Independence is often painted as the opposite of dependence, but even a casual review of American history provides all the evidence needed to refute such a definition.  Every chapter in our story is replete with examples of people depending upon one another  - whether it be the Revolutionary War, the taming of the West, or the attainment of equality.  Great American heroes – think of George Washington, Davy Crockett, Martin Luther King - no matter how ruggedly individual or incredibly gifted, lent their support to causes that could only succeed if others joined them, and are largely remembered for their achievements in the service of those causes.

The truth is that most meaningful endeavors in our history have required that people join together in common cause, and place their dependence upon one another – this is true whether the endeavor was almost impossible (founding the Nation), simply huge (settling the West), or socially difficult (Civil Rights).  The circumstances of our nation’s founding, and its subsequent rise to preeminence, are often ascribed to a phenomenon labeled American Exceptionalism, but it is important to recognize that American Exceptionalism is built on the foundation of exceptional individuals who found their place as leaders of and/or contributors to exceptional teams, groups or movements.

However, this line of thinking does not lead me to a collectivist, socialist or statist viewpoint, where dependence on a central authority and membership of teams, groups or movements is both mandatory and enforced – far from it.  Going back to the Declaration of Independence again, take a look at perhaps the most famous words from it – the second sentence: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”  This statement of the natural rights of individual humans, which derive not from the generosity of any temporal authority but are explicit in the very fact of their being, is fundamental to the the American national character – and says nothing at all about teams, groups or movements.  

So, then, how to resolve the apparent conflict between individual rights and collective achievements in America as we know it today?  It’s simple, really.  In America, collective achievements arise out of the free choices of individuals to associate for common cause – and, in choosing to participate, individuals do not surrender their individuality.  Instead they are independent contributors, free to dis-associate from the collective enterprise, but choosing to depend on others as others will depend on them in service to their common goal.  It is the voluntary nature of both their association and their individual contributions that gives rise to the exceptional collective achievements of Americans.

Finally, what is the implication of these insights into the meaning of independence for business and political leaders?  Again, it is simple: to lead Americans, you must respect and value them as individuals, because they are free to choose whether to follow you, or not.  Or, as Davy Crockett put it: “I bark at no man’s bid. I will never come and go, and fetch and carry, at the whistle of the great man in the White House no matter who he is.”

My father’s life was not easy, and he struggled to cope with the challenges it threw at him – he was human, after all, and flawed like all of us. Some things I learned by listening to what he said, some by watching what he did, and some as a consequence of failing to watch or listen – he mostly taught by example, and occasionally emphasized a lesson with strong words or a firm hand. At times, as I paid my dues to the rites of passage, we were at odds, sometimes almost estranged – and yet, whenever I was deeply troubled by something in life, whenever I needed someone to listen and understand, his was the company I sought out, his was the ear I bent, his was the advice that I needed.

I came to understand the truth of what he taught me as I stood to give the eulogy at his funeral. I realized that what I had written was not what I wanted to say, because it was not about what mattered most to me, or what would have mattered most to him. The truth was (and is), my father taught me that respect is earned, that work is hard, that burdens must be carried, that truth must be told, that debts must be paid, that promises must be kept, that actions have consequences. He taught me that reputations are made in a lifetime and lost in an instant, that true friends are rare, that a word spoken cannot be unsaid. He taught me to walk tall, be bold, do my duty, love passionately, live with honor, and ask for forgiveness.

Above all else, he taught me how to be a man in a hard world.

Thanks, Dad.

However, the hiatus is over, the siren song of the keyboard has been heard again, and I am, at last, back from the void!

2011 is set to see the largest across-the-board tax hikes in US history, when the so-called ‘Bush tax cuts’ expire and rates return to their previous levels. Personal and corporate income tax, capital gains tax, dividend tax and estate tax are all set for substantial hikes.  Maybe.  Or maybe, after the mid-term elections next week with a different political climate  and a new Republican House majority in Washington, D.C., the Bush tax cuts will be continued for another 12 or 24 months, either selectively or in aggregate.  We will not know until late November or early December, when we find out how much backbone the newly elected ‘fiscally conservative’ Republicans actually have, whether any kind of bipartisan spirit emerges, and what the Lame Duck Democratic House majority decides to do with its expired mandate (see my earlier post “Business Worries about the ‘Lame Duck’ Session“).

There are two separate problems with the uncertainty regarding Federal tax rates for 2011 and beyond: one is that uncertainty, specially when the divergence between the two scenarios is as drastic as it is in the current situation, makes it very hard to plan – and when it is hard to plan, business and investors usually become hyper-cautious and consumers defer spending and save rather than borrow; and the second is that, if the Bush tax cuts are reversed or, even worse, additional increases are layered on top of a return to pre-Bush tax rates, consumer demand (which is already on life support) will collapse and any meaningful recovery in the US will be further delayed, with dire consequences for many businesses.  The reality, though, is that uncertainty has the same short term impact as an actual tax rate hike.  Consumers are not spending, business is not investing, and jobs are not being created at anything like the rate needed to pull the economy out of the ditch and get it nose-up again. If this behavior continues long enough, it will become institutionalized – savings will replace credit and cost management will replace growth capital as the new consumer and corporate norms – and we will be set for an extended recession with the risk of it deepening into a true depression.

Another consequence of the current, uncertainty-reduceded level of economic activity is that the gross tax take at every level in government will continue at its current reduced levels, or potentially decline even further, driving demand for additional borrowings to sustain spending commitments and making it harder to service (let alone reduce) our national debt…  Of course, as a fiscal conservative it is my own view that, if the uncertainty is resolved in favor of higher tax rates the net effect will be to reduce the gross tax take anyway, as economic out-performers respond to the perverse incentive by emulating John Galt.

The Bottom Line: Until the uncertainty surrounding the future Federal tax rates is resolved, it will remain yet another factor conspiring to keep businesses sitting in the economic sidelines, waiting for clear signals before committing capital to growth – and, the uncertainty had better be resolved in favor of sustaining the current rates rather than increasing them, if we hope to see an end to the ‘jobless recovery’ and any kind of broad-based improvement in consumer economic circumstances any time soon.

Previously, we identified concerns about the US mid-term elections as one key factor driving the ‘decision paralysis’ that is prevalent in the US business community – with the result that businesses are not investing in growth, and not creating the jobs needed to accelerate consumer confidence and consumer spending, create a definitive end to the recession and turn the corner on unemployment.  Another political factor reinforcing the decision by businesses to sit on the sidelines of the economy, which is particularly relevant when you consider that a GOP victory that will hand control of at least the House of Representatives and possibly the Senate to the Republicans, is a growing concern that the Administration will try to use the ‘Lame Duck’ session to force through unpopular and economically damaging policies that will further undermine the outlook for recovery.

For those who may not be familiar with the way the US legislative system works, a Lame Duck session occurs when control of either House or Senate switches hands to the period between the day the election results become known – mostly the day of and the day after the election, which takes place in November – and the day that the newly elected representatives are seated, which occurs on January 3. During this period, incumbents who lost their seats in the election remain in office until the balance of their term runs out, and continue to form a majority.

The political calculus here is that, as these individuals have already lost, they may no longer feel constrained (to the extent that they ever did) by the wishes or best interests of their constituents, and may be prepared to vote in support of measures that they would have rejected when they still needed electoral support to retain their seats.  In recent history, Lame Duck sessions have been largely uncontroversial, but there have been disastrous examples in the past – most notably, the 1860-1861 session that at least contributed to if not directly caused the Civil War, and the 1932-1933 session that massively amplified the effects of the recession, caused thousands of bank failures and was one of the root causes of the Great Depression.  However, based on the disregard displayed by the administration during the last two years for majority opinion, despite the recent history of respecting the verdict of the electorate during the Lame Duck session, this time might be different.

Business is particularly concerned about the vast and complex proposed legislation focused on energy policy – often referred to as ‘Cap & Trade’ (by proponents) or ‘Cap & Tax’ (by opponents).  While a small number of business that have carefully positioned themselves to profit from it would cheer loud and long if such legislation were rammed, many (possibly most) business decision makers are very concerned that the impact on their businesses (and therefore on our economy) would range from crippling to devastating.  The cost of all manufacturing activities, all production activities, all distribution activities, all business travel would escalate substantially – and this cost would inevitably have to be passed on to their customers.  Demand would be reduced by the escalated prices, and business revenues and profitability would likely be reduced.  The economic impact would be far reaching; consumers having to pay more for food (because the fertilizers, pesticides, feed and distribution costs that that drive price all went up) will have less to spend on discretionary items; businesses trying to reduce cost in order to remain price competitive with foreign goods while struggling with reduced demand from consumers will lay off workers and move more work offshore; the total tax take will go down because corporate profits will be reduced, unemployment will rise even further, and individual earnings will be reduced – while the welfare costs will raise as even more people are driven below the poverty line (because the poor will bear a disproportionate share of the burden as a much higher percentage of their total net income is dedicated to food and energy costs).

Of course, the Administration’s green energy policy is not the only big or controversial piece of legislation that may result from the Lamer Duck session, but it serves as a great exemplar for why the business community is worried about could happen, and why they are reluctant to commit to significant investment strategies that could be completely derailed if such sweeping legislation were to pass.

The Bottom Line: Even though they may be reassured about the mid-term future if (as most expect) the mid-terms break strongly in favor of the Republican party, many US businesses will continue to sit on the sidelines, deferring the investment programs that would create the jobs that would start to drive unemployment back down, until they have a clearer line of sight into how the anticipated Lame Duck session will play out – and as a consequence the ‘jobless’ recovery will likely continue through the year end.

While they managed the  political process effectively and succeeded in implementing much of that agenda, Obama and his Democrats have failed in the most fundamental and important ways: they have failed to manage the economy in such a way that it delivers meaningful, private sector jobs; they have massively expanded the already huge budget deficit; and they have committed to spending programs that will drive the national debt to unsustainable levels and burden generations to come.  These failures have created an adverse economic climate for business, where high unemployment rates, high mortgage foreclosure rates and high personal bankruptcy rates are all serving to keep Americans out of the mall, and forestalling the consumer-led recovery that has traditionally marked the end of  recession in the United States.

Obama’s Democrats have also presided over what is widely seen as the most anti-business administration in living memory, imposing the massive burden of skyrocketing healthcare costs, creating a complex, confused and ever-expanding regulatory climate, threatening an energy policy that will drive transportation costs off the charts, pushing for legislation to ease the path of big labor back into the private sector, and using Congressional and Senate committee hearings to generally humiliate and degrade executives summoned before them.  Being cast in the role of demons came as a huge shock to the business community, many of whom had been swept up by the wave and contributed heavily to Democratic election campaigns around the nation.

As a direct consequence of the disastrous economy and the administration’s hostility towards business, just as in the general populace, businesses have hunkered down and are conserving cash, deferring investments and de-risking operations, waiting for a change to the prevailing political climate; and, just as it has in the general population, sentiment in the business world has swung sharply to the right.  Many corporate donors have switched from funding Democrats to funding Republicans – and many of their employees who last election cycle supported and worked for the election of Democrats have followed suit.  Working Americans know that it is business, not government, that creates sustainable jobs – and they don’t blame businesses for waiting to create those jobs until the political and economic climate is more favorable, they blame government for mismanaging the economy and discouraging investment.

The Bottom Line: The mid-term elections are clearly set for a significant victory for Republicans – and, equally importantly, a switch in the balance of power within the GOP and its elected representatives from the ‘compassionate’ (read ‘big government) conservatism of the Bush era to the ‘fiscal’ (less government, lower taxes, lighter regulation) conservatism of the populist conservative movement.  Business is waiting for, and counting on, that victory – and the greater the scale of the victory, the faster businesses will get off the sidelines and back into the economy, creating jobs and spreading wealth as it has throughout the history of America.

• The outcome of the mid-term elections
• The actions of the anticipated lame-duck House session
• The Federal tax rates for 2011 and beyond (income, capital gains, dividends)
• The Federal budget for 2011 and beyond (deficit spending, the national debt)
• The impact of the Healthcare Reform Act on employment costs
• The specter of runaway inflation
• The risk of sovereign debt default
• The rise of a nuclear Iran
• The regulatory actions of the ‘Czars’
• The ‘next’ crisis – Fannie/Freddie, commercial real estate, union pensions…

These seem like pretty reasonable things to be worrying about to me – I’ve lost some sleep on all of them myself – but the reality is that many of these issues are likely with us for the long term, more attributes of the age in which we live rather than transient symptoms of a passing malaise.  It is therefore incumbent on those of us who spend our lives working with, advising and supporting businesses in their efforts to improve performance to help them adapt their thinking and their operations to the environment.  However, many in our industry are also struggling to adapt their own business models to new patterns of demand and radically altered economics.

The Bottom Line: The only way to lead, is to lead… but to do so, many in the advisory industry who are also held captive by the ten tyrants of uncertainty must find their own way to break free.

As I have written previously, business leaders who are waiting for it all to be over and hoping for a return to the good old days are playing a fool’s game that will at best barely delay disastrous failure, and at worst bring it on. I believe that this truly is the Age of Uncertainty, and that most attempts to organize and operate based upon a set of long-term assumptions about a stable future (traditional ‘Strategic Planning’) are inherently more likely to limit and potentially destroy your business than to enable and empower it to succeed. Doubtless some such strategies, in the short run, will appear successful – but the bigger the bet placed on a specific set of economic, political, technological, ecological or cultural trajectories, the harder the fall will be when (not if) several critical assumptions are confounded by a seismic shift in the underlying trend lines.

Instead, sustained success will go to those who adopt organizational and operational models designed to take advantage of volatility and uncertainty, who make a cultural virtue of adaptability and agility, and who internalize the new truth that there is no inherent predictability in today’s markets beyond the near-term horizon. I call this kind of thinking Insurgent Strategy,  a grass-roots, crowd-sourced, semi-instinctual mindset that amplifies responsiveness to leading indicators and enables the early identification of transient micro-markets, the rapid adaptation of products or services to meet new demand, and the ready abandonment of those same markets long before the demand curve reaches its tail, so that resources can be repurposed to the next opportunity.

Businesses that successfully adopt Insurgent Strategy will make many small bets on short-term futures, will become adept at short-cycle product or service development, will be comfortable with a portfolio approach and accept that there will be a standard distribution curve with respect to the performance of individual micro-markets. They will be culturally distinct from traditionally structured enterprises, and will exemplify a different set of core skills, use different tools and organizational models, and require different modes of analysis to assess their value as investment opportunities.

Stay tuned for future posts, which will further develop the Insurgent Strategy theme, identifying the characteristics of the Insurgents, discussing the specific tools they will need, and addressing how their practices will differ from those of the tradiional Strategic Planners.

Teaser: Insurgent Strategy can be used to exploit the “Long Tail“, so well described in Chris Anderson’s great book, where businesses can do very well from feeding micro-market demands abandoned by the Insurgents.  For such enterprises, which I call Scavengers, the bubbling opportunity is in fact the top of the demand curve for a transient micro-market, signaling that the Insurgents will begin moving on and leaving established but underserved demand behind.

The text of this blogpost generally, and the term Insurgent Strategy specifically, are copyright © 2010 Mark H Robinson. All rights are reserved.

You can buy “Winners Never Cheat – Even in Difficult Times” from  Amazon by clicking here (I don’t make any money if you buy it)

Copyright © Mark H Robinson 2010. All rights reserved.

All this, though, is now old news. There have been so many economic, political and social train-wrecks in the last 30 months that they no longer have the power to move us, except when they are truly outlandish. What remains are two key questions: What have we learned, and how will it help us succeed?

What have we learned?

In my day job, I have the unique opportunity to evaluate the lessons our own business hands us, and those we are called upon to help our clients learn.  There are, of course, dozens of potential themes – but here are the three that I find most significant:

(i)    Only People Will Get You Through

If there is a secret sauce to success in the current climate, it can be found in your people.  These difficult times place exceptional demands upon them in both their professional and their personal lives, and there is nothing like knowing, and having your customers know, that your people will go the extra mile to ensure successful outcomes.  Whether in the front line of delivery or in the back office keeping the wheels on, great people and the high impact teams they form are critically important to survival and prosperity.

(ii)     Marketing Really Matters

Yes, at the end of the day, marketing REALLY matters! In a time when your customers are struggling to find a dime for a phone call, getting them to focus on your message long enough to make a buying decision is incredibly difficult, even if your message is that you can help them find that dime! It takes smart marketing to get the initial attention that puts prospects in the pipeline when times are tough.

(iii)   Frozen Processes Will Ice Your Business

Waiting out rather than reacting to the recession has killed thousands of businesses that looked like sure winners up through mid-2008 – so the third key to making difficult times work for you is adaptability and agility.  Keeping on doing business in the same old ways only guarantees that you will lose business to competitors who are reinventing their approaches in recognition that frequent high-impact change is the new norm for trading conditions.

How will it help us?

These lessons will only help us if we can overcome the decision paralysis that is affecting so many of us right now, and actually make and follow through on impactful, strategic decisions.  There is always some horizonal event, usually set one to two quarters in the future, that looks like it will signal a turning point after which there will be more certainty and a new consensus on direction – right now, the US mid-term elections are the excuse I’m hearing most often for doing nothing.  Get over it!  Your market isn’t going to ‘improve’ any time soon – so you need to improve your ability to compete in the market you’ve got!

First, People: The worst thing you can do right now is to start thinking of your people in abstract terms (like, for example, headcount), regarding them as a commodity because high unemployment leads you to believe that they are readily replaceable.  This is the road to ruin, because intangible institutional knowledge, cultural affinity and integration within a team are not commodity attributes, and you need them now more than ever. Additionally, high turnover will result in increased recruitment and HR costs, and will erode loyalty across the board.  This can become a death spiral quicker than you would believe!  Instead, look to invest in people, focus on creating high performance teams, consider sharing a higher fraction of your total margin with team members through performance-linked incentive schemes, and if you find you do have to let people go, do so with sensitivity and dignity. Consider building strength by selective recruitment of high-value contributors whose presence will help motivate the whole team.  Above all, trust your team, share as much information as you can with them, and actively solicit their input on any specific challenges facing your organization.

Next, Marketing: The second worst thing you will ever do is to reflexively slash your marketing budget in a misguided attempt to reduce ‘overhead’ costs. In difficult times, you need to be spending every cent you can afford on marketing – and the trick here is to figure out how many cents you can afford.  The right mindset with regard to marketing spend is to optimize it in support of specific business objectives – and you may be surprised to find that this actually results in increasing your marketing spend! The key is to connect marketing activities (and dollars) directly to measurable objectives – customer retention, new customer acquisition, account value expansion, market share improvement – that are meaningful to your business.

Finally – Processes: Now is definitely the time to review every aspect of the way you do business, because it is certain that wasteful, inefficient or ineffective processes have become institutionalized and are costing you revenue, profit and customers.  Whether it is petty bureaucracy in the back office or a compulsive aversion to risk in the front office, the value leakage you will find will more than pay for any changes you need to make.  Three key concepts will help you focus on improving your processes: (i) Do I need to do this at all? (ii) If I must do it, how can I do it faster, better or cheaper? (iii) Could it be done using technology instead of people? (and no, this last question doesn’t contradict the ‘people’ focus above – if it can be done by technology, it should be done by technology.  People should only be asked to do things that only people can do!)

The Bottom Line: Unless you make a solid commitment to continuous, agile adaptation, you may not make it through the next 30 months. Recruit, invest in, retrain and retain the best people you can find; spend smart money on marketing; and, take a hard look at every aspect of your business through the lens of faster adaptability,  improved cost and revenue cycles, and tighter engagement with your customers. Or, as many grandfathers (including mine) have told many grandchildren – when life hands you a basket of lemons, it’s time to make lemonade!

Copyright © 2010 Mark H. Robinson All Rights Reserved