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What Port Gridlock can Teach a Start-up about Contingency Planning

One of the pitfalls of freelance consulting is that there isn’t enough time in the day to do everything. I’d consider being cloned. Being busy with solid clients is great, but blogging and communicating business trends and issues, outside of posting a few items to LinkedIn or Twitter, can sometimes take a back step. That is to say, until you have a good couple of hours to sit down and write a blog post, piecing together the brain-space is difficult. In this respite, I can write. Deep breath.

I’ve been fortunate that in the last month I have had diverse and challenging work. Two such clients took me out of the start-up area and in one case, back to a puzzle that harmonizes most of my talents (although I was still assisting three start-up clients), and of considerable national security interest. Since the middle of last year, longshoremen have worked without an agreement along the West Coast. In February after much to-and-fro, lock-outs, negotiations, and a Federal mediator, a tentative agreement was reached. There were ships sitting off the coast, trucks couldn’t enter the ports, and the containers and bulk goods were piling up. Delays were (and still are), significant. Long before the Christmas rush however, the dispute caught the attention of a consortium serving the interests of the US Navy, and having done some work in logistic optimization for one of the companies in 2013, asked me to conduct an independent “damage assessment” using “a lot of counter-factuals” to understand what the “strategic outcomes might be of all players” in the mix – how it might play out, what different scenarios might favor one actor over another, possible avenues of conflict resolution pattern may be emerging, the winners and the losers, and the people in-between.

For these companies, in a fast changing landscape of  fuel prices, Iran negotiations, the Ukraine-Russia conflict and ISIS, prepositioning and reliability across all threat assessments, have real foreign policy implications, not to mention across the supplychain, from rail to road – and it’s a long tail.

Meanwhile, writing my report, the ports stoppages continued unabated. I traveled to Oakland, Seattle, San Diego, Long Beach and Los Angeles. As the quote goes, “[No one wants to]…suffer operational and tactical disadvantages and be forced throughout the battle into an adoption of compromise solutions”.

Factoring in all contingencies is part of the strategic mindset. Forgetting one, or overcompensating for another may spell disaster. It’s a balancing act. Since my business mainstay is the start-up ecosystem, there are some valuable lessons to be gleaned from taking a ‘big-picture’ approach to strategic alignment. If the military do it, and frequently, assessing various threats, there is no reason why small businesses shouldn’t either. Not to mention how many small businesses were effected by the port slowdown, many of whom didn’t plan any contingency.

Start-ups need to know and understand this kind of course, so their outcomes are synced with their business cycle, sales efforts, and product launches; they need to understand the focus of the customer, trends in the market and how the competitive environment is shaped.

Without going into too much detail (because I can’t but for brevity and simplicity), here is what I learned from my study that is applicable to start-ups:

1. Risks and Threats are a normal part of business – unwelcome and unexpected. Challenges are important whether the company is dealing with negative events or the unexpected pressure of having to rapidly expand production to function in spite of the demands of a particularly large order. The first step in any contingency and continuity planning is to assess the risks and threats to which a business can be exposed – that is the possible, probable and potential threats, determine how likely, serious and credible those threats are, and apply some kind of corrective action for each. This requires scenario and sensitivity analysis, and when that is completed, looking at all the variables, noting the best outcomes  given the resources and each threat seriousness, act out various scenarios (like, business wargaming and brainstorming), and then playing ‘devils advocate’ in a methodical way to resolve any gaps.

Estimating a threat isn’t easy, but it will increase, more generally, favorable outcomes. Even a question, something simple like, “What might my competitor do in this situation?” could be a very effective tool in marking a particular threat.

2. Planning and Back-Up Planning should be done regularly by any business and updated to reflect the changes in the market, business environment, and the extent of the threat. ‘Plan B’s’ are a really good idea. If, as part of your initial risk assessment you identify several areas needed to address, there should be a back-up for each. While this may sound rigorous and tedious, it will save valuable time and keep you competitive should anything arise that prevents or delays your businesses continued operations.

The data center is down? Is there server space across town? In another country? With a different vendor?

3. Decision Making is critical. To make the right decisions, you need to research. There needs to be good policy and procedure in place at the high-level and at the ‘shop-level’ in order to create the conditions around which sound business continuity can be established. Now there is no need to get bogged down in this regard in a small business with breaking OODA Loops, rational choice theory or group cognitive styles (think, Myers-Briggs), or optimization. Simple decision trees are effective for small business and large operations alike. Flow charts simplify the procedure. Collection of data relevant to a continuity undertaking is relevant, and necessary. Figure out first what the problem might be, then look at the objectives that need to be overcome. Follow that up with an evaluation and input from all stakeholders might be a worthwhile exercise to establish an effective framework.

4. Fail-safe: This could be anything from ensuring that your business has adequate insurance, has mitigated existential threats and analysed any internal risks from business behavior, intelligence and legacy operating procedures, to deciding what would be absolutely essential to a start-up/small business to begin again after a disaster, crisis, or if a complete shipment missed delivery deadline, and so did your business in making payroll.

Also, that all steps be ensured so that those essential components be available immediately and that the right people are handling the contingency. From an insurance perspective, besides obvious physical disasters, consider the damage that could result from other areas. Then there’s the potential liability factor if your small business is engaged in activities that might open you up to lawsuits – particularly IP (patents, trademarks and copyrights). On this point in particular, businesses should take the time to dot-their-i’s and make sure they are in compliance – in what ever regulatory or standard regime exists in their market.

Where I was perched looking at the ports, many small businesses were stranded at the ports with little direction to go, being at the mercy of the ports facilities operators, the unions, and the various other players vying for the competitive space and jostling for a more powerful bargaining position. While we heard about the Lululemon cargo being slow in transit for the Christmas shelves, who had sufficient leverage in the market to get their product on-time, scale had significant factors in outcome. That’s not to say that larger companies didn’t lose money or market share in the process, just that the spoils go to those that are able to manage their supply chain and value chain better.

Again, in a review position of damage assessment, and from a military-industrial perspective, the ability to get equipment, and materiel into an operational theater may cost lives and both a tactical and strategic position. The ports move the vast majority of a nations war fighting ability and position it on a battle field. Delivery is essential, and how much, in what time, while calculating loss is key. As it should be for any business undertaking. Prepositioning is an essential part of military logistics, and there is no reason why it shouldn’t be for small business. The only limitation is scale. Contingency can resolve this, and reorganize to limit any future contingencies

5. Course of Action: Of course the first thing any business should do in a continuation plan is protecting important business data and inventory. Theft or destruction of intellectual property, such as trade secrets or computer programs, key machinery or equipment, or any other valuable assets a company needs for its operations and maintenance of its market position are generally covered by a security plan. This also includes the security of the company’s internal computer network and confidential files. A security plan attempts to block any negative contingencies that might occur, but when they do, the company’s contingency plan prescribes backup of certain customer and corporate records, and intellectual assets.

Legal strategies are also included in a contingency plan for the purpose of helping to mitigate the damage created by such events. Fraud, theft, operational errors, mismanagement and personal scandal are all crises that require special public relations strategies as well as various types of insurance.

The handling of these crises involves careful attention to legal considerations and liability to the shareholders and if not handled immediately with efficiency and confidence, they can ruin the company’s professional image and ability to do business. For this reason, companies create a system of checks and balances to prevent such problems in addition to creating detailed action plans to deal with these contingencies.

Your small business may need more people and materials before it can reopen. Which people are key to your operations? Do you need particular equipment? Perhaps an arrangement can be made with another business that has the equipment you need. Would you need certain supplies? Find out now who the alternate suppliers or shippers would be.

So, taking your operational decision and coupling it with correct course of action, taking into account any course corrections in the process of undertaking the contingency or continuity plan, you should be ready to communicate this to staff and the outside world…

6. Communications: If something happened at your business, who would be responsible for notifying each person who works there? Ensure phone and email contact lists are up to date and that the people responsible for contacting others have printed lists as all technology fails sooner or later and usually at the most inconvenient time. Also decide who will be responsible for communicating with the public and how (press releases, signs in the windows, radio announcements etc.)

Sometimes conflict can be good: it can often be a change agent and draw out the more creative ideas. In the case of the West Coast ports, each cog in the wheel, each moving part, each stakeholder, each player, had a different communication brief to communicate and plan to execute. This often brought them into conflict, and several layers of overlap risk in overall message.

Since its overall reactive was more like a confederation of leadership levels and competing organizational values, alignment becomes increasingly difficult, across the entire value chain, and so it seems, interferes with national security policy. Which leads us finally, to…

7. Availability of Resources is almost as important as the resource itself. Strong teams, with a willingness to find an exit, that are able to communicate policy and procedure is critical. Are they able to execute the plan? But they are not the only resource.

As stated earlier, ensuring that a back-up plan is available if a first plan isn’t appropriate or the conditions warrant a new look or assessment. Vendors, back-up suppliers, and all the other essential components to prevent business loss are all resources that can be quantified.

A person and a team, and the appropriate budget for each threat can then be applied and a policy and procedure applied. Vital records needing to be protected? No problem, the back-up server in San Francisco may have it covered. Need new office space? Has it been sourced months or perhaps years in advance? Production facilities closed due to a natural disaster? Is inventory including raw materials, finished goods and goods in production protected adequately, or is there a back-up supply?

In closing, while I don’t think the assessment for the majority of small businesses and start-ups, need to be over thought, there is a business case for planning any risk that may arise.

We have to count on it. They will.

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