How Worried Are You?

| FROM THE PRINT EDITION |
 
 

Recent events in Japan have caused some businesses to worry about whether they are prepared to keep operating after a major earthquake, especially since the greater Seattle area is situated on the Cascadia fault.

Given the economic climate, disaster preparedness is often the last thing on an executive’s mind these days, but creating a plan can save your business. It cuts the number of decisions you have to make during the disaster, reduces your legal liability and can safeguard your business brand and reputation. Absence of a plan could include your business among the 25 percent of companies that fail after a disaster, usually because they had no plans.

Having worked through these issues at Washington Mutual by managing problems caused by hurricanes, earthquakes, wildfires and winter storms, I’ve devised some questions you might use to test your preparedness strategy.

1. Which of your business functions are most critical and which can be suspended during a disaster?

2. Do you have streamlined emergency response plans that can be activated?

3. Which of your critical business functions are handled for you by vendors? What types of backup plans do those vendors have to keep your business up and running? At WaMu, we made sure that our third-party courier companies had good backup plans, since we depended upon them to move our cash around the country. Our branches could not operate without cash, and we knew that dispensing cash was a critical business function.

4. Once you have such business priorities identified, which parts of your business can be run manually, without technology’s assistance, if power is not available? Can you invoice customers? Can you pay bills? Can you supplement your existing inventory? Can you deliver goods to customers? Have employees been trained to step in and do more than one job?

5. Does your business already have phone trees with employee contact information so you can pass along vital information and ascertain employees’ safety?

6. Assuming that power is available outside the affected area, do you have alternate data centers from which you can operate in case your primary data center was damaged in the earthquake? If not, have you considered storing data in an internet cloud so it is available from your home or office via a secure internet connection?

7. Have you identified and rehearsed employees on locations in your buildings where they can “duck/cover/hold” while an earthquake is taking place?

8. If you are a larger company, do you have sufficient diesel fuel to power the generators you will use to keep on working?

From this list you can see there are a number of ways to anticipate issues and not all of them are expensive. Sharing your plans with employees is vital so they know what their roles will be in an emergency. And communicating with both customers and employees becomes even more important in the midst of an earthquake. In this situation, both email and social media tools come in handy. There is no way to communicate too much in a disaster, especially to lead your people and reinforce key points for your company.

Finally, if you’re the CEO, be prepared to be vilified in the press if you don’t move quickly enough and if you don’t communicate clearly. You’re paid to do everything possible and to think outside the box so that your company does not end up with a black eye. Given the lives and resources at stake, having a plan is the least you can do now to reduce your risk after a natural disaster ... or two or three disasters, as we have just seen in Japan.

Annie Searle is founder of Annie Searle & Associates, a consulting firm that helps clients identify program gaps and manage risks. A former executive at Washington Mutual, Searle served for seven years as chair of the bank’s crisis management team.

Looking for high investment returns? Consider investing in a family business.

Looking for high investment returns? Consider investing in a family business.

 
 

Investors do not lack opportunities to deploy their capital, but being able to generate respectable returns is much more difficult. Part of the problem is finding unique investment opportunities with significant upside in a crowded market. The best option may be to put money to work in a privately-held company.

But private companies pose challenges when it comes to understanding their business, and analysis of the company may be fraught with pitfalls. Or it may be that investors are simply not aware of the opportunity in the first place.

There is, however, an important trend that is clearly discernable in relation to family-held businesses. Wealthy families and individuals are increasingly attracted to the idea of providing capital directly to family businesses as part of their overall investing strategy. And the attraction is reciprocated – family-owned businesses are increasingly open to the idea of wealthy families and individuals providing capital.

At Cascadia Capital, we are seeing a rapid increase in the practice of families investing in families, which can be a highly effective solution for both businesses and investors. Family businesses can be attractive investments, particularly for other family businesses, private companies, individuals, or family offices, which are wealth management companies investing on behalf of a single family or individual. Family run businesses often employ management styles that these investors understand well and can offer portfolio diversification without the hefty fees charged by private equity funds and investment firms; fees that, over time, can add up to millions of dollars.

According to a recent survey by the Family Office Exchange, about 70 percent of family offices now pursue this strategy of direct investing. This may be, in part, due to a shift by family offices seeking to bypass layers of fees and a lack of transparency and control that are inherent to the private equity fund model. Instead, many family offices now prefer to invest directly on a deal-by-deal basis offering more direct control, additional flexibility for longer-term holds, and lower fees. 

From the perspective of family businesses, a significant number are considering alternative solutions to meet their strategic objectives. In the event of a sale, an acquisition by another family can be a compelling solution compared to a private equity or strategic buyer transaction. And when seeking financing for business activities, direct investments from family offices can offer significantly more flexibility than funding from private equity firms that are beholden to rigid criteria and fixed investment periods.

 

The benefits for family businesses of having a direct relationship with their investors or buyers can be numerous. For example, if a family is looking to sell its business, family office buyers can provide liquidity and the opportunity for owners to exit without having to sell to a competitor. If a family is looking for additional financing to fund growth, direct family office investments can offer more favorable terms than other traditional sources of financing.

 Importantly, wealthy families and individuals are more likely to take a long-term view of their investment and are not constrained by exit strategies devised to maximize value within a given time period. Further, these investors often made their money owning and operating successful companies and, as a result, are more likely to understand the nuances and unique challenges of family run businesses. 

This investment trend, while also being experienced in other parts of the country, is gaining momentum in the Pacific Northwest. We are increasingly finding private direct investments to be an effective solution for our family-owned business clients and our family office clients.

Choosing the right investment partner is one of the most challenging decisions a family business can make. We have worked with many private, family run businesses to design long-term, flexible capital solutions and introduce our clients to suitable family office and private investors with common objectives.

 For family offices, like any investment opportunity, buying into family businesses can be very attractive, but it is not without risk. Prior to investing, proper analysis calls for extensive financial due diligence to ensure interests and incentives are well aligned in the transaction. Success depends on ensuring both a structural and cultural fit. We actively encourage family business owners and family investors to work with experienced advisors to carefully explore every available option before determining the best course of action.

Christian Schiller is a managing director at Cascadia Capital, specializing in advising family businesses. Cascadia Capital is a Seattle-based investment bank serving middle market clients, globally.