How debt extinguished Nine’s claim to being the one

Over the past week, I’ve been reading about the failing fortunes of the once mighty Channel Nine. As unlikely as it seems, the story holds a valuable lesson for start-ups.

If you haven’t been following this story and subscribe to Crikey, there’s an excellent background piece on how Nine Entertainment – previously PBL Media – got into its current predicament, while Cara Waters has done an excellent job of following the story at SmartCompany.

In short, after a leveraged takeover of the company between 2006 and 2007, Nine’s private equity owners loaded it with debt. While a tough advertising market and the loss of the network’s ratings supremacy certainly haven’t helped its situation, they also aren’t the main reasons why the company is in its current predicament – overloading an otherwise successful business with debt was.

By around about now, you’re probably complaining, “Yeah, but what does the current mess have to do with start-ups?” I say quit complaining – it has plenty to do with start-ups. Here’s why.

Debt is an important source of capital for growing or buying a business. However, it also creates risk, as the situation at Nine reminds us. If overloading a business with debt to an unsustainable level can threaten to bring down a media giant like Nine, it will almost certainly bring down your start-up.

In short, it’s the financial equivalent of natural gas. Managed properly, it serves a useful purpose. Poorly managed, it’s potentially explosive.

Late last year, Marc Peskett wrote an excellent article about using debt in your start-up. If you’re looking for finance – as many of us are – it’s essential reading. If you haven’t read it, do it now! If you have read it, read it again!

Then take a look at your current business situation and make sure your business is cooking with gas, rather than playing with fire.

Get it done – today!