Loss of Key Personnel (The Bus Problem)

March 23, 2010

OK, this is the last in my series of topics about taking necessary measures to protect you company against the loss – at least for now. Have you adequately protected yourself against the loss of key personnel?

I usually call this the ‘Bus Problem.’ What happens if you (or someone else in your organization) doesn’t look both ways as you cross the street, steps off the curb, and gets hit by a bus?

Loss of an Owner

Thoughts in this area usually begin with addressing ownership transition. What happens to the business if the owner’s heirs want to extract their value? You need to take adequate preparations to deal with this possibility. At a minimum, there should be an agreed method of valuation. Write it down and have it assigned by the owners.

You may also want to anticipate and create by-out contigencies. For instance, creating a life insurance policy where the company as the beneficiary, so the business could buy back the shares of the company so the heirs could extract the value.

Loss of Other Key Employees

In addition to the owners, you should also consider critical personnel. What if a key manager or technical expert is incapacitated? You may want to consider getting keyman insurance that would provide money for the company to replace and train an new person.

In some case, companies attempt to minimize this risk by cross-training employees. But, you may encounter objections from employees who want to ‘protect their turf.’ If so, you might appeal to them to help you help protect the company and their fellow employees against the potential risk of their incapacitation.

Oustsourcing to Reduce Risk

Some people consider subcontracting as a related matter. They use subcontracting as a risk mitigation strategy to reduce the chance of lay-offs. So, they plan to have 20-40% of their labor subcontracted. Particularly in light of the recent economic issues, it may seem like a prudent strategy.


Loss Protection

March 9, 2010

Last week, we talked about managing your computers systems including protection against viruses and loss of data. Continuing on that vein, let’s talk about other ways to protect against loss.

The Sledge Hammer Problem

People often consider obvious risks like fire or weather. (And, yes, you do need to have adequate insurance – more on that another time.) But, what about theft? Or, what if a disgruntled employee decided to harm your systems? A year or so ago, I was consulting with an Alliance Partner. When I asked about their network systems, he pointed to a rack in the corner of the room. I asked what they would do, if a disgruntled employee took a sledgehammer to the rack. As a good business owner, it may not seem very likely, but you’ve got to admit that it is leaving a lot to risk that could be easily protected.

Disaster Recovery Plan

Even if you feel like you’ve taken adequate measures to protect your business, you should still consider what you will do if disaster strikes. As difficult as it may be to imagine how you will rebuild your facilities and systems, the real loss is down-time, which could quickly destroy your business. So, ask yourself, if our building burned down tonight, how could we be billable tomorrow?

So, you should create a disaster recovery plan. At a minimum, it should address:

  • Direction and Control – basic plans and authority (e.g. buy computers, data recovery…)
  • Communication – how will you communicate with your employees, customers, vendors
  • Shutdown and evacuation – Might as well include a section on what employees should do if there is an on-site emergency

Finally, don’t forget to test it. Is the plan adequate, effective, and practical?

Adequate Protection

Providing adequate protection for you company is always a sticky subject. How much time and money should you invest to prevent something that has a minimal chance of happening? I’d suggest that has to balanced with how catastrophic is that risk.