When was the last time you bought something at an ACE hardware store?  How large was your purchase?

I grew up in a town of 3,000 people.  In the 1960s we had 2 – yes 2 – lumberyards in the town.  We also had a hardware store.  Now, those are long gone.  People drive 20 miles to a larger city, where they can buy from Home Depot and Loews.  Obviously, times have changed.  But out there exists ACE hardware, a company dedicated to supplying small hardware stores as franchisees.  Unfortunately, it is extremely tough to figure out how to create a viable value proposition when your competition buys products at the lowest possible cost, operates a world-class distrubtion system and employees small armies of experts working part time in the plumbing, electrical and other departments.

So what does ACE do?  Why, restate earnings!! (read article here)  Completely ignoring the competitive situation that is, at best, gloomy, the company restates prior year revenues and earnings for ’04, ’05 and ’06.  Of course, in future years the CEO will conveniently find it unnecessary to remind us that earnings for previous years were lowered as he compares current results to the past.  And through this financial machination he will attempt to prolong a Success Formula that is so out-of-date it’s surprising the company is still alive!

The very next week CW announces viewership.  If you aren’t familiar, CW was formed when two U.S. networks – UPN and WB – decided they needed to merge to become more competitive.  Facing an onslaught of new competition niching up the cable TV market, and an avalanche of new competitors on the internet, these two networks could see that future results looked grim.  So they merged in order to consolidate viewership for their strongest programs.  What happened?  Well, before merger the two had 890,000 + 850,000 viewers in the desirable 18-34 demographic. Now?  Viewership is a whopping 750,000!!!!  (Read about CW here.)  Is that what management calls "synergy"?  Of course, one of the biggest players in this game is the Tribune Company, which recently went private under the leadership of real estate investor Sam Zell.  Apparently the news is getting any better in TV while newspaper readership continues dwindling in Tribune’s major markets like Chicago and Los Angeles.

The point?  Leadership has a vested interest in making their business appear good, whether it is or not.  CEOs will regularly talk about how they are doing well, and taking good decisions for investors.  Why, the CEO at ACE just said that despite having to restate 3 years worth of financials the investigation found "no fraud, no missing money and no missing inventory."  Sometimes, management can "spin" better than a presidential candidate when trying to make themselves look good.  It’s up to employees, vendors and investors to pay very, very close attention.  Financial machinations appear around us everywhere, and spurrious mergers and acquisitions often hide the poorest competitors.  In the end, without a strong program of Disruptions and very active White Space businesses are at risk of failure.  And the longer they delay recognizing the risks, hiding risks through various machinations, the weaker these businesses become.