Enshittification, also known as platform decay, is a process in which two-sided online products and services decline in quality over time. Initially, vendors create high-quality offerings to attract users. Over time, they degrade those offerings to better serve business customers. Ultimately, they degrade their services to both users and business customers to maximise short-term profits for shareholders.
The term was popularised by Canadian writer Cory Doctorow in 2022. The American Dialect Society selected enshittification as its 2023 Word of the Year, with Australia’s Macquarie Dictionary following suit for 2024.
You are more likely to fold if you buy into a franchise than you are to fold if you just go out and start your own thing
Chapter 1: The impact of private equity
So, you you had uh you had a business, the little gym, that was part of a franchise. Yeah.
And you wound up having a big dispute with private equity. Now, I follow a guy um Michael Girdley who does a lot of these kind of videos like the rise and fall of and a common denominator is why does everything that you used to like suck now? Like for example, Dunkin’ Donuts. I remember when Dunkin’ Donuts used to be good. Yep.
They they used to be completely different. Now they’re like hockey pucks, but they used to be like donuts that they actually made.
Yeah.
At at the actual location. The coffee was good. It was actually good at one time.
And very often his videos, and he points this out very often, end with private equity took it over and this is what they did. And they just destroyed everything that was good about the thing that they took over. Now you’re you’re we you know one interesting thing about doing these shows on the internet is there all kinds of different pockets of the internet that people go to. I think a lot of people in our pocket are not really that familiar with private equity, what it is, how it works, how much influence it has. So, can you explain some of your background with that, what it is, and how it’s kind of destroying society?
That that’s a lot of questions. So, yeah, that’s a lot of questioning.
Um, okay. So, I did own a little gym franchise. I actually was a broadcast journalist before that and I retired from traveling for work to be closer to
Chapter 2: Defining the predatory model
my kids and I bought this little kids gym and I was like, “This is great. It’s a family-owned franchise and the founders are family-owned and it’s a little family and everything’s going to be great and I can take my kids to work and it was so great and it was for uh like three years until COVID hit and during COVID lots of small businesses and lots of franchises were forced to shut down and I was one of them. I was shut down for 17 months by the state of Maryland. 17 months I was supposed to try to survive somehow with no income, no customers, no revenue as they chose the winners and the losers. And during that time, it left hundreds of these major franchise brands susceptible to to bottom dollar takeovers and hostile takeovers by what’s called private equity. Now, private equity is not in and of itself an evil term. If your mom loans you money to start a business, that is private equity. It’s money you don’t get from the public funds. So, you don’t take it from the SBA or you don’t take it from shareholders. Okay, that’s what it means. But private equity as we know it is something a little more nefarious. The private equity most people reference is something that exists and operates as an extractive exploitative business model. Um, and people have known private equity is bad for a long time. They just didn’t have a word to associate it with. Anybody that is my age or older has seen the movie Pretty Woman probably a bunch of times. And in the movie Pretty Woman, Richard Gear’s character was the CEO of a private equity firm. And she asked him, “What do you make?” And he goes, “I make money.” And she says, “How do you do it?” He says, “I buy up companies that are great and I break them off and sell them for parts.” and she says, ‘Oh, that’s awful. And he was a bad guy during that part of his story arc. He wasn’t a good guy. And at the end, he said, ‘I want to build things again. I want to build America. We’re going to make big ships and make America amazing again. And then he was a good guy because he stopped being a private equity guy and he went to being a good guy. And the lawyer in that movie didn’t want to stop being private equity and ended up hitting the woman and being evil. And that that this is a trope we’ve known a long time. People just didn’t have a word to assign to it, right? So, they’ve always been the bad guys, but they’ve become exponentially worse as administration after administration has loosened restrictions on them, removed guard rails that were meant to keep them from doing horrible things to the American economy. And this is not like a one party problem. Some of the worst expansions of their ability to be exploitative happened under Clinton and then the most expansive happened under Obama. But every single president since Carter has expanded their ability to do harm, has removed guard rails and protections to stop them. And so private equity firms, they exist with very well no oversight. They used to have some oversight through the SEC, but they have no oversight. So they can spend any what they want. They can take debt on any way they want. They can create leveraged debt onto businesses they buy, which should be illegal. I I want to
Chapter 3: The Toys R Us bust out
Well, and that’s what they usually do, right? That’s what brought down Toys R Us, right? it was a successful business and then they just came in and loaded it with debt.
You know, Toys R Us is maybe the best way to explain what private equity does so people understand how it extracts things. Private equity wanted to buy Toys R Us. It was Bang Capital. It was it was somebody that people know and and and are associate with with former presidential candidates, right? Mitt Romney was a Bang Capital senior partner, right? And Bang Capital saw money in Toys R Us. They were like, “Kids need toys. Kids are always going to need toys. We need Toys R Us. Toys R Us was an established business with very deeply entrenched asset lines and multiple streams of revenue. They had brick and mortar stores in every major and minor city in America. But underneath those stores, they owned the real estate. They owned the real estate under every one of their stores. That wasn’t all. They also owned warehouses in every region of the country that were stocked with dead stock items to carry them through an economic downturn. And they owned all of their own freight lines. So they owned all of their trucks and they employed all of their drivers. So they had built all of these amazing things to make it so that they could survive ups and downs in the economy. And being Capital saw that and said, “Oh, we can do better. We’ve got you.” And so they came in and they bought Toys R Us. And within just a few months, they sold all of the land under their stores, their most valuable asset, to their sister company for a bargain basement price and then forced every Toys R Us store to lease it back from them at a premium.
So, their sister company was now making money off the land Toys R Us already owned, right? And when they bought Toys R Us, they didn’t just buy them. They bought them with billions of dollars of debt that they made Toys R Us have to pay back. Toys R Us didn’t owe any debt, right? They bought them and foisted $3.6 billion in debt onto them. And so, it’s like me buying a car and saying the car is going to pay back the loan. That’s crazy. That’s what they do. And so, now they’re paying rent and they’re paying debt back. Then they went to all the warehouses and they liquidated all the assets through third-party liquidators and took away their cushion for economic downturns where they could draw stock and bring things in when they couldn’t afford to do extra ordering. They sold all of it for bargain basement prices less in many cases less than they’d actually paid for it, right? And they liquidated it. Then they sold the warehouses to their sister company and leased them back to Toys R Us again at premiums. Then they sold all of the trucks. They sold all of the trucks.
said, “If you looked at my ex account right now, you would actually see a photo of me uh as my cover image standing in front of a Toys R Us truck graveyard. Literally, they’re wasting away in a cornfield. Happen stance. I live in the middle of nowhere. Four blocks from my house. There’s a corn field of Toys R Us trucks.
Wild.” And so they they sold all of their trucks and then they started using like different rate matchers and brokers to rent trucks from other people when they owned it before and could control their pricing and could control their gas and could control the costs and they rented all that back. And then they what they did was they had them sign a contract with Vang Capital to say you need to pay us every month a management fee to give you advice on how to run your business. Toys R Us had been successful for decades and decades. They had babies arrest. They had bye-bye baby. They had the corner on anyone 16 and under in this country, period. And every pregnancy in America. And they said, “We’re going to teach you how to run your business, and you’re going to pay us, you know, $30 million a month to do it, plus a management fee for every store, and every regional manager, every warehouse manager.” And so now, Bing Capital is using these management fees to dividend back all the money from all the things they sold. They could have used to pay down the $3 billion in debt. They didn’t. They dividended it all back to themselves and put them further and further in debt until one economic downturn came along that was too much. They no longer had the real estate to fall back on. They no longer had the dead stock to fall back on. They never had their shipping lines to fall back on and they buckled. That is private equity in a nutshell.
Chapter 4: Monopolies and franchising
All right. So now if I could just interject one thing because I while we’re on the why does everything suck question, I just want to ask this. So that’s one example. But then like what about like uh Subway or Panera Bread, right? Because as I understand the exit for these private equity firms is either a a sale or an IPO in a relatively short period of time, which means they have to optimize cash flow.
Oh, that’s okay. But they still have to used to be the goal. And that was when they were less evil, right? Because to get to an IPO, you have to prove the business is successful. And when once it’s traded hands once or two two or three times, there’s so much debt on it that you can’t get an IPO out of it anymore.
Okay. So, like maybe the only IPO left right now that I see is particularly successful that I think is going to fold pretty soon is Michael’s craft stores because now that Jo-Ann’s was taken over by private equity.
Michael’s has been through private equity twice and back to IPO.
Right now, all you have left is Michael’s and Hobby Lobby because Private Equity took out Joann’s, it took out Hancock Fabrics, it took out um AC Moore, it took out Dick’s Sporting Goods, it took out all of the art stores. So, we have Michael’s and Hobby Lobby. And Michaels is loaded with debt. Well, Hobby Lobby, who never wanted to be a monopoly, by the way, follows what they call their godly principles and they don’t believe in debt. So, they never ever do any expense from their businesses that they can’t pay back in cash within one quarter. So, they have no debt and they own their land and they own their stores.
But isn’t the feature of it, sorry, that you have to optimize the cash flow, right? So, you have to increase the the profit margins in a very short period of time. Is that right? Because what I really want to know is how did a $5 foot long become a $14 foot long? Because this is what people notice. And Panera Bread, forget about it. I mean, you you need a a mortgage broker just to finance a lunch there. I mean, it’s unbelievable. 859 cup of soup. I mean, ridiculous. Does that have anything to do with the influence of private equity? Because right now, I feel like these companies are hiding behind, well, it’s inflation, things are more expensive now, but that can’t explain it. If you look at these these food chains that have been taken over by private equity, it’s way shittier food for way more money.
Yeah. So, Ror Capital is one of the worst offenders of monopoly private equity creation right now. Ror Capital says they’re not a monopoly because they own two companies and they compete with each other, right? Uh that’s not true. If you own two companies that own all of the stores and you control both of them, you are a monopoly. That’s what they are. Ror Capital has things like they own like five different deli chains including Subway and they own Jimmy John’s and they own Mallisters and right so they have all they have they have Arby’s, they have Duncan, right? They have all these brands and they classify them under Inspire brands and focus brands and so they couldn’t possibly be a monopoly because they just they divide them. But what happens is when they acquire one of these food franchises, they immediately consolidate all of their buying to their existing lines using something called like rebate revenue, which is really kickback revenue, and force the restaurant tourists to start buying through their existing supply chains. So every deli in America before three or four months is now selling the same meat and the same crappy bread that’s coming from their distributor that’s giving them kickbacks on every on every sale. And what a big part of private equity and franchising being like the like the “enshitificition” of everything. That’s people say, right?
The “enshitificition” of everything, right?
Is that it used to be that a franchise was successful when their franchises were successful and paid them a royalty on their profits and their and their revenue. Okay. My franchise, I was supposed to pay 9% roughly 8% in royalties, a 1% like tech fee, and then I had some marketing fees. That was what I was supposed to pay for my business to be successful and for their franchise to be successful. And for 46 years, they were. Then a private equity firm bought the little gym in a hostile takeover, right? It was the same private equity. It’s a private equity firm called Unleash Brands. And they also they’re owned by somebody that also just recently sold the Padres’s to another private equity firm. And when they came in, they immediately started saying I had to buy marketing things through them that I had to sign up for a a call center. Now, people don’t want to talk to a call center about their four-month old baby’s needs. They don’t, right? They gave me like 20 new things I had to spend money on. And I had to give them kickbacks on all of it. And so now all private equity’s business model in franchising has become not that if a if a franchisee is successful, we’re successful. But we’re only successful if we are in their pocket 60 different ways. And so we need to squeeze every penny we can from the franchisee and then the franchisee has to exponentially squeeze it from the customers and they get no say in the matter, right? It makes everything worse.
Chapter 5: Systemic failure and stats
All right. So now what you’re describing and what you described with Toys R Us particularly, it’s what the mob calls a bust out, right?
Like that’s a that’s a bust out. You take over a business, you load it with debt, you’re never going to pay back, and then in the end, you know, with the mob, they would they would very often burn it down for the insurance, but you’re essentially burning it down. In any case, when the mob does it, it’s illegal. And as you said, all of these successive presidents basically made it illegal for private equity to execute a classic mafia scam of of just charging up debt on a taking over a company, charging up debt you’re never going to pay back, selling off all the inventory. I mean, it’s exactly what you just described. It’s exactly a bust out.
And there’s stats to there are stats to like say how this is bad, right? Like right now, if a private equity company takes over a corporation, you are 12 times as likely to go into bankruptcy in that as that business in the next year. The second time they flip it to the next private equity firm, which happens every 14 to 30 months, by the way. They flip them like Pokemon cards. Okay? Right? They squeeze as much as they can and toss it to the next guy and it’s like hot potato to see when it’s going to bankrupt. But then when they kick it to the next guy, you become literally almost a hundred times as likely to go bankrupt in the next two years. The third time it changes hands, you’re almost a thousand times as likely to go bankrupt as any non-private equity owned business. And it’s worse than that, right? You see it in healthcare, you see it in sports, children’s and youth sports. It’s happening. But for the first time ever, two years ago, the SBA, which does not track this, we had to get a report made about it. Some like a franchise economist actually had to do the report on it. For the first time ever, two years ago, business owners were more likely to default on their SBA loans that the taxpayers back if they owned a franchise than if they started a business themselves. That’s never happened. It was always the reason you bought a franchise was because it was a proven business model. Right. Right. That you could be successful because you had the brand recognition, the name, the backing, the customer service support. And now suddenly you are more likely to fold if you buy into a franchise than you are to fold if you just go out and start your own thing. Please clap.
Tim’s Comments:
I’m don’t go out to eat often, but a year or two ago I bought a Subway footlong and was amazed that the price had more than doubled from the $5 footlong. I also worked for a company that was (temporarily) owned by private equity. I say temporarily because private equity firms typically only intend to own a firm for 2 or 3 years. The private equity firm intended to layoff their computer programmers at outsource the work to India, so the programmers left for greener pastures. There is a big learning curve involved in some types of software. The company ended up reversing paths and hiring a new group of American programmers, only to layoff the programmers again. From within the company, it seems counterproductive, but maybe they can find a way to make the numbers work anyway. To me it seems like the continued looting of the economy.
What’s your experience with private equity as a customer or an employee?