This week on The Growth Whisperers Brad and Kevin talk about the two critical variables that impact your profit. Intelligence and Discipline. If you have the intelligence to create a profitable strategy but don’t have the discipline, it will negatively impact your profit. If you have the discipline to run an effective and efficient business but don’t have the intelligence to build a strategy that grows your margin, it will negatively impact your profit.
The show helps listeners to zoom out and perhaps understand why they might not be making the profit that they want. Then discover ways to look at your discipline, your intelligence and your profit through a different perspective that could have a large impact on your profit, and the enjoyment you get from your business.
Profit = Intelligence x Discipline
Episode 82 – 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.
Profit = Intelligence x Discipline
Brad Giles 00:13
Hi there, welcome to the growth whispers where everything that we talk about is building enduring great companies, companies that will last companies that will continually produce and build momentum, and really give you the life that you’ve kind of enjoy, love and can be proud of. I’m Brad Giles. And as always, I’m joined today by with my co host, Kevin Lawrence. Good day, Kevin, how you doing today?
Kevin Lawrence 00:40
I’m doing great, Brad. I like that intro that was good.
Brad Giles 00:44
Well, you think after 82 episodes, we’d be getting a little bit better at this. And so hopefully, it’s a little bit better than the first one. So everything good in your world.
Kevin Lawrence 00:56
Things are great. I’m excited. I’m really you know, this. This is a really interesting show, because we talked about it over a few weeks doing this show. And it’s a real simple piece that we’re talking about. But it really made me think I’m really looking forward to sharing it today. Yeah, good. Yeah.
Brad Giles 01:12
Yeah. It’s been sitting around that we’ve been toying with I agree. And it’s good. So we always like to begin with a word or phrase of the day. So Kev, what have you got today? For us any thing from the vault? It
Kevin Lawrence 01:27
is, it’s just the word. One of my favorite words is simple. And I shared in last week’s show, we had our team retreat up in Whistler, and we had 10 of us for two and a half, three days. And as we’re going through everything, and we had some new members of our team, one of the things that kept reinforcing is simple, simple, simple, simple, simple, not interested in complex things, because they don’t scale very well. And just my love of simplicity. And when I realized that I remember hearing about, I think, Well, there’s two, there’s two, just two quotes. One is its attribute it to Mark Twain. I don’t know if it actually is because when I had someone on my team do the research, it didn’t come up as being legit. Although it’s he’s quoted as saying it many, many times. It’s, I would have written you a shorter letter. But I didn’t have the time. Yeah. Just it’s hard to be succinct. It’s hard to be right to the point. And the same thing is, is when you watch a master at anything, you watch a master painter looks like it looks like it’s like the easiest thing in the world. And it takes a couple minutes for a masterpiece. And in the work that was so simple, simple and simplicity I just how it works. Time and time again. And complexity is normally created by people who are not yet masters.
Brad Giles 02:51
Awesome. Awesome. Yeah. So mine is courage. You and I’ve spoken many times about decision needs to be either Hell yeah. Or hell no. And trying to push the thinking around decisions to it’s how do we get it to be a hell year? If it’s not, then it’s a hell no. But there’s still an element of courage, especially with big decisions. It’s just not that easy. And so you and I were talking before the show about, you know, some sort of aspects and some decisions that I’m making. And so it’s about courage. It’s like, yeah, sometimes even if it is a hell yeah. You’ve still got to have the courage to do it. Yes, you say simple courage.
Kevin Lawrence 03:36
It is simple courage or courage is simple. Courage is simple. All you have to do is spend some time and take a step. That’s awesome. Cool. Well, let’s let’s dig into today. So today is a little bit of a math formula. They’re not algebra, we’re not getting that complicated, but math. And it really profit equals intelligence multiplied by discipline. Yeah. Now on their own, if you have intelligence, and no discipline, you know, intelligence times zero, you get nothing your intelligence is useless. And, you know, the others and we have a saying, you know, we use a lot is, you know, ideas are a dime a dozen. Yeah, you know, good ideas and good thoughts are nice, but they’re not worth anything unless they’re implemented. Now, the other side of the equation. So intelligence and no discipline equals zero profit, and no intelligence but a lot of discipline can also lead to zero profit. We call that barking up the wrong tree. You know, and it’s, there’s a metaphor there’s a story comes from a dog chasing something I don’t actually know what it’s from but, but the point of it is that you can work so hard at something, but if it’s not a great idea, or great pointed in the right direction, or the customers don’t think it’s a great idea, or you didn’t promise Right, or who knows what, you can bust your butt for a big goose egg. So intelligence requires both discipline. And sorry, profit requires both intelligence and discipline. So a great
Brad Giles 05:15
way to think about this is beginning with a zero, but also a de rating factor. So imagine if your discipline is 50%, what it could be you around the business in terms of sticking to all the elements. I mean, this is really what you and I do we bring in to organizations, we bring in intelligence, and we bring in discipline. So let’s look at discipline. And if you were only operating at 50%, of the discipline, that you could be, you know, then your intelligence, let’s say was 100%, you’re still not going to make the profit at the beginning of the equation that you should. But if your intelligence or your business model, or the way that you’re working is only 50%. Like, you’re only really making a very small amount of the profit that you shouldn’t be.
Kevin Lawrence 06:11
Right. So in simple terms, if you’re in, you know, if your profit could be $10 million. But, you know, based on our fully, you know, the most intelligent approach and the most disciplined approach, you know, but but in the case, if your intelligence is only running at about 70, and your disciplines running at about 70, now, you’re still I think 70 is still a B student, not sure. But you know, but seven times seven is 49. That means you probably be hitting what 4.9 million a profit, or a, someone who maxed out the intelligent discipline can make 10. Let’s take from there, you could have an eight intelligence and a to discipline, you’re going to do 1.6 million a profit on a $10 million possibility, or flip that. So that’s very intelligent, but horrible discipline. Or you can even take a moderate intelligence of five, and a discipline of 10. And you would get 5 million. Yeah, so you know, someone who’s only a five, or intelligence business being five out of 10. But incredible discipline making 5 million bucks versus you can have eight or 10 intelligent people that would make dramatically less money because they don’t have the discipline. So it’s not meant to be math class, ladies and gentlemen, and friends. You know, it’s, it’s, it’s just about really understanding that these two variables are really critical. And we’re gonna dig into both of them a little bit more liberal way, in these modern times, is saying, ladies and gentlemen, still the right thing to say I don’t think it is, is waters is saying, ladies and gentlemen, I think you need I’m just thinking about being politically correct, Brad. Yeah,
Brad Giles 07:58
I’m just gonna leave you on that hill and see how we take that.
Kevin Lawrence 08:01
Brad Giles 08:02
I’m just gonna bed at all.
Kevin Lawrence 08:03
Yeah, I’ll just we’ll pass on our by so just friends. I’m gonna say friends, because friends is not
Brad Giles 08:10
Kevin Lawrence 08:12
listeners. Okay, next one,
Brad Giles 08:14
I would tell you a quick story is a team that I work with. And this individual, you know, was probably making about, I’m gonna say about 200 $250,000 in profit for quite a while for I’m talking years and years and years and years. 10 plus years, and it was just, it was just not there. Now, this individual didn’t have the discipline. And that was the derailing factor. Okay, so, I harassed and harassed and harass this person about this discipline, and he just couldn’t have it. So we employed a person around a particular role that he was doing to take over that to set some KPIs. As well, as we were already running a lot of the other disciplines within the business and profits. They were four times higher as a result, and that’s part of where this thing can come from. Their business model was okay. I mean, really, if they had a much better intelligence factor, business model, they could have been in this right, they could have probably been doing close to $4 million. Yeah, with the with a great business model. But the discipline was ramped up, maybe not as high as it could be. But let’s say it was an eight out of 10, or nine out of 10. Subsequently, so with a mediocre intelligence, or an A medium intelligence, and in a very good discipline that we’re doing really well.
Kevin Lawrence 09:47
Yeah. And I was thinking about your example. And it’s a bit of an extreme example, but one of my clients that when I started with them, they’re making a couple million of profit and the intelligence was mediocre. Yep. And the discipline was mediocre, and we roll forward 10 years, we have an incredibly high percentage of a players, their bottom line is gone from a couple million to knocking on the door of 100 million, like getting close. Like, it’s incredible. And if you look at it, the disciplines that they have in place are incredible. And they have the right people in the right seats doing the right things, and the intelligence that they have, and not I, you know, don’t say IQ intelligence, but the intelligence, the understanding of their business, in the market, in their systems in the customer gets incredible. And the amount that they’ve been able to, it’s a machine and it’s almost like it’s so good. And they’ve been able to tap into some opportunities during COVID. That gave it a serious bump as well. But it’s so good, it has them going. Like can we sustain this? Yeah, because it’s such an incredible, incredible machine. But it’s boatloads of intelligence, and, and boatloads of discipline by amazing people. So it’s, it’s really powerful. As we’re talking about these stories, Brian, I’m just reminded like, that’s why when we go into companies and do the work we do, it’s, it’s, it’s kind of like shooting fish in a barrel, ie in terms of the results you’re going to get, because It Ain’t Rocket Science, what we do, but because we understand the systems really well to the point where the systems are simple to us, we go in and put these discipline Well, we actually we increase discipline, and we increase intelligence. Yeah, we increase the strategic thinking, and the insight and oversight they have of the business, both at the leadership level and for other key leaders. And then the discipline by having crystal clear KPIs and crystal clear goals, and, you know, talent reviews, and all of these other things, is that it becomes just part of their ecosystem to have more discipline and give people autonomy at the same time. So it doesn’t feel like a big bureaucracy. So it’s, it’s amazing, but it’s just enhancing those two very simple
Brad Giles 12:10
but powerful variables. So maybe as a listening, you’re thinking, You know what, I wasn’t a boffin school. I, you know, I didn’t do it a PhD, also Bothwell, a boffin, a boffin, like, you know, a intellectual, or we have
Kevin Lawrence 12:27
something called a
Brad Giles 12:28
buffoon. Right. I mean, that’s
Kevin Lawrence 12:30
the opposite end of the spectrum. It’s not
Brad Giles 12:32
that okay, I wasn’t an intellectual I, you know, I some people might be listening, thinking, I barely made it through school, you know, school was only there to fill some of
Kevin Lawrence 12:42
some of our top clients didn’t didn’t make it through school. Yeah, well, they still they did, they found creative ways to make it through school, but it wasn’t based on their ability to sit in the classroom and write tests.
Brad Giles 12:54
That’s not what we’re talking about when we’re talking about intelligence, not at all. It is the intelligence of your business model, the intelligence of the way of your strategy, the intelligence of the way that you present, and understand the market and the way they meet the customer needs all of the things around that is what we’re talking about.
Kevin Lawrence 13:18
Yes, so let’s dig into intelligence itself, not one variable, we know profits and outcome. But the first thing is about business models. And it’s just that not all business models are created equally, even in the same industry. And with the same variables around them. I’ve seen things in the same industry, where someone will be operating at 5%. Net income. Yeah, others will be making 25 or 35. Now, the ones that are making the 35, they’re not talking about it. And I’ve seen many businesses that make you know, I’ve seen some business that making 35 5060 and even 80% net income, or net profit, whatever you want to call it on notable numbers. Yeah. Like serious numbers, like not not not little startups on substantial businesses that again, they’re very quiet about it. But it’s because of intelligence is that someone has seen an opportunity, on a way to price something in a way that is quite smart, or they know how to buy something or get a resource at an incredible price. Whatever it happens to be, is and not all business models are focused on profit, some are building valuation, that’s a different game. But it’s intelligence in knowing how to maximize a model or see opportunities that others can’t.
Brad Giles 14:43
Yeah, it’s so interesting. You mentioned that I one of the things I do is work with groups. So imagine if you will for leadership teams in a large room, and we’re working through doing strategic planning together myself and these four groups. Now we learn from each other through that model. Now there’s three, let’s say, normal businesses. And I’ll say normally in the context of
Kevin Lawrence 15:08
product, profit, profit, profit, profit, profit, profit
Brad Giles 15:11
focus, and then there’s one a tech startup. And, and so we’re talking about revenues, and we’re talking about profits as a group. And then I said to them, Look, you do realize why they’re focused on their run rate. And that’s the main thing, because all of the other businesses in the room are going to perhaps attract a two and a half to a five times multiple of EBITDA of profit effectively. So if you make $100,000 profit, you’re going to be valued at 250 to $500,000. Plus, plus, whereas for the tech startup, they’re going to be valued at 10 times their revenue, the top line. Yeah. And that was in the end, of course, all the leadership, the other three leadership teams, their jaws dropped. And, you know, they were like, I see what you mean, when you say now that all business models are not created equal?
Kevin Lawrence 16:06
Yep. Because they’re also playing a, they’re playing the valuation and get bought game versus the generate cash flow and profit for shareholders, right? They’re, they’re generating value for shareholders based on appreciation of the value of a stock versus the cash flow.
Brad Giles 16:22
Well, it’s funny you say that, because that particular team, listen to the growth whispers, and now they’ve switched to building an enduring great company. Hey, and so they’re about building an enduring business. Love it? Yeah.
Kevin Lawrence 16:40
All right. So until the first thing, so business models aren’t critical. The second thing is, is that, you know, with the, you know, the intelligence, it’s important, but it’s taking those ideas and bringing them to life. Because the secret recipe of success is, is good ideas that iterate towards great ideas, no idea starts over. So good. Iterating, towards great, and then execute, executed with discipline over a very long time. And it’s the discipline of execution, that gives you the feedback and insights to help to iterate the ideas and make them better, and they’re kind of symbiotic they go hand in hand, if you do it really, really, really well.
Brad Giles 17:19
Kevin Lawrence 17:23
was saying, and then, you know, and others, you know, when it gets into this kind of this space on the, on the ideas, they’ll play the me to commodity game and chase easy or accessible revenues and operate at 3%. Net, or lose money on unprofitable clients or services. They’re just, they’re not spending the time to analyze. And I’m not saying that people aren’t capable. In a lot of business, they actually don’t have the data. Yeah, they actually don’t know that the finance or accounting team is so busy just trying to get invoices out, get the books done and collect the receivables. They don’t have time to zoom out and use their intelligence to provide the operators of the business insights on how to run the business better. And that’s what’s a gap we see in a lot of growing companies. They just, they’re doing the best they can they don’t have the time to think.
Brad Giles 18:14
Yeah. And often I think that they’re they think about themselves as being a part of an industry. So if they were a home builder, they think we’re in the home building industry. There’s no like we do what the industry does, we build homes, they don’t think to they don’t use that intelligence to think how can we evolve our business model to be significantly more profitable.
Kevin Lawrence 18:36
And that’s why I drives me bonkers when people start talking about industry averages and best practices. Well, industry average is mediocre and best practices is drives your right into that mediocre middle and I hate it. Now you can look at if you look at industry data, you want to look at the best. The highest performing one or two is what you should benchmark not don’t benchmark the middle unless you want to be mediocre. And I get crazy passionate about that exists. You know,
Brad Giles 19:09
we love it. We
Kevin Lawrence 19:11
look at the best practices really are common practices. I agree. I don’t want to be common. I totally agree. Yeah. So So back on the intelligence piece, you know, it’s really the idea to seize the great opportunities that have an impact on the client, throw the client and you can generate great profits to that’s, that’s the idea. It’s an ability to see it and see the things that would make you 20 or 30%. Net as an example or dramatically enhance your growth rate or or, or, or even lock up a customer and get incredible loyalty of our customer or a big group of customers, whatever it happens to be. There’s many forms of winning but intelligence can see things I mean, we both work so incredibly, incredibly Intelligent CEOs and executives. And you know, I could tell you about 20 of them that just blew me away. And that’s where I’ve learned so much over the years is these amazing people, you know, one of my clients, I’m gonna keep this generic, but he found a way to lock up the top five customers in an industry in a way, where they spent every dollar through him, and contractually could not spend any money on his competitors. With a five year retroactive clause, if they spent $1. Up until the last five years, all of the discounts were owed back and he gave them massive discounts. So it would have been the 10s of millions of dollars, they would retro actively own him. So big teeth in that contract. But because he had those five, who had to give a substantial discount, he got the rest of the industry. And, and actually, I think it was, it was five top clients, I think when I’m sorry, it was a couple of different industries. But he got the top couple of leaders in an industry. And then the rest of the business was there, because this top customers was there. It was incredible. So that is intelligent, basically controlling the market by doing a lucrative contract with a few. And then you get the money. Again, that’s, we call those x factors. They’re brilliant, it’s in on same with the, the husband and wife team in California. They, he, she operates the palm brand of its pomegranate juice, and he has the brand Wonderful Pistachios, both premium brands in their space, they were one of the biggest landowners in the state of California. And if you know anything about California, controversial issue that has been in California, is the water consumes no farming consumes more than 80% of the water in the state of California. And produces notably less than 10% of the GDP. And water is scarce. Well, this couple, a little bit on a smart side, and going back about 10 years, they had secured and own more than a third of the water in the state of California, they own it, yes, they sell water rights in the United States of America, owning water in a farming area, that also happens to be an area that requires irrigation because it doesn’t rain enough, is a big component that’s damn intelligent, not only to see the opportunity, but to find a way to buy that and continue to control it through the lawsuit. So there’s there’s endless, endless examples. But you know, it’s about thinking about how you have a notable impact on an industry in a way that’s good for you. And or your customers.
Brad Giles 22:48
Yeah, customer work, we’d bet 200 million, they would have been GE an eight or nine on discipline, but a one or a two on intelligence. So let’s move on to discipline.
Kevin Lawrence 23:04
Yes, and the main thing about discipline is it’s, it’s learn, it’s not human. Right, humans are creative and free thinking. And, you know, by nature, I mean, some people are more discipline than others. Actually, I will say that some there are some very disciplined people in the world. And, you know, the truth of it is without discipline, those ideas are a dime a dozen. They’re not brought to life in a consistent way that, you know, that provides insights and you know, can help iterate the ideas and make them better, you know, he need discipline to implement things. And this Collins would say, you know, success is real, relentless execution of the boring base basics that fit in your hedgehog, hedgehog being your simplification of your business model, relentless execution of the boring basics. That’s discipline. And as we’ve talked about in the companies that we work with, we bring in a lot of disciplines. And why do companies want to generally keep working with us long term, is because we keep that discipline engine going on the parts that are hard to have discipline around. It’s hard to continually have deep financial reviews, and KPI reviews and goal reviews, and to hold tension in the room to truly look at the accountability and how to be better next time. Yeah, there’s 14 Other things to focus on. So discipline is is critical. And it’s something we all including myself can always get better at. And that’s
Brad Giles 24:33
why the great teams, they understand that an external advisor that what you and I do, the way that we apply things, it’s not just about oh, we need I want to learn something new all the time. It’s about let’s come back and keep us on track. Like get someone who isn’t an employee to keep us on track. Understand best practice and we spoke about that earlier, but you understand what is the best practice to keep us on track and Have that external discipline that external focus on what we’re doing?
Kevin Lawrence 25:05
Yeah. And it’s somebody to run the damn meeting, because running a meeting is one hell of a discipline. And it’s not easy. Yeah, you’re running a two or three days strategic meeting with 10 1214 people. That is very, very challenging, not for the faint of heart. And to do it, well, you need to do it a lot. Right? Because it’s, it’s a discipline. That’s why you go to a master on that stuff.
Brad Giles 25:28
Yeah. So it’s the discipline of not taking on new things, understanding the strategy. The we’ve spoken about all of this stuff, like it’s the weekly meeting, the daily meeting, the quarterly, the annual meeting, all of those components about having the right data and the right metrics, and equally having the right priorities that are structured in a way that you’ve got three to five priorities and not more for each business department individual, and that you’re focused on those things and not getting distracted importantly.
Kevin Lawrence 26:06
So like the company I shared with you that no, they’re getting another ad 100 million of Napa getting pretty damn close. Every quarter for more than 10 years, I get face to face with them, except during COVID. Yeah, and we spend a morning doing a full financial review, full rock review, full KPI review, customer feedback, employee feedback, we do a full talent review of our top performers like and we do everything by division by region, by line, like we split it all up, like we split up and, and dissect the entire thing. And then we do an after action review. Great. What do we do? Well, how do we do better next time, everybody makes no, so how we’re going to have a better quarter next time, then we have strategic debates on the important stuff that the discipline to grind through the important things and make those decisions. And then we go and set our goals for the next 90 days at the company level discipline to break down into detailed action plans that we’re going to follow, getting feedback from the colleagues in the room, further enhancing the action plans for the quarter. And then everyone sets their individual goals for themselves on their team. Like, and we’ve done it 4050 times. Yeah. And it’s you know, and we’re always it’s enhancing, it’s getting better and better. But we’re just, we’re grinding it out. It’s, it’s, it’s, it’s like running laps in soccer or football practice, you know, just grinding it out getting better and better and better. Awesome. And shockingly, it works. Not shockingly.
Brad Giles 27:42
Yeah. So I think we’ve, I think we’ve covered off our main points. Is that right?
Kevin Lawrence 27:46
We have Yes, let’s just summarize. profit, or sustainable enduring business that is highly profitable is intelligence multiplied by discipline, right? That that you got to have the good thinking, and then you got to bring it to life relentlessly. And really, under intelligence, we talked about not all business models are created equally, some people will make five points. So the bottom line when others make 35 in the same business, and it’s not just about profit, but it’s no more profit, you have more options. And we know these ideas are abundant. And it’s the discipline to grind things out, that brings that intelligence to life. And really, if you’re not careful, and you don’t do enough thinking, you can push yourself into a commodity zone, and accept lower returns. And eventually, you know, a business that makes three points in an industry that normally makes 10 or 12. And needs 10 or 12 puts a lot of constraints. And it really can constrict you as you grow the business or even try to grow the business. Right. You want to take over on the intelligence side, Archie, no, that wasn’t a one more intelligence is it’s really what seems to be opportunities and focusing resources on opportunities that pay for the customers and you and things like X factors and locking up top customers or owning the water in the state. Those are all tiny examples of things that took a taken a lot of thinking and intelligence to bring to life. Anyone did the discipline piece broad.
Brad Giles 29:13
Yeah. So success is relentless execution of the boring basics over a long period of time. And that goes against the human nature, human brains need for creativity. And it’s tough. But profit comes from the multiplication of intelligence and discipline, you’ve got to have that intelligence aspect. If you’ve only got the intelligence and you don’t have the discipline. You know, you won’t have the profit that is so important. And then we spoke about the tools, KPIs goals, financial reporting, customer feedback, all of those tools, but in the broad section of execution, which is making sure that we’ve got the right priorities, making sure that we’ve got the right Rhythm and making sure that we’ve got the data and the KPIs. And so when we maintain that discipline, and then we multiply that by the intelligence, that’s when we get the profit.
Kevin Lawrence 30:14
Yeah, consistently. Awesome. Well, hey, you know, and the question we can leave you with is, you know, on your company, what do you need to shore up more discipline for intelligence thinking, or getting the critical stuff done? So thanks for listening. This has been the growth whispers podcast with Brad Giles and Kevin Lawrence. For more information on the show, you can go in and check it out or watch the YouTube versions of the show firstname.lastname@example.org Search the growth whispers for Brad evolution. partners.com.au. And for myself, Kevin and myself, Kevin, Lawrence and co.com I was gonna say my email there, Kevin. But by the way, if you have ideas for questions you would like to have Brad and I answer on the show. You can contact Kevin at email@example.com or Brad@evolutionpartners.com.au. Email us if you’ve got specific questions you’d like us to answer and we will do that on a future show. Have an awesome week.
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