received:
    1
    See thats the thing, I looked into it and the people who tried aren't head to head with Amtrak, its weird, their almost like tiny subsidiaries within certain local regions that interact with and share Amtrak rails, "privately" owned as they may be. And yes those were the qualities that shine through as the opportunities to beat out Amtrak which I feel like stems from an under-agressive, and overall poor management of such visible sectors of the company (ex: inefficienies that extend/cause delays - preventable or lacking in damage control).

    And yes it would be a MASSIVE undertaking haha. I feel as though the company would have to start with branches in states and explicit plans embedded in its nature to become national. But I've also got a few other ideas to give it proprietary qualities that would shred the industrial use of Amtrak's rails.

    See but I dont know anything about the sorts of contracts Amtrak has and will defend with its industrial clients. And maybe this is the Randian (as in Ayn Rand) shining through a little here, but would it be a possible consideration that the government would actually stand in competitions way through developing a directly competing rail through things like zoning and development laws? Or refusal to sell rights to certain areas of land, or even buy and hold patches in the way?

    Sorry if I seem nervous, but I've got a healthy distrust for a big government. Also, I feel it would be unwise not consider such possible issues with such a large endeavor.
     
  4. ArcSine

    ArcSine
    uix_expand uix_collapse
    Member

    Joined:
    Jun 2, 2010
    Messages:
    233
    Likes Received:
    187
    CDSC, as a (generally) free-market fan myself, I like your thinking.

    In response to your question, one thing to consider is a govvie-sponsored entity's ability to operate in the red for extended periods of time. GSEs have both taxpayer dollars and the Fed's printing press as two very deep wells to draw from.

    Hence, one possible pesticide they could spray on pesky competition is to drop their prices to a level the competition couldn't match. Even though it might mean operating at a loss, those two deep wells I mentioned could keep 'em operating long enough until the competition finally throws in the towel.

    Though one might argue that eventually the taxpayers would say "no more!" to continued throwing of dollars at a losing proposition, (1) would that happen before your own capital suppliers pull the plug and stop writing checks to keep you afloat during the "price war"; and (2) politicians have a real knack for selling the "broader societal benefits" story to voters in drumming up public support of red-ink operations for extended stretches.

    Not having looked at Amtrak economics in any detail, I have no instinct for private-alternative viabilities (although as I mentioned, I do like your thinking in general). I'm just tossing out one idea that comes to mind in response to your query.

    Very interesting idea; keep us posted on developments!
     
    • Like Like x 1
  5. C. De St. Croix

    C. De St. Croix
    uix_expand uix_collapse
    New Member

    Joined:
    May 8, 2012
    Messages:
    3
    Likes Received:
    1
    ArcSine, thank you, free market competition like is what will revolutionize the failed attempts by our government to run industries. It simply is not the purpose of the government, and no surprises, they're not good at it.

    But what your talking about is actually something illegal (especially internationally, but domestically too) in economic terms, called "Dumping". Which is literally exactly what your describing: An entity with the ability to take losses lowers they're prices unimaginably below all other competition to destroy them, and once the competition is terminated, they return to original (and actually often much higher) pricing.

    This was a technique particularly utilized in high-capital industries, where it takes A HELL OF A LOT of funding to get started (for example, something like laying rails nation wide and buying passenger/freight cars for your line). So once the competition is out, they're so financially damaged, that to take on such a high capital battle is then impossible. But this, like I said, was declared highly illegal.

    But I will say that to a less extreme degree you are entirely onto a point here. That being that they can operate in the red on tax dollars, but that is something I believe would stem from poor management of the company, rather than unholy low ticket prices. This is likely a cause for their nature, i.e. the fact that its painfully visible they don't need to perform to great heights to earn they're money, because they're tax payer funded and have no competition.

    So I suppose there are now 3 questions at hand:

    1) Are there any other issues involving the gov't standing in the way of entrepreneurs like us moving into this industry?

    2) Which high net worth investors (groups, firms, or individuals) who would be interested in literally becoming titans of industry by investing and partnering in such a venture?

    3) What is step 2? (After Step 1: Research)
     
    • Like Like x 1
  6. ArcSine

    ArcSine
    uix_expand uix_collapse
    Member

    Joined:
    Jun 2, 2010
    Messages:
    233
    Likes Received:
    187
    You may already be thinking down this track (sorry) but I'd guess that the preferred mode of entry into the rail biz would be in the form of acquisitions rather than starting from scratch. With an acquisition you've got the assets (track, beds, other infrastructure, rolling stock, depots, etc.) already in place. Ditto for all the intangibles (contracts and agreements with landowners and local and state municipalities; DOT and FRA licensing and permits; union agreements; engineering support; and so on) which I'd imagine would take a ridiculous amount to time to build from zero.

    No need to come right out the gate with a Buffett / Burlington Northern-sized deal, but a small acquisition might give you a fast and efficient platform from which to expand.

    Step 2 (re your question) after the homework is developing the business plan---capital budgets, financing requirements, operating strategies, competition analysis, industry and economic outlooks; all the pages and pages of fun stuff that'll have to precede any discussions with bankers and investors. There won't be a clean demarcation between Steps 1 and 2, of course; the preparation of certain parts of your biz plan will likely lead you off in pursuit of follow-up research, which in turn will come back and require adjustments to previous parts of your financing package, and so on.

    That then segues to your question re the investors themselves. Until you've hammered out the budgets, cash flow projections, and capital expenditures forecasts, you won't know what your optimal financing structure will look like. The appropriate mix of debt and equity; the terms and characteristics that the multiple financing layers should have to best dovetail with your projections; these and other issues in your biz plan will determine your capital structure. Your capital structure in turn will determine which bankers, lenders, private equity players, and/or other financiers you'll need to be pitching your deal to, as they all have different appetites.

    Very roughly the sequence will look something like: Research → Business, Financing, Capital plans → Discussions with capital providers (banks, investment bankers, etc.)
     

Share This Page