This week Brad and Kevin discuss the top 9 ways that people fail when scaling their business, and what you should do to avoid the pitfalls of scaling your business.
How teams fail when Scaling Up their business
Episode 48 – 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
Welcome to the growth whispers podcast where everything we talk about is related to helping leaders and their teams build enduring great companies, companies that last for generations, as Brad and I were just talking about before we started the show. So I’m Kevin Lawrence, and I’m here today joined by my awesome co host, Brad Giles, how are you doing today?
Brad Giles 00:39
Excellent. Very excited about today’s subject. I will tell you that but as always, as we have now, set the bar, we begin with a one phrase or one word opener. Yeah, that’s best practice that we’re suggesting for meetings. So Kevin, what’s your one word or one phrase opener for today? You know, I
Kevin Lawrence 01:03
was gonna say, giddy up. But then as I really thought about it, the phrase I say more often is hold on to your hat. Like, there’s a lot like our economy in Canada is booming. Our firm is in sane, like everyone is just you’re having a conversation today with all the opportunities that we have going on. And that we got to make sure we continue to do excellent work for our clients, and not letting things slip because it’s so busy in my personal life, there’s a lot of stuff going on. There’s lots of good things happening, but there’s a lot of them happening all at once. How about you, Brad? What’s yours? Well, not
Brad Giles 01:47
completely unrelated. Mine is interest rates. Not perhaps most exciting or very, so
Kevin Lawrence 01:55
that’s very close. Hold. Yeah.
Brad Giles 01:58
Well, you’re talking about growth. It’s maybe not as exciting as last week’s around big buts. Okay. But interest rates there with me. So how interest rates are at all time lows? Okay, who sets the interest rates? Well, we think it’s the Federal Reserve or the you know, the Federal Bank yet, but in actual fact, it’s the money market, right, which is motivated or driven by the bond market. So in November, the bond market price of cash was 0.8%. Two weeks ago is 1.2%. And on Friday, it was 2%. Yeah. Okay. So that equates to if the Fed sets, the interest rates based upon the on the cost of money that equates to five interest rate increases across four months. Right. So there’s
Kevin Lawrence 02:57
those increases or a quarter point, or I believe, right, yeah,
Brad Giles 03:01
yeah, so there is a lot happening in the bond market, which drives the cash rate, which drives, you know, ultimately, what we see. So if there’s that much, bubbling away there. So how that’s actually playing out, as an example, Tesla lost 25% of their value in the last month, because they’re profitable in the future, not profitable today. And this is how these interest rates are going to begin to play out. So I think that we’re seeing some very early stage, things happening around interest rates that I’m very cautious on. So that’s not really a one word open and like, giddy up, but it is just Yeah, I know. But that’s something that’s definitely on my mind is interest rates right now.
Kevin Lawrence 03:54
Yes. I myself as having locked in at a mortgage rate of 1.71. Recently, and very happy with that, seeing that things are climbing up again, which is I think, maybe why our real estate market is going insane, like and I know in the two places I spend the most time in Vancouver, and other new Okanagan, which we would call Kelowna. The markets are like frenetic, crazy. And there might I wonder if the concern about rates going up is adding to the demand in the market or adding to the urgency of the demand in the market. It’s so great, interesting opener. Let’s talk about what is what’s our topic today? What is the insight that we hope to share with our amazing listeners. And by the way, those of you listening? If you’ve got ideas or questions you want us to cover on the show, please share today’s show was inspired by a question that somebody else had that they wanted a discussion with their team about, but if you have ideas please let us know if things you’d like to see us cover on the growth whispers Go ahead, Brad, tell us what’s going on today.
Brad Giles 05:06
Yeah, so today’s topic, nine ways to fail when you’re scaling up your business, okay? So we see a lot of people who are doing an excellent job in trying to fail. They’re scaling up business, the business that they’re scaling that they’re growing successfully. So, yeah, we’re gonna dig into the different ways how to screw it up.
Kevin Lawrence 05:32
So that’s what our wisdom we’re gonna impart today is how to wreck your company, as it grows. And if you want advice on how to do it all wrong, and, and the wisdom of the conventional wisdom, the logic of the crowds or the or the bad ideas, we’re full of them today. And maybe you can take some insights from what we’re telling you and then translate that into what not to do. And, you know, if we’re really on it today, we might actually give you the what you should do instead of what you shouldn’t do. But let’s, let’s see how it goes to that.
Brad Giles 06:05
You never know your luck, you never know. All right, so let’s begin with number one. So the first thing that people do when they fail, or a great trigger to be able to fail is that people expect things to work. Because you liked the idea, or because the spreadsheet told you so
Kevin Lawrence 06:26
well, spreadsheets are always such an accurate predictor of success, aren’t they? What the numbers say in the spreadsheet? Like if you can, you know, because those spreadsheets are just they’re magical. You can make them say anything you want. So I guess that’s it’s like a little, a wish machine. I wish this business would make 50 million of EBITDA in the first two years. And your spreadsheet will show you how, that’s how it works, isn’t it?
Brad Giles 06:50
Yeah, so we good? Yeah. I might go and order my Aston Martin right now.
Kevin Lawrence 06:55
Exactly. You know, it’s interesting, because we see a lot of times is that we fall in love with ideas. And then we build spreadsheets to back up falling in love with ideas, I was on a call today, with a smart group that is trying to expand their product into a different market. It’s a game changing product, it’s awesome. I won’t get into the details, because they’re working on some strategic stuff. But someone to say, Well, this is you know, this is the size of the market. Here’s why we think they should, the market should use us. And this will be an amazing strategy for our business, it’ll increase our revenues. And it’s like, it’s the perfect solution.
And if you’re sitting listening to the call, you’re gonna go, Well, we got it, we’re gonna nail it with this. For the chance, that idea has about even though we’re in love with it, we still have a 10 or 15% chance of success from what we know today. Now we got to dig deep and figure it out. But just because it looks good, and it sounds good. Doesn’t mean it’s gonna work. And then we’re gonna try like, heck to make it work, we’re just gonna be so careful of falling in love with ideas, and rationalizing with numbers that are just based on fluff. We see it all the time. So even if you know, and you know that there’s a low, there’s a high love for the idea, but a low chance that it works, that you’re going to have to change it dramatically. It’s a healthy mindset to start in, versus, you know, being in fairy town tale land and expecting that these ideas will just come to life.
Brad Giles 08:32
Yeah, great businesses are born through a great execution. I mean, you know, the strategy, the idea is incredibly important. But the success comes from consistent, relentless execution of the boring basics. That’s where it’s born. So, you know, if we, the best example I see of this point, expecting things to work, because you like the idea is complete this sentence. We’re doing a startup, and we’re going to be the Uber of bicycle hire, we’re going to be the Uber of law, knowing of
Kevin Lawrence 09:13
Uber of microphones are going to be the Uber of lights are going to be the Uber of doors. We’re gonna be the Uber of keyboards. We’re like, it’s like everything.
Brad Giles 09:23
Yeah, that’s a good idea. Yeah. isn’t a reason it’s gonna work? No.
Kevin Lawrence 09:31
So on the positive side, and this is based on when I went and talked about entrepreneurship at my children’s Elementary School. There’s a model I went to try and go and explain to kids in a school system about entrepreneurship and what does it take, and I had a few minutes to figure it out. And I had interesting as a side note, encouraged them to do an entrepreneur fair, instead of a science fair. You know, the stem you know, science and all that stuff. gets lots of good attention, entrepreneurs and business doesn’t. So I helped to find a program or sponsor a program a friend told me about, about they instead of displaying the science project, they come up with a product.
They do market research, they do marketing, they do pricing, they do all this stuff. And they go and sell their wares in the school gymnasium. And it was a really cool program, they did it for many years. So when I went to go and talk to the kids, I came up with this talk, it was basically try, lose and learn. That’s business, your ideas never work. Like generally, your hypothesis normally changes dramatically. So it’s like, try something, you’re probably gonna lose a bunch of times. And then you learn something, you go back, try again, a little bit smarter than you still might lose. And you’ll learn something and then you try, then you lose them, you learn your trial, you lose, you learn. And then sooner or later, you end up winning. And so try lose and learn knowing that your hypothesis is likely failed. But approach it with enthusiasm, do your best work. If it doesn’t work, improve it, and keep on going. And you’ll progress and evolve your business. It’s constant iteration versus, you know, the spreadsheet coming to life beautifully.
Brad Giles 11:15
Yeah, absolutely. And every time you’re learning, you’re not going to do the thing that you did before. It goes without saying, but you’re stacking up the credibility, you’re stacking up out of the idea and refining and evolving that idea over time. So it’s the time in the game that matters and the times that you’re trying and learning. And again, it doesn’t mean that you need to be the Uber of keyboards, okay, it could be a lemonade stand going back to kids. But if we go back, you can’t expect the idea to work just because you liked it, it just doesn’t work that way.
Kevin Lawrence 11:59
It’s not so instead of, you know, expecting things to work out of the box, like you had a hypothesis hypothesized, or your spreadsheet formulized formula eyes, or whatever that word is, is it just do expect to try losing, learn, take your best idea, run with it, iterate like heck, until you succeed, that that’s a healthier mindset. And then you won’t be disappointed or deflated when it doesn’t work initially. So let’s go to number two. Hire your friends and expect them to grow with you. It’s a beautiful strategy. Yes, it’s easy to hire people close by Heck, you know, you could hire your own mother or your father or your you know, the people that are your cousins, you can hire and odds are, there’s gonna be some really good things initially. But if your business really scales, not everybody scales, and family businesses that favour the family, stay very small. You’ll need to do what’s good for the business. So I’m gonna, I’m gonna, you know, the rule that we the rule of thumb is, if you’re going to hire a family member or a friend, you need to tell me what the conversation looks like the day you’re gonna fire them. So before I push people out, if so, just tell me what it’s gonna sound like, and how you’re going to handle it when you do have to let them go. Because there’s a very high chance. And, and, and, and if the person is willing to do that and open to that, then that’s a starting point. Because it’s not pretty, especially when it’s friends and family. So if you’re, you know, you gotta be willing to let them go and also be prepared for it so that you don’t destroy your friendship with when your friend becomes an underperformer if they become an underperformer over time.
Brad Giles 13:48
Well, it goes against the overarching principle, which is, you need to get the best possible person in every role every time now, we’re saying,
Kevin Lawrence 14:01
well, you don’t get the closest person or the person.
Brad Giles 14:05
Oh, yeah, but it’s convenient. I know them. that’s that’s the point. Right? And that’s the thing that we hear, but I trust them, right, I know it’s a good, this is a good person, and I trust them. Like, I don’t trust someone who comes in from the outside. It doesn’t matter, I okay, because a month will pass a quarter a year, and this person will be just a pile of the furniture. And that’s when the problems will begin to arise because you haven’t taken the time to hire like you’ve got to get someone who’s in the top 90%. Top 10% of candidates at the pay level you offer which means casting a wide net.
Kevin Lawrence 14:53
Yeah, and we’re not saying don’t have higher your family or friends. It’s just a really dangerous strategy. Because if you have Have someone on your team, and it’s all business and something doesn’t work out, and you have to change their role, demote them, let them go. It’s not fun. But it’s just business. Even though you have a relationship, it’s easier. It’s your cousin, your sister, your mother that saw. That’s, that’s hard. That’s really, really hard. And you know, if it’s working for you, congratulations. It’s just it’s a very dangerous, one of the best ones is, you know, it’s like if the spouse, right, you know, the spouse of the owner is involved in the business, the owner loves it, because their spouse can see a lot of things and be on top of it. It just, you know, and again, I’ve seen it work really well.
Brad Giles 15:41
I’ve been guilty in this area. I’m, I’m not too ashamed to admit. And yeah, just thinking, looking at a person that I knew thinking they had great character, and I can remember someone saying to me, this was to bring them on as a business partner. So I’d started a business and it was going well, and I thought, Oh, I should bring this person in, because they’d be a great character to have in the business. And that means that I could have holidays, that’d be a great idea. And I trust them. And I remember someone saying to me, Look, a business partnership needs to be stronger than a marriage. Okay. And that’s a good one. Yeah, and backing that up with the only this is what I subsequently learned, the hard way, is that a partnership is the only ship that’s built to sink, which is not true every single time. But if you go in thinking about that, then you can, as you said, think about an exit clause. Now, we’re not talking about necessarily partnerships here. But I really learned the hard way by not casting a wide net, which is one of the reasons I’m so passionate, and this person got, I’m going to say a maybe 18 months to two years into the business, and then it was time, you know, one day this person just comes up and says, Look, I just don’t want to be part of this business. So then we had to negotiate an exit for that person. So it didn’t work out.
Kevin Lawrence 17:20
was one of the ways I heard on that, Brad, is that a partnership is a marriage based only on money. Yeah, right, which is also this is all look, here’s the thing, partnerships can work out. Well, I have seen couples work well in business. Yeah, right. I have. And I’ve seen, you know, one of the partners be the CEO of the business, and one of them and the other partner, two or three layers down in a business, I’ve seen them work side by side, I’ve seen all those things. It’s just, it isn’t for the faint of heart, because you need to make tough performance-based decisions for them like anyone else. And if you’re not comfortable with that, don’t put yourself or those other people you care about in a bad position. So the outcome that we’re trying to get to and as you already called out, Brad, is that you’re aiming to get 90% of the best top people in those key most important jobs in your company 90% of people being in that top 10% like really stacking the deck with people that are naturally good at their jobs. And if you are willing to make tough calls with your friends and family, great. But if you’re a little bit soft and gentle and not comfortable though it’s a really dangerous thing. And I’ve seen it in a bunch of companies, either we had to make a change, or the guarantee of the company wasn’t going to go somewhere.
Brad Giles 18:42
Okay, so let’s move on to number three. The third reason, another great idea why companies fail when trying to scale, thinking that having a better idea is a competitive advantage, thinking that having a better idea is a competitive advantage. Perhaps that’s sustainable. So this comes back to the risk around ideas. Ideas are great creativity is amazing. And it’s what seems so many, many entrepreneurs be successful over time. But just having a better idea is not necessarily a competitive advantage. It’s especially if it’s not solving a problem that a customer has, and is willing to pay more money for or to devote more of their income to you for.
Kevin Lawrence 19:41
Yeah, and it was told to me one point earlier my career is that, you know, ideas, great ideas are a dime a dozen.
Brad Giles 19:49
Kevin Lawrence 19:50
The idea is not the hard part. It’s successful companies aren’t a breakthrough idea. Normally, they take an existing idea. executed slightly different and slightly better than there are some innovative companies. But the idea is not the value, the ability to execute it and bring it to market in a way where people are constantly happy with it is the value. And, you know, it’s unfortunate that the ideas are not near as valuable as I thought they were when I got into business, you know, a few decades ago, although ideas are good. But getting back to what you said, Brad, it’s how do you make sure that you’re completely solving a customer’s need? Sometimes that need isn’t even practical. Sometimes it’s purely an emotional need, right? Like, why in the world of fashion, are there $50,000 handbags. Now they’re beautiful. And I did a lot of work in the luxury industry with some of the top luxury brands in the world through one of my clients. And I mean, some of these luxury goods, these, these handbags, and these things are stunning.
They’re made of the best materials, and they’re beautifully designed and of course, displayed. You’re not meeting the need to carry stuff around 450 grant? No, no, wait, that’s a whole different set of needs. And there is a need, I worked a lot in that there is a need for $50,000 handbags, or, you know, in a world that I like to play in cars, there is a need for three and four and $5 million cars, you’re not solving transportation, right? And you’re not solving competing on the racetrack because those things are too expensive to race. So, again, doesn’t really matter what it is, but they’re you know, really getting down to is there a true need you’re solving? And then can you execute on delivering on that need consistently? Where people trust it? And then ideally, want more and tell their friends as well?
Brad Giles 22:00
Yeah, yeah. So if you have a good idea, that’s great. But the real question is, can we execute it consistently focusing on the boring basics over a long time, to the level of success to which we aspire? Because just having the idea again, I totally agree, they’re a dime a dozen. And, and in fact, much of what we struggle with in strategic planning sessions is getting rid of those dozens of ideas and stealing it down to the kind of the one that we can successfully execute on given our core competencies.
Kevin Lawrence 22:40
Exactly. And that’s a very good point, Brad. So ideas are wonderful we like them, is the ability to execute them and bring value to our customer. That is the key. And so don’t get too worried about this, by the way. It’s also a big myth in business, that ideas and innovation when the most, the most, the most successful companies usually are not the most innovative. And they’re usually not the first to market. A lot of people think being first to markets an advantage. No, it’s a fool’s game. The first to market usually loses it’s usually the second or third, the first mover advantage is the phrase people like throw, but it’s not an advantage. You got to spend way more money trying to figure the market out where other people follow your path and then beat you at your own game. Generally, that’s what happens most often.
Brad Giles 23:28
Well, it might be an advantage in one select area, but it probably doesn’t apply to you. Now. One select area might mean what I mean is what? Well, we were the first ones to take out the best lease in this retail mall. Okay, right. So it yeah, it may work in some select applications, but it’s not a universal rule. And I absolutely agree. It’s much better to iterate and execute better.
Kevin Lawrence 23:57
Yes, I will say though, there is one move in when malls were really critical to business, which there are many of them aren’t as anymore. But you know, one company that I worked with, being the first one in the mall was a massive competitive advantage, because they put a clause in saying they got to approve or veto the other retailers that came into the mall. Yeah, they took a big enough position. And they had a period of years where they got to choose their competition. Now that is an advantage. That is a that’s not a first mover advantage. That’s a locking up the market and strategically choosing your competitors advantage, which is was absolutely brilliant. Yeah. All right. So So the point here is is that you know, having a better idea is not enough. You need to solve a real problem and execute relentlessly to show value to the customer that you can solve that problem, whether it’s a practical need, or you know, a $50,000 handbag so it is about distinction. differentiation and making people feel, you know, important or whatever that happens to be, or just having a good thing to talk about at a dinner party when you’re allowed to have dinner parties. Yeah. All right, well, let’s go to number four. This one is a big doozy. And it gets people into a lot of control. It’s thinking that keeping an eye on the numbers is the accountants job.
Brad Giles 25:27
Yeah, isn’t that interesting? So we run out of cash. And we didn’t know why. We thought that the accountant was looking at the cash flow. Because we were out there doing the important work, or we were out there skiing on the slopes, or playing golf or something else, we thought that the accountant was looking after the cash, or any other number of potential situations where you think that someone else is looking after the numbers. Now, I absolutely believe in accountability, don’t get me wrong, but if we leave people to be accountable for something, and there is never any one else, especially you, especially the leader, the CEO, whoever it is, who was across the numbers, at the very least, or having discussions about key numbers, that’s a great way to file.
Kevin Lawrence 26:33
It’s almost a guaranteed way to fail, because everyone needs someone to help hold them accountable. And that’s why if you look at some of the most sophisticated financial organizations, like, you know, private equity firms, or you know, experienced boards, they want to see their financials in detail. And actually, they want them to be audited, even if they’re not public. And it’s not required by law, they want them to be audited to know that it’s been dug into and the numbers are, right. So business is a numbers game. And I’ll give you an example. So I could ask more. But I’ve only asked you, by the way, we could talk about all the examples of people having rude Wake Up Calls that Oh, shoot, um, we need, we need $4 million tomorrow, because we ran out of cash, and we otherwise we can’t do payroll, and we can’t make a loan payment. When this happens, or it’s, you know, all of a sudden, they get their financials at the end of the year, and there’s no profit, you’re supposed to make $5 million, and it’s gone. Again, real scenarios I’ve seen or, oh, we’re gonna have to get a cash injection of $10 million. Maybe we’re gonna have to sell the business because we’re running out of money. And we don’t know what’s going wrong. That was because someone negotiated an amazing discount on their biggest raw material. Oh, but they were discounted at something. They got a discount of 4% on a $50 million spend, which is a $2 million profit increase. Ah, but they had to pay early to get it. Yeah, went from 60 day terms to 15-day terms, oh, which sucked over $6 million into their bank account, which was their normal balance, and almost put the company into financial ruin because they got a better discount on the raw material. And they didn’t think about the impact on cash until there wasn’t any. That was a fun one. I just the CEO, the CEO, awesome guy calls me says Kevin, I don’t know what’s going on. I’m in trouble. Because it goes I’m flying to go meet some private equity guys. I need cash. I know what’s going on. I don’t know. I said, Get your CFO to send me some cash conversion stuff. And some reporting I asked for I get it. It’s garbage. The dude flies in. I was in Chicago said look, you can meet me in Chicago. awesome guy. He puts us up with a Trump hotel, which is a spectacular Hotel in these. The biggest hotel suite is the second biggest hotels we have ever stayed in. And he comes in we start talking he flies in on his own private jet his drivers waiting for him as we’re having our meeting figuring this out for a couple hours. I had to break it to them that is 4% discount almost killed this company. And a CFO couldn’t give me the answer. just crazy town and it was we got it fixed turnout will be all good. He went on to be wildly successful. The point of it is it’s not just you know the accountants job you need to understand this stuff. Yeah, it’s, it’s absolutely critical. And so I’m going back to there’s all the bad stories. But you know, I asked two entrepreneurs, one that built a massive empire in China, one that built a massive Empire in the Middle East. I said, Hey, you know, if you were to start again, who would be your first hire? they both said the identical thing. They didn’t say bookkeeper. They didn’t say accountant said CFO. Yeah, absolutely. A CFO would be and I go, Why? Because they oppose it’s a numbers game. They don’t, because they’re strategic and driven people. But I need someone to not only deal with the banks and the cash, but to be on the numbers, because it’s a numbers game.
Brad Giles 30:16
Until you’ve had a good CFO, and I work with some good CFOs. And I’ve worked with some less than good CFOs. Yeah, until you’ve been in the room with a god CFO, you just don’t know what you don’t know. And you don’t know just how good and valuable they can be. There are a lot of people, and I don’t mean to disrespect anyone, but there are a lot of people who claim to be CFOs, but they’re really an accountant. And they’re not providing the level of insight that we need. Great. We started this part of the conversation, saying that think that reviewing and keeping an eye on the numbers is the accountants job. So a great test, I find is when we begin to look at the cash flow forecast, beyond let’s say, 30 or 60 days, once we begin to say, okay, so you’ve got your aged debtors and your aged receivables. And once we age payables pardon me and once we begin to merge those into an Excel spreadsheet, we can get an actual real idea of what’s happening in the business. Sometimes when you ask them to go beyond that, say, Okay, well, can we do in the next six months or the next year, the next three years? They just look at you with a kind of a puzzle.
Kevin Lawrence 31:44
deer in the headlights? They have no clue,
Brad Giles 31:47
no idea at all? And that’s a great indication as to just what are they bringing to the table? And, and are we going to be able to, to trust this person to be able, you know, to avoid a situation like that. Otherwise, they just doing data entry.
Kevin Lawrence 32:12
Brad, you nailed it, I think we could do a whole show on just amazing CFOs. It’s a it’s such a magical role when it’s filled properly. And I’ve got one I don’t want to name this person. And I won’t say male or female. But this person is outstanding, the insights they give, how they work with the team, how they work with the bank, just it’s a gift. And normally the best ones have had training somewhere in a bigger machine where they’ve been through the wringer and ground up like crazy and come out strong. Yeah, like they have the financial models and a way of looking at the business. Yeah, it’s, it’s a critical partner. This is not a show about CFOs. But man, the best ones I’ve worked with are magic. And I call it the strategic CFO. Otherwise, you have what we call herself, a VP of finance or a controller, you know, in some game, when they just make sure your numbers are good, and numbers are tight. That’s closer to a controller. But the strategic CFO is helps you with thinking things through the right hand to the CEO.
They’re just the magic, and we’ve got some amazing ones in the companies we work with. And just love them. Love. Yeah, yeah, by the way, my, in my view, and one of the groups, I work with an advisory board, you know, if I really want to understand what’s going on in the business, I asked the finance team, even the guys under the CFO, who are also amazing. They know the nuts and the bolts and everything, like they’re in it. And if I want an opinion and if I want Okay, and I love to ask them Hey, guys, so what do you love them? So where’s the sales number gonna end? They’re normally right. I know the salespeople want to give you the optimistic number. The operations people sometimes can be pessimistic depending on the company, these finance people, they nail it. So anyways, the point of it is, is that we got to be connected to the numbers. And if you’re not a numbers person in a leadership position, there’s a course called finance for non finance numbers, not finance for non finance,
Brad Giles 34:21
non financial people, something like that. Thank you. That’s enough. All right. So close that move on, we should close it when our trust and verify Okay, so how to break your business. Don’t give, don’t completely trust you need to trust plus, verify what the people are saying. Validate make sure that you can prove it. But this kind of moves on to a little bit onto our next one. Number five and GE I love this one. believe that a lower price will give you a sustained competitive advantage. So you and I did a podcast about gross margin. It was episode When t 21, I think about gross margin one of our, one of our most downloaded episodes, really, yeah, really dug into why our gross margin matters. And that’s kind of an interesting one to overlay here. So, if we can do it cheaper, then we will be able to succeed in the long term. And they look at Amazon, and they say, but Amazon does it. Like you look at the Amazon flywheel and the Amazon strategy, and they provide lower prices. And that’s how they succeed. And you know, what, if we can just win more work, if we can sell more products? Yeah, then we’ll be successful. Over the long term,
Kevin Lawrence 35:43
nine and a half, or 9.9 times out of 10. When people are having a conversation and lower price is their strategy for competitive advantage. They’re just dropping their pants and discounting to get the business because they have no strategy. Yeah, Amazon is different. Amazon, the lower price is a part of a whole other chain of events, that gives advantage. And Walmart even had a lower price was part of moral market strategy, not the complete strategy. But there’s a few excellent cases. But for a lot of companies, when leaders start talking about lower price and advantages, because they don’t know what else to do. And they don’t have a clear enough value prop. So I want to know if there are cases where low price works. Not lowest, but low.
Brad Giles 36:36
What we’ve got to be aware of is that Amazon are not providing you with a cheaper price. They’re providing you with someone else’s cheaper price, right? So when it’s a big risk to look at a model like that, and then say, Oh, we need to drive a lower, we need to sell lower and cut our gross margin, right. But when you look at let’s say, a Costco, let’s say, a Walmart, that, you know, yes, they’ve got low overhead. But what they’re doing is using their supply chain, just like Amazon to a degree to make sure that the suppliers get you the product as cheaply as possible. So their gross margins are actually not too bad. But the suppliers is her there scrolling down. And if you’re a midsize business, you’re not necessarily going to be able to do that.
Kevin Lawrence 37:30
Yes, and truly, Amazon’s prices aren’t necessarily the lowest. Some low prices, but a lot of their stuff, you’re actually paying for convenience. So the point of it is where this is not about a pricing strategy. The point is, most conversations when we start getting to Yes, about lowering prices, it’s because we haven’t put the time or energy or the brainpower into finding a real competitive advantage, which is normally beyond price. Because the funniest thing is an all the research, pricing in the customers criteria for choosing many things. Most things people purchase, pricing is like number seven or eight. Yeah, it’s not in we have is perception of pricing is more important than it is. And because if it was, every single thing within your home would be the cheapest possible version. And it’s usually not. Yes, it might be one of them carrier. So pricing is just a generally a focus on over focus on low pricing. And sometimes it’s just an absence of competitive strategy.
Brad Giles 38:38
One of the questions that I asked when we build a strategy is we’re kind of validating or stress testing, and I say, Okay, so we’ve come up with this strategy. So do you think in like three years time, if we successfully executed this strategy, that we’d be able to increase our gross margin by I don’t know, three to 5%. So from Yes, there you go. 47 to 52%. Do you think that is the kind of effect and if it’s not a good strategy, oftentimes, they’ll be like, Well, no, not at all. There’s no way that will connect with that. So this really closes out what we’re saying here, which is a lower price indicates a lack of strategic thinking, planning, and value proposition or the advantage that we’re talking about here.
Kevin Lawrence 39:26
Yeah, and we’re not saying people are bad, they’re just figuring out how to sell what you’re doing. Based on other needs rather than price. It just takes more work sometimes, and some people are really good at it. But low price is not a great place to start. Although it works in a very few cases. Usually at massive scale, and there’s a great quote I heard his reviewing this morning. You know, if you can’t control pricing, then control cost but the variable, ideally for a lot of companies is to control pricing. You always have to control costs. But if you can’t control pricing, your only option is to control costs to manage your profits. Okay? So let’s go to number six. And I love this. And this is for the, the lovely people in our world that loves to give people freedom, and choices and make up their own choices of which I’m one of those people. I love people that have their own choices. But, you know, it’s, it’s believing that people can thrive without management.
Brad Giles 40:30
Kevin Lawrence 40:30
And here’s the thing. People want to give people freedom and autonomy, because they had a micromanager boss that sat on their head all the time. And when I start my own business, I’m not going to be a jerk like that. And so they give people all this autonomy. Sometimes the same thing shows up in parenting usually doesn’t work so well. And what we found in years, everybody needs a boss, everybody, even the CEOs need a boss, we’re not the boss of the CEO is that we work with, but we do hold them accountable, reviewing with one CEO today reviewing their goals for the quarter. How did you do on your stated goals? Okay, what are you going to do better next quarter, and now they’ll reset their goals. So I’m not the boss, but I am holding them accountable and creating positive tension, positive tension that drives their thinking and makes them smarter and more effective, and usually helps them to grow their performance.
Brad Giles 41:32
Yeah, the role that we play as advisors and coaches with CEOs is different, but it’s still it still turns the same accountability mechanism. I mean, you know, there’s a there’s an old saying every successful sports person has a coach, like there’s no one who’s successful been successful in that arena. And sports and business. You know, there is some, there are some comparisons, not many. But when we come back to what you there’s, that’s what I’m here, there’s quite a few but not every single one connects over. Yes, point. Yes. So the point being that the work that we do is important. But what we’re saying here is that as the leader, how do you file in your company? Well, you don’t, you don’t enact a management structure. Everybody needs accountability, you know, the without accountability, a great way to look at this is sales people. Okay? So you take a standard sales team, without a sales manager, let’s say you got 510 1520 people without a sales manager, those people will be nowhere near as effective as they do with a sales manager, who’s going to train coach hire, hold them accountable, all of those things. That just it’s even just to pump up their toys and say, What are you going to what’s going to happen at that meeting, all of those
Kevin Lawrence 42:58
drive their focus, it’s like a herding cat reminding people, like we have our weekly meeting every week with our team. And we’re just one of the things we do is remind ourself of what our darn goals were. So we don’t forget, just, yeah, focus, and it’s not cracking, cracking a whip or yelling and screaming at people, it’s just getting people focused on what matters.
Brad Giles 43:18
There’s been a lot of companies that have tried to operate without management, Eg Google and Zappos come to mind straightaway. And it’s been proven that it you know, it’s there for a reason. Now, it needs to be tailored to your business. But management is so important to hold people accountable, and they get them focused in the right areas.
Kevin Lawrence 43:40
And that’s a really critical focus goals, KPIs, feedback, whatever it happens to be. And then conversations that link back to that and allowing them to succeed based on those things. So it’s focused, it’s almost like you know, if you ever go play bowling, there’s that there’s, there’s a lane, and there’s a gutter on the edge to catch stuff. So things don’t go off in the wrong directions.
Brad Giles 44:04
This one is really leading into number seven, the seventh way that we’ve identified how to add a file when you scale thinking that giving people freedom and the creative space to do things their way is the path to greatness. So the previous one was saying that people believing that people can thrive without management, but here actually thinking that if we just give people you know, a free space, if we give them the creativeness they will just naturally become cause the business to be great. If we give them a ping pong table, if we get let them work, you know, on their own stuff whenever they want. There is no reason that this is going to make you succeed. In fact, it’s probably gonna give you a better chance of failure.
Kevin Lawrence 44:55
Yep, I agree. And again, all seems logical, and we have these aspirations but the core focus on goals and what matters and then discipline over time really delivers. That is critical.
Brad Giles 45:10
Yeah, so we definitely want people to be creative. But it’s the routine of the discipline that sets you free once we establish the routine of the discipline. That’s where we have our, our planned creativeness within that not just, let’s let everything go and see what happens because something magical will come out of it. Yeah, and
Kevin Lawrence 45:38
I remember reading an amazing book that went back and studied some of the greatest artists in history. Do you think that artists are inspired and creative and wait for the moment? Not the successful ones. Those are the floundering ones, the successful ones had strict routines. I must write 1000 words a day, I must paint four hours a day as you went through that almost obsessive rituals and routines they had with daily production goals for the best artists. Yeah. So all this fallacy we have around too much flexibility and freedom and do it as you feel like no, it’s generally discipline. Okay. Now, a little charisma doesn’t hurt. And confidence doesn’t hurt actually. It’s a great catalyst to get you kicked off a little charisma and confidence people buy your story and sign up for what you’re doing. You know, little truth-stretching sometimes happen when peoples have startups and they gotta they gotta try and bridge some gaps. But unfortunately, it’s also what will kill you and destroy your business. Because with confidence, and building confidence, easily, arrogance, and hubris starts to creep in the problem, they have what they called up.
Brad Giles 47:11
to me, to me, they have what they call
Kevin Lawrence 47:14
they have down in Texas, this thing that they call that starts to happen. It’s called big hat. No cattle, meaning the guy might have the biggest hat in town, but he’s got the smallest ranch and the fewest head of cattle. ie when the ego when that confidence turns to arrogance, and you start to think you can walk on water or the ego starts to play out so much. That, you know, you’re all we call all show no go. Right. And it’s real, real, real dangerous, that that really starts to blow up on you.
Brad Giles 47:54
We’ve got a saying here, which is the fish rots from the head down. And yeah, so the leader needs to set the pipe. The problem here, right is that the business media loves someone to write a story about like a big personality, they love
Kevin Lawrence 48:13
the executive, the big bold guy that you know, the guy or the guy or gal that looks like a model in a magazine and has a great accent or, you know, whatever it is these characters, by the way, the character those characters also love the media and the press. Yes, sorry, Brad, we both getting excited about this one.
Brad Giles 48:42
And, and so I think that what you’re gonna say is that they work together and the charisma and the confidence that we see in them in the business media, right, which could be in any of its forms, they love talking about these people, which means that it occupies so much of the stories that we see. And therefore many leaders think, Well, we’ve got to be like these, these people, the ones that they always write about, but it’s not necessarily the way in fact, if that if you believe that it’s your charisma and confidence, that’s what you need to win. That’s a great way to fail. A great way to fail.
Kevin Lawrence 49:21
Yes, especiallyif you start believing your own press, you know, I have a lot of conversations, by the way, the best. Many of the many excellent CEOs I work with, you will never hear about in the press. They don’t want it. They’re just trying to build an amazing company. They don’t do it unless there’s a huge marketing driver to their business. It’s, you know, one of the CEOs I work with in Canada, they’re very prominent and well known. I’m not going to say any details, but because of their age, and a few other things about them. Everybody wants them to speak at events, put them on important committees and all kinds of other things and they’ve built an outstanding business. But we had a Conversation with it because they were getting pulled away from their business. And we had this conversation well, sounds like it’s really good for your ego.
So if you want to feel better about yourself, you should do it. But I said, but let’s talk about how do we know that it’s good for your business. And we came up with a simple criteria. If it helps to drive sales, or it helps to attract talent, they should speak at that event. Otherwise, it’s ego fulfilling. Yeah, probably a bad idea, they got a business to run. And if they get excited about speaking to the Association of executives of blah, blah, blah, look at. And if you did that, you know, once or twice in a year and want to be involved and get back to a community or something. There’s nothing wrong with it. But not to get on the speaking tour, or get on these all these other committees or other things. Because if it doesn’t drive sales, and it doesn’t drive attract talent, why else would you do it? Oh, feed your ego. Now. Yeah, you know, a little bit might be okay, but when you get successful, and you start getting on this program, more and more people want you and it’s just dangerous, and some people really want that. But it’s, you know, if you have discretionary energy, if you need to go towards your family, your health or your business, generally. And those other things can be a trap, unless there’s another strategy, you know, unless you’re a lobbyist or something else, and there’s another strategy going on.
Brad Giles 51:28
He bursts kills, he does kill, you gotta
Kevin Lawrence 51:32
stay humble and hungry. It does like crazy. Because you know, and that’s why, you know, even on our meetings, we always talk about what’s wrong, what’s not going well, we talk about the positives. We talk about the ugliest issues, we can excavate. One, it keeps us humble. And until we fix the real issues, we don’t buy our own press. And that’s why that’s the danger of getting caught up and the CEO getting on the speaking tour and a lot of this other stuff.
Brad Giles 52:00
So let’s move on to number nine, last one, safe joining painful meetings and don’t bother taking the time to meet. Okay, so what are we saying here? Look, I know that
the meetings are painful.
Brad Giles 52:12
Yeah. Like, do you reckon that we could skip this week? Yeah. Do you reckon maybe, what are we if we just go fortnightly rather than weekly? Or? This is my favorite? Yeah, look, we wanted to get it done in half an hour. So we set the agenda to half an hour, but we’d probably like we find it’s not that effective. In other words, it’s a the weekly meeting should be one to two hours, depending on a whole range of factors. Do you reckon we could do it like in half an hour, because I’m busy doing lots of other things. So one way to fail is to not dedicated them the time that’s necessary. Now, it can be said, I’ve heard it said and I love this saying I’ve been using it quite a bit lately, that the CEO has only one tool, right? Doctor has many, many tools. Carpenter has a toolbox full of tools. But CEO has only one tool, and that tool is the meeting. Okay, so having effective meetings is the greatest impact that a CEO can drive. And so if you’re going to a meeting is leading. Yeah, Ting is leading.
Kevin Lawrence 53:25
I agree. And it’s like, but many people, why do they not want to have the meetings, because they’re not well run. But in an ideal, many companies will do a daily meeting, but for sure, a couple hours a week, you know, even well, three or four hours a month, a day or two a quarter, 234 days a year to reset it. It keeps people focused. And it keeps the team bonding and building strategic debates, and making sure that your company deals with the most important stuff. And it takes time. And when companies stop, I’m looking at Brad, we go into companies all the time that are underperforming or under maximized, let’s say, Yeah, what do we do? Well, most of the things on this list, but the meetings are critical, and normally, they’re a mess. That’s why years, sometimes decades later, they still have us run their meetings, they’re important high value meetings, because it’s kind of hard to do from the inside, like, and running meetings is a real skill and discipline. Yeah, that most people don’t have, and they’re doing their best.
They just haven’t had a lot of good training and doing it. So basically, you know, would almost be like, you know, if you wanted to raise your kids and you thought you’d save time by not talking to them, you know, it’s like, it doesn’t make any sense. And yes, you could send your kids to school for 27 minutes a day you absolutely can. The whole point of that might not be so good. But that’s Key with a lot of this stuff is that you’re not having the critical meetings, you need one or two days, every quarter, three, four days every year, you need that time to debate and work through critical issues. Alright, so that was number nine. So let’s, let’s review. Number one, these are all and I wrote down what you said here, but how to fail when you scale was kind of our theme for today beautifully said. So expect things to work out because the idea sounded awesome or the spreadsheet looked amazing. And that’s setting yourself up to fail, you know, you’re gonna have to try lose and learn, you’re gonna have to iterate, to hire your friends and expect them to stay with you forever and to grow with you. If you’re gonna hire a friend, you need to be willing to fire a friend, or family member.
And because we want to make sure that we have outstanding people in all the jobs outstanding. Thinking of having a better idea is a competitive advantage. Ideas are a dime a dozen. It’s, it’s making sure you’re absolutely solving a major pain point in the market that customers will gladly pay for, and then executing it like heck, you know, thinking that it was the county’s job to keep an eye on the numbers. No, we did this thing called trust and verify you need to be intimately connected to your numbers intimately and understand them. And make sure that your team understands them by presenting them to you. And that gets into trusting and verifying and the magical of the strategic CFO that you need as a scaling partner. I believe lower price will give you a sustained competitive advantage. Look at in 1% of the cases it works. But generally, that’s a situation where you don’t know what else to do. So you drop your pants and drop your price. Really, we need to have more time on strategic debates to find ways to truly solve a problem. articulate and build trust that we can solve it. And then so value not May the lowest bidder win in the race to the bottom. Abroad you want to cover off number six, I’ve gone through the first five you want to go six through nine There’s your
Brad Giles 57:01
thing, believe that people can thrive without management, we need management number seven, thinking that giving people freedom and creative space to do things their way will lead us to greatness in actual fact, it’ll just lead us to a creative mess, not greatness. Discipline applies on every level over time by believing that charisma and confidence are what you need to win. Knowing that hubris will kill companies and it does all the time. And then finally, number nine, save time in painful meetings. Why don’t we just skip next week’s meeting? Because I think you know, I’ve got other things to do.
Kevin Lawrence 57:47
So brush my teeth once every two three days. Like we don’t need to do it every day. I mean,
Brad Giles 57:52
Kevin Lawrence 57:54
Totally in toothpaste. Oh, like that. Maybe water as well.
Brad Giles 58:00
Alrighty, so let’s move to close here. As much as we could have fun with toothpaste all day. So well. This has been the growth whispers podcast. My name is Brad Giles, and as always joined by my delightful and wise co host, Kevin Lawrence. So you can find Kevin at Lawrence and co.com and myself, right at evolution partners.com.au. We come to you through these mediums every week. So we would love to see you again next week. Enjoy your week. Thanks for listening
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