What's the Core Asset of any Business? - You, and Me! The Power of Human Capital

In the past five weeks, unemployment claims have climbed to 26 million as panic flooded the market due to COVID-19 and an unpredictable future.  A lot of business owners are in a pickle: on one hand, the business may not survive without some serious budget cuts, like laying off employees; on the other hand, without their trusted associates, no business can succeed and improve to the next level.  What can we do?  In this episode, we talked about the power of human capital.  Tim and Dan explained the importance of planning for the long term when times are good.  Drawing from his experiences in the Marine Corps, Nathaniel introduced the efficiencies of a bottom-to-top hierarchical structure.

We hope you enjoy this episode and talk soon.

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spk_0:   0:02
welcome to critical thinking required. Hosted by lbw Our goal is simple way. Want to challenge you to think differently about finance and business, Join us and start the journey today Welcome back to critical thinking required. You're with Tim Bickmore and my two colleagues, Dan Weiss and Nathaniel Leech. Today we want to talk about how small business can differentiate from large blanking cos you can insert whatever word you want into that if you'd like. But the overall objective here is to talk a little more about human capital. So small cup, small businesses dealing with their human capital versus really, really large companies dealing with their human capital. And it really became a topic for the three of us and actually at our firm and in this crisis, just thinking about how we've seen people be laid off or furloughed and how companies air kind of reacting. And it just made us want talk about kind of some of the benefits of small business also benefits of large business. But talk about the differences between the two. Um so, guys, I'm just gonna kind of start you start that off and whoever wants to jump in and kind of get the ball rolling is more than welcome to Yeah, I mean,

spk_1:   1:18
way have, roughly, at this point now. But doesn't client, um, that have lost their job

spk_2:   1:26
or

spk_1:   1:27
been furloughed, which I know is actually probably not that many from a scale standpoint, but those 12 people that that's enough and that that kind of got us thinking about the subject matter more because there's some. There's some realism that probably needs to be talked about, but this is like, for me, this is a hard one, because I I always have the viewpoint. And and I know that other gentleman on the phone with me to feel the same way in being business owners, which is where we're coming from. With that perspective is that you know people come first. God, there are businesses of all different sizes of all different industries that in some cases I'm blown away by the extent that they're going to maintain their human capital and some cases, I'm really disappointed to see how quickly or harshly they cut that cap, that human capital and a lot of it relies obviously, the culture of the company, and a lot of that lives on the corporate structure of that company, which I'm glad to have Nathaniel on on this call to talk about that because that that interest in the whole another segment of this conversation, about why, what we look at it, that that's a big factor we look at when we actually wanna look at the owning a particular business, Um, that he's very quick to talk about. But for me, it's been it's been tough to see people discard. Did you wait? Discard people in situation that don't necessarily need to be discarded? And some of them might be, of course, standability business and some of it again cultural thing. And how they go about doing those furloughs and lay off is really critical.

spk_0:   3:05
Well, and I think Dan, which is interesting. And this kind of comes, um, for my own mindset of I don't guess not from like an academic standpoint, but maybe just a rational standpoint is what's what's interesting is, you know, with lbw, for example, you know we have two employees in the three of us, and it's very easy to focus on the individuals at our company and make sure that everybody is successful and I think that we've always had the mentality and the approach that will probably never be a large company from an employee vantage point. But what what we'll always will have is that we kind of all Sherpas ana on a mountain, right? I compared to try to climb Everest. So if our one of our employees falls, it's going to start taking everybody else down potentially, because that's how important human capital is within our firm. Now if you take it to a larger scale, right, a big business. We're talking thousands, even up to tens of thousands of employees. All of a sudden, in my mind and again, I've never ran a company at that level or that scale. But it becomes may be looking at things from a population perspective and not an individual standpoint, because you just can't you know, it's Do you save one, you know, kill one to save 100 or do you kill 100 you know, and it's it becomes that. What evil do you pick? Um, and it's which fascinates me just from like understanding the theory like a theory of the firm. How does that work? How do you know where the incentives behind that, Where do you start making these decisions? And I think my point here is that small businesses have the opportunity to actually worry about the individual because they have the capacity to do so Now. Not all companies are gonna be able to keep employees, especially on a small business level, just because they don't have revenues. It's just difficult. And that is the inherent risk of working for a small company. Um, but they definitely will probably have a closer tie to you and want to help as much as they can. But I am actually kind of interested in hearing Nathaniel's thoughts because he's, you know, on the back end of this has talked quite a bit about I'm different ways to circumvent that at larger scales. So then what are your thoughts?

spk_2:   5:12
So, uh, this has kind of been influenced This it s it's really been influenced. My thoughts on ah few books that I've read, um, one I'd like to mention first is Sam Walton's Made in America Book. This was a book that was written by the founder of Wal Mart and, well, I should say, ghost written and in this book. He really cared about his employees. He viewed them. Hey, he didn't call them his employees. He called him his associates. He viewed each never remember within each and every WalMart as as they expanded. It is critical to the growth of Wal Mart, and he valued them. And I think that one could argue that maybe Wal Mart has kind of gotten away from that since his passing in the nineties. But But that's just one example of how the culture starts from the top and it filters down. One other book that I would like to focus on is Jim Collins, built to last. So this was a book that introduced a few concepts that I thought that it really I think, shaped how I've dude, not only how I iive you, that I would like our firm to be built, and I shared this with the guys, but also how I view that great companies that I want to invest our client's money in should be so. One of these concepts is how you want to find with a metaphor, the right people to get on the bus. The problem isn't incentivizing. People incentivizing your employees, Thio. Work harder. You need to before you even get to that point, you need to find the right people to incentive it. I think that it is critical for the people at the top of any company, be it a a large company or a small business to create a culture that they can then find the right people to then ferment, cultivate and grow that culture, maintain that culture for the long term. It really is about the people you hire in the first place. You want to structure any company the right way in the first place. So what do I mean by that? I mean, I saw really? I saw examples of this when I was in the Marines in that ah squad was made up of of three fire teams and a fire team consisted of four people and each of those four people had a role. And then that fire team had a role within the squad. And then that squad Ah, a certain number of squads than equaled a platoon and then a certain number of platoon's equal a company and then so on and so forth. And I think that that same mentality can be applied to any company. And when it's applied correctly, I think that when you then mix that with the perpetuation of a great culture, you can have a chance, a probability of success because there's that one other variable to the equation that has to come into play, which is luck. But that's an entirely different discussion. But as Tim likes to always say, it's when it comes to into financial planning. When it comes to anything in life, it's about positioning. So if you want to succeed as, ah, small business or as small businesses grow and become large businesses, you want to have a great culture that is growing and being maintained properly. Why a properly structured company with the right people in position to continue that culture even after the founders are gone?

spk_0:   9:33
So one of the things that you brought up there on that angle is the Marines example and the structure behind your squadrons, which I think is a fascinating topic because there's a lot of military books that have been published and written about leadership books, uh, how to structure and then relating that back to business and what I think is this most fascinated me. And this me getting a little bit nerdy is in the military, or especially in special ops, because people really like to focus on special ops because those books were fun to read their exciting stories that they're telling, um, But what's fascinating about that is leadership within a squadron in the military is a necessity. It is literally life or death. If you do not follow these rules, someone congee. I Now you try to apply that to the business world. That leadership and that cultivation of culture is not a necessity is a luxury. So if you have a luxury, it's not forced. You can still have a company and make money without having a solid culture or having solid people but need to you, which I think is just a is a delineation between kind of the military to the civilians face. And I think it highlights that the individual who's who is running that culture and running that business isn't incentivized necessarily how what I always like to say is not thinking backwards, but thinking forwards is that they know if they create this culture that get people underneath them that have a similar mindset and are on the bus. As you said then that will just permeate through the company. And all of sudden everyone is like shoe is leading is going with you and then that will derive revenues instead of trying to create something to drive revenues and then the culture right? And it's it's thinking forward like that. The money is a residual effect. It's not the main focus. Um, and I

spk_2:   11:32
would argue, I would argue that that you're absolutely right. I think that we've taken that to heart just from the very beginning of the outset of our own firm is that we recognize that that the money, the money was not the focus for us. It never waas Our focus from the very beginning was too. Find the find clients it wanted to, uh, create to to grow their wealth and to, uh to develop it in a in a smart way, for them to customize that plan for them to to see our clients grow. That was always and not just in terms of their investments, but to see them crow as as people who had a solid huh structures, a solid foundation to their wealth where they could then grow to enjoy it and then perhaps have some left over to give to their to their beneficiaries. That has always been the mission for us from day one, and we recognize this from the very beginning, understanding that the revenues would flow from there, the profits would come later, and I think it was. I think we're very unique. All three of us, and then, as we always like to say, is that we're very similar, but we comment it from very different directions, and I think we all came together again from different directions. But we all ended at the same place. The circumstances just came together. It was positioning. We are just happened to be positioned in the same direction, and I think that that's very rare. For the majority of of small business owners. Some comment it from the perspective of wanting to earn $200,000 a year, and then that's it. Some of them come at it from the perspective of saying I want to retire with $100 million. I want to become a billionaire, but but what's what's really supporting that that that concept and I think that one of the least appreciated assets is what we're talking about here today, which is human capital. I think the company's severely underestimate the value of their people. And I think there is something to be said with how I think. And I would argue in the last 2030 years that there has been a lot of focused on creating a growing the prophet growing the bottom line. I think that that's been a mistake. I think that companies have been, have been cutting where they shouldn't be, the human capital. I really do. And I think that that that's coming back to bite us in some fashions. I think that we need Thio pivot and we need to really focus on where I think a company's true value is, and that is the people that are driving it

spk_1:   14:47
have beautiful Miss annual. I gotta tell you to it. It's really the difference maker is that a lot of times when we're talking about product and service is those products and services can be duplicated, but the hardest thing to duplicate is going to be the people that you put into play and that that often is the difference maker. Um, I know we could We have toe kind of start tying this up so I'll go right off that and just say that culture often gets overlooked and it shouldn't be. It really is not something to, ah to undervalue the critical need for a strong, healthy, long lasting culture. And it is. I don't want to say it easier, but, um, when your small business to implement such culture when it relates to your human capital and and keeping them is part of the business not necessarily easier, But it's right in front of you. So it really is. Ah, in my opinion, my personal opinion, inexcusable to miss that is a small business because it either means two things I need. It means that as the business owner, you've set up your business so poorly and I don't care enough to do it differently to actually not value that human capital or you just simply don't care. And neither one of those situations speaking as one of three business consultants on this call today, um, we want nothing to do with that business owner. It gets a little more gray and complicated when we're talking about larger businesses that do have to care for Amazon for hundreds of thousands of people coffer. But what I find really interesting coming off with some of the stuff that Nathaniel said is we're talking about a spectrum here. And even though it may be more difficult than Amazon Flambeau or it is more difficult than, ah 34 person company to manage all that human capital, there's a bandwidth somewhere in between. There's not a set number van with somewhere in between that culture and proper utilization of that of that culture. The managers that are that are designed to make that play out. You can really expand on how how well you can still do that, regardless of your size. To a point.

spk_0:   17:10
Yeah, and I would I would make 11 footnote to dance comments, which I I do agree with Dan, is that, but we all I think the three of us all recognize that in today's current environment, if people are letting your small businesses are letting employees go, it's understandable. I mean, it's not that you have poorly planned or that things you know, this is an event that is quite unprecedented. And unfortunately, small businesses can get hurt now. Could you prepare differently? Maybe it might be the case, but people are getting severely hurt on different. It really is dependent on the industry that you're in, you know, fortunately for lbw, we can continue to work. We can continue to do our job from home. Um, it's quite easy, but others, such as restaurant owners or bar owners, don't have that kind of luxury. Um, and it just that could be hard excessive, depending on rented things in that in that nature. But Dan does make a really solid point with there are some business owners out there that I don't think emphasize human capital as they should. Um, all right, guys, that's that's bringing us up to wrap this this episode, Uh, who would like to start us off? Uh, today That's in you.

spk_2:   18:19
Sure. So this is what I would like to say. I think that culture is everything. I think that culture is, where it begins and where it's stuff Pops break comes to not just small businesses, but everything in life, your culture being at home or or eh Church at your business is a product of the principles that you grew up with as a child. The culture is what enables you to when you find the right person be that your personal life or in business that enables you to work together. I've been very fortunate on both sides of the table. Personally, if my wife and I didn't share the same principles, it wouldn't work. That's just back. I'm very fortunate that we do. The same thing goes for When I went on, I found Danny and Tim. When we found each other, it was kismet. I would say that I was very fortunate to find the business partners that I did. And I think that if you don't find the right partners, you don't find the right managers. If you don't find the right people, the chances of success lessen considerably.

spk_1:   19:46
I think that building off when Nathaniel's is bad culture really requires strong communication and, uh and it's really on the top leadership team to make sure that they've done everything in their power to have that trickle to all the elements of the business so that the communication is toe what that cultures toe look like is there? And I think that that will help protect people security fulfillment within their roles. And Tim is right. I was a little harsh and iconic. Um, sometimes there is nothing that you can do about it. The preparation is really very important. And by instilling that in other business practices and play before we have a crisis at hand, you may be able to still continue that culture even in really hard time, like we're experiencing now, on some cases, beyond you. But at the end of day, you have to have that culture really put on a pedestal and have it communicated the whole aspects of your business.

spk_0:   20:54
You know, guys, I really hate doing last on these because I feel like both just usually kill it, and then I have to come up with something. Um, I really think the thing that I would come away with today is, you know, you're gonna read business books and you're gonna again from and I really go back to the military side of things because I like the military books. I think that the military has done a fantastic job in processes and overall teachings of culture. and leadership and how to cultivate a team and work as a team. But I would go back to in the civilian world. In the private sector, it is a luxury because you're not talking about life and, uh, right. And because culture and leadership and good leadership is a luxury, it means that you have to put more emphasis on it. You have to continue to work at it. You have to continue to rethink it. You have to continue to push, push, push, discipline, consistency over and over and over good when things were good and when times are bad and and emphasize it through through all aspects of the business. Because again you're not walking into a war zone, you may just be walking into a board room, or you may be walking into a client presentation where if it doesn't go well, you still get to go home to your family. So that means you you have to find a way to make sure you prioritize it and organize it in a way that is effective and efficient, and it's going to be harder. And it's not an easy task, you know, we talk about it But then a Nathaniel and I do communicate consistently. We work on it. We have our spats. We know we have our conversations. We don't always agree. But at the end of the day, Nathaniel and enter both right, We have the same principles and the same ideals. We may just come at it from different angles. And I would say my last piece with us specifically is that we respect each other. And I think if you can find partners that your respect and you respect their opinions regardless of your agree don't it can become a very fruitful situation. But that's all I got. So I'm gonna wrap it up. Thank you, everybody, for listening to our podcast. We really appreciate it. Um, you know, it's the three guys time out stuff they love. And hopefully you can listen to us next time. Thank you. Thank you for taking the time to start your journey of thinking differently and listening to lbw talk about stuff they love until next time. The opinions expressed in this program are for general informational purposes on Lee and are not intended to provide specific advice or recommendations for any individual on any specific security on any specific broker, dealer or custodian. It is only intended to provide education about the financial industry to determine which investments, broker, dealer or custodian may be appropriate for you. Consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. As always, please remember, investing involves risk and possible loss of principal capital. Please seek advice from a licensed professional. All opinions expressed by podcast participants are silly, their own and do not reflect the opinion of leech Big More and Weiss Wealth Management LLC. Leech Bickmore Unwise Wealth Management LLC is a registered investment adviser. Advisory service is our only offered to clients or prospective clients or leech. Bickmore and Weiss Wealth Management LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by leech. Pick More and Wise Wealth Management LLC unless a client service agreement is in place