The Hidden Patterns Behind Business Failures: Conversations with Larry Mandelberg | Episode 18

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Hello everyone.
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This is James from the Recognition Factor and I'm here this morning with Larry Mandelberg, author.
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He's got a really interesting history.
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We actually spoke briefly yesterday and we got into a really good conversation, a bit of debating all this sort of good stuff, and I thought let's cut it short so we can bring it all into this morning.
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So, larry, welcome.
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Thank you, glad to be here, james.
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Do you want to tell me, like, talk through your history a bit, basically what we discussed yesterday about what your sort of family company and its long history, and then what made you intrigued about why family businesses fail and what those sorts of things are, and the name of your book, which is kind of a pretty provocative name?
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And let's start there, shall we?
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Well, let me first start by saying it's not just about why family businesses fail.
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It's about why any organization with a particular set of demographics fail, and two of the most important, just so your listeners can be focused.
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The most important, just so your listeners can be focused.
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This research was not done on retail organizations and it was done with organizations that are autonomous, that don't have outside controlling factors that force them to do things that may not be in the interest of the customer, like publicly traded companies who operate based on stock price.
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So my family, started privately owned businesses typically yeah absolutely.
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It's interesting as we get into this because it begins to unwind some of the complexity of the details.
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So, for example, I've done this for government agencies.
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I've done this for US House representatives, who have three offices around the country and they were having some struggles and we used this model to help them.
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I've done this for educational institutions.
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Those are not privately owned organizations, but they have autonomy.
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They have the ability and the authority to make decisions that are in the best interest of the people they're serving, as opposed to being forced to do something for money or for political leverage.
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So it's really all about autonomy.
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However, that autonomy may be acquired.
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Got it, and so yeah, and so yeah, tell me about your business background as well, because that was really interesting to me.
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So it's really kind of a simple short story and it's the root of my personal competitive advantage.
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I'm fifth generation in a family-owned business started in the 18th, so I like to say I've got 170 years of business experience.
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My family was one of the early adopters of the concept of pay it forward.
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We're going to teach you and I'm going to teach my kids what I learned, so they don't have to learn it the hard way.
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They'll teach their kids, so you accumulate this knowledge.
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We started in hides and furs in Canada, moved to Texas and got involved in scrap because hides and furs were clothing and they didn't really fashion, I should say, with things out in the field which led to agriculture, which led to mechanization, which led to motors, which led to pumps, which led to hydraulics.
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And by the mid-1900s we were involved in ag dealerships, automobile dealerships, a big machine shop and an auto parts store.
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So one day we were sitting in the auto parts store, which is where that was kind of the core of the business, and I was 13 years old at the time and my dad said and I've been working there since I was eight my dad said how in the world did we go from no automobile manufacturers to 300 automobile manufacturers, to three automobile manufacturers in like 20 years.
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How is that possible?
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And while he was technically wrong and I speak to the actual details of the reality- of that situation.
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he had an interesting point because he was close.
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Manufacturing cars is not a trivial task and to have so many start and almost all of them failed so quickly was fascinating to him.
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Being a natural born entrepreneur, I wasn't so concerned about that as much as I was concerned about why do businesses like ours you know the family business fail?
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Why do they fail?
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So I began a journey in my teens to find the answer to the question why do businesses fail?
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I identified a specific demographic so that it was consumable.
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I used statistically valid research samples, over 100 organizations, over 250 executives from the top three tiers of management, and I created a hypothesis.
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I built a construct.
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I used it to evaluate the hypothesis, I came up with a theory.
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After 23 years I took that theory, ran it through six years of proof of concept and then I wrote the book.
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So the book is called Businesses Don't Fail.
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They Commit Suicide.
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How to Survive, survive, success and thrive in good times and bad, and what that really means.
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The title of the book, the purpose of the title of the book, is to get somebody who's scanning to go whoa, what's that?
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And then to learn more.
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So it's not about business suicide right it's about how to survive success.
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Well, you go.
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What the hell does that mean?
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What does surviving success mean?
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When an organization is successful, it's growing.
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When you grow, you create change, whether you like it or not.
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It doesn't matter what the growth is.
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It could be revenue.
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It could be geographic territory covered.
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It could be products.
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It could be services.
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It could be staff.
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It could be revenue, could be geographic territory covered, could be products, could be services, could be staff.
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Could be anything, it doesn't matter what it is, but if you're growing, you're successful.
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Or, if you're successful, you're growing, right, you have 10 customers and you grow, and you have 100 customers.
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You can't manage 100 customers the way you manage 10 customers.
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You have to change.
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So what I found was that organizations fail to prepare for the changes growth forces on them and all too frequently the decisions they make end up destroying the company.
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Hence, businesses don't fail, they commit suicide.
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Right, so is there.
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And you asked about my background.
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You asked about my background 13 businesses I've won 13.
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The family business and 12 other businesses in five or six different industries, from retail clothing to construction, to technology, to education across the board.
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Candle making Okay to education across the board Candle making.
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Okay, so suicide in terms of well and this is where, a provocative title notwithstanding, I would say, it sounds to me like it's poor decision making that kills them, as opposed to them doing harakiri, saying we want to die.
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Yes, and I've had conversations with people about this.
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It's not about saying I want to die yes, and I've had conversations with people about this.
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It's not about saying I want to die.
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It's about saying I don't know what to do and not doing what you need to do to get the right answer.
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But stopping short of getting the right answer.
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So my understanding of what you're saying is that it's not some exogenous external thing that kills them, but rather their own decisions, and so you're kind of right adding a bit of spice to that and calling it suicide.
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But really it's saying you guys did this, so you guys were responsible for the death of you, so to speak.
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Exactly that, actually, I can talk about my own family business experience briefly.
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It's still.
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It's still hurts to talk about because it's a very hot and cold thing and it was like a hundred year old company and it was in trouble when and I'm trying to speak about this in through the lens that you're suggesting and my so it was a great grandfather started it.
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Grandfather really kicked it off.
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Second generation, stereotypical second generation.
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It established a very good name in Australia.
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My dad took over and carried it on, worked hard there's no profligate spending or anything like that.
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He was really doing, trying to do the best thing by the business.
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But it came across some hard times.
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Now, if I dissect that, those hard times were related to decisions being made and it could even be people that were hired or incentivized in the wrong way, and then he couldn't quite figure it out, so he had a general manager come in from the outside, and this general manager was, I think in texas they say, all hat and no cattle, right, so he was just the he.
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He was just the wrong kind of guy and of course, a senior role like that, being the wrong kind of guy, is a high leverage, so it can make some really poor decisions, and so that was that, was sort of one set, and then I came out of.
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I was working in china at the time.
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I came back from china, inherited a company that was had its issues, definitely kept it going for 10 years, but five years into it, to your point, I was like I did not want to be spending the next 20 years running like something that's just struggling along so much it's like it's not fun, it's like I'm losing good people and it's just.
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I couldn't figure it out and I thought to myself that there was a big project and I thought at the time this is going to make us or break us.
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Either of those things are okay with me, right, and so, and because I didn't want that middle mediocrity for 20 years, I wanted either to be out of it or to be in one way or another.
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Be out of it, you know, but right balance sheet or gone one of the two and, as turns out, it killed us.
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So was that suicide?
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I don't know?
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Almost it was almost death wish, like risk taking to to, you know, to deal with a sick patient that I'd spent close to 10 years trying to remedy and couldn't so.
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And still it's something that somebody said to me afterwards would you get back into construction?
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And I was like no way, like not at all interested in construction.
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I don't think my heart's in it and I don't think.
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Therefore, I don't think I'm particularly good at it, you know, because if you're not passionate about something, how the hell can you compete against someone who is right?
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So that was that's my story, and as and who was responsible for that?
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Me, I was responsible for that, and did many people lose their jobs when they cut, when the company went down?
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Yeah, do I feel good about that?
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No, so there's, there's a lot of, so there's a lot of things going on there with all that, and that was in 2012.
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So that's probably too much information, but it really sort of does fit.
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It does align with your philosophy there.
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Yeah, it does.
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And I could give you story after story after story of successes and failures that have you know, story after story after story of successes and failures that have you know elements of that of your story, your personal history woven through them in various ways.
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But you know, there was a lot of things that were going on as I was writing this book and one of the things that happened was one of my beta readers said how do you write a business book without a chapter on finance?
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You have no chapter on finance.
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How do you write a business book without a chapter on finance?
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I said well, this is a book about how to avoid business failure.
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Finance doesn't have anything to do with it.
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People don't go out of business because they run out of money.
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People run out of money because they make stupid decisions about their business.
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Well, my goal is to help them learn how to make better decisions so that money isn't a factor, because money shouldn't be a factor Money is a lagging indicator of prior bad decisions that shows up too late to fix, and that's interesting.
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I don't know if you can sell it.
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It's interesting.
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The other thing that I used to get, or still get, from people is because the way I say it is that no business ever failed due to external forces.
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Right, they only fail because of internal actions.
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Only period.
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Never happens any other way.
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And people say things well, that's ridiculous.
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What about natural disasters?
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And I said, well, okay, fine, if I'm the CEO of a company and my job is to protect that company and to make sure that company continues to offer its products and services and serve the markets it's designed to serve, isn't it my job to be prepared for anything that will disrupt that?
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Yes, well then I should be looking at potential natural disasters and if I run across one that I didn't anticipate, I should at least be prepared with mitigation strategies in case it happens.
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That's why people do disaster recovery.
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Totally.
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And I say look at Disney.
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The CEO is responsible.
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Yeah, Period, yeah, period.
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Yeah, and I say look at.
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Disney.
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Disney is one of the most prominent organizations on the planet, whose revenue pre-COVID was almost entirely dependent on bringing large groups of people together in common places movie theaters and theme parks.
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Overnight, those all had to be shut down literally overnight.
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Disney's stock collapsed by the end of the second third quarter of 2020.
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When COVID hit, they were looking like they were about to go under, but meanwhile the board and the leadership had been putting a lot of effort into figuring out how to fix the problem, and they got it turned around in the fourth quarter and by the following year, 2021, when everybody was dying.
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Remember that the real bad deaths didn't start until 2021.
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They were right back up, leading their industry in the stock market.
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They were covered and were stronger than before.
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So don't tell me that a natural disaster is by default going to kill you.
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There are restaurants that closed and restaurants that thought thrive.
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Don't tell me that a natural disaster is by default going to kill you.
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There are restaurants that are closed and restaurants that thrive.
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Don't tell me that it's a pity Disney can't put out good movies, though it's another point.
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Well, yeah, they're only in it to make money.
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Remember, it's a publicly traded company.
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Yeah, do you mind just pausing for a second've got yeah, so disney, disney.
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So they did okay.
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Some restaurants closed.
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Some restaurants did well, so, yeah, some people well, I mean, whether it's, uh, pre-planning or agility or both, some people got through it right, right yeah, and thrived.
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One of the breakfast places that was near where we used to live.
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As you know, we left the US and we now live in Bordeaux, france.
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We were living in Northern California and there was this little.
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It was like a diner, like a gritty grungy.
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It wasn't fancy, it wasn't pricey, it was a very down-to to earth kind of a grungy diner, little diner, and we loved their food and the prices were great.
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They literally closed the doors and put all their tables out in their parking lot and bought barriers.
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We put them up between the tables so people didn't have to be breathing or getting air from other people and they literally for a year and a half served people in their parking lot.
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Sure, people loved it.
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They put umbrellas up when it got hot.
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They did it in the rain.
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It was great, yep, yep.
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So then, what would be your?
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How would you distill the advice that comes out of your book into a few tips?
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Would you say Well, I've got a bask of that stuff, stuff.
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There's a thing that I like to tell people and I've written about this for a long time the the big business secret that small business seems to want to avoid, and when I say big and small, I'm talking about, you know, companies doing hundreds of millions or billions of dollars versus companies doing tens of millions or millions or hundreds of thousands of dollars.
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The secret is so simple and they just refuse to do it, and it's planning.
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You just have to take planning seriously, and planning means you put things in writing.
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So I always start with that.
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If you want to get a competitive advantage, start by planning and putting everything you do in writing.
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Yes, it's time consuming.
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Yes, it adds overhead.
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Yes, it adds cost, but think about the money you save by not making stupid mistakes and being prepared and by bringing the collective wisdom of the people in your circle together to come up with better solutions and ideas.
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That's the first thing.
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The second thing is so that's sorry, just if we put, if we just press pause, so would that be, or at least double click on that.
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Would that involve, let's say, for a business that does a million dollars a year, it's a sailing business.
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Are you talking like a day or two a year just spent going?
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Okay, what's the next year and five years going to look like?
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Is it that sort of thing, or is it more involved than that?
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It's a little more involved than that.
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There are different aspects of the business that need documentation.
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You have to have your purpose documented, and purpose is a little more complex than the way it sounds on the surface.
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What you're talking about is having a business plan documented and, yes, that's part of it.
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One of the things that I recommend that I found to be a problem is that most people tend to incorporate marketing plans inside business plans and to me they're two completely separate documents.
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So you need a business plan on a regular cycle, whether it's six months, 12 months, 24 months.
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Every business can be different, but you know, 12 months is common, annual is common, but you also need a marketing plan that's separate from that, that's based on the cycle of the product or service you're selling.
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So, for example, in Nebraska we sold cold weather things like engine heaters, thermostats and radiator fluid right.
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Well, we had a business cycle that those products didn't impact our summer, so we had a marketing plan for a period of months to take advantage of that sales window.
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It wasn't a one-year marketing plan, it was a new marketing plan every year.
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Then we had hot weather stuff that we did air conditioner, ac pumps, freon fans, etc.
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That was a separate marketing plan that we did for the summer months and we started that planning in the winter so that we were prepared and we could get our marketing.
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So, documenting what people do, what their jobs are, documenting how communication happens All too often I see people launch a project and I say, well, where's the inventory of documents?
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And they say what are you talking about?
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Well, you've got documents floating all over the place.
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There's eight people working on this project.
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Each one of them is working on some other document.
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Where's the list of documents?
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If I need to find some data, do I have to go track down eight people or can I go to a central place where there's one document that lists every document, who's using it, who owns it, how to contact them, what's in it and how I need to submit a change or a modification in it and how I need to submit a change or a modification.
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It's a simple thing.
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And if you understand project management, which if you're a large corporation you can't afford not to, but if you're a small company, go buy a book.
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It's 20 bucks.
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Go with project management.
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For dummies it's probably 12 bucks.
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Take the simple stuff out of there and do it.
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So yeah, it's a little more complicated than two days a year to plan.
00:20:33.555 --> 00:20:35.546
It's a habit, it's a way of life.
00:20:35.905 --> 00:20:59.665
Okay, and what about the post-business plan kind of Silicon Valley, peter Thiel kind of approach where they say agility and pivoting is so important that to come with a beautiful business plan is very much these kind of thinking and it requires a different approach nowadays because everything moves so fast.
00:21:00.508 --> 00:21:04.933
Yeah Well, first of all, they're right and they're wrong.
00:21:04.933 --> 00:21:09.039
It requires a different approach, but not a different tool set.
00:21:09.039 --> 00:21:17.118
So you can't really create a business plan that's a year long, because things move too fast.
00:21:17.118 --> 00:21:23.134
But you can create a business plan and you can create a strategic plan.
00:21:23.134 --> 00:21:27.150
Both of those things come when they're done properly.
00:21:27.150 --> 00:21:34.673
And, mind you, you're talking about Silicon Valley, so now you're getting into some much more sophisticated environments, so the overhead to do this is bigger.
00:21:34.944 --> 00:21:42.019
But one of the things that you have to be able to do is evaluate the assumptions you're making.
00:21:42.019 --> 00:21:48.234
This is really critical in technology and it's also come straight out of classic strategic planning.
00:21:48.234 --> 00:21:53.786
You have to identify the assumptions, the things that you believe are true, that aren't necessarily true.
00:21:53.786 --> 00:21:56.413
Our head of IT will always be there.
00:21:56.413 --> 00:21:57.255
We're never going to lose him.
00:21:57.255 --> 00:21:58.645
What if he gets hit by a car?
00:21:58.645 --> 00:22:00.390
What if he gets cancer?
00:22:00.390 --> 00:22:01.753
Who knows what's going to happen?
00:22:01.753 --> 00:22:03.105
The guy's been there for 40 years.
00:22:03.105 --> 00:22:03.847
It's his whole life.
00:22:03.847 --> 00:22:05.614
How do you know he's going to be there tomorrow?
00:22:05.614 --> 00:22:14.386
That's an assumption, that's not a fact.
00:22:14.406 --> 00:22:25.459
You identify the assumptions, you evaluate the likelihood of those assumptions being true and the impact of those assumptions, and you rate them and you put them on a list of priorities so that you can identify the most likely assumptions to fail in terms of impact.
00:22:25.459 --> 00:22:37.750
And then you take those assumptions and you do mitigation strategies and the cost of those mitigation strategies so that when you're in that fast-moving environment, whatever happens, you're prepared for it.
00:22:37.750 --> 00:22:40.657
Let me give you a little analogy story.
00:22:40.657 --> 00:22:51.088
We spent six years looking for a place to move to in Western Europe six years looking for a place to move to in Western Europe.
00:22:51.088 --> 00:22:53.411
Last April, a year ago, april, we found Bordeaux.
00:22:53.411 --> 00:22:56.334
We flew back home, we started getting ready for Bordeaux.
00:22:56.334 --> 00:22:57.414
We moved in March.
00:22:58.194 --> 00:23:00.377
Late in February we had a going-away party.
00:23:00.377 --> 00:23:04.642
We invited about 700 people, had about 100 people show up.
00:23:04.642 --> 00:23:07.028
We threw our own going-away party.
00:23:07.028 --> 00:23:18.630
One of my good colleagues took me aside during that party and he said to me you know, what you guys are doing is really, really risky and it really takes a lot of balls.
00:23:18.630 --> 00:23:19.853
I'm really proud of you.
00:23:19.853 --> 00:23:24.732
But there's one thing I know about you You've been planning this forever.
00:23:24.952 --> 00:23:38.676
And you've thought through every contingency and even if something happens that you aren't prepared for you'll pull a rabbit out of your hat because you've got all these plans that you've prepared for You'll find a way to deal with it.
00:23:38.676 --> 00:23:41.028
That's what I'm talking about.
00:23:42.410 --> 00:23:45.476
Okay, so that's planning Good.
00:23:45.476 --> 00:23:51.717
So in your toolbox or in your sort of suggestions to businesses, what would be another one?
00:23:51.865 --> 00:23:57.698
Well, the next one on the list of priorities is learn how to embrace change and make it yours.
00:23:57.698 --> 00:24:02.673
Whenever I speak publicly, open my talk, every single well.
00:24:02.673 --> 00:24:05.618
I've been doing this every time for the last 30 years.
00:24:05.618 --> 00:24:12.778
I always ask the audience generally speaking, how many of you believe people like change?
00:24:12.778 --> 00:24:16.671
Raise your hands, depending upon the size of the audience.
00:24:16.671 --> 00:24:19.296
I'll get anywhere from zero to a handful of hands.
00:24:19.296 --> 00:24:23.855
If I have 500 people in there, I'm going to get 20 hands.
00:24:23.855 --> 00:24:28.096
And then I say okay, generally speaking, how many of you feel people don't like change?
00:24:28.096 --> 00:24:31.750
And everybody raises their hands and I say you're wrong.
00:24:31.750 --> 00:24:34.617
Every one of you that thinks people don't like change.
00:24:34.617 --> 00:24:35.626
You're completely wrong.
00:24:35.626 --> 00:24:37.151
You've got it backwards.
00:24:37.151 --> 00:24:40.137
Every single human being loves change.
00:24:40.137 --> 00:24:48.211
It's not change they don't like, it's change done unto them by others.
00:24:48.211 --> 00:24:54.295
They all love the change they do unto others.
00:24:54.295 --> 00:24:58.337
It's when others do change unto them that they don't like it.
00:24:58.337 --> 00:25:03.903
So learn how to own change, make it yours and embrace it.
00:25:07.696 --> 00:25:09.203
That's rule number two.
00:25:09.203 --> 00:25:30.788
It's really interesting and just doubling down on that Recently I'm not sure if you've heard of DC and Ryan self-determination theory, but it's a body of knowledge that I just came across, like 18 months ago with Scratchy, because Scratchy is all about motivation and one of the org psychologists we spoke to said you really need to look at self-determination theory.
00:25:30.788 --> 00:25:34.682
And I was like, okay, there's this telephone size book.
00:25:34.682 --> 00:25:40.634
It's like 650 pages and, sorry, like a telephone, remember the, the white pages or the yellow pages.
00:25:40.634 --> 00:25:43.387
Yeah, and um, I bought this thing.
00:25:43.387 --> 00:25:48.148
Um, I thought I don't know if I'm wasting 100 bucks buying this thing because I don't know if I'm going to read it.
00:25:48.148 --> 00:25:55.500
And I made myself read three pages every day and the first hundred pages were very difficult because I don't come from a psychology background at all.
00:25:55.500 --> 00:26:04.728
So there's, getting used to the terminology was difficult, but it's the most blind bit of wisdom that I've come across in business in life.
00:26:04.728 --> 00:26:10.357
Well, that's being maybe overstating it, but it's an incredible book.
00:26:10.357 --> 00:26:16.415
It's one of the best books I've read and it's quite simply like the great theories.
00:26:16.415 --> 00:26:19.690
You can sum it up In the first page they say their whole theory.
00:26:20.531 --> 00:26:28.075
The whole theory is that there's three things that cause us to be motivated, that cause us to thrive psychologically.
00:26:28.075 --> 00:26:31.587
One of them is autonomy making our own decisions.
00:26:31.587 --> 00:26:36.586
The other one is competence feeling good about feeling good at what we do.
00:26:36.586 --> 00:26:40.315
And the third one is relatedness, relating with other people.
00:26:40.315 --> 00:26:52.148
If we can create an environment that increases those three psychological needs, then people thrive, and if we have an environment where they are thwarted, then people fail.
00:26:52.148 --> 00:27:02.374
And the rest of the 650 pages is all the hundreds and hundreds of studies that have been done around this and as they've developed.
00:27:02.374 --> 00:27:14.172
This theory over decades starts with the history, goes through Skinner and behaviorists and all that sort of thing, treating people like they're seals, and it goes on from there.
00:27:14.172 --> 00:27:22.818
And it's interesting what you say because it directly aligns with self-determination theory.
00:27:22.818 --> 00:27:24.839
People are fine with change.
00:27:24.839 --> 00:27:26.641
The key is autonomy.
00:27:26.641 --> 00:27:34.597
The key is autonomy If they feel volition in the change that they're making, they're fine with it.
00:27:34.597 --> 00:27:38.653
So, like you say, change is not the problem, it's the lack of autonomy.
00:27:38.653 --> 00:27:39.936
I love it.
00:27:40.105 --> 00:27:50.457
Well, and it's interesting that you brought that up, because not only does that self-determination theory align exactly, but let me say something first.
00:27:50.457 --> 00:28:00.915
There are times when people say to me, god, this is just brilliant, larry, this is just brilliant work, and I always have to remind them this is not my brain.
00:28:00.915 --> 00:28:07.178
What's in this book, what I speak to you today, is not me.
00:28:07.178 --> 00:28:09.130
This is research.
00:28:09.130 --> 00:28:10.375
This is data.
00:28:10.375 --> 00:28:13.988
I'm not trying to pretend like I'm some smart guy.
00:28:13.988 --> 00:28:15.351
I have some smarts.
00:28:15.351 --> 00:28:28.690
I had curiosity, I had purpose, I had drive, I got the data, I aggregated it, I processed it, I extracted from it, I re-put it together, I framed it in a way that's consumable.
00:28:28.690 --> 00:28:31.431
But this isn't me coming up with something that's brilliant.
00:28:31.431 --> 00:28:38.951
This is reality and, to be perfectly blunt, everything that I talk about is 100 years old.
00:28:38.951 --> 00:28:41.757
It started with the Industrial Revolution.
00:28:41.757 --> 00:28:42.859
It hasn't changed.
00:28:42.859 --> 00:29:11.318
Technology hasn't changed it, just like you talk about this self-determination theory, and the three things are all supported in the next thing that I was going to tell you, and that is that I identified what I call three organizational imperatives, three things that any organization that wants to survive has to do, and they have to do it in a particular sequence.
00:29:11.318 --> 00:29:23.405
And there's that 599 pages of complexity behind the simple to help explain why and how and what it means.
00:29:23.506 --> 00:29:30.038
Because there's a lot of people who think words don't mean the same thing to the same people.
00:29:30.038 --> 00:29:33.275
So the first is you have to have clarity of purpose.
00:29:33.275 --> 00:29:36.054
If you don't have clarity of purpose, you can't survive.
00:29:36.054 --> 00:29:38.933
People say to me all the time what are you talking about?
00:29:38.933 --> 00:29:40.028
Of course we know what we do.
00:29:40.028 --> 00:29:40.671
We're a law firm.
00:29:40.671 --> 00:29:41.894
No, no, no, no.
00:29:41.894 --> 00:29:47.509
If you took 10 people arbitrarily and said what is our purpose, how many different answers do you think you get?
00:29:47.509 --> 00:29:50.976
Oh well, that's different, but that's not really, that doesn't really matter.
00:29:51.036 --> 00:29:56.875
Well, of course it matters If you don't have every single human being in your organization focused on exactly the same things.
00:29:56.875 --> 00:29:59.952
You're wasting time, money or human resources.
00:29:59.952 --> 00:30:04.163
The second organizational imperative is consistency of performance.
00:30:04.163 --> 00:30:16.339
If you can't be clear about what you're going to do, how you're going to do it, when you're going to do it, who you're going to do it for and what the roles of everyone is, how can anybody depend on you?
00:30:16.339 --> 00:30:16.800
They can't.
00:30:16.800 --> 00:30:23.494
If you can't make commitments and perform to those commitments consistently.
00:30:23.714 --> 00:30:26.819
Every time you can't grow because people won't depend on you.
00:30:26.819 --> 00:30:28.269
They won't be able to depend on you.
00:30:28.269 --> 00:30:29.294
That's McDonald's.
00:30:29.294 --> 00:30:31.911
It's not about quality, it's about you.
00:30:31.911 --> 00:30:39.757
Order a Big Mac anywhere in the world and they bring you a burger wrapped in a quarter pounder, and you don't even need to look at the burger or read the wrapper.
00:30:39.757 --> 00:30:41.670
You know what the container looks like.
00:30:41.670 --> 00:30:47.710
If you go there and you say that's not what I ordered, I had this happen once many years ago when I ate there, you guys see it's okay.
00:30:48.230 --> 00:30:51.515
We ran out of Big Mac boxes, it's a Big Mac, and then he showed me.
00:30:51.515 --> 00:30:53.498
That's consistency of performance.
00:30:53.498 --> 00:31:05.653
The third one I call is the three Ps Engagement of people you have to make people feel like they're an integral part of the organization's success.
00:31:05.653 --> 00:31:08.157
If you can't do that, you can't survive.
00:31:08.337 --> 00:31:14.220
Purpose performance people, clarity of purpose survive Purpose performance people, clarity of purpose, consistency of performance, engagement of people.
00:31:15.747 --> 00:31:16.650
You get those down.
00:31:16.650 --> 00:31:17.534
You're indestructible.
00:31:17.534 --> 00:31:31.077
Gives people meaning, gives people purpose, gives people something to achieve, gives people recognition, gives them a sense of value, gives them some degree of autonomy.
00:31:31.077 --> 00:31:34.441
Asks for their input, asks for their participation.
00:31:34.441 --> 00:31:35.182
I've watched it.
00:31:35.182 --> 00:31:40.391
I've seen companies flip on and on both ways Failure and success.
00:31:41.405 --> 00:31:42.872
Let's talk to some of that, then.
00:31:42.872 --> 00:31:51.980
What's a standout company that succeeded, that turned around when you introduced those principles to it?
00:31:52.184 --> 00:32:09.933
Well, one of the ones that I write about in the book, and it shall go nameless because of confidentiality reasons, obviously, but it was related to healthcare and there were things that happened when Obama passed the Universal Healthcare Act to the insurance industry.
00:32:09.933 --> 00:32:16.040
So anytime you're dealing with health care, you're dealing with insurance and this had a dramatic impact on them.
00:32:16.040 --> 00:32:26.647
The founder and owner had grown the company over 20 years to about 50 employees and they'd never lost any money.
00:32:26.647 --> 00:32:30.032
And two years before they hired me, they lost $300,000.
00:32:30.032 --> 00:32:31.994
They're about a $20 million company.
00:32:31.994 --> 00:32:35.779
Then, the year before they hired me, they lost half a million dollars.
00:32:35.779 --> 00:32:43.784
They called me in February because they said they it looked like they were on pace to lose about $800,000.
00:32:43.784 --> 00:32:45.209
And they said something's wrong.
00:32:45.209 --> 00:32:46.112
We don't know what's going on.
00:32:46.112 --> 00:33:00.817
So they called me in and, because I don't just work for anybody, I was interviewing the CEO and I said listen, I have to be able to be honest with you and to tell you you know we talked about this before In retail, the customer is always right.
00:33:00.884 --> 00:33:02.535
In wholesale, the customer is always wrong.
00:33:02.535 --> 00:33:05.488
They always think they know the problem, but they're dealing with symptoms.
00:33:05.488 --> 00:33:16.385
And I said I have to be able to tell you when you're wrong, when you're being stupid.
00:33:16.385 --> 00:33:18.430
And they stopped me and they said Larry, I'm a lousy CEO, I know that, that's why you're here.
00:33:18.430 --> 00:33:18.890
I said, okay, we're good.
00:33:18.910 --> 00:33:29.494
Their problem was and this is so classic companies try to create consistency of performance before they create clarity of purpose.
00:33:29.494 --> 00:33:32.868
And you can't do it because you don't have everybody aligned.
00:33:32.868 --> 00:33:43.355
What they were doing was they were so valuable and so good at what they did that they didn't have the heart to say no to anybody.
00:33:43.355 --> 00:33:48.894
So they said yes to everybody and they couldn't deliver.
00:33:48.894 --> 00:33:56.594
And the reason was because they hadn't clarified who their market was, which is part of purpose and what I?
00:33:56.594 --> 00:34:13.108
Quite simply, what I did was I said you've got 600 customers, you've got to get down to 60, because there's only about a hundred that are profitable and there's only about a hundred that can even afford you, and the other 40 aren't in your sweet spot.
00:34:13.108 --> 00:34:22.038
Stop trying to help them, even though you think you can, because you're just killing yourself and now you're going to harm every company that needs you.
00:34:23.425 --> 00:34:23.945
We lost.
00:34:23.945 --> 00:34:28.396
There were seven people on the leadership team, the CEO resigned and two of the members of the leadership team resigned.
00:34:28.396 --> 00:34:28.797
The CEO resigned.
00:34:28.797 --> 00:34:31.427
Two of the members of the leadership team resigned.
00:34:31.427 --> 00:34:41.025
The CEO resigned because they knew that they weren't going to be able to follow through emotionally, and the other two were pissed off because they didn't want to stop serving any of the people.
00:34:41.025 --> 00:34:43.313
They said I'm not going to be part of a company that cuts people off.
00:34:43.313 --> 00:34:44.907
They said you're saving yourself.
00:34:44.907 --> 00:34:45.989
This is life support.
00:34:45.989 --> 00:34:51.659
By the end of that year, they were breakeven, after having been on a path to lose $800,000.
00:34:51.659 --> 00:35:00.398
The following year they were profitable and they've been profitable for the most 2012, I think.
00:35:00.398 --> 00:35:03.512
So it's been 13 years since and growing.
00:35:03.512 --> 00:35:19.001
They've resumed their growth, but they got clear on who they serve, what their value is, how they deliver it and the way they want to operate as a company and what their long-term goals were.
00:35:19.001 --> 00:35:24.155
So they were able to create this sense of unity and start performing.
00:35:25.657 --> 00:35:29.596
Awesome, and that was in healthcare and you've seen it in other industries, huh.
00:35:36.465 --> 00:35:38.452
Absolutely, yeah, awesome, and that that was in health care and you've seen it in other industries.
00:35:38.452 --> 00:35:39.253
Huh, absolutely yeah, I've seen it in.
00:35:39.253 --> 00:35:40.257
Well, I've taken this to a number of industries.
00:35:40.257 --> 00:35:48.815
One of the industries that I took it to that most people would be surprised by is, um, not orphanages, but when kids are taken away from parents or don't have parents and they go into foster care.
00:35:48.815 --> 00:35:50.297
Yeah, yeah.
00:35:50.498 --> 00:35:50.858
In the U?
00:35:50.858 --> 00:35:51.059
S?
00:35:51.159 --> 00:35:52.528
I don't know what they call it in Europe.
00:35:52.528 --> 00:36:00.934
Yeah, so we did this with one of the largest foster care associations in Northern California and they thought they knew what the problem was.
00:36:00.934 --> 00:36:07.396
We brought a team of three, four people me and three of my colleagues in and they said we need to fix this.
00:36:07.396 --> 00:36:11.315
And we said that's not the problem, this is the problem and here's the solution.
00:36:11.315 --> 00:36:15.452
And they did I mean weeks.
00:36:15.452 --> 00:36:16.717
The problem was solved.
00:36:16.717 --> 00:36:18.750
I mean it's that fast.
00:36:18.750 --> 00:36:21.010
Once you identify the problem.
00:36:22.012 --> 00:36:26.914
Yeah, yeah, I would have thought for a foster care organization.
00:36:26.914 --> 00:36:33.070
The purpose, once you clear out the purpose, that's a strong purpose there, so that could.
00:36:33.070 --> 00:36:38.628
It's more potent than someone, let's say, making crates for industry.
00:36:38.829 --> 00:36:54.753
You know, okay, they've got purpose and everything else but foster care purpose strong yeah there's good purpose everywhere and thank God, the world is diverse because there's, you know, it's not the crate, that is the value.
00:36:54.753 --> 00:36:57.057
This is almost Zen-like.
00:36:57.057 --> 00:36:59.389
Do you know anything about Taoism?
00:37:00.853 --> 00:37:01.355
A little bit.
00:37:01.554 --> 00:37:07.030
So Taoism is one of my favorite philosophical studies and there's a number of Taoist phrases In the philosophical.
00:37:07.030 --> 00:37:12.672
There's a there's a number of daoist phrases in the philosophical there's there's a spiritual and a philosophical side to daoism.
00:37:12.672 --> 00:37:21.416
On the philosophical side there's a phrase and it says the value in the bowl is the empty space inside it.
00:37:21.655 --> 00:37:25.927
I'm sorry that cut off the value in a bowl.
00:37:26.007 --> 00:37:39.340
A bowl is the empty space inside it the bowl has no value yeah except for that hole in the middle, everything has value in a way that you don't understand.
00:37:39.340 --> 00:37:40.664
What's the value of the crate?
00:37:40.664 --> 00:37:50.697
I don't know what it was being used for, but it facilitated something else, and that's where the passion has to go what does that that grate facilitate, that crate facilitate?
00:37:51.065 --> 00:37:53.152
What does that crate enable somebody else to do?
00:37:53.152 --> 00:37:57.976
That does something good that ends up in someone's hands who desperately needs it.
00:37:57.976 --> 00:38:00.972
Is it a way to get food to starving people in Africa?
00:38:00.972 --> 00:38:01.253
I?
00:38:01.273 --> 00:38:01.514
don't know.
00:38:02.266 --> 00:38:04.431
But you can be passionate about doing that right.
00:38:05.592 --> 00:38:06.175
It's well said.
00:38:06.175 --> 00:38:07.637
It's well said.
00:38:07.637 --> 00:38:14.677
You can find a totally inspirational purpose in most everything right.
00:38:15.338 --> 00:38:17.472
Yeah, most things legal and ethical.
00:38:18.525 --> 00:38:22.351
Yeah, I was going to say it can be tricky it can be tricky.
00:38:22.672 --> 00:38:32.146
Yeah, don't get me wrong, I'm not trying to pretend that it isn't hard, because it can be very, very hard, but so what Isn't that?
00:38:32.146 --> 00:38:33.291
Why you're a business person?
00:38:33.291 --> 00:38:34.150
Isn't that why you're in?
00:38:34.150 --> 00:38:40.016
Leadership is to be challenged and to do something good and to make things better for other people.
00:38:40.405 --> 00:38:43.134
Yeah, well, I guess that gets to the heart of you.
00:38:43.134 --> 00:38:47.307
Know why would a lot of people do business and I don't know?
00:38:47.307 --> 00:38:53.586
I've seen like after the construction company I had a couple of vows to myself.
00:38:54.789 --> 00:39:14.873
One of them was that I would never be chasing money again, I'd always be paid in advance and yeah, the other one was that for any business I created, fast forward 10 years and look back, imagining that it's had success, and look back and ask myself, am I happy with what I've created?
00:39:14.873 --> 00:39:20.068
And so that kind of built purpose into the origin story of the business.
00:39:20.068 --> 00:39:28.855
It's like I saw a business that was successful in sailing and they'd created this like floating festival sort of thing and they didn't like the business.
00:39:28.855 --> 00:39:30.686
Like 10 years later it was successful.
00:39:30.686 --> 00:39:41.157
You could see the owners just didn't like what they'd created and of course the rest is inevitable really when you fall out of love with your business then.
00:39:41.157 --> 00:39:43.128
And so I didn't want that.
00:39:43.128 --> 00:39:45.456
I didn't want a business that I couldn't be passionate about.
00:39:45.456 --> 00:39:49.710
And, like you say, purpose is massive If it helps people in some way.
00:39:49.710 --> 00:39:53.574
Man, it is so easy to.
00:39:53.574 --> 00:39:57.400
That will ride you over a lot of the ruts and a lot of the troughs.
00:40:00.525 --> 00:40:02.887
I'm compelled to tell you a couple of stories Go.
00:40:02.887 --> 00:40:09.333
There was a group of CEOs that was in a mastermind group that I was a part of in the late 90s.
00:40:09.333 --> 00:40:11.376
It was called TEC T-E-C.
00:40:11.376 --> 00:40:13.559
It stood for the Executive Committee.
00:40:14.519 --> 00:40:15.942
It was bought by Milgan.
00:40:18.809 --> 00:40:19.371
It's now called Vistage.
00:40:19.371 --> 00:40:21.034
I was the mouse.
00:40:21.034 --> 00:40:23.809
There were 17 of us.
00:40:23.809 --> 00:40:26.215
My compensation was lower than everybody else.
00:40:28.244 --> 00:40:30.289
The revenue of my business was lower than everybody else.
00:40:30.289 --> 00:40:49.416
Everything about my business was the smallest in the group and the largest guy in the group was basically doing about a billion dollars a year throughout I don't know, 20, 30 locations across the country and he spent seven years trying to figure out his purpose.
00:40:49.416 --> 00:40:59.255
He figured it out, he put it out through the company and overnight they went from a billion dollars a year to a billion dollars a month.
00:40:59.496 --> 00:41:03.894
Wow, what was this potent purpose?
00:41:03.894 --> 00:41:10.416
Do you think purpose was everything, for that order of magnitude increase.
00:41:10.596 --> 00:41:12.179
Yes, I do, yes, I do.
00:41:12.179 --> 00:41:15.103
Do you think purpose was everything for that order of magnitude increase?
00:41:15.103 --> 00:41:15.505
Yes, I do, yes, I do.
00:41:15.505 --> 00:41:19.717
It was facilitated by other things, but the things that facilitated it were already in place and allowing them to do the business they were doing.
00:41:19.717 --> 00:41:23.074
What they did was they changed the way they looked at their business.
00:41:23.074 --> 00:41:32.940
It was a mortgage business and, rather than focusing on revenue and sales and money, they focused on the experience of the buyer.
00:41:32.940 --> 00:41:48.260
So they changed the whole purpose to focusing not on any income but on results felt by the people they were serving and the way they wanted those experiences to be.
00:41:49.146 --> 00:41:52.608
One of the things I say in the book is that profits without purpose is pointless.
00:41:54.010 --> 00:41:58.179
If you do something you love, you will make money.
00:41:58.179 --> 00:41:59.568
Money is never the issue.
00:41:59.568 --> 00:42:03.777
It just isn't your comment about making sure you get paid up front.
00:42:03.777 --> 00:42:07.554
Yeah, that's tactics, that's not strategy.
00:42:08.155 --> 00:42:08.576
That's tactics.
00:42:08.576 --> 00:42:09.438
That's not strategy.
00:42:09.438 --> 00:42:10.380
That's yeah, I just.
00:42:10.380 --> 00:42:12.626
I mean, I just it was I'd spent too many hours.
00:42:12.626 --> 00:42:20.989
It might may be tactics, I 100 agree, but I nevertheless I still said this is what I'm going to be doing.
00:42:20.989 --> 00:42:22.454
I'm not going to be chasing money.
00:42:23.960 --> 00:42:24.922
You know I'm very happy.
00:42:24.922 --> 00:42:52.039
The other thing, the other thing I was going to tell you, is that there's another theory that I want your listeners to know about, called corporate lifecycle theory, which was developed in the 80s and became popularized in the 90s, and there's half a dozen different theorists out there who've written books about it, and it's the study of how organizations or corporations specifically, age, how they grow and die over time.
00:42:52.039 --> 00:43:01.795
And it's shockingly precise because organizations are all made up of people and you can track what people happen to people right.
00:43:01.795 --> 00:43:04.489
First they have no teeth, then they get teeth.
00:43:04.489 --> 00:43:15.835
Then they lose those teeth and get new teeth, then they lose those teeth, they go through puberty, they go through menopause, they have no hair, they grow hair, then they lose hair.
00:43:15.835 --> 00:43:37.277
I mean, there's nuances, there's no doubt about that, but you can look at any human being and we all traverse at different paces and as long as we're not impacted by damage you know, unnatural damage, getting hit by a car we all progress along a very common path and because of that, go to organizations.
00:43:37.518 --> 00:43:54.291
I live in a place on that corporate life cycle theory, that keeps me in a space that is the same space that I researched, because it's where my passion is right and it's where the largest number of organizations lives.
00:43:54.291 --> 00:44:06.338
The problem for me is that there's a point of transition where you move from more is better to better is more right, the better is more.
00:44:06.338 --> 00:44:08.389
Is that consistency of performance.
00:44:08.389 --> 00:44:12.217
Your goal is to be more consistent and make you better, not to do more.
00:44:12.217 --> 00:44:22.210
That transition from more is better to better is more is where I lose interest, because now I have to manage and I don't want to manage.
00:44:22.210 --> 00:44:24.472
That's why I've had 13 companies.
00:44:24.472 --> 00:44:35.297
I build these companies up, I get them ready for somebody to come in and take over and run and I go or I kill it, sometimes on purpose, sometimes accidentally.
00:44:35.297 --> 00:44:36.931
I've committed business suicide.
00:44:36.931 --> 00:44:38.849
I have I know what it feels like.
00:44:39.925 --> 00:44:41.251
Yeah, not fun.
00:44:41.465 --> 00:44:44.414
This stuff is my vision.
00:44:44.414 --> 00:44:58.278
My dream is a world with no help wanted at it, and what that means is that everybody that wants to work has a job and loves it, and everybody that has employees loves them and treats them properly.
00:44:58.278 --> 00:45:06.974
And if you do that, nobody's going to get fired and nobody's going to want to leave and everybody will find the perfect home for them.
00:45:06.974 --> 00:45:09.304
So you don't need help wanted ads anymore.
00:45:09.304 --> 00:45:10.103
Everybody will find the perfect home for them.
00:45:10.103 --> 00:45:11.056
So you don't need help wanted ads anymore.
00:45:11.056 --> 00:45:11.431
That's my thing.
00:45:11.431 --> 00:45:11.695
That's funny.
00:45:11.695 --> 00:45:24.157
If everybody can follow this model and again, this is not me, this is data, scientifically, statistically valid research you can get there.
00:45:25.590 --> 00:45:26.713
Okay, so what are we up to?
00:45:26.713 --> 00:45:34.675
Claude 4 and GPT-5s around the corner, and we've got the Tesla Optimus being released this year.
00:45:34.675 --> 00:45:35.746
How does that look?
00:45:35.746 --> 00:45:49.371
Do you think, with you know like this, as Elon called it, the thousand-foot tsunami that's about to hit us being AI?
00:45:49.371 --> 00:45:54.168
Where do those hopes and thoughts and beliefs fit in into that environment, do you think?
00:45:54.429 --> 00:46:08.996
well, yeah, um, it's a relatively simple question and it's certainly not a simple answer yeah I will give you a very big, big picture response, having been involved in technology since 1973.
00:46:08.996 --> 00:46:29.329
So 52 years of owning and operating computers and owning three technology companies over those 53 years and living a lot of those 53 years on the bleeding edge at very high levels with Compaq and Microsoft and Hewlett Packard, et cetera.
00:46:29.804 --> 00:46:34.753
The human race is either going to learn how to get control of AI or it's going to cease to exist.
00:46:34.753 --> 00:46:36.626
It's not going to happen in my lifetime.
00:46:36.626 --> 00:46:37.467
I'm 68.
00:46:37.467 --> 00:46:43.206
If I live to 108, which is feasible 40 years, it's not going to happen in 40 years.
00:46:43.206 --> 00:46:46.612
Destruction could happen in 40 years.
00:46:46.612 --> 00:47:05.496
But getting control over AI, putting the controls in place so that the benefits of social media are available to everyone and the detriments of social media are effectively quashed Same with AI we're going to cease to exist as a society.
00:47:05.496 --> 00:47:06.706
Do I think we can do it?
00:47:06.706 --> 00:47:07.889
Absolutely not.
00:47:07.889 --> 00:47:09.693
Do I hope and pray that we will?
00:47:09.693 --> 00:47:12.708
I absolutely do, but I don't think we can.
00:47:12.708 --> 00:47:13.690
I don't think we will.
00:47:13.931 --> 00:47:15.936
There's too many uneducated people in the world.
00:47:15.936 --> 00:47:23.637
I think the silver bullet is education, and the United States has been on a downward spiral.
00:47:23.637 --> 00:47:25.367
For what is this?
00:47:25.367 --> 00:47:26.688
2025?
00:47:26.688 --> 00:47:33.380
50 years and continuing to spiral downward in terms of the efficacy of our educational system.
00:47:33.664 --> 00:47:39.367
We have people who you know I don't put any personality into this we don't have.
00:47:39.367 --> 00:47:43.385
We have personalities that are elected officials in the United States.
00:47:43.385 --> 00:47:51.159
We have personalities that are elected officials in Ukraine, in Russia, in Italy.
00:47:51.159 --> 00:47:54.373
We don't have the smartest people in the world.
00:47:54.373 --> 00:48:03.396
Now it just so turns out that Zelensky happens to be a pretty sharp cookie, but he came from a comedic background and a television personality.
00:48:03.396 --> 00:48:05.291
But the man has heart.
00:48:05.291 --> 00:48:06.750
It's in his DNA.
00:48:06.750 --> 00:48:07.432
God bless him.
00:48:07.432 --> 00:48:09.050
I don't worry about him.
00:48:09.050 --> 00:48:14.094
I worry about people like Trump and like the gal who's the head of Italy.
00:48:14.094 --> 00:48:19.168
These people and they get elected because people don't understand who they're voting for.
00:48:19.168 --> 00:48:21.275
They don't understand what they're voting for.
00:48:22.077 --> 00:48:29.333
In the United States, I say that you should not be allowed to vote unless you can pass an immigration test.
00:48:29.333 --> 00:48:41.818
Very few people in the United States know what a House representative does versus a senator, much less who they voted for or who is in office representing them.
00:48:41.818 --> 00:48:44.432
We don't hold anybody accountable.
00:48:44.432 --> 00:48:49.536
We have to change the way we govern the world, not just the US.
00:48:49.536 --> 00:48:52.193
We can't let Putin do what he's doing to Russia.
00:48:52.193 --> 00:48:54.291
We can't let Hungary do what they're doing.
00:48:54.291 --> 00:49:15.393
Ai will continue to thrive, continue to grow, continue to expand, continue to flourish, continue to provide value, just like social media did, until the teeter-totter flips and the volume of harm being done with it outweighs the volume of good being done with it.
00:49:15.393 --> 00:49:18.326
And when that will happen, I don't know.
00:49:18.326 --> 00:49:27.670
But when that happens, what we will start doing is working on protection, not control, which is exactly what we did with social media.
00:49:27.670 --> 00:49:39.670
Which is exactly what we did with hackers we stopped worrying about how to remove the need or desire and started worrying about how to prevent it, and that's the wrong approach.
00:49:40.795 --> 00:49:41.797
Yeah yeah, sorry.
00:49:41.797 --> 00:49:45.130
No, no you touched a philosophical nerve.
00:49:45.130 --> 00:49:46.253
I know, yeah, I did.
00:49:47.545 --> 00:49:49.905
Yeah, I thought freestyle at the end there, nice.
00:49:49.905 --> 00:50:06.369
Well, larry, it's the end of our time anyway, but I really appreciate spending this hour with you talking about things and hopefully the listeners can get some of these points and it can really spark something, which is the idea of this whole podcast.
00:50:06.369 --> 00:50:10.418
So, Larry, again I hope you really enjoy your time in bordeaux.
00:50:10.418 --> 00:50:11.606
We're not so far away.
00:50:11.668 --> 00:50:26.349
I'm in marseille, so you know, enjoy the summer here and the wine we need a face-to-face james yeah, we need to have a face-to-face at one of these days yeah, yeah, yeah, yeah definitely so no worries.
00:50:26.349 --> 00:50:29.110
Thank you, larry, and uh, yeah, we'll speak soon.