ZOMBIE COMPANIES

Accelerate your business with these expert tips on "Zombie Business" - take a look and discover this TIP!

The living dead do not think or do anything beyond moving like automatons. That is why the term zombie is used to describe the startups that do not grow or evolve, but simply continue to exist. It is often the case that their project has not been successful and, although from time to time, they can take a breath of fresh air to try out an idea, their plans do not succeed. It also happens to those companies that do not have enough capital to pay the costs of definitive termination (redundancies, severance payments, payment of suppliers, etc.).

Setting up a business is more or less straightforward and within the reach of many people. The difficult thing is not to create it, the difficult thing is to create a company that makes money by investing the right amount of time, and this only happens with the top positions in each sector. The easy thing to do is to create a company and fall into marginality, to be a zombie company... and that is not what We would like this to happen to all entrepreneurs, which is why we have brought together so many volunteer entrepreneurs, who have already managed to create some successful companies. The financial crisis we have had in the world has contributed to the existence of many more zombie companies... when the market is growing and everything is going well, there are fewer ZOMBIES... although they also exist in all sectors.

What are zombie companies and how do they operate?

Specialists in the financial field call zombie companies those that have a The only way for them to survive is to refinance their debt as many times as necessary, even if this operation is more damaging than the dissolution of the companies themselves.

Or to put it another way: Just like zombies, mythical fictional characters that come back to life after having been dead, these companies have a debt that eats up all their profits and therefore makes them unsustainable.

However, the paradox is that they do not disappear. On the contrary, they manage to reschedule their debt with the financial institutions of the day and continue to operate on the basis of uncertain capital increases. European markets have seen an increase in the number of zombie companies in the post-crisis years. According to some studies, currentlyIn Germany, France, Italy and Spain, such companies already account for 10% of the market, at least in economic powerhouses such as Germany, France, Italy and Spain, exactly twice as much as ten years ago.

Why are zombie companies so dangerous?

Zombie companies are in a continuous limbo: are not dead, but they are not productive either. Although their effect has not been felt in the economy, this situation makes them potentially detrimental to the economic recovery and the financial landscape in general.

Let's see why:

• They drive down prices in the sectors in which they operate as one of their formulas for staying afloat. However, force well-positioned companies to do the same in order not to lose market share.
• They create barriers to entry for new competitors, who think twice before entering a commercial arena with competitors who are willing to do anything to survive, even if it is in a bad way.
• They generate a long list of defaults when they finally fail to meet their refinancing commitments. And this, of course, affects the third parties who have accepted the renegotiation conditions the most.
• Countries with the highest default rates, e.g. Italy or Spain, have so far been the most affected by zombie companies.

How do you know if a company is a zombie?

But knowing whether a company is a zombie or not is difficult because the company is not only its financial image. It is, first and foremost, the value of those who run it and their collaborators. There are cases where the numbers (accounting and financial) are good, but the 'soul of the company' has disappeared. It's a zombie in a presentable suit!!!! ZOMBIES companies are still listed on the company register, their ever-diminishing operations giving the appearance of life, but they are like the 'living dead', losing parts as they trudge along. They are apparently still functioning, but they have no chance of survival, they will disappear.

Today a good employee is fired because of payroll delays, tomorrow you lose a customer who has not been served properly, another day a supplier stops supplying because of non-payment... They move awkwardly, with difficulty, and leave shreds of their structure on the way to their demise. The argument of those who warn of their existence is that it is better to bury them as soon as possible. This avoids further losses and even a risk of risking more capital in a vain attempt to save them. The problem is to know when a company enters a zombie state and has no solution. For this reason, they propose that the Administration should not finance them with everyone's money, through the State guarantee (which in ICO credits is the 70% of the risk).

The use of the term "zombie" to refer to an economically active entity has its origins in the adoption of the term "zombie company" to refer to insolvent banks, unable to continue operating without government support and public funding. Further on, the concept was introduced into the entrepreneurial ecosystem to refer to those companies or startups unable to continue growing either due to a lack of customers or activity, but at the same time, unable to complete their activity in a formal way due to lack of financial resources.

Whether a company becomes a zombie company depends not only on internal factors, There are times when cyclical factors play a major role in a company's market performance. Thus, according to Iberoform, with the emergence of Covid-19, the number of Spanish companies considered as zombie companies was expected to double by 2020, making us, together with Italy, one of the European countries with the highest number of companies in insolvency for two consecutive years.

What can a company in insolvency do to revive itself and leave behind its zombie status?

However, in the long run, in most cases, companies that stop growing end up dying (according to a study by the Corporate Strategy Board, only 4% of the Fortune 50 companies that stopped growing managed to reverse their situation and return to growth), pivot (see TIP) on business model (see TIP) is the main strategy that companies considered as zombies resort to in order to improve their market position.

Often, even if a company comes to the market with a very innovative solution, the need or the market is not big enough to ensure the growth and consolidation of such a project.

What are the main reasons that lead companies to become zombie companies?

Although the causes for a company's growth to stall tend to be infinite, they stand out:

• Failure to increase the critical mass of customers.
• Stagnation in sales volume.
• Customer acquisition costs (see TIP CAC) much higher than the revenues derived from them.
• High burn rate.

In addition, once a company's insolvency situation is irreversible, it is It is important for entrepreneurs to know, however difficult it may seem, how to close stages before it is too late. Frequently, the fear of failure and the reluctance of entrepreneurs to accept reality and let go of a project in which they have invested so many resources, spend more time than they would like waiting for market trends to change in favour of their proposition or business model, with little success in most cases.

Finally, the fact that a startup remains in insolvency for a prolonged period of time has consequences for different partners of the startup. Whereas, workers have to cope with the difficulty of carrying out their work with the minimum resources available, investors who are shareholders in the companies find it impossible to sell the investments they have made and to generate any return, The country's economy suffers from the large amount of economic resources consumed by companies that are ultimately incapable of increasing the country's competitiveness.

AND THE WORST THING OF ALL IS THAT IT HAPPENS TO YOU AND YOU CAN'T GET OUT OF IT!!!! AND THIS IS WHAT WE WANT TO AVOID WITH THE MENTORDAY ACCELERATION PROGRAMME