Borrowing Isn't a Strategy

You may have read about the troubles Borders Group is having paying its bills. With Amazon pressing hard on one side and Barnes & Noble the other, Borders is facing the threat of buyout, bankruptcy, or even extinction if it can't find a way to fix its balance sheet and shore up its revenue. Things don't look too bright for the forlorn chain.

In following the story in the business press, I've been struck at how the locus of interest has been on replacement financing, balance-sheet restructuring, revolving credit and other financial machinations. Lost in the discussion is the most important question: What is the company's strategy for once again becoming competitive and relevant? Borders can refinance all it wants, but the company is bleeding nearly $75 million per quarter, double the loss it experienced a year ago. Management even admitted that there "can be no assurance that it will be successful" in its efforts, which could result in "a liquidity shortfall." That's financier-speak for "sorry, but you're about to get stiffed."

In any of our homes, if income isn't keeping up with expenses the answer isn't to secure a lower-interest credit card; it's to live within our means and find ways to enhance our income. Two years ago Borders was trying to do just that, with new CEO Ron Marshall focusing on making the bookseller "the first choice for the serious book buyer." In a post at that time I said that Borders had to find a way to identify a unique customer base it could serve in a distinctive way in order to differentiate it's value proposition from its massive rivals. Unfortunately, "new" CEO Marshall resigned two weeks later, and the company's prospects have continued to dim.

So what's the future for Borders? I can't say. But I'm scratching my head at the multi-million-dollar conversations that don't seem to factor in how (or if) Borders can successfully compete in the competitive and rapidly-changing bookselling marketplace. The purpose of a business, Peter Drucker famously said, is to get and keep a customer. Not a creditor.

Steve McKee is president of McKee Wallwork Cleveland and author of When Growth Stalls: How It Happens, Why You're Stuck, and What to Do About It . Find him on Twitter and LinkedIn.