Structure Matters

(Photo by Jooinn)

Today I’d like to look at examples of why the structure of a venture matters.

Cleaning

Did I mention working with the owner of a cleaning company to help her exit? I won’t look at large scale commercial cleaning today. I’ll keep it simple by looking at domestic and small scale businesses.

Making calls on my client’s behalf, I’ve been surprised by the number of cleaning companies that concentrate on servicing holiday rentals (holiday lets in British English).

The explosion of websites such as AirBnB must have seemed like a gravy train for cleaners. You can charge £10 to £15/hour to clean someone’s house, or you can charge £20/hour to clean the second home they rent out to other people most of the time. Better yet, where you could sign up a household to clean their home once a month or every other week or weekly, you could clean their holiday cottage every time they need it turned over from one guest to another. That could be once, twice, three times each week. Combined with the higher hourly rate, cleaning holiday rentals is more lucrative.

Whenever someone gets to charge a premium, look for the reasons.

You can’t put holiday lets on a regular schedule. They need cleaning whenever bookings require turnover of a unit. Renters may treat the unit worse than they treat their home, so you may have a colossal post-party mess to clear up. When a unit needs cleaning, you have a limited time window to get there and do the entire job. Someone checked out at 11:00 and someone will check in at 15:00, expecting a pristine unit. One company owner I spoke with described his territory, gloriously scenic and rural, and I realized his small team can need to drive almost two hours to get to some of the properties. Running his business is a hassle and a half.

Last but not least, holiday rentals are part of the hospitality sector. How stable is that sector?

Not stable at all. It almost completely shut during pandemic lockdowns. Some rental units were used by front line health care workers who either needed to work far from home or needed to live separately from their families to avoid bringing the virus to their loved ones. That only accounted for a fraction of the rental units available.

Domestic cleaning was hit by lockdowns, too, but began to come back before holiday rentals began to revive. It’s relatively predictable and customers are often willing to flex when needed, such as letting this week’s cleaning happen Friday instead of Thursday. This makes scheduling easier. Most people don’t thoroughly trash their homes every time the cleaners are due to arrive.

The hourly billing rate isn’t as high as for cleaning holiday rentals, but the business is easier to operate and more steady than the one servicing the hospitality industry.

Which one you would prefer depends upon what you value most. The business has to be structured to suit your choice. Profit potential? Clean the holiday rentals. You’ll need to be able to routinely send your staff on short notice and send reinforcements quickly when a unit turns out to need extra hands to get it ready in time. Steadiness and easier operation? Clean the homes. Reliability and relationships will matter more, so you’ll want staff who stick with their schedule and win the trust of the people whose homes they go into regularly.

Government

It already feels like forever ago when Putin claimed he raised the readiness level of his nuclear forces because of comments by the UK’s Foreign Secretary Liz Truss. It was a pitiful excuse for putting his finger on the nuclear trigger. What she said wasn’t anywhere near that significant.

However, she has a poor record as Foreign Secretary. Statecraft is not her strength, in a job that needs it, and that started my thoughts down a familiar path.

The way a government is structured includes many tradeoffs. Unwavering or flexible. Concentrating power in the head of state, or spreading it across more sets of hands. Responsive to the population, or heedless of the population. Considering a changeover of who occupies essential policy-making positions whenever turmoil and doubt reach a threshold, or holding elections for all those positions on a regular schedule, or staggering elections for those positions so that only a portion of them can change hands in any election.

There is no such thing as a perfect nation or a perfect government. As a dual citizen I am of two countries. Having a close-up view of them has made me get a better sense of the tradeoffs in each of them. There’s so much more to it than what I was taught in school!

Both countries can have a transition of power at the very top without an election or assassination. The leader can resign or be formally removed from office. But what happens after that?

In the USA, the next official in the order of succession automatically moves up and is sworn in. Vice President, or Speaker of the House if the VP is unable to step up, and so on through several layers of officials. People voted to put the VP in office, and the Speaker of the House, and so on. At least the initial layers were chosen by the electorate to be in the line of succession, and the remaining layers were confirmed in their posts by elected representatives.

Imagine how startled I was when David Cameron resigned and suddenly Gordon Brown became Prime Minister of the UK. What? We’re now led by someone the electorate didn’t vote to put in the line of succession in some way? The resigned PM’s political party gets to choose? It isn’t an automatic process that works the same way with a resignation as it does in an emergency?

Then there’s what happens in the event of a scandal. In the USA, Nixon resigned rather than face consequences. Watergate was a watershed moment. And… the VP stepped up to the Presidency. It was the same mechanism that took effect when JFK was assassinated.

In the UK, Boris Johnson is beset by scandals. As with Nixon, it’s all down to his own choices such as parties during pandemic lockdown, and large contracts that bypassed the usual initiation procedures and then did not deliver as required. But at worst, he could face fines for breaching lockdown rules against unnecessary gatherings and a no-confidence vote. It isn’t as stern as American impeachment or charges, some of which can bar a person from ever holding elected office again. If Johnson loses, he’ll no longer be Prime Minister. As I understand it, he’ll still be a Member of Parliament, just as Theresa May has been since she stepped down from the office of PM.

However, severe disgrace such as a no-confidence vote could trigger an election. The vagueness of election dates still feels weird to me. Nationally, elections are roughly every five years at a date chosen by the PM… unless the PM decides to call one sooner, or something happens that is big enough to make calling an early election necessary. The emphasis is on who is in the top job and an election can be invoked because a crisis of confidence in the PM is in progress.

I grew up where emphasis is on the system and elections occur on a schedule. Government in the USA is supposed to be sturdy enough to carry on and conduct peaceful transitions of power on schedule no matter what else is happening. In theory.

That brings me to something else. The UK’s government is not allowed to choose from among the nation’s best expertise for its Cabinet. Its Prime Minister and Cabinet Ministers are sitting Members of the House of Commons or House of Lords. This has a few implications.

Technically they have two full time jobs, one in Parliament and one in the Cabinet.

For MPs in the House of Commons, their first skill is winning an election. It’s a First Past The Post system with a handful of political parties (not just two), so they don’t even have to be able to win a majority. They only have to get at least one more vote than the next most popular candidate from the gaggle on the ballot. Members of the House of Lords are there by appointment.

Ministers don’t go through an approval process like the USA’s Senate confirmations to check their suitability. The Prime Minister chooses them from Parliament (confining consideration to members of the PM’s party) and that’s that, regardless of whether the appointees are adept or inept in the area of expertise they now lead.

Not that Senate confirmation votes are an ironclad way to make sure Cabinet appointments are well suited to their jobs. The USA’s system allows a President to pull expertise from anyone in the nation for top-level appointments, ideally the best in their field, without making them become politicians first and without making them hold a Cabinet post or be a department head alongside another full time job. In fact, they resign any other jobs and focus on their Cabinet role. It’s common, but not always required, for people in such high roles to put their assets into a blind trust so they won’t be aware of whether their actions in office might boost or harm their personal finances.

But if the President and the majority party in the Senate are intent upon it, the American system can infest Cabinet positions with conflicts of interest. The immediate past Administration made numerous appointments in which people became head of the very agency meant to regulate the industry in which they made their fortune. They were ideally placed to discard rules, dismantle systems and make peculiar deals between government and commercial suppliers.

Both governments have been distorted by the influence of foreign money, in recent years especially from Russia. The effects are playing out very differently, in large part because the two governments differ so much in structure, with one stifling efforts to make course corrections more than the other.

Wrap-up

Whether we’re building a business or running a country or something in between, how a venture is structured affects what it does well, what it does poorly, where its strengths and weaknesses are, how stable it is, the ways in which it can be warped or undermined or bolstered… The structure we choose matters. We often talk about our strategies being pivotal, but if we don’t create the right structure to fit our strategies, our ventures cannot blossom.

We can see on the world stage today how far that can reverberate. Starting something? How it’s structured may ultimately be crucial to whether it thrives or fails.