As someone who didn’t grow up in the U.S., I have a different view of time and certainty. When I arrived, I was always amazed at how people planned for longer and longer events that were way out into the future, but with a certainty that everything would go to plan, e.g., in estate planning, using generation-skipping trusts.
For me, the U.S.’s long-term view reminded me of Issac Asimov’s trilogy, the Foundation, when the Mule appears, unforeseen, and topples the Foundation contrary to expectations. In the U.S. I see the overwhelming belief that everything will fine in the long term, and while there are outlining events, everything reverts to the mean. However, there are always unforeseen events that can disrupt the trend and cause it never to return to the prior norm.
I grew up in South Africa, and many of my parent friends had done the long constant migration south. They lived in the Republic of the Congo, today the Democratic Republic of the Congo. With independence in 1960, the military revolt, the succession of Kantaga, and the influx of mercenaries and paramilitary troops to protect mining interests, they fled, many moving to Zambia where their mining skills were in demand. Zambian independence in 1964 and the fears over privatization starting in 1968, they moved onto Rhodesia, now Zimbabwe. With Rhodesia’s Unilateral Declaration of Independence “UDI” from the United Kingdom in 1965, the civil war began, which lasted until 1980 with free elections.
Many decided to move further south to South Africa, a country bound to be stable and prosperous. These moves were often made in a rush, as power structures changed, and in most cases, they lost everything they had during each relocation. Unfortunately, in South Africa, the 1976 Soweto uprising was the beginning of the end for the minority white government; it would take nearly twenty years for that to occur. My parents knew many of these people were too old to move once more and stayed on, seeing wealth evaporate with a declining economy, currency, and sanctions.
I know of a family in Zimbabwe where the patriarch was a multi-millionaire. On his death, he left everything in trust for seven beneficiaries – each receiving over a million, with the trustee’s stipulation to invest the funds in Zimbabwe. As Zimbabwe’s economy collapsed in the 2000s, with hyperinflation hitting its peak of at an estimated 79.6 billion percent month-on-month in November 2008, the value of the trust’s assets declined. The trustee, a corporation, could not move the funds overseas due to currency restrictions and would not disburse the funds to the beneficiaries because of the terms of the trust. Today each beneficiary’s interest will buy them less than a tank of gas for their car.
Finally, I attended boarding school in Switzerland in 1973. A Lebanese friend of mine’s father had interests in Lebanon and started a new business in Iran because he thought diversification was a good idea. In 1975 the Lebanese Civil war started, which was to continue to 1990, but the troubles continue. That war cost them nearly everything they had in Lebanon; however, the Iranian business did well. Having seen what had happened, he bought properties in New York, London, and Cayman as further diversification and protection. January 1979, his father was in New York watching the Shah leave and the riots and saw the bank, which held his accounts, burn. They never returned to Iran, but thankfully the portfolio of properties kept them financially afloat.
Why these stories, well, we have seen in the six months with COVID, how the world has changed. What we took for granted is no longer sure. When will return to “normality,” who knows, but according to Dr. Fauci, sometime in late 2021? As I have said in this newsletter many times, your old business plans, strategy, and financial models need to go out the window, and new ones prepared in light of what is happening.
I would add to that, as you consider the long-term outlook and your business and investment portfolio, I would look for hedges to protect for large unforeseen events. Following Nassim Taleb’s barbell strategy – you avoid the middle in favor of a linear combination of extremes across all domains from politics to economics to one’s personal life.
There is talk of the dollar falling in value and possibly losing its reserve country status. How long it takes the U.S. to recover from COVID is another uncertainty as we have yet to find a strategy. Will the U.S. and China go to war over Taiwan? What will these events do to your business? Thus, I would consider other parts of the country, other countries in supply chain protection, concerning investments, international assets as a hedge.
As for looking outside the U.S., I would not claim the authority to recommend any particular country. I definitely would not follow the Englishman’s steps in 1980; deciding the world was unsafe, moved to the Faulkland Islands as he determined the safest place to be. Less than two years later, the Argentine invaded, and the Falklands War got going.
However, realize nothing is certain! Trends don’t last forever, and while things revert to the mean, there will be a new mean after massive disruptions. Take the lesson from COVID to reexamine everything and do it regularly. Complacency has enormous costs. As David Mitchell put it so well in Cloud Atlas, when two people are discussing revolutions,
“All revolutions are until they happen, then they are historical inevitabilities.”
I am not saying revolution is coming, but large, unpredictable things are, and like revolutions, most will all be historical inevitabilities, as COVID was!
Defining an organization’s culture as a “Family” culture reflects tolerance to subpar performance. Rather focus on those characteristics of a “family” culture that you want.
Knowing the profit of your core customers is key to building a growth model. Many companies have identified core customers that are generating a sub-optimal profit and so they cannot realize the profits they seek. Identifying the correct core customer allows you to generate profits and often operate in “Blue Ocean.”
The European Super League collapsed within days of launch due to hubris and the founder forgetting the key parts of their business model, value creation, sales, and value delivery. The collapse might bring a high price.
Many business owners want to sell at the top of the market. However, market timing is tough. Is this the best strategy? Probably not.
Working with many companies looking to grow, I am always surprised how many have not built a financial model that drives growth. I have mentioned before a financial model that drives growth? Here I am basing on Jim Collin's Profit/X, which he laid out in Good to...
As we emerge from COVID, the current employment environment makes me think of a surfing concept: “Being Caught Inside When a Big Set Comes Through.” Basically, the phrase refers to when you paddle like crazy to escape the crash of one wave, only to find that the next wave in the set is even bigger—and you’re exhausted. 2020 was the first wave, leaving us tired and low. But looking forward, there are major challenges looming on the horizon as business picks up in 2021. You are already asking a lot of your employees, who are working flat out and dealing with stress until you are able to hire more. But everyone is looking for employees right now, and hiring and retention for your organization is growing more difficult.
“Why don’t they use common sense?!” You may have said this phrase yourself, or heard it with your managers, when discussing an employee’s actions. However, the frustrated appeal to “common sense” doesn’t actually make any meaningful change in your organization. We all make decisions based on the information we have and the guides we have to use. So if the wrong decisions are being made in your organization, it’s time to examine the tools you give decision-makers.
You can only determine profitability when you know your costs. I’ve discussed before that you should price according to value, not hours. However, you still need to know your costs to understand the minimum pricing and how it is performing. Do you consider each jobs’ profitability when you price new jobs? Do you know what you should be charging to ensure you hit your profit targets? These discussions about a company’s profitability, and what measure drives profit, are critical for your organization.
If you were starting your business today, what would you do differently? This thought-provoking question is a valuable exercise, especially when it brings up the idea of “sunk costs” and how they limit us. A sunk cost is a payment or investment that has already been made. Since it is unrecoverable no matter what, a sunk cost shouldn’t be factored into any future decisions. However, we’re all familiar with the sunk cost fallacy: behavior driven by a past expenditure that isn’t recoupable, regardless of future actions.
Bringing clarity to your organization is a common theme on The Disruption! blog. Defining your business model is a worthwhile exercise for any leadership team. But how do you even begin to bring clarity into your operations? If you’re looking for a place to start, Josh Kaufman’s “Five Parts of Every Business” offers an excellent framework. Kaufman defines five parts of every business model that all flow into the next, breaking it down into Value Creation, Marketing, Sales, Value Delivery, and Finance.