Podcast Ep 142 | Planning to win in 2023 - Strategy - (3 of 5)

What strat­e­gy deci­sions do you need to make to win in 2023? 

2023 looks to have major chal­lenges that are slow­ly devel­op­ing. And this is espe­cial­ly so when con­sid­er­ing your strat­e­gy and how it might be impact­ed by the chang­ing envi­ron­ment. One of the most impor­tant ques­tions to answer to best pre­pare for 2023 is how can I main­tain con­sis­tent finan­cial per­for­mance if my cus­tomer’s needs or spend­ing changes?

Jim Collins said that 

“The sig­na­ture of medi­oc­rity is not unwill­ing­ness change, the sig­na­ture of medi­oc­rity is chron­ic inconsistency”

This week we dis­cuss how to main­tain con­sis­ten­cy if your cus­tomers are impact­ed, and how can you win in 2023 through the strat­e­gy lens.

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

Wel­come to the growth whis­per­ers pod­cast where every­thing we talk about is about build­ing endur­ing great com­pa­nies. Because that’s kind of what turns our crank, we like it. We get excit­ed about com­pa­nies that build val­ue over decades, gen­er­a­tions, what­ev­er it hap­pens to be in. So we study and work on with our clients every day. I’m Kevin Lour­des, in Van­cou­ver, British Colum­bia, Cana­da. And I’m here with my co host, Brad Giles, in Perth, Aus­tralia, Brad, how’s it going today?

Brad Giles 00:45

It’s pret­ty good. I am turn­ing my crank on endear­ing great com­pa­nies as you put it, that’s going, going well, on this Christ­mas Day, I think this episode

Kevin Lawrence 00:57

is Christ­mas Day, this one’s launch­ing, we’re not record­ing it on Christ­mas Day, we’re with our fam­i­ly. So for all those of you that cel­e­brate Christ­mas, we wish you a mer­ry Christ­mas. And for those who don’t Hap­py Hol­i­days, and what­ev­er you cel­e­brate, I hope you’re hav­ing a great day today. Whether you’re work­ing or with your fam­i­ly, what­ev­er it hap­pens to be. And maybe you’re doing both I don’t know. But hope­ful­ly you’re hav­ing a won­der­ful day. So, Brad, what’s your kind of word phrase or thought of the day? Well, it’s fun won­der­ing what it’s family,

Brad Giles 01:29

it’s fam­i­ly, because cer­tain­ly in our house­hold in our cul­ture, the hol­i­day, that is the 25^th of Decem­ber, is real­ly a chance to stop to enjoy a meal or a few meals with a fam­i­ly. And just slow down and look at things through per­haps a slow­er per­spec­tive. So yeah, it’s family.

Kevin Lawrence 01:58

Yeah, and I would tie into that con­nec­tion, and just, you know, qual­i­ty times with peo­ple you care about, every­one’s fran­ti­cal­ly run­ning around and our cul­ture and, you know, peo­ple come togeth­er on the 24^th and 25^th, in par­tic­u­lar with fam­i­lies, and spend time togeth­er and tell sto­ries and laugh and, and, you know, what­ev­er rit­u­als that they have in their fam­i­ly and just come togeth­er and have a great time and get recon­nect­ed. Peo­ple trav­el all over the world to get back, you know, for the 24^th and 25^th. And then we have, you know, Box­ing Day where many go shop­ping and, you know, oth­ers have lots a day for a lot of par­ties and things like that with friends. But it’s great time to con­nect, and we get re ground­ed and those peo­ple that you know help to bring out the best in us and whether it’s our par­ents or sib­lings or kids, what­ev­er. It’s dad spe­cial time. So yeah, wonderful.

Brad Giles 02:51

Yeah. For us. For us. It’s very much about the beach, believe it or not. Some on the beach. Yeah, Christ­mas hol­i­days. Yeah, it’s a lot of nev­er thought about

Kevin Lawrence 03:04

that. That’s right, because it’s your sum­mer for us. It’s win­ter. And it’s about you know, a great Christ­mas Day is when it snows. Oh, like we hope that we always hope for a bit of snow on Christ­mas and not so much that the rel­a­tives have a hard time get­ting around. But enough that it looks hav­ing a white Christ­mas because it looks beau­ti­ful. I guess that prob­a­bly does­n’t hap­pen for you to prob­a­bly don’t have that con­cept down there, dear.

Brad Giles 03:26

Not at all. Not at all what­so­ev­er. Not the idea of Christ­mas. That where it’s snow­ing is only on Amer­i­can tele­vi­sion. That’s it? Yeah, we don’t know what it means.

Kevin Lawrence 03:40

I’ll tell you I could get han­dle a lit­tle bit of snow Sun a Sun­day, Christ­mas would be nice. All right, well, let’s jump into today’s show. So you know, we’re talk­ing. We’re on episode three of five in this five part series about plan­ning to win in 2023. We had an overview, which was the first one, the last one last week was around peo­ple and how do we real­ly think and opti­mize when it comes to our peo­ple? And today it’s your own strat­e­gy. And you know, when it’s real­ly you know, in a down­turn that we’re poten­tial­ly head­ing into, we’re going to hope not but the the arrows are point­ing in that direc­tion. It’ll cus­tomers might need dif­fer­ent things. Or they might need a dif­fer­ent ver­sion of the same things and spend­ing might change and it might not but we need to have our eyes wide open. And you know, in the the quote I shared last week from Art of War from Sun Tzu is about vic­to­ri­ous War­riors win first than going to war, which is real­ly think­ing ahead and plan­ning. It’s kind of the road we want to walk you down a bit today. And so that’s where we’re kind of going is how can you win when it comes to the strat­e­gy win­dow that you look at your busi­ness through? How can you spend a bit extra time to be extra pre­pared and be on your toes so that you’re not sur­prised and hav­ing some on desir­able or shock­ing sur­pris­es? Some­thing caught, you know, maybe a lit­tle bit asleep.

Brad Giles 05:03

I think that’s, that’s, that’s real­ly good. Like we’ve got a plan. We know. It’s a plan­ning, right, but But equal­ly, I come back to a quote that our good friend Jim Collins said, that is the sig­na­ture of incon­sis­ten­cy is not unwill­ing­ness to change. The sig­na­ture of medi­oc­rity is chron­ic incon­sis­ten­cy. And so what we’re say­ing is like, we have a many com­pa­nies broad­ly have a strat­e­gy, how are you going to be dif­fer­ent how you’re going to cre­ate a unique and valu­able posi­tion in the mar­ket that is dif­fer­ent from com­peti­tors. And we may need to adapt giv­en this envi­ron­ment, but we’ve got to keep the fun­da­men­tals in place. Piv­ot­ing is fine for star­tups where they haven’t been able to get prod­uct mar­ket fit. But piv­ot­ing is not some­thing that a busi­ness that is endur­ing and last­ing should be doing.

Kevin Lawrence 06:06

Over piv­ot­ing is a prob­lem. Yeah. And some peo­ple get too caught up. By the way, Brad, I went and just I was just tweak that quote, because when you said it did­n’t land, so I just looked, the sig­na­ture of medi­oc­rity is not the unwill­ing­ness to change. The sig­na­ture of medi­oc­rity is chron­ic incon­sis­ten­cy. Thank you. The first word, the first phrase was medi­oc­rity. I was lis­ten­ing to it. And I was like, I got I had to clar­i­fy it. So no, no, thank you. It’s yeah, medi­oc­rity is basic, often chang­ing too much, and not being con­sis­tent and grind­ing out the things that mat­ter most. And that’s, that’s, you know, it’s, um, you know, anoth­er quote from Jim is, it’s, you know, suc­cess is the relent­less exe­cu­tion of the bor­ing basics in your hedge­hog, right? The bor­ing basics that mat­ter? Absolute­ly most. So we’re gonna dig into some more of that stuff that the first thing I want­ed to talk about, exam­ple is that, you know, I was with a CEO two weeks ago. And I’ve been work­ing on this for forces of growth, stuff from from my new book. And I was test­ing some assess­ments, but no mat­ter what we had them fig­ure out that they were spend­ing about 10% of our time in the growth quad­rant, and 60%, at least, or 70, in the improve­ment quad­rant. And we could have a whole con­ver­sa­tion about why they were in the improve­ment quad­rant, what is it to do with their team or their foot, but the real­i­ty is, what they real­ize based on their growth goals, they prob­a­bly need 60% of their time focused on the growth of the com­pa­ny. And that’s, you know, sales, mar­ket­ing, merg­ers and acqui­si­tions. Acqui­si­tions don’t want to merge. New mar­kets do that, but they’re there, they got a gap of 50%, they’re dis­tract­ed with a whole bunch of oth­er things said, def­i­nite­ly the pilot needs to be in the cock­pit active­ly fly­ing the plane, not mess­ing around in the back, and deal­ing with the bag­gage or deal­ing with, with, with with the with the the cus­tomers. But they were they were they were way off and they had the epiphany and they real­ly have to relo­cate their team. So the thing to real­ly share is, you know, the key was strat­e­gy, you need to be focused on every busi­ness is dif­fer­ent, but what is where, you know, around growth, or the oppor­tu­ni­ty part of your busi­ness, and not too much time spend­ing prob­lems or deal­ing with those oth­er issues, because you’re gonna have to work hard­er to get the same growth in oth­er CEOs said, yeah, he did­n’t see it was like, you know, I’ve real­ized he spends, you know, 30 40% of his time in a growth quad­rant. And he real­ized he prob­a­bly needs to spend 60. And I said, Why 60? He goes well, because it’s going to be twice as hard to grow as it has been in the past. So if I want the same growth work worth rate, I prob­a­bly need to do quite twice the work on growth to get the same growth rate I’ve had in the past. I was like, yeah, it’s bril­liant point of it is spend­ing your time where it mat­ters and where it’s going to dri­ve your busi­ness, which will be dif­fer­ent than it prob­a­bly was last cou­ple years.

Brad Giles 09:08

So for our lis­ten­ers who have a bel­ly full of Turkey, and I’m think­ing, what are these quad­rants and the four forces. So we did an episode, I think it was episode 137, the four forces of growth. And this is the mod­el that Kev­in’s work­ing on for his new book about the four forces of growth. So you can go back and have a look at that. But it’s a great point, Kevin, you know, we need to be con­sis­tent with what we’re work­ing on and understanding

Kevin Lawrence 09:38

and where we’re spend­ing our time. Yep.

Brad Giles 09:41

Yeah, yeah. So maybe we kind of begin as well by ask­ing about your hedge­hog. Look­ing to the uncer­tain­ty that is 2023. Let’s go back to the let’s get back to the Hedge­hog, which is from Jim Collins. and ask three ques­tions. What’s your core pur­pose? What are you deeply pas­sion­ate about? What’s your eco­nom­ic engine dri­ver? How do you make mon­ey? And then num­ber three, is what can you be the best in the world at. And so the inter­sec­tion of those three cir­cles is the hedge­hog con­cept. And that is the dis­ci­pline that we main­tain as we climb the moun­tain. That is our V. Hag. So in the uncer­tain times, we need to main­tain that dis­ci­pline, also.

Kevin Lawrence 10:28

Yes, and that’s a great to go back to those core prin­ci­ples that you’ve looked at and worked on over the years to get reground. And if you don’t have those guid­ing prin­ci­ples, you know, maybe sort them out pret­ty quick.

Brad Giles 10:40

Because they are the guardrails. So as you’re rac­ing up the moun­tain like that, we should revert back to these fun­da­men­tals. And that is, you know, the basis of strat­e­gy is under­stand­ing these broad deci­sions that we make, we’re going to stick in,

Kevin Lawrence 10:54

right, who are we who aren’t we? How do we win? How do we not win all that stuff.

Brad Giles 11:00

So it reminds me of a client who was heav­i­ly reliant on gov­ern­ment spend­ing. They, they were always that they ser­vice that mar­ket, and they did it well. But the prob­lem, they were con­cen­trat­ed in one area. And whilst it was­n’t the going into the down mar­ket that we’re talk­ing about, in their world, it was a down mar­ket because a new gov­ern­ment came in. And that meant that the new gov­ern­ment had new pri­or­i­ties, and they stopped spend­ing every­where that they that they did­n’t real­ly was­n’t essen­tial, let’s say, and so sud­den­ly, their rev­enues just plum­met­ed. And so under­stand­ing how does the strat­e­gy cater for those types of sce­nar­ios, and being pre­pared for that means that you don’t have to make ter­ri­ble and dif­fi­cult choic­es, if that hap­pens when it’s too late. And MCU, Sun­soo quote from the begin­ning, that they’re going to war with a plan.

Kevin Lawrence 12:15

Yeah, and you know, and lots of gov­ern­ments are spend­ing mon­ey like it’s going out of style. But if things tight­en up in the econ­o­my, many sec­tors, some coun­tries will tight­en up spend­ing, some will keep print­ing mon­ey, and that’s a whole dif­fer­ent stretch. Yeah, that’s anoth­er thing to be care­ful of is your cus­tomer con­cen­tra­tion, and how you set up based on where the mar­ket could go into dif­fer­ent sce­nar­ios? Yeah, no oth­er prin­ci­ple I think it was, is, you know, a client that, you know, we have, and we did this dur­ing COVID. We also did back in Oh, 910. And it’s just get­ting out to the out front, all peo­ple get­ting clos­er to the cus­tomer. And I get basi­cal­ly, I call it stop play­ing office, when times are boom­ing peo­ple can spend a lot of time in our office and tweak things and man­age things because there’s so much demand. But it’s it’s dan­ger­ous to spend too much time in your office. And some peo­ple say they can’t get out. Well, that’s a whole oth­er con­ver­sa­tion. But basi­cal­ly, you know, many com­pa­nies and back then, and COVID, time for the num­ber of times that exec­u­tives get out talk­ing to cus­tomers, meet­ing cus­tomers, meet­ing prospec­tive cus­tomers. So one, they’re sup­port­ing the effort that’s out front, to gen­er­ate their oppor­tu­ni­ties, but to their learn­ing and hear­ing what the cus­tomer is say­ing and want­i­ng. And you don’t get that being in the office, you don’t get that through reports. So basi­cal­ly get them back up front so they can learn and under­stand a heck of a lot more and not go ahead read.

Brad Giles 13:46

And in. I talked about that as the ambas­sador role. Yeah, in the book made to thrive. The five roles of a CEO, num­ber two is the ambas­sador role. You’ve got to be out there if you’re the leader or a leader, and you’ve got to be under­stand­ing what’s hap­pen­ing, com­mu­ni­cat­ing with clients reg­u­lar­ly. So that clients and employ­ees and oth­ers but yeah, it’s a key role that you can­not for­get. And you cer­tain­ly can’t for­get, because you’re wor­ried about what’s hap­pen­ing. You’ve got to be out there know­ing what’s going on.

Kevin Lawrence 14:18

Cor­rect. And it’s easy to get bad habits in boom­ing economies. Yeah. And you know, it’s the oth­er com­pa­ny I’ve worked with in the US they had two com­pa­ny planes, just and they were amaz­ing. They had this dis­ci­pline nail, but they had two planes, so that they could go and see three and four cus­tomers a day. And they had big cus­tomers they did a lot of vol­ume with and they would take four or five mem­bers of the exec team and hit four cus­tomers. And those, each of those cus­tomers would do 10s 10s of mil­lions of dol­lars of busi­ness with them. And they will go and stop and see them reg­u­lar­ly which allows them to keep their rela­tion­ships keep in front and they show up with their work and exec­u­tives seen when they were work­ing on deals, right? Not the sales­per­son, not the head of sales, the head of sales and the exec­u­tive team, which means that we’re here to do busi­ness like seri­ous­ly here to do busi­ness. Now that was their strat­e­gy. And it worked incred­i­bly well for them. And it’s not about get­ting a plane, or planes, but it’s about reg­u­lar­ly being out in front of your cus­tomers, because it shows com­mit­ment, show force, show of how impor­tant a cus­tomer is,

Brad Giles 15:27

an effec­tive strat­e­gy should organ­i­cal­ly dri­ve cus­tomers to your busi­ness, because you’re meet­ing their needs bet­ter than any oth­er com­peti­tor. It’s all about the cus­tomers and meet­ing their needs. And some­times, in these envi­ron­ments, whilst we main­tain, okay, we don’t want chron­ic incon­sis­ten­cy, we may need to adapt and under­stand. So going back and think­ing about your core cus­tomers, and what are their needs? And are their needs chang­ing in this new 2023 poten­tial reces­sion envi­ron­ment? Is their spend­ing per­haps chang­ing could actu­al­ly cre­ate oppor­tu­ni­ties as well as some chal­lenges and actu­al­ly tak­ing the time to under­stand in this new envi­ron­ment? What do we need to do? How do we main­tain the integri­ty of our hedge­hog and what we under­stand to be our strat­e­gy mov­ing forward?

Kevin Lawrence 16:29

Yeah, and hav­ing the humil­i­ty just to go be lis­ten­ing and ask­ing and under­stand­ing, and the cus­tomers will be taught. But once CEO says, Every time I go out, I find way more oppor­tu­ni­ties than we can prob­a­bly han­dle. But they said, they don’t get enough. Share your sto­ry, what not to do. And this was a sto­ry I remem­ber very clear­ly in, you know, the the eco­nom­ic down­turn, and this was a com­pa­ny that I worked with, I’m gonna be gener­ic out of respect for the com­pa­ny, but they were boom­ing, they had the high­est EBIT, a per­cent­age they’d ever had. And it was just a cash cow and mon­ey machine. And, you know, they had a strat­e­gy that was very clear, major nation­al brands, and they were had all the same prod­ucts and the same fea­tures and ben­e­fits. But they were like on a less­er known name. But the prod­uct was essen­tial­ly the same, but not from a nation­al brand. Think of it being, you know, like a knock­off of Apple. Yep. Right. It’s not as extreme because they weren’t in elec­tron­ics, when give me an exam­ple. And if the Apple had all the fea­tures you want­ed, it was $1,500, they would have all the same fea­tures. It was­n’t soft­ware depen­dent, so it was­n’t as chal­leng­ing to con­vert. And, and they would have been $1,200, instead of $1,500. With all the fea­tures, all the stuff looks the same, just a dif­fer­ent brand on it. So that was their strat­e­gy. And they done very, very well. Busi­ness was boom­ing, going through the roof, every­thing. And then when the mar­ket changed in Oh, eight or nine, they got ham­mered hard, like really

Brad Giles 18:09

bad­ly as in, they lost sales,

Kevin Lawrence 18:12

a lot of sales more than they should have, they dropped more than the mar­ket dropped. And what hap­pened is these big nation­al brands obvi­ous­ly got more com­pat­i­ble that they found when they actu­al­ly went into the mar­ket. They no longer had any dif­fer­en­ti­a­tion and com­pet­i­tive. They basi­cal­ly their strat­e­gy was­n’t at play. See what hap­pened is the mar­ket was so boom­ing, well, they were sell­ing their iPhone, they’re no name iPhone, for $1,500. And the iPhone was $1,500. So they were right there. If the iPhone was 1500, with all the fea­tures, they had all those fea­tures, they were sup­posed to be 1200 to have a val­ue dif­fer­ence. But they were actu­al­ly at the same price. And the price it creeped up, not because of the strat­e­gy because there was so much demand in the mar­ket, it did­n’t mat­ter. Yeah. And what they did­n’t real­ize is they giv­en up their com­pet­i­tive advan­tage. But then all of their designs and their sup­ply, every­thing was designed around a $1,500 unit. They had lost their way on being of a cheap­er alter­na­tive. And it’s sad because it real­ly hurt the busi­ness took a long time took out all the prof­its. Thank­ful­ly, they had stacks of cash at the time. So that was good. But these were good peo­ple, smart peo­ple. But dur­ing the boom, the CEO took his eye off strat­e­gy, and they were full blown exe­cu­tion mode. And basi­cal­ly they they drove them they drove away their own com­pet­i­tive advan­tage. They let it go. And when the mar­ket changed, their com­pet­i­tive edge was so weak that it real­ly hurt.

Brad Giles 19:49

Maybe we’ll talk about this when we get to the exe­cu­tion sec­tion and we’re look­ing through our eyes try­ing to seek dis­counts from our sup­pli­ers or Go get bet­ter prices been in this envi­ron­ment. It might be worth con­sid­er­ing. dis­count­ing. So what are we going to do? If cus­tomers ask us to dis­count now I’ve got my opin­ion on dis­count­ing. Do you think we should be dis­count­ing Kev, if we’re giv­en the oppor­tu­ni­ty to win some more work in a down­turn? No. I agree. No, why?

Kevin Lawrence 20:33

Dan­ny, undis­ci­plined per­son can low­er price to get a sale. That does­n’t take any skill. It does­n’t know there’s nego­ti­at­ing terms and sales­peo­ple do all the time. But chang­ing your strat­e­gy and start­ing to dis­count is a dan­ger­ous way to go. So I’ll give an exam­ple from the car world. I’m a car nut. Brands like Porsche. I know for sure. And I believe Fer­rari. when demand drops, they make less units. So they don’t have to dis­count at all zero. So they mod­u­late demand, Amer­i­can car­mak­ers in the past, like the GMs. And the Fords. They don’t they don’t mod­u­late pro­duc­tion near as much. So when the mar­ket slows down, they have to dis­count like crazy 10,000 Off 20,000 Off $25,000 Off, you know, so it’s a dif­fer­ent strat­e­gy. And if you want to pre­serve the val­ue, par­tic­u­lar­ly brand and things like that, you want to dis­count it all you want to avoid dis­count­ing at all costs, just just just con­strain your sup­ply, maybe don’t pro­duce as much for a peri­od of time. The only way it makes sense to dis­count if there’s a real way that you can dis­count and increase your prof­itabil­i­ty. Right, some peo­ple will go chase mar­gin dol­lars and say, Well, you know, instead of doing a $20 mil­lion con­tract, with $12 mil­lion of mar­gin, we’ll do a $30 mil­lion con­tract with 12 mil­lion in mar­gin. That’s just that’s just not smart. I mean, some­times look, you got to do things some­times. And some­times you have no choice, right? You’ve got fixed assets that you got to cov­er with some vol­ume and things like that. But gen­er­al­ly, that should be the very, very last option. And it’s just, it’s an undis­ci­plined way some­times. And some­times maybe it’s a strat­e­gy. If you’re a dis­count brand. It’s dif­fer­ent. I’m talk­ing if you’re not a dis­count brand. So there should be a lot of oth­er levers that you can pull first. But it’s the one your sales­peo­ple will come back with real quick and say you got to do

Brad Giles 22:48

because we need to make the gross prof­it bud­get so that we can pay expens­es. That’s what they’re gonna say,

Kevin Lawrence 22:55

well, actu­al­ly, they’re actu­al­ly they’re gonna say we’re gonna need to do it so we can get her bonus­es or hit her sales tar­gets are good, our Com­mis­sion’s Yeah, they often don’t care about the inner work­ings. So and they’re not bad peo­ple. I don’t blame them. But the real­i­ty is, dis­count­ing is usu­al­ly that means you’ve got a lack of a strate­gic alter­na­tive. And but yeah, you might it may be maybe your indus­try gets more aggres­sive on pric­ing. But it’s it should be and I just heard this great quar­ter, but dis­count­ing And who was it in the last week that so for exam­ple, one of the clients that, that I worked with, and I’m try­ing to recall who it was, there’s so many great exam­ples, one of these I know once and thing is, once you start in retail, for exam­ple, once you start going on sale all the time, and you strain your cus­tomers to expect dis­counts. It takes years to then train them to wait and pull pay full price. Yeah, because peo­ple start­ed dis­count hunt­ing all the time. So some­times peo­ple have to do it. And it’s part of what they do. I think that just means you need to get more cre­ative and find ways to do it. So you can dis­count and increase your mar­gins and change the struc­ture of the deal some way or you can dis­count and increase your net prof­it from it or your EBIT from it from oth­er cre­ative ways. Yep, fine. But that’s, you know, dis­count­ing the top line in a way that might ben­e­fit some­body else but but mak­ing sure that it’s more sticks for you. That would be the dis­ci­pline try and stick to at all but if at all possible.

Brad Giles 24:29

Well, if we over­lay the the strat­e­gy lens on to what we’re say­ing here, we want to avoid the indus­try stan­dard price, okay, at all costs. Yes. Because with the indus­try stan­dard price, all we’re doing is col­lect­ing the inputs of costs of labor and mate­ri­als and real estate and what­ev­er else. And then we’re just end­ing up at the aver­age price to pro­duce a the­o­ret­i­cal aver­age 10% But, or what­ev­er per­cent, but Yeah, strat­e­gy tells us that we’ve either got to charge more than that by pro­vid­ing more val­ue, cor­rect way of addi­tion­al options ser­vice, what have you, or we’ve got to pro­vide more val­ue by hav­ing a more effi­cient par­mi effi­cient sup­ply chain and effi­cient deliv­ery method. So we’re either pro­vid­ing more val­ue above the aver­age price or below. And so putting that back to dis­count­ing, either, we’re say­ing, but what we’re say­ing is, if you can pro­vide more val­ue through that dis­count­ing, then that’s fine. And you may be able to actu­al­ly dis­count by adding some­thing in to a deal. In these

Kevin Lawrence 25:43

dots. Yes, there’s lots of things. And the point of it, I think, Brad, that you’re get­ting, is that put that cre­ative ener­gy onto how do we add more val­ue? Yes, yes, yes. That’s it, like, how do we add, so I’ve got one of my clients, and we were just tak­ing a look back. And when we start­ed work­ing togeth­er, their gross mar­gin was 22%. Right, which is typ­i­cal for their indus­try. But we also found that the best was get­ting close to 40%, not the aver­age, they were at the aver­age. But the best was 40. So we start­ed hunt­ing down 40% mar­gins, and it took a few years, we got the whole com­pa­ny up to 32 points high­er, most of which is stick­ing to the bot­tom lines, they have a much health­i­er bot­tom line. But the point of it is, is we start­ed hunt­ing it and we start­ed think­ing dra­mat­i­cal­ly dif­fer­ent, not lin­ear­ly and log­i­cal­ly, but strate­gi­cal­ly look­ing for val­ue that we could cre­ate and cre­ative things that we could do to charge more and or have a notably low­er cost base and crank up the mar­gins, which we did suc­cess­ful­ly. But it’s because we put and I have many exam­ples of that. And it’s not about the econ­o­my, or just it’s look­ing for prob­lems you can solve. The peo­ple are will­ing to pay more for or pack­ag­ing it in ways that make it more attrac­tive for them because they have dif­fer­ent needs. Yeah. So very, very good point.

Brad Giles 27:11

Yeah. So where are we going with this? If we, if we look at it, what we’re say­ing tough envi­ron­ment and 23. We’re look­ing at it through the lens of strat­e­gy, which is about cre­at­ing a unique and valu­able posi­tion rel­a­tive to the com­pe­ti­tion. And then we come kind of come back and say, we’ve got to be main­tain con­sis­ten­cy, we’re look­ing at the hedge­hog around that. We’re try­ing to then say, it comes down to the plan. So you’ve got to be able to look at what your plan is deliv­er­ing. Are you going are you going to is your plan going to be less effec­tive? i You’re going to be not able to meet cus­tomers needs. I saw a great quote from Jeff Bezos recent­ly. And and it’s real­ly inter­est­ing because it makes us zoom right out, it says, I very fre­quent­ly get the ques­tion what’s going to change in the next 10 years? I almost nev­er get the ques­tion, what’s not going to change in the next 10 years? And I sub­mit to you that that the sec­ond ques­tion is more impor­tant of the two because you can build a busi­ness strat­e­gy around that things or oth­er things that are sta­ble in time. So with­out going through that in great detail, like that’s a real­ly impor­tant point, is your strat­e­gy, some­thing that won’t change through this poten­tial downturn?

Kevin Lawrence 28:38

And what pieces of it for sure, won’t change. And there might be some that you won­der about, but some of the fun­da­men­tals, you know, Collins calls it a relent­less exe­cu­tion, on the bor­ing basics, were those bor­ing basics you got­ta mas­ter because you know, they’re not going to change what the cus­tomer wants is going to be the same.

Brad Giles 28:55

And to that point, very quick­ly, Jeff Bezos goes on. And he says, I can’t imag­ine a future where peo­ple aren’t going to say, I wish that prices were a lit­tle high­er, or I wish you could deliv­er a lit­tle bit slow­ly, a bit more slow­ly. So what are the oth­er fun­da­men­tals of your strat­e­gy, the dif­fer­ence between you and the com­pe­ti­tion? And are they everlasting?

Kevin Lawrence 29:18

So anoth­er thing real­ly quick and then we’ll we’ll wrap up but get­ting into that thing about prof­itabil­i­ty also at the root of the whole thing is he got to know where you make mon­ey and where you don’t and be cre­ative about oppor­tu­ni­ties and a lot of peo­ple don’t have great gran­u­lar prof­itabil­i­ty report­ing. Part of this four forces of growth were built an assess­ment and behind and on the cap­i­tal side, there’s a big piece on report­ing. Most peo­ple’s report­ing is very high lev­el in gen­er­al, and they don’t know the most pop­u­lar prof­itable cus­tomers. They know the gross mar­gin maybe, but not prof­itabil­i­ty per cus­tomer, not prof­itabil­i­ty per prod­uct or per region. And then the com­pa­nies that we dial in report­ing, you know exact­ly what’s what, where is the prof­it made? Where is it giv­en back because of cus­tomers that you don’t make mon­ey on. So get­ting that prof­itabil­i­ty, and then you can make con­ver­sa­tions inter­est­ing. I had one client that had a cus­tomer that was about 25 mil­lion a year of vol­ume. And they came and they want­ed fur­ther dis­counts. They demand­ed it in a tough time. Well, thank­ful­ly, we had prof­itabil­i­ty per cus­tomer data, which we reviewed. Well, we made 250 grand a year prof­it after every­thing was allo­cat­ed, because there were a high main­te­nance. And basi­cal­ly, in the meet­ing, I go tell them to pound sand. That’s a nice way to say some bad words in our cul­ture. Yeah, um, to get away, like, tell them that like, no mat­ter again, I was able to say that I was­n’t mak­ing the deci­sion. But I knew if we’re mak­ing 250 grand or $25 mil­lion cus­tomer, I’m not even enter­tain­ing the con­ver­sa­tion. Yeah. Of a fur­ther dis­count. It’s no, actu­al­ly we should increase your price. Yeah, but the thing is, we had the data to know not to even waste any time on it. And that’s the key. Right? And, and obvi­ous­ly, and there was no way to real­ly there was­n’t a lot for a lot of rea­sons to real­ly increase the mar­gin of the prof­itabil­i­ty on that cus­tomer. But it’s under­stand­ing that, then then that makes it much more,

Brad Giles 31:30

that’s the kind of gift that you can give your com­peti­tors in a down market.

Kevin Lawrence 31:35

Yes. Go make your­self real busy with this client that you bare­ly make a per­cent on? Is that a per­cent? That’s 1%. Yeah, it’s, it’s, it’s hor­rif­ic. It’s less than 1% 25 2.5. It’s not much. It’s just 1%. And, and, and if you put a cost of cap­i­tal on that, ya know. So, um, the idea here is real­ly eval­u­ate your strat­e­gy and look about where you’re mak­ing mon­ey, where you’re allo­cat­ing resources and your focus. I mean, hav­ing you know, in that last piece, I talked about return on cap­i­tal hav­ing and we’ll talk about that in the prof­itabil­i­ty sec­tion of the cap­i­tal sec­tion. But know­ing where you make mon­ey based on where you invest mon­ey is also a help­ful thing to get into it. No one will works out there talk­ing to cus­tomers, feel­ing touch­ing, hear­ing the mar­ket, and mak­ing bet­ter deci­sions, and ide­al­ly, avoid­ing dis­count­ing unless that’s some­thing that your whole indus­try is doing, and you’re forced into it.

Brad Giles 32:36

Very good. Good con­ver­sa­tion. And you know what, it actu­al­ly went down a num­ber of rab­bit holes, which I enjoyed, I hope that you did as well. So, yeah, look, it is that’s why we do this. You know, we’ve got oth­er things to do on Christ­mas. We’re not real­ly here on Christ­mas Day. So yeah, how do you win in strat­e­gy? I guess you’d begin by being con­sis­tent under­stand­ing the needs of the cus­tomers, all the things that we’ve cov­ered off with­out going back to them. Now. Next week, we’re going to be talk­ing about how to win in strat­e­gy. How to win in 2023, excuse me on exe­cu­tion. So I look for­ward to that one some inter­est­ing because, look, exe­cu­tion is how you retain the prof­it, which mat­ters so much. So let’s move to close. My name is Brett Giles. This is the growth whis­per­er as my col­league you’ve been hear­ing chat is Kevin Lawrence in Van­cou­ver in Cana­da. I’m in Perth, Aus­tralia. As you may be able to pick up by the dif­fer­ence in the accents that we have. You can find both of us we put out an inter­est­ing newslet­ter each week. If you enjoy this sub­ject mat­ter, you can find mine at evo​lu​tion​part​ners​.com​.au You can find Kevin at Lawrence​and​co​.com. And obvi­ous­ly also you can find us if you pre­fer to see our smil­ing faces on YouTube just by search­ing the growth whis­pers hope you’ve enjoyed the show I look for­ward to and I hope that you’ve actu­al­ly had a good Christ­mas hol­i­day, what­ev­er you cel­e­brate a bit of a time off bit of a break. Hope you’ve enjoyed the day. Look for­ward to speak­ing to you again next week. Enjoy your week. Have a good one.