The New Normal

by By Mark J. Richards, The Madison Group, Inc

It has always been important for a business to adapt and manage change. The culture of many successful family enterprises has evolved to use their closely held ownership to their advantage in being able to move quickly.

If you were to think of what change has looked like for you, technology would probably be one of the first things to come to mind. However, something else has changed which could be bigger than the technological advancements, and that is the increasing frequency of external events that disrupt the operation of business as normal. In the last 20 years, nearly every business has had to change, adapt, and react to event-triggered disruption, notably:

1. September 2001: 9/11
2. December 2007 – June 2009: The Great Recession
3. March 2020 and ongoing: The COVID-19 Pandemic

So, the corollary to the old saying, “The only constant is change,” may be, “Disruption is the new normal.” Disruptions like these are often referred to as ‘Black Swan’ events because of their rarity. However, they now appear to occur often enough to be classified as cyclical.

Working closely with a number of family businesses, we have seen:

1. A 100+-year-old legacy dude ranch impacted by fires that heretofore had never been as severe or frequent.
2. A luxury hotel operation that has always kept a large ready reserve in cash equivalencies needing to draw down that reserve on each of the event-driven disruptions mentioned above.
3. A successful construction equipment rental business that was forced to liquidate its operations as a result of the Great Recession.
4. A rapidly growing events promotion business that shut down operations as a result of the COVID-19 pandemic.

No doubt that anyone reading this can quickly think of how these events have impacted your own business and other businesses that you are aware of. So if this is the new normal, what can you do about it? We believe it’s a valuable exercise to identify dangers and categorize those dangers into where you can assign risk and where you must absorb risk. When you must absorb risk, you can utilize time-tested business strategies such as the hotel operation with its cash stockpile of ready reserves. You could diversify your business. If you are a brick-and-mortar retail operation, you most likely long ago developed a strategy for online sales that diversified your business while remaining true to your core business mission. In the categories of risks that can be assigned, we believe it has never been more important to carefully assign risk to offset the increase in risks that cannot be assigned. Commercial insurance comes in many forms, but the dangers it can protect from fall into 3 principal categories.

1. Things – Examples include equipment, property, and auto insurance.
2. Events – Examples include cyber liability insurance, business interruption, and general liability insurance.
3. People – Examples include key person life insurance, owner buy/sell insurance, disability insurance, insurance-funded retirement plans, health insurance, group life insurance, and workman’s comp.

All three categorizations are important. However, as Andrew Carnegie said, “Take away my people, but leave my factories and soon grass will grow on the factory floors…. take away my factories but leave my people and soon we will have a new and better factory.” Of these three areas of risk assignment, people are perhaps most important and most overlooked. This link will direct you to a White Paper on people risks that can be assigned through the advanced use of life insurance.

The first thing you can do to protect against assignable risk is to have a periodic, comprehensive insurance audit. Audit all 3 areas of insurance to make sure that your coverage is up to date and meets your needs. You will know your audit was done thoroughly when you find where there are gaps. There are always gaps. Whether you choose to fill those gaps or not can be a conscious decision separate and apart from identifying the gaps. This is better than discovering the gaps after the event where risk could have been assigned has occurred. In the example of the 100-year-old guest ranch that lost an iconic barn due to fire, the cost was much more to replace than what the barn was insured for.

The next step in the process is to develop a strategic business plan to deal with the unassignable risks. Examples of unassignable risks are the loss of business due to the COVID-19 pandemic. However, if like the hotelier, you had adequate cash reserves, you were prepared for the unpredictable. Diversified business strategies, including multiple lines of business, geographic and global diversifications of manufacturing, distribution, and offices, as well as cybersecurity and climate-related changes are additional examples of what a strategic business risk mitigation plan might consider. Many businesses are focused on reducing their fixed expenses and being nimble. The use of contract labor and remote employees are examples of increasing the business’s ability to make rapid adjustments when needed. Some business thinking is evolving, especially regarding global supply chains and inventory control.

Still, risk assignment and business strategy can only go so far. Many of the Black Swan events listed above are unpredictable. Many of them are uninsurable. The ultimate catch-all to assure your business survives and thrives in an age of cyclical disruption is your human capital. As Mike Tyson famously said, “Everybody has a plan until they get punched in the mouth.” If Black Swan disruptions are the new normal, then being able to adjust when punched in the mouth is the new survival skill.

Family businesses and non-family businesses alike rely on their people. Family businesses are often in the best position to cultivate human capital. Investments in human capital are significant and, oftentimes, the fact that your most important assets walk out the door every night makes it difficult to commit to the long-term time, effort, and resources required to make sure your human capital is the best it can be. However, when your human capital is also a family member, that investment can be more easily justified. There are many ways to cultivate human capital. Family enterprises often understand this well. The first, of course, is to provide a nurturing environment and culture that is supportive of human capital. The second is to provide the best training appropriate to your human capital. We are in an age where we are all life-long learners, and it is often easier to train than to recruit. The third is to use regular gatherings to cultivate the human capital utilizing the multitude of tools available to us today. For illustrative purposes these include:

1. Develop a strong statement of mission, vision, and values that act as your guiding compass.
2. Assessment tools so that each individual knows the strenghs and weaknesses of their co-workers and can better match a task to the talents.
3. Be as transparent as possible.
4. Plan succession immediately after someone takes on a position. This can often be done through mentorship programs.

The more complex the world becomes, the more, we believe, we must rely on the basics to assure success. There is nothing more fundamental to assuring success than superior human capital.

The Madison Group specializes in financial planning through people insurance and people planning through a customized business continuation and family legacy process. We believe the intersection of financial and human capital is the place of most potential. While the idea of a business only being as good as its people is not new, it may be the best way to adapt and manage what appears to be the new normal.

You may have noticed, we love quotes. We change our email quotes every week. What follows is a list of quotes we have used over the last few years. Let us know if you have a favorite quote on the list, or share your favorite quote with us!

Quotes to Stretch Your Mind

“He who has a why can bear any how.” – Friedrich Nietzsche
“You can’t talk your way out of what you’ve behaved yourself into.” – Stephen R. Covey
“Never miss a good chance to shut up.” – Will Rogers
“What’s important now?” – Michael Phelps
“Spring is nature’s way of saying ‘Let’s Party!’” – Robin Williams
“Few of us can do great things, but all of us can do small things with great love.” – Mother Teresa
“The greatest glory in living lies not in never falling, but in rising every time we fall.” – Nelson Mandela
“Go into the world and do well. But more importantly, go into the world and do good.” – Minor Myers Jr.
“What is Christmas? It is tenderness for the past, courage for the present, and hope for the future.” – Agnes M. Pahro
“Nobody wants to show you the hours and hours of becoming. They’d rather show the highlights of what they’ve become.” – Angela Duckworth
“Those who can make you believe absurdities can make you commit atrocities.” – Voltaire
“I may not have gone where I intended to go, but I think I have ended up where I needed to be.” – Douglas Adams
“Everyone is called to one common human vocation—that of being a good citizen and a thoughtful human being.” – Mortimer Adler
“This is a wonderful day. I have never seen this one before.” – Maya Angelou
“When you can’t change the direction of the wind, adjust your sails.” – H. Jackson Brown, Jr.
“Reason is, and ought only to be the slave of the passions and can never pretend to any other office than to serve and obey them.” – David Hume
“I’d like to be remembered as a person who wanted to be free and wanted other people to be also free.” – Rosa Parks
“The only thing we have to fear is fear itself.” – Franklin D. Roosevelt
“Avoiding danger is no safer in the long run than outright exposure. The fearful are caught as often as the bold.” – Helen Keller
“Peace cannot be achieved through violence; it can only be attained through understanding.” – Ralph Waldo Emerson
“Courage is not the absence of fear, but rather the assessment that something else is more important than fear.” – Franklin D. Roosevelt
“Keep away from people who try to belittle your ambitions. Small people always do that, but the really great make sure you feel that you, too, can become great.” – Mark Twain
“The most important thing is to try and inspire people so they can be great in whatever they want to do.” – Kobe Bryant
“You can always count on Americans to do the right thing….[but only] after they’ve tried everything else.” – Winston Churchill
“If you don’t know where you are going, you’ll end up someplace else.” – Yogi Berra
“When the power of love overcomes the love of power, the world will know peace.” – Jimi Hendrix
“World peace begins with inner peace.” – Dalai Lama
“We don’t receive wisdom. We must discover it for ourselves after a journey that no one can take for us.” – Marcel Proust
“Courage is resistance to fear; mastery of fear – not absence of fear.” – Mark Twain
“In charity, there is no excess.” – Francis Beacon
“Always do right. This will gratify some people and astonish the rest.” – Mark Twain
“Courage is very important. Like a muscle, it is strengthened by use.” – Ruth Gordon
“I am more concerned with the return of my money than the return on my money.” – Mark Twain
“Not voting is not a protest. It is a surrender.” – Keith Ellison
“The first duty of a man is to think for himself.” – Jose Marti
“Every election is determined by those who show up.” – Larry J. Sabato
“Everything is what it is: liberty is liberty, not equality or fairness or justice or culture, or human happiness or a quiet conscience.” – Isaiah Berlin
“This moment will just be another story someday.” – Stephen Chbosky
“Too many people overvalue what they are not and undervalue what they are.” – Malcolm Forbes
“You’ve been making the wrong mistakes.” – Thelonious Monk

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