Episode Transcript
[00:00:00] Speaker A: Welcome to the Independence by Design podcast where we discuss what it means to be a business owner and ways to get unstuck from the day to day so we can design a business that gives us a life of independence.
You probably have a lot of ideas swimming around in your head about how to grow your company, who you need to hire, your pricing on your products or services, and the question is, what's the impact of my ideas on cash?
So we are starting a three part series, could potentially longer, but I know I've got three in the back bag already on budgeting. And budgeting is not about some laborious process, it's about actually and I think it's therapeutic. It's actually unpacking all your ideas, integrating them into the income statement and then seeing the impact of your ideas on cash like ownership, ownership, distribution and the valuation. So what we're going to be doing today is I've got Alan Bolio, who was previously with ITR Economics, and his daughter Kim on the show, kicking off the budgeting series, talking about the economic business cycles where we're at in the abcd, what's going on with the economy, interest rates, all that stuff to help us think about what will be the impact of our industry and my company, my customers, based on what's happening with the economy. A lot of good insights here. And over the next couple episodes I really want you to get excited because next week I will have Pat Hobby, who is my old partner, one of the best CFOs I've ever met, where we're actually going to screen share and walk through building up a three statement budget and what the budgeting process looks like, how to actually fill out a budgeting template. And it, there's a lot of good gold nuggets in there. So that way you have a fully built out three statement budget for 2026. And then the third part I've got Kim Clark coming back on because her expertise is predictable revenue, which is one of the modules in the independence by design framework. And so her and I are going to be diving deep into how do we actually build up that revenue forecast so we can trust it and we can build the rest of the budget on top of very sound assumptions.
This is going to be a lot of fun. I think it's great because I want to give you a framework on how to actually run the budgeting process. So you and your leadership team, if you want to share these episodes with your leadership team to get them on board, because it's between you and your leadership team going through this level of thinking. So that way when you're sitting in the boardroom in the middle of next year, you can go on track, off track, and you understand the thought process that went into actually building a budget. And it all starts with what's going on with the economy and where does my industry and my clients fit into that. So we can have some top level, higher level assumptions of where we might be and then we can actually do the ground up and then see how far are we different. What's the difference between the top down and the bottom up? And what's the impact of my cash? Thanks everybody for tuning in. And if you wanted to go check this out on Spotify or YouTube, there's a video. The next couple episodes, not this one, I'll actually be screen sharing, so make sure to check that out. Allan and Kim, both of you, I got both of you here with me. Welcome and thank you for coming back. I appreciate it.
[00:02:59] Speaker B: Thanks, Ryan. It's great to be here. Of course, we get to talk about fun things.
[00:03:04] Speaker A: And Kim decided to join us. What's up?
Yeah. And in. I'll put a container on the, the conversation for this quarterly update. I'm excited to have you, Kim, here. Maybe you can keep us on track. We had a lot of fun on that bitcoin conversation which we publish in both our, both our podcasts.
And you know, Kim, you're doing a lot of the forecasting. We're going to have a forecasting podcast as we're kicking off budgeting season here. And you've been using ITR and Allen's, you know, philosophy for a long time. And so for both of you two, you know, the, the, the things that are on my mind that I want to unpack as it relates to, you know, the actual leading indicators and the, the, the KPI is Alan, that you're focusing on, and then, Kim, you're helping people forecast out the revenue. So it's big picture.
We gotta build out an income statement budget with real, real numbers. Right. So I got kind of both sides of the spectrum, but the, the fascinating things, Alan, that I am curious of unpacking as far as, like the economic indicators are, and it was very apparent when Kim was on our group call is just the counterintuitiveness of what's going on in the mainstream media, what people are feeling and where things are going.
It's just so not obvious. We're like, oh, I want to expand or whatever. It's like, oh my God, you're going into the C phase. Like maybe you shouldn't be doing that or like, you know, you're going to cut back and all of a sudden you're going to have some huge growth. And so I think level setting us with, you know, just that counterintuitive nature. And then what I, I think within the next like 12 to 24 months, it, there's things that are going to happen. I don't know if it's like the last shot of adrenaline before the, you know, the athlete kicks over, you know, because they actually need to take a rest with the economy. But kind of like line lines up with your 2030 of like, okay, there's going to be a reset, but there's things happening over the next 12 to 24 months that we can look at from the cycles so that the business owner that's paying attention right now can position themselves appropriately of how they should actually be leaning in or, you know, how they should be thinking about it. So maybe we want to start with, okay, over the next 48 months, like, how do you see the growth and how do you see the cycles playing out over the next 48 months kind of leaning into that 2030.
[00:05:32] Speaker B: Okay, well we got more than, more than enough to talk about period of time.
[00:05:38] Speaker A: What else would I have done to you? Come on.
Oh, you want me just like read your book for the next eight hours?
[00:05:47] Speaker B: I think I'd like to start with this premise and you can quickly disabuse me of it. Either one of you is. And Kim, I think you, you actually mentioned it.
We can talk about the macroeconomic environment and that's important, but for most people, maybe most is wrong word. But for too many people, that's totally insufficient to know where GDP is going to makes you able to talk at a party to know where your market.
[00:06:14] Speaker A: What party are you talking about? Your party?
Probably not most of the people's party. I'm just kidding.
[00:06:20] Speaker B: Well, you know, economists don't have parties, but we've used the term.
But for most people, many people knowing where GDP going or industrial production are going is not helpful anymore. It used to be, but it's not. You have to dig deeper, deeper because I can tell you with high degree of confidence what's happening in the macroeconomic environment.
But that doesn't help this company over here where, you know, four out of seven divisions are tanking and they're going to continue to tank for another year. I mean, you have to peel below the surface, number one. And number two is you have to learn to studiously ignore headlines.
It's just amazing to me because the headlines are made to get people's attention, not to provide value.
And so when. When people are reading, and I used to get this all the time, you know. Well, I just read in the Wall Street Journal that the market's doing great. It's going to continue to do great because of this great report. And I would say, so what happens next month when the opposite comes out?
You know, because you're going off a month's worth of data. Who wants to go off a month's worth of data?
[00:07:29] Speaker A: Like, I mean, as we're talking here, is the data even worth a shit? Because we got revision of nine jobs the other direction. I think there's data in question as well, too. So people are trying to figure out what should I pay attention to and how is it meaningful to me?
[00:07:46] Speaker B: That's not even in the conversation in the media anymore. But that worries me a lot because there were two organizations that would look at the accuracy of the data the BLS and others put out to say, yeah, this is. This looks like it's a reasonable number.
They have both been abolished. So they just put out data without any watchdog to see whether the data makes any sense.
[00:08:08] Speaker A: So at that point, recipe for success.
[00:08:11] Speaker B: Yeah.
And this won't go over well with a lot of people, so feel free to redact it in editing.
[00:08:17] Speaker A: No way. Keep going.
[00:08:20] Speaker B: But that's what China does. Yeah, China just puts forth a number. And there's. There's really. In a serious world, in, in my world, there's no confidence in Chinese numbers because they just say what they want.
And if, if a government of either party can say whatever they want without any oversight, it's like, what do we go on at that point? What do we.
[00:08:43] Speaker A: And that's where I think the material that. I think that is a perfect bridge to, like, I think people that I talk to, Alan and Kim, like, they already inherently know that it's not relevant to them. Like, it's great, but I have no cash. Okay. My customers. I talked to an executive recruiter that you would probably know. So, like, you know, they're placing C Suite people and he's like, 11 companies in one week said we're not doing anything and they didn't lose it to a competitor. So, like, there's real shit going on inside these industries, inside these companies, and they see the head things. And I think it's just so diluted at this point that the material that we're talking about here I want, like, I think it makes it even More important that we're bringing stuff to people, like what is actually going on and what should you actually be paying attention to? So you can start placing your bets of where to reinvest and how to handle payroll, how to handle your expansion, or, you know, or hunkering down in a way that makes sense based on reality.
[00:09:44] Speaker B: Absolutely. And it goes back to what you and Kim were talking about and which was the backbone of what Kim and I were doing for so many years. There's a methodology where you can track your business's path, whether it's revenues, orders, whatever, through time.
And you can also get market data that's available any number of places. It's not a place. It's any number of places you buy it and you see how you compare to the marketplace. And then you find what you said, Ryan, which are the leading indicators to the marketplace into your business. And now you. You go below the top layer and you get down to where you actually live, and you can see where you're going.
And the whole goal is to see half a business cycle ahead anyways, and so you can plan for that half business cycle ahead. What Brian and I found over the years, in the early years especially, was that when you introduce people to this methodology, it takes three cycles before they buy in. At first they go, nah, we're dying. It's the whiplash.
[00:10:43] Speaker A: Wham, wham, wham, wham. Okay, maybe you're right.
[00:10:46] Speaker B: Exactly.
That's exactly right. Hit the floor. Bounce off the ceiling. Hit the floor. Okay, okay, okay, fine. Bye. Nail.
[00:10:53] Speaker A: And I believe you. I believe you.
Yeah, that's pretty good.
[00:10:58] Speaker B: But I'm sorry to interrupt you, but, but no, you got to start that now because that conversation about the Great Depression, once you're into rate of change methodology and, and your own numbers and the industry numbers, now you have a system in place so that you see it coming and you start seeing it bend, and you say, now it's real. As opposed to denial, which is what most people do. Most people start with, it'll be different this time. It won't happen to me. So far, we're doing fine. That proves we're going to do fine. Meanwhile, your indicators are all tanking, but you're just choosing to ignore them.
[00:11:34] Speaker A: And it's, it's, it's.
[00:11:36] Speaker B: So.
[00:11:37] Speaker A: It's a. I'm gonna bridge this. And Kim, I want you to tell your train analogy because then and then. And that, that'll bring us back to then. Like, where are we at? But I. What I think is fascinating, you know, And I'll explain. So like what I have watched with our group, Kim, or like, you know, other people I'm talking to, it's like, okay, you're on this euphoria, you know, where the cycles become counterintuitive. It's like, oh my God, we're growing. And then they make like they're building a plant or they're hiring some people putting in this, you know, new launch and up a new product or service. And then they're like, literally it's obvious that they're going on this downswing. So, so they're like in the exact opposite position and they should. And that's why, you know, you're making the moves book and the prosperity and the Age of Decline. Your guys books are amazing. It's just trying to use the data to realize that your gut it. The way I would describe it is when I, I went downhill mountain biking in New Zealand, which was really ridiculously intense. And they, they get the trainer like, no OSHA over there, let's put it that way. I'm in a helmet going down like the mountain at like 40 miles an hour on a, on a path like 2 inches wide. He goes, do not look right in front of you because it's already happened, man. He goes, you gotta look. He goes, you gotta look six feet in front of you because that's what you can change.
And my friend didn't listen. He's a redneck from Iowa. And because he hit the brakes and he went ass over teakettle because you're trying to stop for the rock right in front of you. And that's what I think about the business cycles is you're, you're. It takes that while and that, that you need that foresight. And that's where the counterintuitive nature is coming into play. And what I, and what I have seen, Alan, is that, that that business cycle is this debt refinancing cycle and how the money is like the plumbing of the system, which is why I focus a lot about that. And we don't have to necessarily get that deep into it, but there is a reason for this, like a mathematical reason with debt and interest and how that cycle's happening. So like what you layer on all of the work that you've spent so much time on over the years, it's just saying like this is kind of like the waves of N of the ocean.
You can't stop it, so you might as well understand it. And then Kim, you have a great analogy. I thought that resonated really well about a train and then the different industries you want to give it.
[00:13:55] Speaker C: Yes, we've all used that for many years. So that was in a group call trying to explain what leading indicators were are and with just the general concept. So the example that I used, dad, was the one with the train and every component of the economy and every business is its own individual rail car on the train. And it's identifying where you fit on that train and seeing what's ahead of you. So when say the engine goes around a mountain and it's taking a left, you know how much time before your rail car is going to be going around that same turn.
And so it's all connected and it's all has a timing relationship. And once you understand that, you can have that future visibility for your business.
[00:14:36] Speaker B: Absolutely. And there's a method, mathematical methodology for figuring out where, where your car is.
[00:14:43] Speaker A: On the train and, and then, and understanding that that track and that path is very knowable because of how the money system works. And we don't have to go down that rabbit hole right now. But there is this assurance, you know, to your point of three cycles till people learn, learn. It's like, oh wait, it's like I took the blindfold off and I'm going around a corner and it's like, I finally believe you. And so with that context, I think that's very helpful because, you know, and Kim will have a separate interview where we're talking like into detail, like how do we actually forecast out our revenue based on this stuff? So we'll get into that, but like the context of where we're at in that cycle and then how does that fit, you know, over the Next, call it 12 months between now and end of 26. And how does that fit into relationship where the cycle is going in 2030. And we can maybe talk a little bit about what to do about that, what to be looking for. But what do you think, Alan, as far as like what's going to be coming over the Next, call it 12 months. Of what? The growth. And where are we at in the cycle in the different industries?
[00:15:49] Speaker B: Okay. In a macro sense, there will be most likely be and I'm going to qualify. And I'll tell you why I'm qualifying it in a moment.
But to answer your question, most likely be some tepid macroeconomic growth. We're not going to see a very strong vibrant growth in 26 and it's likely to tail off in 27 just because that would be normal at that point in time. It has to do with how long the waves last and all the rest of it.
The reason I think there will be some overall growth is one is based upon consumers. Right now consumers are in pretty good shape. Now you don't hear and read a lot about that because we hear about income inequality which is real, but in aggregate, which is what counts in this discussion.
Consumers, real personal income is up. I mean real being adjusted for inflation. So even with inflation, the body of people called consumers, which makes up two thirds of the US economy in their consumption is 2.9% above year ago levels. So adjusted for inflation, we're that far ahead and that means that we can spend and we are spending. But there's enough uncertainty in the world that we're not going out there and doing all kinds of spending.
But we are doing enough to keep the economy going. But there's no mad rush to buy automobiles. There's no reason to run out and buy a house because I don't want to give up my 3% mortgage. And housing prices are still going up unless a new builder is buying housing prices down. It depends on where it gets very confusing. So it's all that dampens the economic activity.
[00:17:23] Speaker A: How does that reconcile with. So I think CPI is bullshit maybe I know there's some use case for it still but I look at like the. How much the money supply is growing and then how much can be borrowed against that as the fracture reserves continue to create money. So like how does that in. In. And I think there's some games to be played with those numbers whether I mean there are use cases for it. But when I think about like when you look at the auto delinquencies or all these different things, you know, consumer loans and all this stuff, I mean the purchasing power, you know, as we've hollowed out the middle, middle class. I mean how does that actually reconcile with when you say consumers are doing well. And I saw another. And again this is why, why I'm I've got you on this call is I saw this data was like 50% or 40 to 50% of the consumption in the US is from the top 10% because they're the ones with the money.
And like so how do, how do we think about that? Like you know, consumers doing okay, well.
[00:18:22] Speaker B: We should be grateful they're there.
[00:18:26] Speaker A: Fair, fair. We all need to be able to sell them stuff for our companies because.
[00:18:31] Speaker B: That creates jobs and all the rest of it.
A few thoughts at once. And, and just a small Aside, that top 10% also pays the vast majority of personal income taxes in this country, like, like 90. So let's not disparage them entirely, but doing totally.
[00:18:45] Speaker A: Yeah, yeah.
[00:18:46] Speaker B: Going back to your question, if you look at Walmart and you look at the targets and you look at the different target audiences of the different retailers, you can get some feel. To answer your question, Walmart's doing fine and things like that. So Joe and Jane Average are seeing some upward mobility. The people who are feeling more of the squeeze in the economy from inflation and what you're talking about, Ryan, would be those in retail because they're typically not well paid. And those in the service industries are tending to do well with tips and restaurants and things like that because eating out is still going well. So I can make an argument that there it may not be at the pace of the top 10%, but they are still going out there and they are spending. And what they're spending their money on are not necessarily big ticket items, but the things that keep the economy spinning and wholesale trade working and, and all the rest of that.
I like how you brought the money supply. Money supply is expanding right now and your listeners may be very aware of what the money supply is. M2D. M2 money supply deflated is our key metric and it is expanding. But what most people that I talked to never really put together was that while that's good for the economy, it's also inflationary.
So while the Fed is pumping money out there to help the economy, they're creating future inflation. So while everybody's focused on, oh, Fed rates are going to be coming down 25 basis points, yay, I go big deal, doesn't mean a thing. And they're already building the case for future inflation. So when you ask me about the next 48 months, it's like we're going to see this wane a little bit in terms of inflation, very little interest rates may come down a total of 25, 50 basis points, but we already know there's inflation coming and that inflation's why I think there's going to be that softness in 2027 because of the inflationary impact on people and what the Fed's going to have to do and all the rest of that. They're already creating the circumstance that they will be fighting in the future.
[00:20:46] Speaker A: Well, and that's those waves and that's where like, as I've been, you know, learning about this over the years, it's like, it's pretty knowledge, it's knowable. Like, oh, they're, I mean, we have a $2 trillion deficit. We're spending an eclipse at 7 trillion. Like I don't even know why or where that goes. And then we're just going to keep bringing. And so then if it's at 8 to 10% of debasement a year, that then creates the inflation on assets and also on the goods and services.
And it's just this slow bleed as we're, I mean within the last 100 days we racked about a trillion dollars of more debt because the interest.
[00:21:24] Speaker B: Yeah. And it's just so about that.
[00:21:27] Speaker A: What's the. Yeah, what's that other than my hard assets.
[00:21:30] Speaker C: Your problem.
We're well aware.
[00:21:35] Speaker A: Well in. But you know there's Lynn Alden, that broken money book that I talked about. She was on Tom Bilio impact theory. And I was just watching actually before he jumped on here. And it's all about hard assets at this point. Like, I mean like, because there's just more paper stuff chasing the physical things of the, you know, the things that are scarce assets. But what this is, the, these are the waves, right? There are knowable waves because the demographics that you helped me see years ago, it's like there's this knowable rhythm to this pulsating printing.
And what I, and as I think about your, your, your business cycles as gold has been going up now and we know that they're going to reduce rates. So all these doom and gloom, the jobs reports is to, and let me know if I'm, if I'm wrong about this. But there's, there's, they're putting this case in to reduce rates that's going to inject more money that will create more, I mean they will create activity which is going to yield that growth.
But then there's the other side of that, right. Like what happens after that when we've added more money and there's more debt and like there's also more retirees. Like we're still on this train. Right to your point.
[00:22:49] Speaker B: Right. And on top of that we have an increasingly tight labor market because right now it's not. But the job market will heat up again. But this is where Kim comes in.
If you know there's going to be some inflation in the future, then you have to gear your company's strategy around that inflation. Now the CFO's got to deal with the cost side but the marketing side is going to be all right. How do we raise prices in the future? What's our message? It can't be. And this is a mistake a lot of people make. Well, Our costs went up 2%, so we're raising our prices 2%. That's a stupid plan. Right, Kim?
[00:23:22] Speaker C: Yes.
So I do not like Cost Plus.
[00:23:25] Speaker B: Yeah, yeah, exactly. Right. So with Kim, you come up with a reason why you're raising prices and how you market it. And at the same time, when it gets deep enough, you have to decide if I sell the best product. Maybe I ought to have a better one. Good. Better. Best. Because the best is going to be harder to sell. So I better have a better and I better be ready for a message with why my better is better than your better. And I love it.
But that's where people fall asleep at the wheel. I think they just think, well, I'll just keep selling and, you know, and, and I'll raise prices.
But that doesn't work. There's got to be a reason why. And I've been preaching on this lately in a business course I'm teaching. There are three things in the world you got to pay attention to. Time, talent, and money.
And you can't attract the.
The talent. If you can't get people to devote some time and you can't figure out how to attract money, you mess with, not bother trying the endeavor.
[00:24:22] Speaker A: I like that a lot. Yeah. Because I mean, it's where.
And it ties Alan into, like, what I've been trying to preach is like, where do we spend our time in our bets? We're all just trying to figure out is this worth it or not.
And to make ridiculous decisions like, like impactful decisions without having a base case of how the game is played is just ridiculous. Right? I mean, like, the guessing used to work for 15 years. As things went up into the. Right. Now that things are more challenging and we have more turbulence, it's like, you're going to have to have that stability and that discipline in order to actually get the time, talent. And what was the other one? Time? Talent and money. Money, money. Yeah. What's that last one? What kind of, you know, I have to ask. Well, what do you mean by money? No, we broke this. We broke the Internet, Kim. But like, as you're taking this and then taking it from the macro, the, the what are your thoughts about the next four years? How is that, like, landing into, like, as you're starting the forecasting and looking at the cycles, what are you seeing that are trends from different industries and like, what people are paying attention to and where opportunities or concerns are?
[00:25:36] Speaker C: I'd like to take it back briefly to answer that question, but back to what Alan was just saying in regards to needing the, the actual business strategy. And then you, Ryan, what you were saying is, well, how do you even know if these plans are going to work? It all has to be rooted in data. It's not guesswork, it's not hunch, it's not gut. It's rooted in well researched data and put together so that way you know, some reasonable outcome or a reasonable idea of the outcome. And that actually became very apparent in one of the calls I had with a woman recently who is concerned about her business in the future because of the coming 2000-30s and is overwhelmed by, I don't, I've done all the ideas that I can think of and I don't, I don't know where to look from here. And I asked her what were some of the concerns about the economic climate that were top of mind for her and she listed them off. And I made this simple comment, none of that is new.
And it was like this light bulb went off that, well, what you're right, this inflationary periods have happened before like this and that have happened before. Okay, what were strategy and the business has been around that long. So what were the strategies back then that didn't work well? What were the strategies that did work? Well, this doesn't have to be a recreating of the wheel and I think people sometimes think that it does have to be a recreating of the wheel just because right now feels new to U.S. leaders. But that's because we are all that younger generation who have not been leaders during those previous points in time does.
[00:27:12] Speaker B: Here for seniors.
[00:27:17] Speaker A: It'S the wisdom, Alan, that's why you're here on this call. I think it is fascinating. So for contextually, if in 2008 you were CEO and you were 40, you're now what, 55 or 56.
And like when I say that everything went up into the right since 2008, I mean like that's when we just hit, I mean like we went to zero. I mean such low interest rates that the consumption was just on fire for 15 years. And so a lot of people, to your point, Kim, haven't lived through turbulence, let alone the big picture. So like how are you then going back to them? Okay, great. This has happened before. There's all these different and these are knowable things that we can then manage around. I think that's the biggest takeaway that I'm hearing here is there we can manage around it. It might just be a new variable that we hadn't seen in our, you know, ownership career as you're looking at the budgeting season and kind of looking at the cycles, like how do you think about the call it short term, near term of 18 months and then also like the five year. And the reason I bring it up like that because I think 18, you know, 12 to 18 months out without pegging it to like there is going to be something else, you know, on the other side of that. I mean you and I were talking about that this week. I mean how do you, how do you think about that?
[00:28:38] Speaker C: Sure. And I just want it noted on the podcast that my dad is the expert forecaster on this call. I am not. I look at all of this from the usability perspective.
And so I like he was talking about in the beginning, I'm a huge fan of rates of change methodology. That's going to give me a short term view of where I I'm headed, what phase I'm currently in, overlaying the leading indicators that he was mentioning in the beginning to give me a slighter longer term qualitative view, not quantitative view. And then I took it the next step in our conversation with what bottoms up forecasting is like, which I'm sure you and I will get into more in a future conversation. And then I broke down into three tiers where the bottoms up forecasting and the macro stuff that I just mentioned is kind of that middle tier, then the bottom tier is the revenue and what is the relationship between your recognized revenue and your booked orders or closed one deals, however whatever verbiage you're used to using. And then the top tier is your marketing analytics. And what is the relationship between your marketing analytics and your close one sales because they all have timing relationships and they all have conversion rates. And it's just identifying all of those analytics and playing analysts in a giant Excel spreadsheet and calculating it all so that way you can see what you need to hit the numbers that are ahead of you.
[00:30:03] Speaker A: And we, and we'll get into like the mechanical stuff on our call of like okay, what does that actually look like and how are actually people like putting that into practice. But what I thought was fascinating watching you Kim, on our group call, knowing all the stuff that you know, you've been preaching Alan, for years and having conversations with you, I watched you put them together because back to I've got some people that are in manufacturing distribution, different industry exposures and one of them was like I think I'm going to go expansion. You're like, huh, I'm in C phase here. Maybe I was just watching people like, like their brains, like I need to invert what I've been thinking about. So you're using that to see where you're at in the train, you know, the order of the train cars, of what's going on within the big cycles. Alan, that we were just talking about. But maybe Kim, kind of walk through like what you're seeing like, because like you're, you've been looking at manufacturing, steel manufacturing or fabrication or you know, different types of manufacturing and services.
Any kind of indicators you're seeing of where the different trains are or the cars are on the, on the path and like what, what trends you're looking at.
[00:31:11] Speaker C: I can explain what I'm looking at. And then dad, curious your perspective from that more macro. Mine would be more client side specific. The clients that I'm working at, they're all. The word that I've been using is soft, right? Like they're not in dire straits, but they're also not experiencing enthusiastic growth where everything is sunshine and roses. And that really has been the case across my service related clients and my manufacturing clients. I don't think I'm working direct, I'm not working directly with any distributors at the moment. But.
And that has many different reasons. A lot of it comes down to the lack of a strategic growth plan that they have been just saying we'll grow by 7% year over year, I think is one of the examples that was given on Monday's call. And that's just been the mentality of everyone.
And going back to the turbulence that you were talking about, I don't expect that turbulence to go away anytime soon. And that's. Dad, that was in your book where it was even said that this decade, the 2000s leading into the 2000s was going to be very turbulent times. And so I think it takes more innovation and analysis than people are used to. But if you're asking me for specific industries, that was something, dad, you and I were talking about for one of the clients where there are pockets of opportunity and it's a good brain exercise to go through to see how can you capitalize on those pockets of opportunity. So dad, you had mentioned, like defense is an area coming out of the big beautiful Bill Act. There was the, what was it? The industrial sector specific to detention centers because of the big beautiful Bill Act. There's data centers.
Yeah, data centers is huge. I talked about energy, the energy sector, cybersecurity, like all these different things because of the trends that we're seeing and it's just as business leaders don't just do peat and repeat, look for those pockets of opportunity and build plans to capitalize on them where possible, if possible.
[00:33:12] Speaker B: Yeah, it's. And that's hard for people to switch into. That's why you need to know where the train is going. And a general rule is if it's old tech, it's going to have a hard time through 26 and 27.
If it's new tech, then you, you have a real opportunity to do, to do well. And then you look at where the government Inflation act is spending and where the big beautiful bill is spending, and you follow the money.
And I say that, but I don't mean it glibly, because it's hard to break into those markets. It's hard to. If you're already in those markets, that's fine. You focus some attention, you expand your footprint there. But if you're new to that, you're probably not going to get there in time.
I was, I'm going to give an example of a, a company that I want to be careful because of. I don't want to make it obvious who it was.
[00:34:02] Speaker A: Give us their, their ein number and then their PO Box.
[00:34:09] Speaker B: A large Canadian company in a good industry that had demand and. But they understood something, and I gave them lots of points for this. They understood that in Canada it was a limited demand, so they decided to go into the US because they saw that as almost unlimited demand compared to Canada.
But they also understood that'll take years.
And so they say to themselves, all right, we can ride the dips and stuff, because actually, you know, it's a small piece of the business. So if it dips, it's not really noticeable. But all the, all the time we're building clients and reputation and all the rest of that.
So where you are in the business cycle, in your larger plans affects how you feel about different parts of the business cycle. And these people are very strategic, and I like that. Now you got a guy who's a home builder, and this is a true story. He was a home builder. And in the United States, there's a home building splurge going on. And they were just making all kinds of money. He bought a helicopter and he did all kinds of things and it all crashed in here.
[00:35:11] Speaker A: Hopefully not the helicopter.
[00:35:13] Speaker B: Yeah.
And the banks in Manchester. One day the feds showed up and all the banks were now being scrutinized. And all he said to me was, he says, I just pray to God that I get another chance. I Promise not to screw it up again because he was smaller, didn't have the resilience, and was blinded by today.
Point of the story is who you are and how deep your pockets are and how rational you are make a big difference. And I think what the three of us try and do is get people to think rationally about the future and not believe today's headline, not believe in what somebody's saying about how great business is going to be and how manufacturing is going to boom in this country and how, you know, we can't. This is going to be unstoppable now. And that's all nonsense.
[00:36:00] Speaker A: And, and yeah, it's fascinating. And I, I think that was very well said and very helpful because maybe I can kind of tie some of this together where, like, when I think about the people that we're trying to help. We were just talking about the Small Giants community and the Evergreen book, and like, I'm just, like, I just. Our hearts go out for the people that you, both, you two and me, we all had small family businesses, right? Like, it's really hard, right? It's really hard. It's like, not only internally, externally, you're trying to grow, you're trying to manage it and to, to pay attention to the right stuff that's meaningful that you can actually, like, make a move the needle on is really hard. And so if we can start with, like, hey, we're all recognizing that there's a business cycle. The business cycle is tied to the Fed and the treasury. But, like, we don't have to get like, okay, great. How. Where am I at on the train? Okay, here's where I'm at in the train. Here's. That'll help me have an understanding of whether it's, you know, extreme growth or we're on a decline. But that doesn't mean that's my fate.
I can move. I can move against that if I understand it.
And then, you know, like you were saying, Alan, like, what are the pockets? Or in Kim, like, where are the pockets of what's going on based on spending and. Etc. But that context, you know, kid, as you're walking through it, it's like, okay, like, at least I know, like, I need to orient myself. So if I'm actually on the softening, I'm not gonna go like, hog wild, right? And then, Alan, back to your point of like, the reserves and like, having the discipline.
So, like, you know, one of the things I've been talking about for years is build out an actual freaking forecast. Like a Three statement model that gives you complete visibility over working capital debt, taxes and owner's distributions. Tie your income statement, your balance sheet and your cash flow statement together, put into the future and then you go, what do I think about it? And then we start talking to Kim saying, okay, like now how do we actually change this?
And it's not anything more complicated than just thinking, right?
Like, like just putting in a forecast. Like yesterday on that or on Monday on that call came like, I don't have a forecast. Well, okay, what drives it? Well, I have service tickets. How many? Well, it's between 450 and 500. I'm like, well if you're going to grow, you need more. Put it in a spreadsheet. What's the average order size? You know what I mean? Like, it's like it goes from these big picture topics to like, came your point?
Build out a spreadsheet and then maybe you can speak to like when you have all of these layers of context, how do you start thinking about like the messaging as it relates to the cycles and then your customers and how to actually buck that trend that Alan talks about of like where you're at in that cycle.
[00:38:39] Speaker C: But I think what you're alluding to might be what we talked about briefly again on Monday's call, where it's when you have that forward view of where your areas of softness and such are going to be as well as your clients and understanding the psychology of where they're going to be at at certain times and you understand the timing relationship between your revenue to your sales to your incoming leads. You can plan very far in advance to say, I know I need to launch a campaign at this point in time because eight months from now that's going to transition into sales and 11 months from now that's going to be 70% recognized revenue. Because of how we recognize our revenue. Again, it's just, it's an Excel spreadsheet analysis, but it allows you to be very specific on examples. Dad. That I gave was, were that we always had the different webinars in July and December, right? That was to increase our recognized revenue in that period in time. Like just understanding simple seasonality, simple strong points in time, soft points in time, even outside of the economy, just natural, normal business norms helps you identify when you need to launch different strategies so that way you can beat it. Beat the norms.
[00:39:55] Speaker B: I love it. And it does take a certain type of leader to do that.
And, and I never. Well, never too big a word. I don't mean to put Anybody down. If you're a small company and you got a comfortable business where you're making a comfortable living and that's all that you want, then you know, you're not listening here. It's not the right place for you. But if you're trying to build something, no matter what industry, no matter what your current size, you do have to apply a lot of this very methodically so that you don't run into a wall, fall off a cliff or have your competition come along and just sweep you off the map. Because those well said happen.
[00:40:35] Speaker A: And maybe as a, as a final topic question that I'd really interested to hear your guys opinion about.
On that note, Alan is like how do you how to find those people?
Like, like I, I don't know how else to word this is. I've just been exhausted this last like, I don't know, three to six months of like people just want quick fixes and it's just like I, like maybe that's worked in the past. I'm not saying quick fixes are not possible but like I don't know Kim, if I sent you the meme on, on actually like just choose your heart. It's like there was two doors and it was like hard and the other one was more hard and there wasn't, it wasn't a door that said like hey, it's a, you know, you know rainbows and unicorns. And then like because that when you say it takes a certain type of leader, it's like hey, there's not really any shortcuts and like none of the stuff we're talking about is not that crazy. Like when you were on the call, Kim, it's like build a spreadsheet, how many orders, what it took you to get those orders. You know what I mean? Like it's not, we're not building AI here.
You know what I mean? So I'm just, I don't know how you have filtered through or you over Maybe that's. This is one thing, Alan, that it's always been this way and I'm just, you know, in my career and I've gotten a certain point where it's like I'm just kind of exhausted with the people that want a quick fix and how to filter through because like the people that came that way, working with, it's so fun. People that like it's hard work but I don't care. And it's like the people that show up for the gym every day, you know, I mean like they're just Willing to do the hard work instead of make excuses. And I don't know either of you have any thoughts about that, but maybe it's just my own situation.
[00:42:19] Speaker B: No, I. I think first I have a question. What's a gym? I don't understand, but I, I have farm, if that counts.
[00:42:28] Speaker A: But yeah, you know what? I. I think that naturally you have enough stuff to take care of where you're walking around and moving stuff and lifting stuff.
[00:42:37] Speaker B: I think the answer to that came to my head as you were talking was that it's like any business, you have to make up your mind whatever business you're in. This is not what I do. So when we run across people who are not interested in putting in the work, who just think it's going to be fun or easy or they just know or it's intuitive, that's just wish them well. And that's just not who we're going to be helping. And there are. There are plenty of people out there for us to help. And that's mindset I've developed anyways. And Kim and I have gotten pretty good of knowing which clients we want, which clients we don't over the years. And I think every business needs to do that, including in our search for people to help. If they're not willing to think about things differently and even have that conversation, we're wasting time.
[00:43:27] Speaker A: Yeah.
[00:43:30] Speaker C: I agree. That's one of the very nice things. Being out on my own is being able to help the people that I know that really want the help and then not chasing after the people just because I have a number to hit a sales quota to hit. It's nice being able.
[00:43:43] Speaker A: You're blaming Alan for your sales quota? What's going on here?
Sorry, dad. I'm no longer subject to your quota.
[00:43:52] Speaker C: I'm trying to grow the business as big as I can before retirement. Now it's just all about me.
[00:43:59] Speaker A: That was helpful, you guys.
[00:44:00] Speaker B: I.
[00:44:00] Speaker A: It. And maybe Kim, you can help me with my messaging and as I, as I continue down this track too, because, like, that's where I like, I find these podcasts super fun. I'm so grateful for the time that you two have spent with me. And I hope that, I mean, like, the people listening in, like, they're, they're trying, like, this is not. It's a, you know, that's a. It's an earful when you listen to this stuff. But really, as you start to get used to the words here and there and the concepts we're trying to distill, it down to like, hey, there's notable things that are, that we can anticipate and the end result, well, we just have to think maybe a little bit differently and then do some hard work to build a spreadsheet and then, and then work towards finding the customers that, you know, are countercyclical or, you know, find the people. I mean, it's, it goes back to that hard work. But the prosperity on the other side is unbelievable. And Alan, what I have started to notice already, I mean, you're the title of your guys's book, Prosperity in the Age of Decline. The people that are in our groups, Kim, are going to crush it over the next five to 10 years. You know, so there's a lot of this, you know, like, hardship stuff conversations, but, like, they're going to attract the right people. They're get, I mean, like, I was on, I won't name his name, but like, he's like, we are getting so much business because PE firms are the bed everywhere and we're just getting deal flow and talent. So I just think that prosperity and the age of decline is the real thing.
[00:45:20] Speaker B: I, I, well, we do too. And it's, that's the whole point. And when people think of the depression that's coming and they get nervous and upset and they, I used to see their faces. It was like I just told them they had six months to live, you know, and, and I was five months late showing up. It's, you know, the look on their face was amazing. I said, you're thinking of it all wrong.
I said, now that you know, you can think about, how are you going to not only do fine, but do better?
How are you going to take care of your employees so much better than you could before and how you can help those around you more than you ever dreamed possible?
This is an opportunity for you to be the type of business person you always wanted to be and thought businesses should be. This is awesome news. I'm opening a door for you.
[00:46:06] Speaker A: That's fantastic. Andrew Huberman, he's a neuroscientist from Stanford, and he's all over the place these days. He's got this because he's kind of, he's kind of in the health world. But what I feel like you might have experienced where, like, he's just the bearer of bad news, like, sorry, drinking is bad for you. Sorry, smoking weed is bad for you. Sorry, we're dopamine addicts. And so he's just gotten so much crap from so many people because so he's got this phrase down.
He says, I'm not going to tell you what to do. Just know what you're doing.
And I was like, that's fantastic. Just, yeah, do whatever you want. Just know what you're doing.
And I think that whatever us three are trying to do is just know what you're doing. We're not telling you what to do. Just know what you're doing, you know what landscape you're in and then you could actually realize. Realize all your dreams like you're talking about.
[00:46:53] Speaker B: Yep, exactly.
[00:46:55] Speaker A: Well, this was so fun. Thank you too for your time. Kim, we will pick it up. You're going to be boxing, so we're not doing our Friday call. I hope you're boxing in that like 190 degrees sauna just because you cancel on me. But reach out to. I put both your guys's email address or the LinkedIn for both you guys. So thanks so much. And Kim will pick up the more detailed forecasting and then Alan, thanks for the time. I enjoyed it a lot.
[00:47:21] Speaker B: Oh, me too. Thanks. And anytime I can be of service, Ryan.
[00:47:25] Speaker A: Every 90 days. How about that?
[00:47:30] Speaker C: Thanks, Ryan.
