If you are new to the Equibit story, please read The Assassination of Equibit, originally released in 2023.

In the ongoing campaign of digital harassment and sabotage documented by Chris Horlacher, one of the most technical and intrusive episodes involves repeated compromises of his home routers in Mexico. These incidents directly affected Chris Horlacher’s ability to work, communicate securely, and access the internet—targeting only specific devices while sparing others on the same network.

This pattern aligns with advanced persistent threats, often linked to state-level or ISP-enabled capabilities.

Background: Part of a Broader Pattern

After fleeing Canada due to chronic digital intrusions and other events stemming from what he believed to be the lawsuits he just filed, Chris continued facing disruptions. VPN instability, selective device blocking, and unexplained connectivity issues prompted deeper investigation. Factory resets provided temporary relief, but problems returned rapidly—classic behavior of persistent malware or remote management exploits

The Attacks: Huawei HG8145V5V3 and ZTE F670L Routers

Key Anomalies Observed:

• 1981 Timestamps: Multiple log entries show dates like 1981-01-01. This is a strong indicator of Real-Time Clock (RTC) reset or deliberate log tampering/manipulation, often seen when firmware is altered or during boot-level interference. Security analysis reports explicitly flag these as “Backdated logs to 1981 (RTC reset or tampering).”
• Custom Firewall Rules & Selective Blocking: Firewall settings changed to “user defined.” Specific devices (Chris’s and his wife’s) lost internet access while others worked, consistent with targeted rules or a Remote Access Trojan (RAT).
• Rapid Re-infection Post-Reset: Issues returned within hours, even on a replacement router from the ISP (Telmex).

From the ZTE Log (August 2025, post-reset):

2025-08-04T16:16:01Z [Error] |dnsmasq| bind interface socket failed 99
2025-08-04T16:16:01Z [Error] !!!!!![high Alert for send msg in POWERON]...
[Warning] RunPCB process[omci] Event[0x3e81]...

High-priority OMCI/GPON messages immediately after boot, IPv6 route injections before full WAN negotiation, and MultiAPD errors point to remote provisioning activity.

From Huawei Logs (July 2025):

Numerous 1981-01-01 entries alongside PPPoE renegotiations, deprecated SSL methods, and DHCP NAKs (potential MAC spoofing or rogue activity). Frequent PPPoE sessions suggest possible DoS or disruption attempts.

Expert Security Analysis

Independent analysis by a professional (using SIEM-style detection) on both routers confirmed:

• TR-069/OMCI remote provisioning activity.
• Backdated logs and tampering indicators.
• Potential RAT presence and DoS patterns.
• Recommendations: Replace/reflash router, disable TR-069, scan devices, and isolate vulnerable hardware (e.g., older Smart TV).

Huawei Router Analysis Report (PDF)

ZTE Router Analysis Report (PDF)

TR-069 (CWMP) Vulnerabilities: This Broadband Forum protocol enables ISPs to remotely manage Customer Premises Equipment (CPE) like routers via an Auto-Configuration Server (ACS), often over port 7547. While intended for legitimate management, it is notoriously exploitable. Compromised ACS servers or weak implementations allow attackers full remote control, DNS redirection, firmware backdoors, and persistent access. It has been weaponized in botnets (e.g., Mirai variants) and enables exactly the selective targeting and re-infection seen here. Many ISPs do not allow users to fully disable it.

Video Evidence: Router Investigations

Watch Chris document the issues in real-time:

Part 1: Initial router access and strange behavior.

Part 2: Firewall changes, selective blocking, and admin interface interference.

Part 3: Factory reset, log downloads, and post-reset observations.

Part 4 (Short): Post-reset functionality vs. actual device connectivity failure.

Implications

These attacks go beyond typical criminal hacking. The precision (device-specific blocking), persistence across hardware swaps, use of ISP-managed protocols, and alignment with other documented sabotage (e.g., Microsoft OneDrive tampering, email spoofing, bank disruptions) point to sophisticated actors with significant resources—potentially leveraging intelligence or ISP cooperation.

Combined with the broader evidence in the Factum (honeypot hits from government networks, Keybase anomalies, etc.), this leaves little doubt that Chris Horlacher’s infrastructure was under targeted surveillance and disruption.

What You Can Do:

• Demand transparency from ISPs on remote management (TR-069/OMCI).
• Support calls for accountability in intelligence oversight.
• Share this post—stories like this highlight risks to innovators and due process.

Full logs and analysis reports (Huawei and ZTE PDFs) are available for review upon request for credible researchers/journalists.

This is not paranoia. This is documented technical evidence of invasive digital warfare against a Canadian entrepreneur and litigant, across national boundaries, violating the property of a foreign ISP.

Stay tuned to equibitlawsuit.com for more updates on the Equibit lawsuits against CSIS and related actors.

By David Goodale of Merchant-Accounts.ca

Don’t Lose Your Customers on the Goal Line

A declined transaction is quite possibly the worst reason to lose a sale. All that’s left is to take the money. This should be the easiest part, and it’s important to do, because the cost of acquisition of for new customers is a consideration for every online business. In short, customers don’t usually fall out of the sky. Getting them to your website is hard, educating them about your product or service is harder still, and helping them through the sales funnel will determine whether your business succeeds or fails.

Considering the amount of work going into the sales process, it’s extremely painful to lose it on the goal line because of a hiccup while collecting a payment. It’s a terrible reason to lose a sale. That same potential customer can easily bounce away, and unless they are particularly keen on your product, they might not come back.

It’s important to:

1. Be aware of why declines occur
2. Work to prevent them from happening
3. Attempt to recapture them when they do

Why Do Declines Occur?

Merchants may not realize that they have a significant degree of control over whether a transaction is approved or declined. In fairness, it is obvious that the issuer has ultimate control over the transaction response, but merchants can control the quality of the request that is being made, and to a significant degree this can affect whether a transaction is approved or declined.

In order to understand this, you must first consider the situation from the perspective of the card issuer, who will have controls in place to prevent fraud and protect the cardholder. These controls are there not to frustrate legitimate purchases, but to stop illegitimate transaction attempts. With this in mind, we can consider the criteria that the issuer may be evaluating to determine if the transaction is legitimate or not.

It’s important to point out that no issuer will release the details of their anti-fraud algorithm, because this would empower hackers and nefarious users to attempt to circumvent the safeguards. However, we can make reasonable assumptions which we’ll explore in further detail below:

• Purchasing history: user behavior and purchasing history are an obvious starting point for the discussion. If you have been with your issuing bank for 40 years, never used your card online, never travelled outside of the country, and suddenly they see a transaction attempt for $40,000 in a far flung-corner of the earth, it will be easy to spot. My grandmother, bless her heart, is unlikely to suddenly develop an addition to online casinos, especially since she doesn’t really know how to use a web browser. So, in her case, for a card to be used online for any reason it would be suspect, and for an online casino (which is higher risk due to the nature of the business) it’s an even more obvious departure of what would be considered normal for her cardholder activity. So the first broad point is to understand that the issuer is probably looking at things over time, in order to determine what is normal for a particular person.

• MCC Codes: Some merchants don’t realize this, but when you get a merchant account for your business there is a MCC code attached to your merchant account. It stands for “Merchant Classification Category” and has to do with the types of products or services your business provides. A business that sells flowers will have a different MCC code than a business that provides accounting services. Sitting here, I can’t say whether selling flowers or providing accounting services is a higher risk service. But, I can confidently say that running an online casino is higher risk than both. If a credit card is used to purchase something from, for example, a merchant offering digital downloads of software it could be looked at as higher risk than the accounting service. This is because a fraudster is more likely to want to use a card to quickly download a movie, than use a stolen credit card with the person who is going to prepare their tax return. While we can’t dig into this too much further because it’s situationally specific, we can say that the MCC codes can be looked at by the issuer. If you operate a business in a high-risk space (such as an online casino, as an example) it’s very likely you’ll get more declines than a merchant with a low risk product or service. If so, it’s very important to provide the best data possible to your credit card processor in an attempt to maximize approved transactions (more on this below).

• Transaction Limit: The larger the amount of money that is processed, the larger a potential dispute if something goes wrong. A card issuer should always take a harder look at a transaction as the amounts increase. If a cardholder does not normally put large purchases on their credit card this could potentially cause a declined transaction.

• Time of Day: Not all of the criteria are obvious, and this could be a surprising one. As an example, if a cardholder has an established pattern of behavior and their card is used in the middle of the night (when they would normally be sleeping and have never otherwise completed a purchase), this could, at least conceivably, be detected as unusual behavior and blocked.

• Cross Border Declines: Generally speaking, card issuers consider international transactions to be higher risk than domestic transactions. Each time a payment is processed Visa and Mastercard will look at two things: (1) where is the merchant domiciled? (Where is your business and merchant account registered?) (2) Where is the cardholder domiciled? If they are from separate countries the transaction will ****cross a border **** (link to cross border article) and can cause declined transactions

• Frequency of Attempts: This is an obvious and easy to spot reason for declined transactions. If the credit card is used, or attempted to be used, multiple times in a short window of time it is likely fraud and will often be blocked by the card issuer. In this case you might actually be glad to have received a decline, because if it is a fraudster it will eventually have led to a chargeback.

• AVS (Address Verification): When a credit card transaction is processed you can include extra information with the order. For example, you can choose to include the billing address (street, city and postal code) with the order. This ties back to the quality of data that you are submitting, and is something we’ll discuss in more detail below. If the AVS address does not match, or is absent, it can increase the likelihood of a declined transaction.

• CVV: The CVV code is the 3-digit security code on the back of the credit card. If it is mis-matched or absent this can be a reason for a decline. Since 2019 it’s now even more likely to be a reason for a decline because Visa and Mastercard have mandated that CVV is to be submitted with every e-commerce transaction. Outside of certain exemptions (for example recurring billing transactions) it is suspect if CVV is missing from an online transaction.

• Cardholder Insufficient Funds: Sometimes it’s not an error. There are going to be a number of declined transactions that are legitimate and you cannot prevent or control.

• Network Outage: There are several potential failure points along the way that could cause a transaction timeout or similar decline. Your payment processor could be experiencing an outage, a particular card issuer could be experiencing an outage, or the card brands themselves could be experiencing an outage. In these cases you could try failing back to an alternative processor (if you have one in place), but if the cause of the problem is the issuer or the card brands you can’t do much about it.

Preventing declines from occurring.

Merchants do have a degree of control over whether transactions are approved or declined. In general, the advice is equally simple and effective: make sure you are sending the best data possible along with each transaction request.

This means insuring that you are passing the maximum amount of data about the transaction. You should be including the cardholder name, a full billing address (street, city, postal code, country), and also CVV information, which is the 3-digit security code on the back of the card.

We recently had a Canadian merchant that sold contact lenses, primarily to US customers. They had updated their website and the developer made a small mistake that caused the postal code (only the postal code) to be omitted when transactions were being submitted. This immediately caused a 9% increase in declined transactions. At first, they couldn’t understand what was causing it. This goes to show how one missing field can make a big difference in how the issuer banks feel about the quality, or integrity, of the transaction request. In short, put your best foot forward!

There is also a second consideration to be made if you are selling across borders. If you sell to customers located in another country, you may wish to establish a domestic merchant account in another region. It’s beyond the intended scope of this article to dig too much into acquiring regions, but in summary when transactions cross a border you will see a higher incidence of declined transactions.

What to do when a transaction is declined.

Most payment processors will provide a return code each time a transaction is processed. Those return codes are not always helpful. If an issuing bank is declining a transaction because they suspect that it may be fraudulent, they will sometimes not include a verbose or descriptive reason for the decline. (Otherwise the fraudster could modify their request in an effort to trick the system).

Other times you will have a clear reason for why the transaction was declined. However, in general, if the decline was not on the processor side of the fence (for example, exceeding a maximum transaction limit cap from your card issuer), then you know the problem is not being caused on your side of the fence.

In any situation where the decline is not specifically caused by the credit card processor, you should contact the customer in an attempt to recapture the sale. It goes beyond the intended scope of this discussion to dig too far into this topic, but it’s an excellent idea to have a business process in place to reach out and contact customers whose transactions were declined.

This can be done via email, or by phone. To a degree this will depend on the type of products and services that your business offers. Ultimately though, you need to encourage them to contact their card issuer and ask these questions:

• Can you see a transaction attempt at <insert when it happened>?
• Did you block this transaction?
• Will you release the block for this transaction?

Once the cardholder makes that request, if they re-attempt the transaction it should go through and you will have recaptured the sale. This is very important, but especially so for high-ticket type businesses where your cost of customer acquisition is high. You worked too hard to bring that customer to your website – don’t let them escape!

Summary

Merchants often fail to understand why credit card transactions get declined, and particularly don’t understand that they play a significant role in whether a transaction is approved or not. You should always send the best data possible (even if it’s a little more work) for each transaction request. If you have a call center, get the agent to ask for the billing address on file. It’s worth it, because it should ultimately lead to more sales.

Where a transaction is declined you should attempt to recapture it. Finally, if your business processes across borders and you are having a significant problem with declines, consider getting a local merchant account in the foreign country, which will improve your authorization count, and prevent customer complaints from occurring from cross border transaction fees.

About the Author

David Goodale is CEO at www.Merchant-Accounts.ca, and has been working in the e-commerce payments space for almost 20 years. His expertise is in the area of merchant accounts, payment processing, with a particular focus on international and multi-currency credit card payments.

A couple days ago former CNBC pundit Jeff Macke appeared on the QuothTheRaven podcast. It brought to mind his ignominious  end at CNBC which was punctuated, or perhaps precipitated by a bizarre on camera rant in May 2009. I blogged about it at the time, which is why I’m blogging about his QTR appearance now.

Chris Irons of course asked Macke to comment on that incident, and Macke obliged him, laying out the backdrop of the time (GFC meltdown) and what he was going through as a financial commentator who was expected to deliver witty repartee while many were going bankrupt and network TV was attempting to maintain the narrative (“everything is fine… Jeff, say something interesting, next up: puppies”).

This made me realize I had done something back in 2009 that I frequently criticize others for doing today, I piled on. I saw the article about the incident back when Business Insider was still called Clusterstock, in fact I don’t even think I had even heard of Macke before I saw the article, and yet I still pounced on it and wrote a glib hit on the guy that added no context or anything original. It was a dick move and a dumb, pointless post.

In those days I had zero readers following my blog, so no harm done other than karmically to myself I guess.

Today, after listening to that podcast I have newfound respect for Macke and really admire his knowledge of his sector, retail. Here’s a guy who provides a real life lesson of Warren Buffet’s famous maxim “Circle of Competence”. He knows what his circle is, and he is undeniably an authority in it.

What I liked about this talk was the historical context it put around what we’re going through today. Here at GC I frequently ruminate about 800 lb gorillas and how to compete with them, but as Macke takes us through the 800 pounders of yesteryear, like Sears (remember them?) and Macy’s, one realizes that nothing really changes other than successive waves of disruption will continually displace the leaders, and that a well run business that understands its niche and its customers can remain viable and profitable for a very long time as long as it does so.

This was a great edition of QTR, Macke is articulate, insightful and funny. A breath of fresh air in “Our Bullshit Economy”.

I started following Macke’s Twitter, and if you’re not already listening to QTR, you should (just never have it on when you have your kids in the car).

Lately I’ve been thinking that I haven’t been writing enough here about GuerrillaCap’s core mandate – price stability and full employment. Wait, no, that’s The Fed, along with ensuring higher stock markets.

GuerrillaCap’s core mission was supposed to be talking about how small and independent businesses can compete with megacorps. The other night I was thinking about this and noted that it really comes down to one thing: customer service. That’s the one area where economies of scale work against the megacorps and in favour of the indie business.

Megacorps do anything they can to improve operational efficiencies inside their customer care departments, because, after all, it’s only the customer. They’ve already got them in the door and with size comes that complacency that the customer is pretty well going to just take whatever treatment they get and be grateful for it, especially if the megacorp is shrewd at erecting lock-in structures around the captives customers.

(Sidenote: A burgeoning space are various types of brokers who can “go-to-market” for you for products or services that have high switching costs. The value proposition is there when the broker shoulders the logistics of switching you and finding you the best deal. In many cases the broker is paid by the gaining provider so it really is a no brainer for the customer).

A few weeks ago I needed a new safe for my wife’s office because we were about to go away, and I wanted some place safe to stash some stuff before we left. I decided I’d just call my local bank branch to ask if they have any safety deposit boxes available. Should be simple, right?

Wrong.

First I have to find the phone number for the local branch and the one on the corporate website is wrong. The nice lady whose business I did call got enough of those that she had the bank’s number on-hand and gave it to me.

Then I actually get through to my branch, and I get the auto-attendant *groan*, it sounds like a chipper prep school jock, the kind you wanted to punch in the face from the first moment you ever met. He cheerily informs you that he’s automated, and he’ll be recording your conversation for some idiotic patronizing bullshit reason that isn’t pure ass covering.

Now, here’s where I’m sure the bank paid some high tech consultancy a ludicrous amount of money to come up with “now make the customer say why they’re calling, so they’ll feel like…. it’s a human, so they feel a connection, like they’re talking with a friend!” (high-5’s around the boardroom, skip the focus group this is so good….)

The autobot has no idea what I’m talking about “safety deposit box”, who the hell ever calls for that?

The algo loops a few times as I try the old standards “agent”, “operator”, “go to hell” finally it decides to pass me through to “the next available agent”….

Just as soon as I speak my 16 digit customer card number into the phone.

That’s where they lost me.

Within the next minute I just ordered another safe online that was delivered to my wife’s office the next day. Problem solved.

And that’s what these companies invariably miss. They think “what are you going to do, find some other bank that doesn’t have a half-witted voice driven auto-attendant?” But that’s the wrong thought.

They should be wondering, what  other avenues are available to a frustrated customer who hates dealing with this crap, and are we pushing our customers toward them? They’ll go some other route where they don’t have to talk to the autobot. Even a key-push IVR is more straightforward and less frustrating. In this case: ecommerce FTW.

The takeaway, in my mind is thou shalt never try to gain efficiencies by employing voice driven auto attendants, the only thing they’re efficient at is antagonizing your customers.

At my main business (easyDNS), we have live phone support 7 days a week, email support during off-hours and it’s never scripted, never autobots and when it comes to phone calls – no voice mail hell. One or two rings, three on the outside and most likely you’re talking to a person, for real. It freaks out first-time callers sometimes because they have to put down their book or their crochet because they were settling in for a half-hour or more of hold time.

How do people put up with that? After awhile, they don’t.

(Read on Medium)

“Any corporation, private or governmental, that wishes to provide for a sound and equitable continuity of its business must take steps towards the systematic retirement of debt immediately after it has been incurred. Postponement of all payment for property or privileges by those who presently enjoy their benefits is calculated to bring uncomfortable consequences to them or those who succeed them.”

— Engineering Economics, by  C.R Young. 1949

We frequently hear pundits and talking heads talking about how short-sighted government policies and unfunded entitlements are in essence “stealing from the future” or at best “borrowing from the future” and I found myself thinking about the difference between the two ideas.

Normally when we think about “the two kinds of debt” we think productive versus unproductive debt. Exemplified in the Richard Kiyosaki “Rich Dad / Poor Dad” series, we learn that productive is that which you incur and then use in a way that will help pay itself off.

Examples include vendor or bank financing for buying a business that you would then pay back with the earnings from said acquisition, something I’ve done a couple times over my career; or taking out a mortgage to buy an investment property. From there  you would use the rent to pay off  the mortgage.

I emphasize paying off the mortgage here as opposed to simply servicing the debt with minimum payments or interest only, and we’ll see why shortly. Contrast this with unproductive debt, which is borrowing money to go on vacation or buy consumer goods, or do anything else with it that leaves you with the bill afterward. As Kiyosoki frequently stresses, it’s the difference between debt that makes you money vs debt that costs  you money.

Now, what is the difference between borrowing from the future and stealing from the future? Debt is aptly described as pulling future demand or future productivity into the present. Government entitlement programs and ballooning deficits do this with abandon. So do companies, like the high flying Netflix which is a FAANG favorite but is carrying about $10 billion in bonds on the books, having recently issued another $2 billion in junk bonds just to fund their content development for the next six months.

What’s the big question?

It’s this: is there a realistic plan that this debt will be paid off in the future? Or is the plan to simply roll it over, in perpetuity?

We know Big Governments the world over have incurred debt that cannot, ever, be paid off. Maybe they’ll be liquidated via default, or hyper-inflated away, but that’s not the same as paying them down. I call that stealing from the future. If there is actually a plan to pay the debt down, then that’s a borrowing from the future.

At the governmental level, in the US at least, that hasn’t happened since Eisenhower, who was the last president to actually reduce the national debt. The last president who actually paid off the national debt was Andrew Jackson (those fabled “Clinton-era surpluses” were somewhat of a sleight-of-hand fiction, take a look at the chart here to see them in context).

If we take the two kinds of two kinds of debt, then we get ourselves a nice matrix or grid:

The two sides are Why vs How. Why are you borrowing money? vs How will you structure it, as borrowings or theft against the future?

The examples in each quadrant are just that, examples. Will Netflix ever pay down those bonds? Maybe the CFO thinks they will, someday. Or maybe they plan to just keep rolling it, in which case it should be over with share buybacks in the bottom-right quadrant.

The more I thought of it, the more I couldn’t come up with a legitimate use case that would put productive debt into the stealing (perpetual debt) quadrant. All justifications aside, it will wind up in the unproductive quadrant because time is the enemy of debt, at any price.

But wait, what? Share buybacks are unproductive? Most of the time, yes. Especially lately, when companies are borrowing money at artificially low interest rates to buyback their shares trading near all-time highs. As I observed in The Transition Overview, “the value investor in me finds that kind of stupid”.

The poster child for all this lately is GE, who spent $40 billion on stock buybacks between 2015 through 2017 on shares that have declined in value 75% since. The company is now has a tangible net worth at negative $48 Billion. My mom’s pension is with GE, as my dad worked on the shop floor there for 30 years.

I remember assuring her a few years back that no matter how badly GE messed themselves up, there was no chance they would bankrupt themselves …along with their pension liabilities, in her lifetime. She was around 86 at the time and it’s now looking like she’s the one who’s going to outlive General Electric.

After the last financial crisis I came across a web hosting company that had attempted to grow via leveraged acquisitions, borrowing more and more money to buy up ostensibly “accretive” companies but when everything blew up, they were offside on all of their covenants and couldn’t possibly repay the debt. I wound up in talks to acquire them from a hedge fund who had somehow inherited the debt and with it the entire company after some sort of Bear Sterns style shotgun wedding with another hedge fund in order to survive.

They showed me the CEOs plan to fix the situation should the hedge fund (or me, if I bought the company) accept his proposal to restructure the debt.

The plan was to take out another loan to do some more acquisitions!

I took one look at that and said “no thanks”. A few years later I bought some other business as part of a carve-out. I financed that with a vendor take-back and paid down the loan in full a year later. That unit has produced a minimum of 100% of the total purchase price in earnings every year since. That would be a Quadrant A style investment.

More recently, today in fact, which is what got me thinking about all this, I just walked away from a deal I’d been working on for a little over a year. It involved taking a significant ownership stake in a very small publicly traded company (I never accrued more than 1% of the equity, had I gone through with it I would have been a full-on insider with 12.77%). Anyway – same story. They had levered up a few years ago to do an acquisition. This was also Quad A investment – productive and they planned to pay off the debt in 3 years. Only the market conditions changed. Now they can’t pay off the debt and they had to dilute all the shareholders by half to restructure the debt last year. That’s the problem with debt, even when you plan to pay it off, if you’re too levered, it can still kill you.

With the latest, even relatively benign, rise in interest rates, all sorts of these fissures have begun to appear throughout the system.

The permabulls are betting on a new Powell Put so that interest rates can’t climb too high but that is another problem in itself. No matter what happens, the stairway to heaven stock market rally, and the leveraged buyback orgy of the last 10 years is for all intents and purposes, over.

So now the bills come due. I’ve said it before, when these kinds of shifts happen or cycles turn, it’s the debt load that separates the survivors from the statistics.

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About a week ago I wrote “A Heretic’s Guide To Deplatforming” over on the easyDNS blog (my main business). It was in response to the widespread deplatforming of Gab.ai in the wake of the Pittsburgh shooting spree, in which the perpetrator posted on the social media platform before carrying out the brutal attack. The post rocketed to the first page of Hackernews (despite being flagged as inappropriate by some SJWs there) and was run on Zerohedge.

The TL,TR on that article:

While I still believe that every company has the right to kick anybody off their platform, it ultimately undermines their long term interests to do so in the manner they did to Gab.

The ramifications of the Gab deplatforming rattled me, especially the part where Stripe and Paypal both terminated their relationships with them, cutting off their financial lifeblood.

As business owners, we have to pay particular attention to that. The old argument “if you’re doing nothing wrong you have nothing to worry about” seems thin when we’re talking about being held to account, and penalized for simply being part of the internet plumbing for thousands or millions of downstream users. It’s part of a trend I identified as achieving critical mass this year I call “hyper-moralization” (towards the end of the year I plan on writing a report on the three big trends of 2018 I observed).

Stripe and Paypal are making judgement calls about their customers downstream users, and that is very problematic. As I observed in “A Heretic’s Guide”

“Does this mean that if Zerohedge, or Black Lives Matter, two of our clients from opposite ends of the political spectrum, post something, or even if one of their users posts something, that is beyond the pale, then we have to worry about having our finances cut off?

I know that as a managed DNS provider we have a near pathological aversion to single-points-of-failure, but it’s not a stretch to come to the conclusion for any business that it’s not an acceptable risk to have that possibility just looming there and to do nothing about it.

That means we will now be looking for backup payment processors. That means maybe after 20 years in business, maybe it’s time to just pull it all in-house. Will any other businesses do the same? Anybody doing the same calculus will arrive at the same conclusion.

The deplatforming exacerbated my paranoia from an experience we had with Stripe a few weeks earlier, when out of the blue I received the following email:

Hi https://bombthrower.com/wp-content/uploads/2019/03/shutterstock_1030471843-e1551983495127-1.jpg,

We wanted to get in touch with you about an important issue.

While your account is still able to create charges, we noticed that your Stripe account has been experiencing a high level of fraudulent charges. Because it generally takes about a month from the date of charge before a cardholder submits a dispute, you may not see this reflected in your chargeback rate for a while. To comply with credit card network rules, we can’t work with any business that has more than 1% of charges (by volume or count) disputed by customers on an ongoing basis. Without immediate action, we may have to stop accepting payments for your business.

Nods to Stripe for emailing us about the issue. It turned out to be the result of a single entity who had evaded our anti-fraud measures and setup multiple accounts and registered a number of domains and websites. This happens, and we catch it and move on. But in this case, the perpetrator skewed the math by registering everything for the maximum allowable period, making the transaction volume much much larger, enough to spike our fraud ratio meaningfully.

Now,  I agree it was a problem and one that we had to solve, which we’ve done. But that was the first time it suddenly occurred to me that “Stripe is a single-point of failure for us”. One we are highly dependent on. My back-and-forth with the account rep was not confidence inspiring. Usually, I want to come away from that kind of a conversation with an understanding, along the lines of:

“We know who easyDNS is, we know you’ve been in business 20 years, and we know you’re above board. So if things get bad, we’ll work with you to figure it out”.

No, that isn’t what happened. I could extract no concessions that they’d do their utmost to work with us in the future, in fact almost the opposite. We were told in essence: “If you’re numbers hit this threshold you’re on thin ice. Doesn’t matter who you are”.

The never-ending battle against fraud is an arms race.  If you’re fortunate and diligent then most of the time you’re winning, but you will always take some hits and there is always the next “trick” that will work for awhile. Now I find myself wondering if the next trick will get our Stripe account killed.

Then, when Stripe went and unilaterally terminated a large platform not because of fraud but because of a judgement call on their downstream users, that really got me seriously prioritizing getting a backup payment provider.

Yes, you can accept Bitcoin or other crypto-currencies. In fact easyDNS was the first ICANN registrar to accept Bitcoin, Ethereum and even Bitcoin Cash. But crypto still doesn’t have the widespread adoption that would sustain any mainstream business in the absence of a payment gateway boycott. Right now we do about 10% of our transaction volume in Paypal, and not even 1% in crypto. The rest is through Stripe and right now I don’t fully trust Stripe to not act arbitrarily.

So far I’ve found the following possibilities (via Quora) but I haven’t looked at any of these yet:

• Splash Payments
• Dwolla
• Chargebee
• BlueSnap
• Recurly
• SecurionPay
• Braintree Payments
• Cardinity
• Ikajo International

There is also Mals-E Commerce solutions, which was one of the very first easyDNS customers ever, back in 1998.

The other option is to finally just get our own merchant account, and use Authorize.net or one of the other major banking gateways. We always avoided that because we didn’t want to store customer credit card data within our own network. But after 20 years in business, perhaps we’re ready.

(There’s also InitiativeQ which I’ve been hearing a lot about lately. It’s some ex-Paypal folks but it’s not ready to go yet. You can get an early invite here, which purports to provide you with Q’s which may, theoretically be valued at parity with the USD. I know my friends at LetsTalkBitcoin are skeptical of it, but one thing I surmise about technology adaptation, the most technically sound, decentralized model doesn’t always win. Sometimes the exact opposite of that happens.)

I realize I haven’t written anything here for awhile, it’s because I’m in the home stretch of submitting my manuscript for my DNS book, finally, after four years. I’m supposed to submit it today, in fact. Which I won’t because I still have a few chapters left to review. But we’re close.

But in my travels lately I always listen to audiobooks and podcasts in the car. Living in Toronto, you spend a lot of time in traffic. Brian Tracy once wrote that if you listen to audiobooks in the car (instead of listening to some morning DJ barking like a dog and discussing Survivor) you can obtain the equivalent of a university education in about 3 years.

This week I found a couple episodes from James Shramco’s Superfast Business podcast quite interesting to the small business seeking to compete with 800 lb gorillas in their space.

First up was #583 How Artificial Intelligence Can Be Used By https://bombthrower.com/wp-content/uploads/2019/03/shutterstock_1030471843-e1551983495127-1.jpgeters To Enhance Performance. My takeaways here were that:

1. AI is accessible to the small business. IBM Watson was mentioned in the podcast and while I was making a note to “investigate Watson pricing” I was stunned to find large swaths of the platform are actually free.
2. The most effective use of AI is as an augment to human intelligence. This makes sense to me, as a former AI skeptic (I will elaborate why and what made me change my mind in another post), I feel as though AI will happen, but it will never become self-aware. Using AI to enhance human intelligence seems to be an unbeatable combination right now, in fact I remember listening to entire book about just that subject but the title escapes me.

The other Superfast podcast was #585 How to Engage Your Community which is very germane to those of us who run businesses and and view our customers as part of a community. What cracked me up here was Shrammie’s rant about businesses who tend to email you messages from addresses like do-not-reply@bigCo.com. He’s absolutely right here. When you send a message from do-not-reply@ the subtext of what you are telling your customer or prospect is… “fuck you”.

It’s laughable how important these people think they are. Too important to have to forward an email to the support team if somebody presses “reply” ? When I routinely send emails to the between 50,000 and 100,000 customers from easyDNS or Zoneedit and I always put my personal email address in either the reply-to or the signature, and my direct telephone extension in the signature. And I make it a point to reply to every single response I get, even if it’s just to tell them I’m forwarding their email over to the support team.

Do I get overwhelmed with so many responses from all my tiresome customers that I can’t do more important work? It’s never been an issue. Most of the time I get a smattering of responses, if it’s a hot-button topic that I know will get a lot of responses I would put in a P.S that even if I can’t respond individually to every email, I do read them all. Which I do.

This is also a great way to connect directly with your client base and get a sense of the state of your company on the front lines. If there is anything blinking bright red flashing lights, here’s where you can find out about it first.

Takeaways:

• If your business has any automated processes emailing your customers with do-not-reply addresses, switch those to your main support address and funnel replies back into your ticketing system.
• If you send any personal messages, like welcome sequences, letter from the CEO, etc then definitely do not send them from a do-not-reply email address, send them from your own personal email address, and take a moment to reply to anybody who actually replies to your email.

This is how you differentiate yourself from the 800lb gorillas in your space. They’re impossible to talk to, to connect with a human. Make it easy to connect with your company.

That’s it for now, back to my book.

“The terms transition town, transition initiative and transition model refer to grassroots community projects that aim to increase self-sufficiency to reduce the potential effects of peak oil, climate destruction, and economic instability.” (Wikipedia)

https://en.wikipedia.org/wiki/Transition_town

Overview

The Transition Town phenomenon is a self-organizing movement to create resilient communities that can prosper in the oncoming era beyond cheap oil.

I was drawn to this concept when I first encountered it and was pleasantly surprised to find out that I lived not far away from one, Dundas Ontario is just a few miles away from my home in the west end of Toronto, Canada.

Even still, the prospect of pulling up stakes and moving there wasn’t practical when I came across the idea. But thinking about it made me realize that there was a community that I was already a part of, had been working closely with for nearly 20 years and was populated by people who held a lot of these transition values. Most of us are health conscious, long-term thinkers and independently minded. A few of us already source large portions of our food from a nearby farm. We had collectively eschewed the groupthink of mainstream economics and politics, of perpetual growth for growth’s sake and ever expanding debt, and seeing it as for the most part leading society to what will prove to be counter-productive.

That community is of course, easyDNS the company I had co-founded back in 1998. So while I realize that maybe personally it would be unrealistic to buy a hobby farm anytime soon, it was entirely possible for the business to someday invest in one (we haven’t yet, but we could).

Out of this realization I began researching the premise of The Transition Company or the Transitional Corporation or just a TransitionCo for short.

While the Transition Town movement saw Peak Oil as the catalyst that would impel economic instability, I looked at the literature on the financial and business side of our current paradigm (people like Chris Martinson’s Peak Prosperity and Charles Hugh Smith’s Of Two Minds) and realized that we’re nearing “peak credit” or “peak debt”. Cheap, debt-based money was the oil that lubricates the New Economy and Globalization and we’re nearing the end of its sustainability. Even with interest rates at or below the Zero bound (which is in itself damaging the economy in incalculable ways) The Debt Supercycle will sooner or later end, and when it does, things will be very different.

The Transition Company concept is the idea to create companies that cultivate long-term resiliency in an oncoming era beyond cheap capital / debt.

Why become a TransitionCo?

As the economic policies which have brought us here play out, things look to get worse before they get better for the middle class, for small to medium-sized businesses, for anybody who isn’t directly connected to the policy makers and the central planners at the nexus of the debt-built economy.

If one wants to survive this inexorable trend toward aggregation (bigger and bigger companies sucking up all the oxygen in a space) and centralization (a few gigantic walled gardens squeezing out all the independents), one has to compete on different terms.

In other words, to successfully compete against a world full of 800lb gorillas, one has to resort to a kind of guerilla capitalism, and the framework for that is what’s described below.

The Debt Growth Model Is Over

We are nearing the end of a global debt super-cycle which started not in 2009, in the aftermath of the Global Financial Crisis, not in 2000 after the Y2K scares and subsequent dotcom implosion, not even in (pick one) 1997 (LTCM), 1987 (crash) or 1971 (end of Bretton Woods and dollar backing by gold), 1933-37 (New Deal)  but rather, 1913 with the creation of the US Federal Reserve Bank.

The era we know and experience as The Modern Age, The Information Age, which has become the theology of Globalism and The Savior State owes its early stage traction and then escape velocity to the twin waves of abundant cheap oil and ever expanding credit. Both of these are coming to an end, and informed elites as well as shrewd outside observers know it.

“By about 2010 we should see a significant increase in oil production as the result of investment activity now underway. There is a danger, that any easing of the price of crude oil will once again, dispel the recognition that there is a finite limit to conventional oil”.
–U.S Former Secretary of Defense James Schlesinger

“[The debt-financed growth model has reached its limits.] It is even causing new problems, raising debt, causing bubbles and excessive risk taking, zombifying the economy,”

— German Finance Minister Wolfgang Schäuble at G20 Finance Summit in Shang-Hai, 2016

“As investors, what do we think about the quadrupling of central bank balance sheets [“debt”], to over $13 trillion in the last 10 years? It certainly doesn’t make me feel any better to say it fast or forget that we moved ever so quickly from million to billion to trillion dollar problems”.

— Kyle Bass, letter to investors 2012. (Central bank balance sheets now pushing 17 Trillion)

“The debt growth model is over. There are no shortcuts only real reforms… We’ve been able to enforce an ‘Official Reality’ by throwing government financed money [“debt”] at it, to make things that aren’t economic look economic. And now that the debt growth model is over, that game is coming to an end. On an optimistic note, if the debt growth model goes away and we have to deal with an equity world, then fundamental economics get relevant again and some of this weirdness and bizarreness of ’The Official Reality’ goes away because it’s just not economic” 

— Catherine Austin Fitts, former Assistant Secretary of Housing & Federal Housing Commissioner. (Solari.com)

The Transition Movement sees the end of the runway approaching and are attempting to position and build foundations for an oncoming era of turbulence and volatility spurred by contractions in both the availability of cheap energy and cheap capital (debt).  Transition Movement is a pre-existing actual label when applied to Transition Towns but I am appropriating it here for the made-up follow-on concept of The Transition Company.

While Transition Towns serve a community defined by the physical location of the residents, the Transition Company’s community straddles both physical and virtual realms. It also crosses old paradigm boundaries of where the stakeholder layers demarcate.

To put it simply: the Transition Corp. is organized along principles that structure a community that includes the shareholders, the employees (who are ideally shareholders) and the customers – many of which may also be shareholders.

When one accepts the notion that the debt growth model is truly over, then many pillars of conventional business theory are shown to be counter productive, even ruinous over long time horizons – these include:

Pyramiding Debt

As I once lamented in Debt. It isn’t what it used to be that “Debt used to be something you actually paid off”. But that isn’t the case anymore. Now it’s meant to be rolled over, perpetually.

It wasn’t my imagination, this had become an MBA level tenet; as I was once mortified to learn in an EMBA level course I was taking that “all short term debt eventually becomes long term debt”.

It wasn’t always like this, in fact this tenett; this pillar of our current economic model is actually an aberration.

It is worth repeating the excerpt I quoted in that earlier writing from a business textbook I found from 1949:

“Any corporation, private or governmental, that wishes to provide for a sound and equitable continuity of its business must take steps towards the systematic retirement of debt immediately after it has been incurred. Postponement of all payment for property or privileges by those who presently enjoy their benefits is calculated to bring uncomfortable consequences to them or those who succeed them.”

When people talk about conventional wisdom, this is the sort of thing that springs to mind for me. Actually retiring debt, not rolling it over forever. One course is mathematically sustainable in perpetuity. You could productively issue debt, use the capital to grow one’s concern, use the proceeds from that to liquidate the debt, rinse, lather, repeat and you could do that forever.

The other way, perpetually rolling over debt, you can’t. Even at near-zero interest rates, where we are as I write this, your debt service will eventually cannibalize all your revenues because notwithstanding the near-zero cost of capital, you’re still trapped in a cycle where you must increase the principle debt load in order to “grow”.

Maximizing profits in too near a time horizon

This is a universal phenomenon – companies are under pressure to post ever improving results – not annually, every quarter. Shareholders, for their part, express angst if the share price doesn’t go up fast enough, and if it doesn’t, they sell. The average holding period for public stocks has gone from 7 years post-world-war II to about 6 or 7 months now (that’s excluding High Frequency Trading, which makes up most of the trading volume these days and the bots typically hold their shares for about 11 – 20 seconds).

So the companies do whatever it takes to increase the stock price every quarter, forever. Because this is, when you take a step back and think about it realistically, an absurd and possibly pathological expectation, there is no way a business can actually operate rationally and meet these expectations. Nobody can.

A very wise and successful CEO friend of mine once created a company here in Canada that became a billion dollar entity. Not a unicorn, they were actually quite profitable. When it was a publicly traded company he was the only CEO on the TSX who refused to give quarterly guidance.

“If profits are ‘up 5 cents a share’ then presumably that’s going to bump our shares by 5 cents. They want it now, but I make them wait 3 months until it actually happens next quarter for that nickel. I do that because if I tell them today ‘it’ll be 5 cents next quarter’ and and we only come in at 4.5 then everybody reacts like it’s the goddamn apocalypse. 

If we “miss” then everybody goes ballistic and I look like an idiot. Meanwhile we’re talking 3 months, and there’s another quarter right after it… This goes on forever. No thanks.”

Eventually an activist investor took them private (forcibly) and in hindsight, I think if that company had been left to run, a lot of long-term shareholder value would have been realized. This brings us to…

Focusing on share price

It’s been said that the difference between investing and speculation is that the former tries to capitalize on a perceived mismatch in valuation while the latter is trying to guess at the direction of the price action (usually hoping that the price goes up).

The majority of market participants are doing the latter. If a TransitionCo were to be publicly traded, it wouldn’t really care about the daily gyrations in share price. If the company’s share price is significantly above what management feels is the intrinsic value (“IV”), they can use the shares to acquire other assets. If the share price is below IV they can always buy them back.

The myopic obsession with the share price takes everybody’s eyes off the real ball, which are the normal course operations of the company: Love-bombing one’s customers and delivering overwhelming value. Share price fixation, especially when its driving executive compensation is extremely damaging because it pulls all future growth into the present, and iteratively cannibalizes it for the sake of “today’s nickel”.

Inflating returns via financial engineering

If I can sum up the difference between a TransitionCo and what we have today it can be stated as reversals or “backwardations”. One of which we look at here is share buybacks. Companies today are borrowing money at artificially low rates to buy back their own shares, which are trading at or near all-time highs. The value investor in me finds that kind of stupid.

When I wrote this, the major indices were putting up a string of all-time-highs (but the underlying technicals like the advance/decline and insider selling look awful). But what a lot of people don’t realize, because the media doesn’t give it very much coverage, is that most of the earnings gains in the S&P (said earnings gains supposedly driving the p/e multiple expansion which is propelling it to new highs) are coming from stock buybacks.

In Q2 2016, share buybacks accounted for 72.9% (!!!!!) of the trailing 12 months net income of the S&P.  Read that again. That’s not 72.9% of the earnings gains; it was 72.9% of the earnings. 72.9%! That means nearly ¾ of the earnings are all financially engineered, and most of the funds used to buy back all those shares are borrowed because of these ultra-low, artificially suppressed interest rates and credit expansion.

Out of the 500 companies in the S&P500 in 2016, 146 of them spent more on buybacks than they actually made in “earnings”.

That’s financial engineering. It cannot go on forever, but it will work just fine until it doesn’t. When that moment comes, it will be disorderly and there will not be enough chairs to go around when the music ends.

Hollowing out the core business via financialization

This is closely related to the aforementioned point. But at this stage it becomes the core ethos of the business: acquisitions (leveraged, of course), sale-leasebacks of any actually useful assets (usually a sign the company is doomed) and serial funding rounds (see below).

I look at some businesses in my space and their home pages are a never-ending litany of tombstones, companies acquired in rapid succession. Five a year, ten a year. It hearkens back to the Age of the Conglomerates, a 70’s era craze when companies rationalizing about diversification started buying up everything in sight and pretty well every single one of them ended up crashing back to earth into a heap of goodwill.

Acquisitions can be beneficial. Those are rare. Warren Buffet calls a sensible one “a fat pitch” and by definition, every pitch cannot be a fat one. We’ve done one in the entire history of easyDNS and we’ve been at this for 19 years.

A few years ago I had lunch with an SVP at one of the competitors who is always pestering me to sell out to them. I remarked that, given their explosive and even profitable growth (at that time) I was surprised that they had recently done their first VC funding round. I went on to opine that it probably would change the nature of the underlying culture there.

“That’s just a financial event” he dismissed it. “Doesn’t matter. There’ll be more”. And he was right, there were more after that. None of the founders are there anymore. Over time they were all drummed out by the people on the other side of those financial events. That’s what happens. The company in question has gone from the competitor I used to worry about the most – growing like crazy and making tonnes of money; to the one I now worry about the least – trying to keep growing like crazy and losing money. Now that a bunch of bankster-backed VC’s run the place, the problem will take care of itself.

A lot of this is captured under a Scared Cow that deserves to die called…

The Myth of Shareholder Value

Milton Friedman once penned an op-ed in the New York Times¹ opining that the single responsibility of the Corporation was to “maximize shareholder value”. I use the word “opined” because it was, after all, his opinion. The viewpoint expressed in that seminal article could be viewed as the culmination of a long secular shift in the theory around corporate governance. It finally took the long-standing primacy away from the stakeholder (which included the workers, their families, the community within which a business operated, and maybe the customers) and gave it to the shareholder.

I understand the sentiment behind Friedman’s op-ed. I don’t even disagree with it: the managers are very much the employees of the shareholders, and they should answer solely to them. (Experience may show, if TransitionCo’s actually flourish, that you will see elevated levels of insider ownership from amongst the executives, founders, employees and customers resulting in more stakeholder alignment; so that longer term mindsets and productive operations seem less like New Age woo-woo and more like strategy.)

What I would debate is whether the long term best interests of those shareholders really are best served by robotically juicing the share price. My point herein is that we are exiting a construct where that seemed viable for a while, and we’re entering into one where it isn’t. We’re still responsible to our shareholders, and socialism still sucks, but we aren’t going to sustain or prosper if we’re functioning along the shortsighted, artificially enhanced holodeck that passes for a free market today.

With the adoption of Keynesian economics and Friedman’s shareholder supremacy, the Chicago School of Economics had won total victory and secured a de facto lock on conventional economic thought that persists to this day (therein lies the problem).

Human nature being what it is, promptly bastardized both Keynes’ and Friedman’s tenets into unrecognizable claptrap².

Their pronouncements shoehorned into short-sighted, self-serving policies have since become so distorted and mischaracterized that they contribute directly to a type of globalized soul sickness that now permeates every aspect of our economy and culture.

Friedman’s shareholder value premise has become so dumbed down that many people really think this means that companies are legally compelled to maximize the share price³, which is simply not true. There is no legal obligation anywhere to maximize the share price. It can be argued (in fact I’m doing so here) that even if one accepts that the corporation’s sole stakeholder of import is the shareholder, that boosting the share price is not synonymous with, and quite possibly anathema to, maximizing shareholder value.

For one thing, the premise is at odds with the concept of Corporate Personhood, another sacred cow of modern thought. Admittedly it’s one which I honestly have no opinion on other than it’s handy. The reason it’s at odds with the premise of Corporate Personhood is because trying to deliver shareholder value solely via perpetually increasing the share price ultimately cannibalizes the corporate host. You can’t have it both ways: in this sense perhaps we’ve found another key stakeholder who should be considered in our effort to re-ground corporate governance: The company itself.

The point of the Transition Manifesto is that shareholder value (if you want to call it that) is maximized by refuting most of these toxic premises and gimmicks and then by running a decent business yielding reasonable returns over a really long time frame.

It’s important to note that I’m not shooting down shareholder value from a Marxist or socialist viewpoint. At the core I’m a free market advocate claiming that what we are operating in today are not free markets, but rather, rigged markets operating under very reckless and delusional assumptions, high on the financial crack of cheap credit.

The TransitionCo refutes these flawed premises above and instead adopts methodologies that will form the basis of long term resiliency and sustainability. Over time, with enough TransitionCo’s operating in the marketplace, society will benefit (why? Because it will become less sociopathic.)

Characteristics of a Transition Company

We’ve looked at how things are, how they should not be let’s turn our attention to how a TransitionCo would actually operate in today’s business climate:

Real Stuff

Transition Co’s have real businesses with real products and services that have relevance to what I’ll call a first order customer base. If you’re running a company whose entire raison d’être is to provide a plugin to a social network then when that social network goes the way of the dodo, so do you. 

If your entire business model is click arbitrage or some other way of gaming the search engine algos then guess what, you exist at the whim of somebody else’s business process and you are literally one tweak away from irrelevancy.

Further, the business should actually be about normal course operations, whatever that is. These days too many businesses are in the business of financial events first, and the operations are just window dressing to support an inflated valuation in the Series Z round.

Smart-Centric vs Dumb-Centric Companies

When companies can earn ROI for their backers through liquidity events and financial engineering rather than normal course operations, focus on the customer means something different entirely than the company that is striving to serve the customer.

It means surveilling the customer and mining their data. Many unicorns and wannabes have no revenue models that involve customers paying for products or services; instead they seek to acquire as large a user base as possible (free services) and then they systematically dismantle their users’ privacy and mine their data. As the old euphemism quips: “If you’re not paying for the product, you are the product”.

A closely related strain of company will charge their customers for products but they will be of dubious actual value to the customer (vaporware).

In these cases the essential customer attribute is one of ignorance and what is valued above all are the ability for lock-in and surveillance. The dumber the customers, the better it is for business.

The flipside of this are companies and businesses that benefit from customer savvy, where the more customers are aware and educated about the products and services at hand, the better it is for the business supplying them.

This latter approach is the core ethos of an emergent model of business activity called Vendor Relations Management (VRM)⁴. Think of it as the flipside of CRM (Customer Relations Management) – it isn’t about managing customers; it’s about managing the businesses that want to engage with, and do business with each individual customer.

The valued attributes in this latter type of business relationship are: privacy, security and reputation.

Operational Diversification

Operational Diversification means reducing vulnerability to any single external entity. If your startup was created and funded to provide enhanced services to MySpace, things probably looked pretty gangbusters for a while, and then not so much. Similar companies operate today, existing for the sole purpose of plugging into one, single external ecosystem. It means you are completely dependent on the whim of those ecosystems and they can literally put you out of business. You live with the ever-present prospect of betting on the wrong horse, and that ecosystem contracting, waning and losing relevance. Sure, Facebook may seem unassailable today. But so did Yahoo yesterday, and AOL the day before that.

Ideally you have at least two non-correlated revenue streams of approximately equal volume where one vaporizing overnight would not automatically kill the other one. In my example easyDNS is both a domain registrar and a DNS provider. Yes, we do web hosting and such as well but we don’t earn enough revenues from it to carry the business (yet). If we lost our ICANN accreditation tomorrow it would suck and it would hurt and could take away half our revenues within a year, which is one hell of a haircut, but we would survive. It wouldn’t be game over the way it is with many other companies who can go to zero instantly just because Google updates its search algorithm (anybody remember Geosign?)

Similarly, try not to have a single customer that accounts for more than 2% to 3% of revenues. Some businesses are completely built around one or a few enormous customers. Losing a customer is painful, it’s worse when it’s fatal.

Resilient balance sheet

If you look at the business textbooks or take many MBA courses they will probably tell you that if you do a couple of things with your balance sheet, the street will penalize you. Those are:

1. Keeping too much cash.
2. Not being levered up enough (too little debt).

The rationale is cash is useless, it just sits there and that debt is lubricant, it makes your company go faster. What this is really is, is stupidity dolled up to look like cutting edge business finance.

You cannot have too much cash in the bank. (Well, with Negative Interest Rates spreading like rot, and bail-ins being an actual thing now, maybe you can have too much in the bank). But you cannot have too much cash, which we’ll define here as counter-party-free liquidity. Times being what they are necessitates spreading that liquidity and assets around. One may hold a basket of currencies to mitigate against inflation (or hyperinflation) and include things like precious metals and Bitcoin. This essay can’t get too far into the bizarroverse we find ourselves in with Central Banks and central planning gone wild. Suffice it to say I’ve written at length about it elsewhere and will continue to do so here.

Find any company who’s heading into a downturn, or been suffering through one for a few quarters and ask their CFO if they think having too much cash is a problem. I’m pretty sure they’ll wish they had more of the stuff just sitting there rotting in their bank account before their troubles started.  Then ask them if all the debt they piled up for those share buybacks, for those serial acquisitions, for paying out those dividends was a good idea. They may not think so. Unfortunately the journey from cash to goodwill to write-downs is almost always a one-way track.

It’s the cash reserves and the unencumbered assets together with the absence of crippling debt are what separate the survivors from the statistics when the downturns hit. In a world where ‘Black Swans’ are becoming more frequent, it’ll be the balance sheet strength that saves companies or balance sheet weakness that sinks them.

Growth At a Reasonable Cost

I’ve modified this slightly from the value investor parlance of “GARP” – Growth At a Reasonable Price, wherein value investors are loath to overpay for growth stories but this is exclusively thought of in dollar terms. What I’m talking about it overall cost of the unrelenting impetus for growth for growth’s sake placed on companies by the market. This cost is paid in terms of soul for lack of a better term for it.

As a brief aside, because the topic is huge and covered elsewhere (see “Further Reading”) this point brings us face to face with another symptom of our current delusional economic model: inflation (which is deemed as good) is based on a perpetual growth model, because we’re using debt for money and if it stops growing it’ll feel like heroin withdrawal.

Deflation is toxic to debt-based money, but in reality is actually beneficial to the wider population. If a monetary system was designed by smart people with the well being of society at heart, they wouldn’t come up with a debt-based inflation driven monetary system, run by privately owned central banks who create money as debt and then lend it to the State at interest.⁵ It’s likely they’d come up with a deflationary system instead, like a crypto-currency such as Bitcoin, a gold standard, or some other inelastic, or hard backed currency model.

Back to the TransitionCo, which doesn’t chase growth but will grow along organic lines, when the time is right, at a cost that is acceptable or even beneficial to the concern.

Rational long-term motivations behind capital allocation decisions

The Great Law of the Iroquois was to think in increments spanning 7 generations into the future (roughly 140 years).

The idea behind the TransitionCo is that it’s going to be relied upon to provide liquidity, income, wages and act as a vehicle for storage of value (savings) for a long long time (multi-generational), because where we are headed is going to be a long, brutal, harsh slog. There probably isn’t a term for it yet, because it will be in many respects worse than The Great Depression but will have too much technology, infotainment and Soylent Green to be considered another Dark Age.

When Transition Corps are publicly traded it is motivated by providing liquidity to the community shareholders and to provide a vehicle to distribute dividends. It is not there to give quarterly guidance and obsess over the stock price. Executive compensation should not be tied to stock price performance but to more rational metrics: absolute returns on invested capital, adjusted returns on normal course earnings or some rational appraisal of book value.

Because we exist in a climate of widespread financial repression, most classical investment and prosperity strategies are hamstrung by over indebted welfare States who systematically:

• Hold down interest rates making it impossible to save in the classical sense of the word.
• Deliberately encourage inflation leading to asset bubbles that price normal people out of things like housing and investments while chiseling away at purchasing power
• Raising taxes, adding new taxes, double and triple taxing so that by the time a dollar makes it into the pocket of an investor, it had to come into the front of the funnel as twice or three times that amount.
• Increasingly viewing savings or capital formation as hoarding and attempting to hold money captive within the banking structure or chase it into officially sanctioned assets like mutual funds or government debt.

In other words, all classical, rational long term strategies have been systematically sabotaged. Thus, the TransitionCo has to become the long-term vehicle of savings and income for its shareholders. That’s a big responsibility.

No Exit Investors

The ethos in business today completely reverses the emphasis on exit strategies. The obsession with The Exit makes sense if you’re operating within a debt-based expansionary bubble.

Under such a paradigm, equity investors want out as fast as possible (sequential funding rounds at increasing valuations to cash out earlier stage backers) while any and all debts accumulated are assumed to be rolled over forever.

A TransitionCo flips this over, endeavouring to create an equity-based approach: the equity holders are cultivated that have a long-term time horizon, who aren’t already scheming how to get out before they’re even in. Debt actually gets paid off.  The basis of  no exit investing does have a track record in that this is what many value investors do.⁶

This is not to say that a TransitionCo will eventually deliver 100x returns over the long haul, or even aspire to that. What I am saying is that by functioning along the principles laid out herein, the TransitionCo will deliver consistent returns, quite possibly elevated, and over a longer time frame.

TransitionCo’s are, in celebrated business author Jim Collins’ phrase,  “Built To Last”. This contrasts against today’s ethos in which most companies are quite literally on a suicide mission: hell-bent on being ingested by the nearest 800lb gorilla at the earliest opportunity.

Summing it up in Brief:

Thanks for staying with me so far, we’ll close out with a table describing the key differentiators between a TransitionCo and the other kind which we’ll just term a DinoSaur Corp or DinoSaurus and finally what to do next if you find yourself intrigued by the concept.

It’s the story of reversals

“Invert, always invert!”
— Carl Jacobi (but frequently attributed to Charlie Munger)
What differentiates a TransitionCo from a DinoSaurus are the following set of rather striking reversals or inversions:

The Prime Directives of a TransitionCo.

All of the above material could be distilled down into the following base concepts:

• The prime objective of a company is to provide value to its customers. (smart centric vs dumb centric businesses).
• Out of that shift the second-order effects accrue to the shareholders and foster the long-term viability of the company. The focus is on reasonable returns sustainable for a long time.
• Reasonable returns: ideally dividends and distributions not funding events – reasonable returns on equity balanced against rational reinvestment strategy
• Long term time horizons: think in generational increments
• It is encouraged that the employees be shareholders via direct equity ownership or revenue sharing models.
• The C-Suite Exec should live by one watchword: stewardship. They are a steering committee living and guiding by enlightened principles.
• The end game of a Transition Corp is not to end. There is no exit plan. That is how a TransitionCo will provide returns above a DinoSaurus because the latter will overclock returns but commit suicide, either through debt collapse or being liquidated.

What to do Next

If any of this has resonated with you, or if you are already running or backing a business along these lines and feel like you’re in it alone, feel free to join the  mailing list.

https://bombthrower.com/join/

Selected Bibliography

• Lynn Stout. The Shareholder Value Myth. New York. Berret-Koehler:2012, 97816050098159
• Spitznagel, https://bombthrower.com/wp-content/uploads/2019/03/shutterstock_1030471843-e1551983495127-1.jpg. The Dao of Capital: Austrian Investing In A Distorted World: New York, Wiley, 2013. 9781118347034
• Martenson, Chris: The Crash Course: The Unsustainable Future Of Our Economy, Energy, And Environment: New York :Wiley, 2011. 978-0470927649
• Smith, Charles H. A Radically Beneficial World: Automation, Technology and Creating Jobs for All: The Future Belongs to Work That Is Meaningful: New York: CreateSpace: 2015, 978-1517160968
• Smith, Charles H. Why Our Status Quo Failed and Is Beyond Reform: New York: CreateSpace. 2016. 978-1532857973
• Doc, Searls: The Intention Economy: When Customers Take Charge: New York: Harvard Business, 2012. 978-1422158524
• Stockman, David A. The Great Deformation: The Corruption of Capitalism in America:,New York, PublicAffairs, 2013. 978-1586489120
• Stockman, David A. Trumped! A Nation on the Brink of Ruin… And How to Bring It Back: New York. Laissez Faire Books, 2016. 978-1621291848
• Phelps, Thomas W. 100 to 1 in the Stock https://bombthrower.com/wp-content/uploads/2019/03/shutterstock_1030471843-e1551983495127-1.jpget: A Distinguished Security Analyst Tells How to Make More of Your Investment Opportunities: New York : Echo, 2015. 978-1626540293
• Robert Teitelman: Bloodsport: When Ruthless Dealmakers, Shrewd Ideologues, and Brawling Lawyers Toppled the Corporate Establishment: New York: Perseus: 2016. 9781610394130

Endnotes

[ Originally published November 24, 2014 on the easyDNS blog and included here to build up some base material ahead of launch – markjr] 

The 800lb Gorilla in your space has a Mission Statement. Possibly complimented by a Vision Statement and maybe even a Values/Ethics Statement for good measure.

These were either outsourced to a consulting firm or dreamed up in a series of team-building workshops.

They encapsulate values of ethics, morality, diversity, commitment to excellence, customer service and a dedication to quality.

When employees of the Gorilla hear the Mission Statement, their eyes glaze over. By the end of the Values/Ethic Statement they are comatose.

Most of the people inside the Gorilla company couldn’t tell you the Mission Statement if you asked them and none of these statements have any impact on what actually goes on inside the company.

By contrast, you are On A Mission. You have a singular purpose that drives your every move. It is what Jim Collins calls “your hedgehog concept”. It gets you up in the morning. It keeps you awake at night. You live and breathe your mission and you let nothing distract you from it. Your mission is your obsession.

Our mission easyDNS (my company) has always been “To Drive A Stake Through The Heart of Lock-In In All Its Forms”.

When my partners and I started the company back in ’98, “lock-in” was the perpetual bogeyman that made our lives, and the lives of our customers miserable. So we set out to kill lock-in. Nearly 20 years later almost every strategic move we make can still be reduced to that same core principle:

Does it set our customers free? Then we do it. Does it box them in? Then we don’t. That’s a mission.