At the moment many leaders are experiencing record profits, record revenues and in some cases shortages of products. The restrictions on travel along with the massive Government stimulus that’s being provided is presenting a challenge for entrepreneurs – how to grow in a booming market while maintaining discipline.
Kevin and Brad talk about the challenges you need to understand at the moment if you’re experiencing growth and they explain 7 important things you need to do if you’re going to thrive.
How to grow in a booming market while maintaining discipline.
Episode 36 – The Growth Whisperers
The Growth Whisperers is a weekly podcast hosted by Brad Giles and Kevin Lawrence two advisors to mid-market businesses, one Australian, one Canadian, who each work with CEOs and Leadership Teams across the world with a mission to build enduring, great companies. Each weekly episode covers interesting situations and questions from the world of strategic planning, leadership development, talent and hiring in high growth entrepreneurial companies where real results matter.
Kevin Lawrence 00:13
Hey, welcome to the growth whispers podcast where everything we talk about is about being obsessed, driven, motivated, curious about building enduring great companies. That’s companies that go for decades, not days or months or years. And helping leaders or teams actually to make that happen. I’m joined today by my co-host, Brad Giles Brad. How are you doing today?
Brad Giles 00:36
Hot, I’m hot. It’s 40 degrees here today. First of the hot days here in Perth, Australia. Getting ready for summer. And it’s good. It’s we’ve had a bit of a cooler time. But yeah, I’m hot today. Yeah, looking forward to a good chat about enduring great companies as always. So awesome.
Kevin Lawrence 01:01
and hot is Celsius, not Fahrenheit, right. Oh,
Brad Giles 01:06
yeah. 40 degrees. What is that? I’m not a calculator, but
Kevin Lawrence 01:11
110 ish. Yeah, that’s, nice.
Brad Giles 01:21
Kevin Lawrence 01:22
not that it’s probably closer to 40 degrees Fahrenheit in Vancouver right now.
Brad Giles 01:30
My, my cousin works in the mines. In the outback of Australia. And in the mining pit, it gets to like 55. Celsius, and peaks, like up to 58. Yeah, it’s quite hot up there. So I’m quite happy to be in this mild 40 degrees Celsius.
Kevin Lawrence 01:50
I bet. Awesome. So what are we digging into today in our exploration of endurance?
Brad Giles 02:00
Well, we’ve been chatting beforehand, what are we seeing? What are we seeing what’s happening around with clients and observations and, and one of the things that we’ve noticed is many people are having record years there, they’ve Reese reacted, they’ve reacted Well, in the early stages of a pandemic, they’ve stabilized the governments and put a lot of money in and now people living record years, and in fact, many industries are booming? So we’re going to talk about that. What do you need to do about it? As a business owner? What do you need to do about how do you react to that? And how do you keep the mindset of an endearing great business? In these boom times?
Kevin Lawrence 02:48
Yeah, cuz it’s confusing. I was working with a client last week, and we’re trying to set budgets for next year. It’s hard. I mean, often budgets are a bit of a guest, but it’s a wild ass guess because it could be the same as this past year. And it could be 50% more, and it’s a substantial sized company, it gets the variance is massive. And, you know, and some people are thinking, well, maybe we should be conservative and plan conservatively. And some say, well, we should be aggressive because there are incredible opportunities out there. And it’s like, how do you plan and budget in these times, and it’s challenging. Now, some business models have more of a fixed nature, ie, they can’t dramatically scale up in a year because of constraints. And that might be a, you know, a set further upper limit, but other ones have lots of flexibility in the model. So we’re gonna, we’re gonna dig into that. But first, let’s have some ideas on how to budget. Let’s first of what are the things that we’re seeing, like I say, a huge portion of our clients are having best years ever, like, more than people would imagine. And we’ve talked about this before. So you’ve got a strong you’ve got a spectacular year that a lot of companies are coming now if you’re obviously in you know, in restaurant hospitality, that’s less likely, but in lots of other industries, it’s outstanding.
And so, planning based off that is a massive debate, but if we look at things like different things like in Kedah know, trucks, you know, certain types of RVs off-road vehicles. Ay ay ay ay I, from what I understand boats and many other things during the summer because people were staying home and increase their consumption, vacation properties. You know, grocery businesses, or in many cases are stronger because people are buying from groceries instead of eating at restaurants and eating at home more or less. There are many, many spaces where we’ve seen you know, a big trend of people getting out of The big downtown core is in the cities and want to move to the suburbs or people they’re wanting to get into some of the resort areas that are booming. So there’s, there’s lots of it. And in many cases, I know Brandon was talking with us, like here, it’s like almost pandemonium. Its scarcity, like, I had a friend, and he needed to get a new truck. You know, he’s doing an important trip he was gonna do, he’s bought a lot of trucks from this one dealer over the years, they, you know, they bought 40 or 50 trucks off and he was like, I really need a truck and I need to buy one Monday, I got the cash. Let’s go. Guys, like don’t have any. No, I need a truck, your truck company, you’re a truck dealer. You sell trucks, you specialist trucks, I need to buy a truck.
Brad Giles 05:43
He’s like, Well,
Kevin Lawrence 05:45
anyways, this guy had to pull strings left, right and centre and find ways to get a truck. Now, this is like $100,000 pickup truck, you know, it’s a diesel, full load, Ford pickup on it in a cheap purchase. You know, it’s not a commodity purchase. And they were next to impossible and still are to get. So it’s, you know, in many cases, scarcity, and people will just take it and it builds this whole momentum of its own where you can’t happen. Same thing happening in real estate, there’s no supply. And you know, the demand is there, you know, interest rates get dropped, supply is tight, people sort of build, everything’s all of a sudden, everything sells.
Brad Giles 06:26
It’s the same here. And that’s really what’s prompted this conversation today like this, we’ve got some early-stage indicators that that things are happening and things might happen is as a result of that here. I saw something yesterday, if you’re if you go to a dealer to buy a jetski, in New South Wales, in Sydney, you have a wait, the first time they can order one or you can get deliveries October 2021. That’s today before we even you know, like and it’s just growing. It’s the same for caravans, like he said, boats. So many time with four-wheel drives, hot tub. So a lot of the recreational stuff, the money that people were spending on holidays has been diverted in into internal consumption where I don’t need to go away. And that’s kind of logical, it’s backed by enormous government stimulus. But yeah, there is a lot of money washing through the economy right now. And people are spending website developers, I’ve got clients in marketing and website development, you can’t get people for love nor money, you just they just simply out there. And you know, pay rises are in the 10s of 1000s. To keep people so yeah, it’s a real it’s, it’s not only the recreational equipment, it’s beginning to translate over to jobs as well, certainly here anyway.
Kevin Lawrence 08:05
Yes. And even we’re having a conversation today with someone who’s in the hiring business, we do you know, and we were discussing talent in the marketplace. And you know, what, what people are finding is that the best people, you know, aren’t as available in the market, the A players aren’t moving, they’re kind of, if they’ve got something good they’re holding on, it’s kind of like, you know, you’re locking down in the storm. And so it’s actually harder to get talent right now for many people than it has been, in fact, now, there are more people looking for jobs than there’s ever been. But they’re generally not in the segments, for a lot of our clients looking for, you know, managers and leaders and things like that, you know, in the hospitality segment, there are lots of people in the market that it could be some really good ones. But in other segments, you know, there’s a lot of people, but it’s harder to find that the cream of the crop, because many of them are just you know, working with what they have.
So there are lots of challenges. And there are opportunities, but the thing we’re talking about is a lot of people going crazy, the economy is booming in many, many segments. And you know, you were talking before about a quote that from Warren Buffett, as I recall, it is that when people are greedy, be fearful. And when people are fearful, be greedy. Now whether that’s attributed right to him or not, that’s something that stuck in my mind. And I think about him. Yeah. And, and right now, it’s like, you know, people are being greedy in the market is it’s pretty intense. So the question is, how do we go into 2021? Knowing all of this, you know, if we’re too fearful, we’ll be too conservative. If we’re too greedy, we could hurt ourselves and how do we find that right balance, of where we push and capitalize on opportunities? And and and yeah, and don’t, don’t push it so far, that we get ourselves in trouble. I was right before, right. How do we capitalize without capsizing the boat and that’s cuz that’s kind of the theme of today? I know it’s cheesy, little Canadian cheese there for you, you know from I agree, yeah. But you know, it’s
Brad Giles 10:06
like just put a bit of Canadian cheese over the top honour,
Kevin Lawrence 10:09
cheese never heard anybody might prefer to have some Wisconsin cheese because they’re known to have outstanding cheese. But I think Canadian cheese is decent actually, you know, Italians also make some great cheeses. But that’s a different title. Yeah,
Brad Giles 10:23
I’ll tell you, you know, people lose money in a downturn. And people lose money in the boom, right? I mean, where I live, we’re a mining-based economy, something at the moment, like 47% of the economy is, is coming from mining. And it goes up, and it goes down. And it’s just this terrible boom and bust economy. And one thing that we know, we don’t know much, right, but what we know is that you lose money on the down and you lose money on the up. And, and you lose money on the up. Because people become greedy because people want to scale. People pay over the market for things. And they become desperate and they get deal lost. And they don’t remember oftentimes the timeless principles that see businesses become successful, they get caught up in the euphoria of the moment. And if you want to build an enduring, great business, you need to maintain consistency and stability in the euphoria of the moment.
Kevin Lawrence 11:30
Yes, and it’s the discipline of growth, right, it’s being aggressive and conservative at the same time, and not losing your way. And people do get excited. And you know, there’s a rule of thumb I use with investments, you know, by the time you know, my parents, or a taxi cab driver starts to give you stock tips, you know, you’re in trouble when it gets quite predictable if you watch it. When cryptocurrencies really took off about two years ago, I remember one of the cryptocurrencies the main one hit about 20,000 bucks per unit, or whatever it is called the units. And I remember everybody was talking about it. And again, it was down to the point where the cab drivers were talking about it and giving you tips. And when cab drivers are giving you stock tips and finance tips, the markets normally about to meltdown. Yeah, that’s what happened with cryptocurrencies. And that was probably about two years ago when there was a big meltdown. And it was the hype. And that’s just way markets are because they’re psychological people get all hyped type typed, it boils over, it gets frothy, it’s a bit too much. And then something happens in the boom. So I’m not saying that we can predict it.
But it there’s a lot of indicators of the markets getting a little bit frothy and a little bit crazy. And we know markets go through cycles, I would never expect this kind of boom. In the middle of a pandemic. Yeah, right. Never. And there are people much smarter than us. I’m sure that may have but it doesn’t seem logical, but it seeming frothy. So but it could continue. You don’t know. So how do we do well, during this and we got some ideas to really help us to, to basically stay aggressive and opportunistic, and, and still maintaining some of those, some of those short term disciplines. So we don’t get in too much trouble, which we’ve been doing with our clients. So we’ve got, you know, seven different ideas that we’ve seen people doing that are good things to consider and hopefully can be helpful for some of you listening. You want to want to kick us off on number.
Brad Giles 13:32
Let’s do that. Yeah, thank you. So I guess the overarching concept is you’ve got to maintain long term discipline in the midst of the short term challenges. So the first one is that so like hell, right? If it’s a booming market, you’ve got to capitalize on it. But, and I really love this, we did an episode maybe about 10 or 15, maybe even 20 episodes ago about gross margin. It’s an awesome one. And we’re coming back now to that. So we should let the gross profit dollars, the gross profit dollars dictate our investment decisions. Now, what happens? I mean, I was in a meeting only yesterday and a quarterly planning meeting with a group and we’re saying Okay, so how do we, how do we predicted our next quarter in line with the longer-term goals that we’ve got of the business and all of the heads of the departments we’ve kind of got two different parts here but all the heads of departments like on a for people, I named six people and numbers are just being thrown around and I just kept coming back to so what is the budget tell us? What is the budget tell us and they go and you don’t understand which we’re too busy in this area. I’m like, Okay, we’ve got to have some kind of level of discipline. To hold this whole thing together, because otherwise, what we’ll find is we’ll go two or three months down the track, we’ve got 15 new employees. And suddenly we’re saying, why are we only making 1% profit or losing money? Like these happens all the time, right, affordable businesses become profitable in booms, she would use the
Kevin Lawrence 15:21
numbers to help you make your hiring decisions. But now I think you need to use a different formula. Yeah, because in the past, let’s say for every additional million dollars of gross profit, you would hire one more person than an overhead position, for example, right? million dollars of gross profit would be $100,000 of overhead, right? So that, you know, that’s, that’s 10% of gross profit. You know, that would be pretty lean, probably. But let’s just say it’s a lean overhead business. Yep. So let’s just say that was your trigger? Well, if you’re in turbulence, you might stretch that number to 150. Or you might wait two months to see if it sticks, so that you just don’t go higher by your normal hiring ratios, because it could fall just in many businesses, maybe not yours, but immediately can fall just as fast. And I, I remember the advice that stuck with me forever.
Unfortunately, this gentleman made a very bad college career-limiting mistake. He was one of Warren Buffett’s right hands, he was speaking at an event I was at, and I grabbed him on the way from his talk and picked his brain, you know, all the way out of the hotel to where he would when he was leaving, going back to the airport. Um, his name was David Sokol. And he ran a company called net jets, fractional aircraft ownership in the Berkshire Hathaway portfolio, he was in charge of turning it around. So he did a great talk. And I was picking his brain. And he connected me with a few other people to get some more information for some of my clients on their approach. He had a great discipline for managing execution. But one thing that he talked about is the thing he learned is you hire people when you get to 130% capacity, not 80.
Yeah, and many businesses pre-hire for growth. And you almost always get your fingers burned. Because if you hire when you get to 130, now you might be working the pipeline and getting but if you’re hiring, when you hit 130, get don’t burn your fingers. You don’t end up overstaffed or over overhead, because you’re always running lean, and he goes just, you know, work the system and, you know, be ready when you hit 130 to drop that person in. But don’t hire it at. And that same thinking I think would be excellent right now is how do you make sure your hirings at 130? over a two or three month period, pay your people some overtime? Give some extra bonus whatever you got to do to take care of people. Because in the past, you know, a lot of people would do hire an 80 or 90 and a good that gets you in trouble sooner or later.
Brad Giles 18:08
So I had a conversation. That was awesome. And don’t let me cut you off too much. The conversation that we’re having yesterday is we need to hire three marketing people so that we can create the leads so that the salespeople we can capitalize on the opportunity of the market. But we need discipline to underpin this like it’s you can’t just, you know that it does it doesn’t have
Kevin Lawrence 18:33
to do it all today, then we’re all impatient. But if you’re going to know if they have 47 marketing people that are already producing, and they have a system, and they want to hire three more awesome. But if they have one, and they want to hire three or two, and they want to hire three, that seems like could be getting ahead of yourself, maybe not.
Brad Giles 18:55
Yeah, and what’s it gonna do to your cash reserves? Like this is yes. And you know, growth sucks cash, if you let’s say you hire three marketing people, each of them are on 100,000 $100,000. Ah, it’s $300,000. How are you going to have you’re going to recoup that cash investment in the first year? Now, that’s some simple math. That may be too high. But the point is, what is what will your investment decisions do to your cash, so we’re considering your gross profit dollars as you grow? So we know there are opportunities. We want to bank that, but we want to capitalize on that. But we’ve got to also consider the cash reserves that we’ve got to pull out based on gross profit dollars as we’re bringing them in.
Kevin Lawrence 19:45
Yep. And there are businesses that hiring those three marketing people would be a no brainer because that’s like buying discounted dollars. It depends on the model. We’re not saying don’t do that. Yeah, we’re just saying you really got to think about these things. And just so you can be prepared. To make sure things produce and you have flexibility in the system number two, and then it’s
Brad Giles 20:06
time to close it at a hurry up and slow down. Exactly what advice that I’ve had before, just don’t get
Kevin Lawrence 20:15
ahead of yourself, make sure you can back up the bets you’re making. The second one is to be aggressive, by the back end up. l and I think this is this, it’ll fit into this one, but be aggressive and entrepreneurial. When you see medium-term demand you can fulfil. So if there is truly an opportunity, charge the mountain, go for it, chase it, you know, really go after one of our clients is booming, the most of any client we work with, and I can’t even tell you the numbers, but it’s unbelievable how they are thriving in this economy, they see another opportunity, they’re going to hire a bunch more people and aggressively chase after it. And their, their, their balance sheet can handle it, their income statement can handle it, they’re following that gross, you know, the gross profit model and just really maximize because what they’re saying is, you know, we want to continue to build our army because we’re building for two or three years down the road. Yeah, and right, now we have an opportunity, we can get more amazing people and have them winning because they are winning with a capital W, it’s setting us up beyond this, this pandemic, to be an even better company in three to five years. And they see how they can bridge that now there’s a bit of risk in it, they’ve calculated it, but they’re gonna be very aggressive on some other opportunities they can see that can take them beyond this. And, and but the difference is they’ve had to loosen processes a little bit. They’re running a little looser than they normally run to let the business be entrepreneurial, and capitalize on things.
Brad Giles 21:57
so think about an Olympic runner, aggressive with discipline, you know, or any kind of sportsperson. They’re aggressive with the discipline that that’s what Yeah, you know, that’s what we’re kind of saying it’s there. But bit aggressive without discipline is going to hurt a lot. There’s no doubt about it. So
Kevin Lawrence 22:22
let’s move on to number three. But before we do, though, oh, yeah, well, we’re doing it. Their flywheel is dialled in. And we know how we’re performing on different aspects of the firewall. And we’re investing around their flywheel their people, we do talent reviews every quarter. And the percentage of A players is climbing and climbing and climbing, which is one of the reasons why they’re killing it. Right. So there’s a boatload of discipline in behind the machine. And because we have those disciplines, we can push hard and take other risks. But if you don’t have those kinds of discipline, you know, they they have an outstanding team with excellent focus. And they, you know, it’s so it’s, it’s easier to be aggressive when you have those kinds of disciplines and systems. And yeah, all of the inner systems. Yeah, sorry. Go ahead, Brad. That hit us with number three,
Brad Giles 23:09
a beautiful segue. And my favourite, so it’s don’t accept mediocre people are only high players. They’re hard to find in any market, especially this market. So I want to take you back about a dozen years, maybe 12 or 13 years ago. Remember, I mentioned earlier that I live in a boom-bust economy 12 or 13 years ago was a boom, we’ve been in a bus for the last four or five years. But that was a boom, it was the mother of all booms. And what was happening, we were so short of labour, we would bring someone in for an interview would advertise, we actually get someone to turn up for an interview, they’d have the interview, let’s say for an hour or two. They’d go they’d turn on their phone as they walk out and you could hear their phone beeping with all of the voicemail messages from all of the other employers trying to ring them up.
This is not a place this is just people with a heartbeat, just people yes, people. And it speaks to you know, the challenge in a booming market. That’s an extreme example, but it’s almost like, you know, you throw money at them, you offer them salaries or wages that you feel incredibly uncomfortable with. And they don’t even bat an eyelid like it’s just it doesn’t even mean anything to them. Because the market is so hot because everybody’s doing the same thing. So that’s a that was then this is now but the overarching thing is don’t accept non-AI players. Now, what we did to counter that is we don’t do a long term strategy. And we said, we’ve got to get untrained people who like we always say, you should, we’ve got to get untrained people to come into to a four-year training program like an apprenticeship. People who fit our character that we’d get them literally from school, we’d have a work experience program, we brought them in, identify the right character, because we there was a large people off, there was a large group of people who were untrained in school where we could identify the right character. And we simply slowed down and took the long term approach to get the AI players and that paid off massively for us. But, you know, in this busy market, I’m already seeing lots of conversations about how hard it is to get people. So yep, don’t slow it out only except that AI plays. No, because then you build a house of cards,
Kevin Lawrence 25:54
you bring in the wrong person for the job, and you think you’re getting ahead, but you’re gonna fall down anyway because they won’t work out or they won’t love their job, or they won’t do good work, or they’ll be toxic, whatever it is. So it’s false progress. It’s, it’s, it’s not a great strategy, it’s always a great strategy to build your team with better people. Now, if you need to do something short term, you can outsource, you can use contracted labour for the short term if it’s not cored in your business, there’s other you know, you can take your, you know, one of the firms or people you work with, and get them to handle some of it. But yeah, hold on for people. And if you can’t get enough people, you probably need to say to some, notice some of those opportunities, because then your business will not deliver as expected. So
Brad Giles 26:42
because you don’t get to the other side, you don’t get to the other side of the boom, and then you’re left with a handful or a large portion of really mediocre people that got you through there. Like that, then you’ve got to kind of start from you know, let’s go back to number one, Jim Collins, you got to get the right people on the bus, then you’ve got to clean out your bus to start again. Like, Don’t let don’t get seduced by the growth opportunity. just slow down entry only accept
Kevin Lawrence 27:14
the pipeline that goes into that amazing quote that I had upfront Brad capitalise without capsizing the boat, you want to get to the other shore, you don’t want to end up upside down in the sea in the middle of your journey. That is a good fairy tale about that. Okay, let’s move on. Number four. Be careful of indigestion of opportunity. And that can either really hurt your business, ie your ability to deliver quality, or your or your team. Like there’s only so much like I was sharing with you, you know, we got a call today about a company that has a very challenging and urgent need. And, you know, I was talking with my team tonight on our weekly meeting about, you know, can we take this on? Because there’s work to start, like, this week or next week? You know, can we take this on and deliver to the quality that we need at our end? And to the satisfaction of a client, of course, we want to help, they really need help, and we can help them. But do we have the bandwidth to be able to deliver what they need when they want it? And, you know, when someone really needs help? And you know, you can do it? It’s easy to say yes. But sometimes you put yourself in a bad position as well. And, you know, it’s just, it’s hard. It’s hard to say no. And whether it’s because you really want to help people or because you know, you could make an extra couple million a profit, which is not in this case. But if it were in different business models, it could be the case of an extra couple million in profit, all kinds of other things. But then you can jeopardize what you have because you overburden the system, and the other side of it is or you’re overburdened your people, right, like people are tired, many people ready to need a break it and it’s Yeah, and, and it’s so it just is to be conscious of is there actual quality bandwidth to take those things on to deliver it to your standards. And if it’s not, then what’s your alternative?
Brad Giles 29:26
Well, people are already super, super tired. And if you’re going to take on a big project, if you’re going to take on you know, a large, a large growth opportunity, you’re just going to you’re going to put at risk the existing team, the existing players like there could be a really big hangover that results from that now, be aggressive with your growth but do be disciplined and push the team remember that 100 30% thing that we spoke about earlier, like, push them, don’t push them too hard, be conscious of what’s happening in the team. And the, I guess, you know that, yeah, people are excited by the opportunity for this growth people, people who love hiking already knew things worse. But I’ve seen, you know, there’s a saying profitable businesses go bust every day, because they run out of cash flow, you take on a big project, it could suck up all of your cash, and then suddenly, you’ve got a whole new problem to deal with, we think and you’re going to get a heap of profit at the end, but you run out of cash flow, so yeah,
Kevin Lawrence 30:44
becomes distracting. If it doesn’t go well. It can suck a bunch of leadership time to manage the problems, even if it does make the same amount of money. Or you would take on board a whole bunch of risk. And that can burden you or like, there are so many things that can get you and that’s why it’s staying in your sweet spot and knowing what you can do and deliver and not overdoing and getting too excited. You know, there’s a there’s that thing about you’ve seen the TV shows or the commercials where like, you know, the kids go into a candy store need too much candy? Yeah, you’re having a sugar hangover afterwards. And sometimes we can get caught up in that, you know, it’s, it’s indigestion have too much of a good thing.
Brad Giles 31:24
Yeah, it’s, you know, if you read enough business magazines or business websites, you know, what they talk about is the extraordinary, the really unusual? I mean, you know, we’ve got a list in Australia called the fast 100. What’s the fastest 100 growing companies, as many sorts of areas do what many countries and regions do? They write about companies that are doing things that are really unusual because they are really unusual? They’re not the norm. Like, I mean, always number four on that list in my company years ago. And that’s lovely to talk about. Right. But that doesn’t build an enduring great business. No, and they don’t write about, in fact, we saw an article this year about an amazing, enduring, long term, 1000-year-old business, but you very rarely see businesses that are enduring and great. They are more abnormal than normal.
Kevin Lawrence 32:27
Yes. Because the abnormal is more interesting, normally, because it’s dramatic and splashy, and it’s up and it’s down and makes noise and all this other stuff. And, yeah, that’s not consistent with building a great company, although it can be really fun on the way up, and a nightmare in a way down. Nightmare on the way down. So let’s move on. Yeah, the other piece of this is to be very nimble, and prepared for really fast decisions, if things all of a sudden tick up or take it down. Like you need to be on end. There’s two parts of that. It’s, you know, ability to make decisions like having the mechanisms, the information knowing you need to make a decision. And then psychologically, because there’s, there’s a principle called consistency of commitment, which Robert Cialdini talks about in his book and influence. And one of the things he talks about is, once you’ve said, you’re going to do something and you take steps in a certain direction, you generally want to continue. Yeah. Because you said you would, and you did, it’s almost like you’re starting to build a habit or then going down a road. Well, if you say that we’re going to achieve this, or we’re going to build this, and we’re going to do this, and then all of a sudden the environment changes, it takes some strong leadership, to kill, kill a project, to change a decision to go a different direction. And, and that’s because we generally want to follow our commitments, and we don’t, especially if we’ve already spent money, it’s called sunk cost. We’ve got sunk cost, and we feel the need to support it, but you got to fight yourself, and you got to fight your ego, and you got to fight the desire to be right. And you got to fight, you know, the desire to make it work. And that’s hard. And especially in a market like this, if things could change very quickly, one way or the other.
Brad Giles 34:26
And it’s very easy to get deal last to get enamoured by the market, you know, record profits, record growth rate, you know, there are so many things that are happening now. But the flip side of that, you know, let’s go to productive paranoia that Jim talks about Jim Collins. Okay, so we’ve got trade wars, we’ve got a pandemic. We’ve got the government’s interest. into eye-watering levels of debt, we’ve got interest rates at their lowest level ever like there are. So that’s just covering off the super top headlines. You know, they’re things can happen really, really quickly in such a volatile environment. Now, I’m not a pessimist, let’s be aggressive towards the opportunities, but you know, have a hair-trigger, be prepared to act because things can happen really quickly.
Kevin Lawrence 35:29
Yeah, I had a number of clients in the oil and gas space, and when it gets good, it gets really good. And when it gets bad that business almost falls off the face of the earth. Yeah, it’s incredible. And that’s why when they do well, in oil and gas, the profits are, can be excellent. I remember one entrepreneur I worked with, and he had been through a few different cycles. And when it was falling off the face of the earth in one cycle, you know, the mantra I was sharing with them is holding your net percentage, hold your net percentage, no cash goes back in, hold your profit, no cash goes back into the business. And, you know, I was, again, he managed to navigate through it and not fall to prey to his previous decision, which is very hard, because in that business, that’s what they do. You know, you have to almost be a little bit cold-hearted, because it’s such big swings. Yeah, you know, 600 employees one day, and you know, within a week, you can be down to 200 or 150. Like, it’s incredible how it can swing, so
Brad Giles 36:37
moves on to the next, which kind of leads into the next one. Number six says stay in the market or help say trends and opportunities. So you’ve got to, you’ve got to be prepared to move fast. But equally, you’ve got to be prepared to spend time either on the front line with front top freight with frontline customers and employees, knowing what’s happening, you’ve got to be absolutely ready. And there are meeting rhythms that help things like the daily huddle, things like our start-stop-keeps that we’ve spoken about before on this podcast. But you’ve got to stay absolutely in tune with what’s happening because things can turn on a dime. And things can happen really quickly so that you can make those changes. Yeah.
Kevin Lawrence 37:30
So and even on like on this and the previous one, there’s a CEO I was talking to today, fast decisions, you know, even just on the pandemic, purely on a pandemic, there was a couple cases that came up in one of the locations, and in a speed that will make most people’s head spin, they closed the location for three days had deep cleaning, like cleaning, like never gets done in a decade, of the whole place. And clear, right, like incredible cleanings, like it should be done. To the point that some people thought they were crazy, and it was unnecessary and everything. And, and, and, and, and also, but brings back confidence in the employees and the customers and doing the right things.
So that’s on the internal, but on the external, just staying abreast of what’s going on. And then the CEO was talking about how they spend a lot of time, you know, listening to podcasts and news and things to be plugged in on what’s going on with the vaccine? And what are the what’s the future of work look like? And a lot of energy does try and try and stay connected to what’s going on and in both strategically. But even in this specific business of where are the opportunities? What is the customer wanting and are needed? And you know what I’ve noticed with CEOs the thing that they have, they can see and sense things that other people can’t and same with excellent executives. Yeah, they can be in a conversation and they will ask questions that no one else would think of because they generally from their peer reviews see things and patterns that no one else sees. You know, a different CEO is on the phone with today it was today was a bunch of different calls. And another CEO was telling me what one of the questions they asked in a meeting with one of their most important customers. Now they were in the meeting. So substantial company, they’re in the meeting with a very important customer. But the question they asked was like insanely brilliant, which had a problem will have a notable impact. But if they hadn’t been there, the other people might not have seen it. And for them, it also gives them some intel, which led to a conversation we have to an action that we’re going to take that could be massive for the company. But if they hadn’t been in that meeting and they hadn’t asked the conversation that no one else would have had like all this a whole champions that comes from being really connected to what’s going on.
Brad Giles 40:02
It’s a volatile environment, on so many levels. And it’s great that there are opportunities. It’s great that it’s booming, but it’s a volatile environment, things can happen. And you want to be ready when those things do happen. You want to, you want to be one of the first people to know about it. Let’s put it that way. So yes, number seven, be prepared for a bust after the boom. So everything goes up, everything goes down there, there are long term trends. But if we’re saying that, that in many parts of the economy were observing booming conditions, one day, those booming conditions will change. And it will, it will not revert to that the long term means indefinitely, things will go up and things will go down. And so what happens to you and your business when things go down? Or put another way, there will be a hangover? Will you be prepared for that? Jim Collins,
Kevin Lawrence 41:05
will you have the aspirin and the extra water you need?
Brad Giles 41:09
Right? Or even better? Did you drink a lot of Yes, the night before?
Kevin Lawrence 41:14
Before you always forget that one. I always remember that one in the morning. And I always should have drunk more, especially if it’s red wine. Yes. So So yeah, how are you going to be prepared for that. And that’s that productive paranoia. That’s having a big fat balance sheet. You know, it’s just about it’s about being in a position where and all of the things be prepared, so that you can be ready to make those decisions. Lots of people have plan B’s.
Brad Giles 41:42
So when’s it gonna exam? When’s it gonna go down, someone might be thinking,
Kevin Lawrence 41:47
of course, they would be thinking, and that’s exceptionally hard to predict.
Brad Giles 41:52
We don’t know. But we know it will go down. And we know, when it goes down, you know what you’re going to want to, you’re gonna want to things you’re going to want to act quick. And you want to, you’re going to want to, I’m going to say that very impolite term, right size. And you want to have lots of cash to weather the storm, you know, in two years,
Kevin Lawrence 42:16
so last weekend, meet some friends up in the mountains, and we went this thing I shared before called snow biking, take a dirt bike, or offroad, motorcycle, put a snowmobile tried in the back, and a ski on the front, and away you go. But it’s funny because it was a couple of my friends are, you know, successful entrepreneurs. And like, we were all prepared for anything, like got backpacks for so we had extra gas. So we keep riding along time with extra gas, we had some tools at one point, something came up hard on mine, and we had to tighten it up. But we had some extra tools, shovels to dig ourselves out of the snow, a special SOS satellite radio, that if something happens, we can push a button and get instant help. But it’s like we’re prepared. We’re prepared for an emergency. Mm-hmm. And we’re fairly far back in the mountains. So it was all very smart. But it was interesting like we were all productive, paranoid, and all very prepared, like, oh, some would say over-prepared. But that’s the way we’re wired. And that shows up in our businesses as well. And it’s, you know, those extra oxygen canisters, and what would those be, you know, so that you no matter what happens, or in the inevitable event that something goes wrong? How are you going to be able just to go? Yep, okay, let’s just breeze through this and make the tough decisions. And it’ll all be good and don’t have to go into full-blown panic mode,
Brad Giles 43:45
which many people will, you know, there’s a there’s another Warren Buffett saying, when the tide goes out, you can see who isn’t wearing blinders. You know, and that’s, you know, that’s not who you want to be used if there is an opportunity. Now, maintain at all costs, your gross margin percentage, grow around gross margin dollars, add people around gross margin dollars, and then the byproduct of that it shouldn’t be to drain your balance sheet reserves, it should be to improve your balance sheet reserves. So if you think a month, six months, a year, two years into the future, how can you use this boom period if you’re experiencing one, and grow a stronger balance sheet?
Kevin Lawrence 44:41
Yes, and at the end of the day, the idea here is is as business people and business leaders, we want to make the most of what’s going on we want to help more customers and make better returns for the shareholders and create more bonus opportunities for employees or whatever it happens to be. So we want to really push on it. We just got to do it eyes wide. fully prepared and smart so that we can thrive and to go back to where we started. So that we can capitalize without capitalized cap without cap size Kappa capitalized without capsizing the boat.
Brad Giles 45:15
That’s some export-grade cheese from Canada. They’re awesome. All right, that’s great. So with that closing out on that export-grade Canadian cheese, let’s move to close. So quick review of what we’ve said, there’s a boom at the moment, okay, we’re certainly observing it. It may not be everywhere, let’s just take that as a given, but we’re certainly seeing enough of it and we feel obliged to talk about it. In booms, people go bust, people lose money, there is no guarantee whatsoever that you’re going to make, that your business will come out the other side better. So you need to apply discipline and consider the long term. So number one, sell like hell and get the gross profit dollars to drive your investment decisions. That’s one we’ve got to employ people or purchase equipment, based on discipline around our gross profit dollars and how they’re growing not just thinking that build at the end, I will come number to be aggressive and entrepreneurial, where we see medium-term demand that we can fulfil. So maintain, you’re aggressive in the midst of the other side of the coin, which is discipline. Number three, don’t accept mediocre people. Don’t take anybody with a heartbeat or even people who aren’t A players.
They are hard to find it’s harder in this environment. But you’ve got to find interesting tactics to be able to get them because it will hurt on the other side. The next one is don’t take on too much indigestion can hurt your business and hurt your people. We’ve got to be really conscious of taking on too much that we can cause structural damage to the people on the business. Five, be prepared for fast decisions, things will happen. And you’ve got to be ready to make big decisions really quickly, which plays into six which is knowing what’s happening. Keep your finger on the pulse, talk to employees at the frontline talk to customers get a deep understanding of what’s happening there. And then finally, number seven, there will be a downturn afterwards, everything that goes up goes down. So you need to maintain your oxygen canisters. As Jim Collins puts it, you need to be able to have cash reserves and be in a better position based upon the discipline.
Kevin Lawrence 47:53
Great summary, Brad.
Brad Giles 47:58
So, with that, thanks for listening. It’s been great to have you here. Hopefully from this, you’ve been able to gain a little bit of help to deal with this boom. I’m Brad Giles and as always joined by my co host, Kevin Lawrence, you can find me at evolution partners.com.au and you can find Kevin at Lawrenceandco.com. For the YouTube version, obviously go to YouTube to see the video. Thanks very much. Have a great week and we look forward to chatting again next week.
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