Podcast EP 131 | Leveraging the Stockdale Paradox in this Economy

How can you lever­age the Stock­dale Para­dox in this economy?

Dur­ing these tur­bu­lent times, with major events that are out of your con­trol which could impact your com­pa­ny, how can you main­tain com­po­sure and results?

The Stock­dale Para­dox from Jim Collins can be defined as — you must main­tain unwa­ver­ing faith that you can and will pre­vail in the end, regard­less of the dif­fi­cul­ties, and at the same time, have the dis­ci­pline to con­front the most bru­tal facts of your cur­rent real­i­ty, what­ev­er they might be.

This week we’re talk­ing about the Stock­dale Padarox, how it applies to the cur­rent eco­nom­ic envi­ron­ment, and how you can use this prin­ci­ple to sur­vive and thrive through these uncer­tain times.

EPISODE TRAN­SCRIPT

Please note that this episode was tran­scribed using an AI appli­ca­tion and may not be 100% gram­mat­i­cal­ly cor­rect – but it will still allow you to scan the episode for key content.

Kevin Lawrence 00:13

Hey, and wel­come to the growth whis­pers pod­cast where every­thing we talk about relates to build­ing endur­ing great com­pa­nies, not good com­pa­nies, not mediocre com­pa­nies, but great com­pa­nies that you’re proud of, and con­tin­ue if you want them for want them to for gen­er­a­tions and gen­er­a­tions. I’m Kevin Lawrence, and I’m here with my awe­some co host, Brad Giles. Brad, how’s it going?

Brad Giles 00:35

It’s going Excel­lent. Thank you. Love­ly to see you on this fine day, where it’s autumn or fall in the north­ern hemi­sphere and spring in the south­ern hemi­sphere. So we’re both good.

Kevin Lawrence 00:47

Yes, it was a beau­ti­ful day today. Absolute­ly beau­ti­ful. So what’s the phrase of the word on your mind today, Brad?

Brad Giles 00:55

Secu­ri­ty. Okay, so

Kevin Lawrence 00:58

the slick Old Age Secu­ri­ty? Are you hop­ing to be get­ting your pen­sion soon? No, that’s not what you mean. Okay.

Brad Giles 01:04

No. So, you know, AT & T is a telecom­mu­ni­ca­tions provider, right? They pro­vide mobile ser­vices, etcetera. So the sec­ond largest provider in Aus­tralia is called Optus. And all of their user data was hacked. So dri­ver’s license, all of the pri­vate infor­ma­tion, every sin­gle thing beau­ti­ful. mil­lions, mil­lions, 10s of mil­lions of records have been hacked and stolen. So yeah, what’s on my mind secu­ri­ty? How tight is your com­pa­ny secu­ri­ty? Because if a mas­sive tel­co can get hacked like that, yeah, it’s always an ongo­ing job. What about your­self if

Kevin Lawrence 01:50

it is, and I know a few com­pa­nies that have been seri­ous­ly hacked, and it’s dev­as­tat­ing, and after­wards, they find that the secu­ri­ty was­n’t as good as they thought it was, once they pres­sure test­ed, which is unfor­tu­nate, um, mine is retreat, just came off my team retreat, we had just about three days up in Whistler, the whole team came in. Like there was 13 of us. And, you know, just the idea of being togeth­er with a bunch of bril­liant minds. And as I was shar­ing with you, one of those, the major side ben­e­fits I did­n’t real­ize is every­one facil­i­tates part of the meet­ing, and all kinds of dif­fer­ent ways. And every­one’s kind of show­ing their best skills. I’ve been doing this for 28 years, and I learned some amaz­ing things. One guy Brett on my team did this basic facil­i­ta­tion tech­nique that was so basic, but it was like dou­ble mas­tery. And I mean, the whole team did awe­some stuff. And then, you know, Dean did this oth­er tech­nique about bring­ing the cus­tomer into the strate­gic plan­ning in a way I’ve nev­er seen and, and we’ve got a new guy, Tim, and this exer­cise he had the team due for team build­ing an engage­ment in three min­utes just blew my mind, like, if I can go on and on and on, but just get­ting togeth­er in a house for three days learn­ing, grow­ing, shar­ing, build­ing rela­tion­ships, laugh­ing, it’s just, you know, it’s, it’s, you know, it’s a polar oppo­site to the Secu­ri­ty is about the both of us shar­ing infor­ma­tion wide­ly. Just to a dif­fer­ent end, or with a dif­fer­ent moti­va­tion any­way, so, so secu­ri­ty retreat or retreat to secu­ri­ty, I don’t know. But any­ways, good times. All right. Well, let’s jump right into today. Today, we’re talk­ing about some­thing that’s real­ly impor­tant in these tur­bu­lent times, we’re still in the state of not real­ly sure what’s going on, but inter­est rates are going up. Infla­tion is creep­ing down in some areas in some ways. You know, what are we in for? And, you know, it’s look­ing like it’s going to be chal­leng­ing in many sec­tors. And that’s fine. That’s part of a, you know, tran­si­tion and cycle of an econ­o­my. But we’re talk­ing about this thing called the Stock­dale para­dox, Brad, you want to kind of walk us through what we’re talk­ing about here?

Brad Giles 04:09

Sure thing. So Stock­dale para­dox comes from a good friend, Jim Collins. And it comes from Jim Stock­dale who was a pris­on­er of war in Viet­nam. Pris­on­er of War came obvi­ous­ly dur­ing the Viet­nam War. And he observed the peo­ple who would sur­vive and the peo­ple who would die and of course Jim uses this as an anal­o­gy for com­pa­nies that works quite effec­tive­ly that he calls this Stock­dale para­dox. So how Jim describes it on his web­site, you must main­tain unwa­ver­ing FAITH that you can and will pre­vail in the end, regard­less of the dif­fi­cul­ties, and at the same time, have the dis­ci­pline to con­front the most bru­tal facts of your cur­rent real­i­ty, what­ev­er they might be. And so this tells us that dur­ing tur­bu­lent times, we must, I believe, and main­tain belief that we will pre­vail, and yet at the same time con­front the bru­tal facts of the sit­u­a­tion. Because here’s the prob­lem. Many lead­ers just will stick their head in the sand or they’ll get caught up in oth­er things, or they won’t. They won’t con­front the bru­tal facts, they’ll just let them kind of glide along.

Kevin Lawrence 05:29

Or they’ll just be too pos­i­tive. Yeah. And it’s inter­est­ing, the sim­i­lar sto­ry, I was just search­ing it up here, as you were talk­ing is Vik­tor Fran­kl in his awe­some book, Man’s Search for Mean­ing, which I read 20 years ago, it was rec­om­mend­ed, high­ly, high­ly rec­om­mend it. And, you know, this is, you know, as a pris­on­er, and in that see con­stant Nazi con­cen­tra­tion camps in World War Two. And he and he just described the method that he noticed that the peo­ple that they thought they were going to be out, you know, by the end of the year or Christ­mas is some­body has said, Well, again, mus­cles, peo­ple, there weren’t, you know, Chris­tians, but are peo­ple not nec­es­sar­i­ly I could be wrong on that. I’ll take that back. I don’t know that. But I believe many of them were. But the fact is, the peo­ple that thought they built by the end of the year, often died. The because psy­cho­log­i­cal­ly, they were attached and fix­at­ed on a cer­tain time­line. And when the time­line moved, it destroyed their mind­set. Yeah. And in No Man’s Search for Mean­ing, as they you know, and he talks about a very sim­i­lar prin­ci­ple. And it’s about being able to endure chal­leng­ing things. And hav­ing the right mind­set, which is not just com­plete­ly pos­i­tive, it’s, you know, it’s acknowl­edg­ing what’s going on. It’s almost like patient and pos­i­tive at the same time.

Brad Giles 06:41

You know, my favourite part of that book, Man’s Search for Mean­ing is the way that he described human­i­ty. And he said, there is a, there is a gap between stim­u­lus and response. And that gap, that pause is human­i­ty. And so if a stem if you are, there was a stim­u­la­tion, and he was using it in the exam­ple, for exam­ple of being whipped by a Nazi guard or being, you know, assault­ed, or what­ev­er it might be the pause before you react, that’s where human­i­ty is because for exam­ple, a dog might just turn around and bite or snap or growl or what­ev­er, that’s not human­i­ty. So human­i­ty is paus­ing and con­tem­plat­ing. Yeah,

Kevin Lawrence 07:29

lead that’s leader, that’s also the best lead­ers have mas­tered that aspect of human­i­ty. It’s con­tem­plat­ing your actions instead of reac­tion. So the root of both of those is that the opti­mists don’t sur­vive. The pes­simists don’t pre­vail. It’s gen­er­al­ly the opti­mists who acknowl­edge the irrel­e­vant bru­tal facts who pre­vail, and that that those are the peo­ple but in these times as their becomes more bru­tal facts, we got to be care­ful not to get lost in it, because some peo­ple slip to being too neg­a­tive, or too con­ser­v­a­tive. And peo­ple often go into dif­fer­ent camps, peo­ple become super blind­ly opti­mistic, and they lose the the trust and faith of their peo­ple, because the peo­ple like Well, that’s not rel­e­vant, then as the peo­ple who become real­ly are neg­a­tive, and real­ly pro­tect­ed, they’ll go to a pro­tec­tion­ist kind of mode and become very con­ser­v­a­tive, or over­ly con­ser­v­a­tive. And that often does­n’t work. either. It’s about play­ing both of those things at once, deal­ing with the bru­tal facts, and still retain­ing the opti­mism that you’re going to thrive going for­ward. It just might be a lit­tle bit bumpy for a lit­tle bit.

Brad Giles 08:45

I’ve run so many ses­sions with teams where we’ve need­ed to con­front the bru­tal facts. And one of the cas­es are you con­fronting the bru­tal facts or opin­ions, because a lot of peo­ple come to the bru­tal hid­den. A lot of peo­ple come to these sit­u­a­tions, these meet­ings with their opin­ions, and you’ll be able to dis­till or strip that down and say, is that real­ly affect for exam­ple, a fact is how much cash we’ve got in the bank. That’s def­i­nite­ly not an opin­ion. Our accounts receiv­able days, they might be clos­er to an opin­ion. Now the data, the data might tell us some­thing, but some­times those cus­tomers tend to not pay.

Kevin Lawrence 09:28

And our cash pro­jec­tions based on the best infor­ma­tion we have is close to a fact although there’s still some tol­er­ance and uh, but a lot of peo­ple bring bru­tal opin­ions. And you know, one of the things Jim taught us and one of the ses­sions is you make a list your bru­tal facts, and then with your top bru­tal facts, you list the facts, then you debate them, because some­times those bru­tal facts aren’t actu­al­ly bru­tal facts. They’re actu­al­ly way off, but you want to you want to dig in. So I’ll give an exam­ple. So one of the CEOs I work with Recent­ly, we had one of our start plan­ning ses­sions, and he was talk­ing about, you know, the three year vision of the of the com­pa­ny was kind of fun­ny, because the three year vision is tremen­dous growth. But so we start­ed talk­ing about the inter­est rates, the impact on their local econ­o­my, their indus­try, spe­cif­ic econ­o­my, and all the things that are kind of at play with the best facts he had. He had some awe­some facts. And then he talked about the growth plans. And at one point, it was fun­ny, because, you know, I said to him, Well, you know, this goal to more than dou­ble in three years is aggres­sive. And it might take four or five, but we are going to get there and it goes, Hmm. Maybe we need a new coach. So the coach isn’t believ­ing in our plan, we got our­selves a prob­lem. And he and I get along great. We drove white, right? Yeah, let’s bring in the fresh guy, get me out of here. And we kind of we laughed about it and joked about it. But the point of it is, he knows it’s going to be a three to five year plan. He likes to think three because he wants to have the right think­ing in the com­pa­ny. But the point is, he was review­ing all of the oth­er bru­tal facts in process, as he was set­ting the table for this dis­cus­sion about the awe­some oppor­tu­ni­ties at the same time. So it’s, it’s both togeth­er, which has a lot more cred­i­bil­i­ty. And I’ll give you one more though, dif­fer­ent sit­u­a­tion, it was real­ly chal­leng­ing. It was a father son team, in a busi­ness. And the father always had chal­lenges with the sun. Because the sun was so opti­mistic, because the sun had con­sid­ered every pos­si­ble bru­tal fact. And every deal they did, he’d already thought it for­ward, back­ward, upside up, back­wards, upside down and side­ways. And he would be so pos­i­tive about all of the out­comes, it would freak the dad out, the dads going, he’s just being blind­ly opti­mistic. And that’s lethal in busi­ness. So we had a deep con­ver­sa­tion one night, the three of us help­ing them to work some stuff out. And I said to the Son, it seems like you are blind­ly opti­mistic us? Oh, my gosh, no, let me tell you my plan. So and he goes through 14 dif­fer­ent vari­ables, and his plan B and C for every sin­gle vari­able that he has mit­i­gat­ed. So he had thought of every bru­tal fact. And opti­misti­cal­ly push­ing ahead, he just did­n’t com­mu­ni­cate it. So he did­n’t have cred­i­bil­i­ty, in this case with his own father. So then, when he learned is to share, here’s the bru­tal facts. And here’s the plans I have. Now we can be opti­mistic on top of that base of truth and real­i­ty. It was real­ly so he did it bril­liant­ly. He just did­n’t artic­u­late it any and he did­n’t, he did­n’t get the cred­i­bil­i­ty he need­ed to be able to get buy in to go ahead.

Brad Giles 12:48

Yeah, yeah, I remem­ber anoth­er. Anoth­er sto­ry with a team that I work with, their mar­ket had dropped. And I it was the worst mar­ket drop in liv­ing mem­o­ry. And all the old guys in indus­try said nev­er seen any­thing as bad as this. And so we need­ed to make some changes, as is often the case, it was def­i­nite­ly exter­nal fac­tors. Every­one in the indus­try felt it. And we need­ed, we need­ed to basi­cal­ly trim up the prof­it and loss, make some cuts. And it was the fact that it was the per­spec­tive of the own­er that got us through, I guess, in fact, there’s, there’s been a cou­ple of these exam­ples. But it’s this per­spec­tive, and the abil­i­ty to, even though they’re so emo­tion­al through those things to say, and this is where a coach comes in handy, to be able to say, Okay, this is what’s going on, and we just kind of with­out that emo­tion, okay, what are the facts? What’s hap­pen­ing, we will endure, but we can’t endure unless we make these cuts, or we can’t endure unless we do these changes. And so, yeah, know­ing that, that we’re in tur­bu­lent times, know­ing that, you know, we may need to make some changes, but we’re not going to know that unless we con­front those bru­tal facts. Yeah. And it’s

Kevin Lawrence 14:13

just cred­i­bil­i­ty and, and ver­sus just the raw opti­mism, which does­n’t work. You know, the oth­er thing to real­ly think about are nice times too. And I remem­ber when I was in the Mid­dle East, and oh, 708 and I’m head­ing back there again this week. I’m real­ly excit­ed to hear back. But oh, 708 and you know, and like real estate, real estate val­ues fell 50% In three weeks, it was bru­tal, absolute­ly bru­tal. And peo­ple were freaked over all kinds of things. Thank­ful­ly, our clients were we had good strat­e­gy, exe­cu­tion, good bud­get­ing and finan­cial. We had all the right things in place to do well, and we did very well through it. But the one thing we kept talk­ing about and you know, that the chair­man will talk about the CEOs would talk about is the B hag. We stood res­olute and strong wheat that our behav­iour is still our behav­iour. And yes, we’re going through this, and we’re still going to get there were just a lit­tle bit tur­bu­lent times and it gave peo­ple some­thing to hold on to. Yeah, know­ing that that divi­sion does not change. Yeah, the path might change a lit­tle bit time­line might change a lit­tle bit or might not. But the vision that our pur­pose, our val­ues, our B hag that we’re dri­ving towards, it’s all there. And in many ways, the three to five year plan. Again, it’s like, the prin­ci­ples don’t change, short term tac­tics might. But like, for most of these com­pa­nies, it’s rock sol­id. So that gives peo­ple con­fi­dence that there’s a lot of change, you know, in the short term, and you know, what kind of near and close. But in the medi­um to long term, noth­ing, noth­ing changes at all, noth­ing major changes unless we have to tweak our strategy.

Brad Giles 15:46

There’s no indus­try, as far as I can tell, that con­sis­tent­ly grows at the same rate, every­thing is kind of its surges up, and then it appears back. It’s, it’s semi cycli­cal. I’ve spo­ken to you before about this, I live in a cycli­cal econ­o­my, because it’s based around min­ing and min­ing is is fed off the com­mod­i­ty price. So So here, we just have to sort of say the words, look, if we zoom out, we know we’re in a cycle, and we know that things are gonna go up and things are gonna go down. So we’ve just got to con­front the bru­tal facts of our point in the cycle, what’s going to hap­pen, and where are we going to go, we will pre­vail, but we’ve got to be ready for what’s coming.

Kevin Lawrence 16:30

Yeah. And just make sure that you still get peo­ple ral­lied up towards what you can do. So here’s kind of like, just to kind of a hand­ful of points that we made, like, admit that as chal­leng­ing times, remind peo­ple long term vision, like we just talked about and recon­nect them with a don’t get lost in the short term that is dan­ger­ous. Remind peo­ple of all our strengths and oppor­tu­ni­ties that we have. Take a look at those spe­cif­ic chal­lenges and bru­tal facts, like acknowl­edge the ones and pick the ones we need to address that are rel­e­vant to us right now. And make sure peo­ple have tan­gi­ble actions to take like in most of the com­pa­nies we work with, we cas­cade it. So peo­ple have, you know, their indi­vid­ual top three to five goals to accom­plish every quar­ter. But make sure peo­ple have tan­gi­ble goals that they can use to help the com­pa­ny march towards it. And just be real­ly care­ful with stretch tar­gets. Stretch tar­gets are gen­er­al­ly juve­nile. And, you know, well, you can have your base tar­get that you com­mit to and you’ve set your bud­get to, and that you could say that we could have a, you just don’t want your base tar­get to be a crazy stretch. Because then you’re gen­er­al­ly demo­ti­vat­ed, you’re also going to screw up the finan­cials of the com­pa­ny, because invest­ments are made on bud­gets. But if you want to ral­ly your team about hey, it’d be fun to us over achiev­able, that’s one thing. Just be care­ful about over­stretch­ing peo­ple because peo­ple can get demo­ti­vat­ed even though some peo­ple love it. So that’s a whole oth­er con­ver­sa­tion. But this stuff is not basic. It’s just real­ly remind your­self that this and acknowl­edge that that is chal­leng­ing, and there’s a bit of a storm, and that’s fine. We’re set up for it. And let’s deal with the ugly issues we got to deal with, let’s plug the holes in our boat. And let’s draw, let’s put those sails up and pow­er through this thing and get stronger and bet­ter on the oth­er side.

Brad Giles 18:22

But you can only do that if you’re slight­ly opti­mistic, and you’re con­fronting the bru­tal facts, that you’re, you know that and those bru­tal facts are cov­er­ing off what needs to be done. Awesome.

Kevin Lawrence 18:36

Exact­ly. You know, what’s fun­ny, I was at the race­track recent­ly I men­tioned before and it’s like, you know, when you’re on the race­track, you’re opti­mistic that you can be fast, and pass your oppo­nents that are in front of you to advance towards the front of the pack. But we still go out with a lot of pro­duc­tive para­noia and who you know, we are oth­er peo­ple dou­ble check things on our cars before we go on to track and you’re still run­ning both sys­tems. I’m opti­mistic I can pass them. And I’m being a lit­tle bit pes­simistic or care­ful that I don’t crash while I’m pass­ing. I’m like, You’re sick. You’re man­ag­ing the gas ped­al and the brake always at the same time. That’s what dri­ving a race car Street­car is about. Yeah. You know, when if you’re all gas, you’re in trou­ble. And if you’re all brake, you might as well pull over on the side of the road and step out of the race or the game or the or the busi­ness. You got to be man­ag­ing the gas and the brake con­tin­u­al­ly, ide­al­ly with­out over­heat­ing the system.

Brad Giles 19:34

Yeah. Yeah, you’ve got to be able to deal with the sit­u­a­tion and not hope that some­thing is going to hap­pen because hope will lead you to dis­as­ter. All right. Well, sir, very good chat. Yeah, it’s tur­bu­lent times. There’s a lot of things out­side of our con­trol. Come back to ana­lyz­ing under­stand­ing the bru­tal facts, the Domes­tic, not a pes­simist, not an opti­mist, an opti­mist who con­fronts the bru­tal facts. Very good. Thanks for lis­ten­ing. This has been the growth whis­pers Pod­cast. I’m Brad Giles and you can find me at evo­lu­tion part​ners​.com dot A you and our pro­duc­ing week­ly newslet­ter as does Kevin, pro­duce a week­ly newslet­ter at Lawrence and co​.com. For the video ver­sion, go to youtube​.com hope that you’ve enjoyed this episode and have your­self a great week.