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.
[00:00:17] Speaker B: All right, so this week's episode, we're walking through operational KPIs, but that's as a follow up to last week when we were talking about the margins and how to properly be looking at your margins. Do you look at your gross profit number or do you look at your percentage? How to look at things in terms of rates of change. We briefly touched upon that breaking it down by product line and then double clicking even further and diving into breaking it down by customer, which I actually just did that with a client and they had some aha's that they had assumed that they had a good handle on and they, they have a very good handle on it. But there are some aha moments in there.
But I guess in my mind, what happens if after you do the analysis, your margins aren't where you need them to be? And like, how do you dissect and identify what's causing that? Is it your production team? Is it your sales team? Is it like, where, where is that coming from? So is that a fair way of me looking into this as we go into today's episode, Ryan, is like, how do I diagnose the results that I got from last week's analysis?
[00:01:24] Speaker A: Yeah, I think it's perfect because I think I can't remember what we said in the podcast versus the actual group training, but if we have them, the product and service lines broken out like you said, and then we know our margins per product and service line and what we want them to be. We talked a lot about in the group meeting this week. The rates have changed. Being able to help us identify when there might be an issue with the margin compression.
So we were using the 3 over 12 to identify, like, when there might be that trend and then the 12 over 12 to identify. Okay, when does it trigger the floor? The floor, meaning the minimum margins that we want. And so we have some of these, these thresholds to allow us in our monthly and quarterly ownership meetings identify when we should start having that conversation. What, what was the nine months, Kim, like when the. When the three over 12 hit versus when the actual month margin triggered against the floor.
So, like, it, it's. I think it was like 58% and the floor was like 40 or something. Like that was like, okay, it took nine months for that to happen, but we would have known it to start having that conversation at the 3:12, was that correct?
[00:02:35] Speaker B: Yeah. So there was about a nine month lead time between what you were seeing in the rates of change and what was actually happening in the margins. And so that's exactly right when it hit the floor, we started seeing some negative pressures and activity starting to happen nine months prior to that in the rates of change.
[00:02:53] Speaker A: Because then to your point, what we're trying to DO in this milestone 17 is identify the operational KPIs that allow us to figure out what is going on.
So the, I joke around because Jack Stack in the great gaming business always says like what do we need all these dashboards for when we got the income statement?
Exactly how he said it, by the way. And so the, the income statement is the scoreboard. Like how well did we do on our revenue and our margins, how much we were spending on the client, acquisition costs? All of the KPIs that you and I have talked about up until this point, we can find most of that stuff on the income statement. But when we get into then what do we do on the week to week basis and what's going on with our people and our products, that's where we have to dive into the operational KPIs that we're going to be talking about today. And so many people just make these KPIs up like, you know, like and we, we overdo it with dashboards to try and figure out the diagnosis. And so I think maybe a great way to start would be like what is it that we're trying to solve for here? Because that will then help us identify what the KPIs are.
We have to have more throughput like whatever the company does, products or services or a combination of both, you're delivering more products and services at the margins that you want. So you want that throughput to keen to continue.
And if you're all of a sudden having the bottleneck get stuck and, or the costs are growing, we need to open up the bottleneck and have more throughput at their exact margins that we want. And that's not going to be on the income statement.
[00:04:33] Speaker B: Yep.
[00:04:35] Speaker A: So with that being said, I'm trying to think of like the best way to unpack because There's a couple KPIs and a lot of different methods that you and I are going to talk about, from labor to product to working capital.
But the theory of constraints is what I'm pulling on from my understanding this. Are you familiar with the theory of constraints? I don't know if you and I've talked about that.
[00:04:56] Speaker B: You and I have talked about it, but it'd be good for us to go over it for the. Those listening in.
[00:05:02] Speaker A: It's a book called the Goal.
It was written in the 80s and it was about this guy who had to come in and turn around a manufacturing plant. Highly recommend listening to it because they're actually smoking cigarettes in the office. So Kim, you can hear him go.
It's like the, so the sound effects of like, oh, we're in the 80s and we're smoking cigs while we're in, in our meeting. So we must have been recorded back then too. But the, the book, the Goal, this guy comes in to a manufacturing plant and he. This one specific plant and he's got to turn it around.
So I don't have personally direct experience running a manufacturing plant. I've got clients that do. You and I both have people in the community that do.
We need to have more products go through the plant to go out the door.
And the more we continue to do that, the more we continue to maintain our margins. And it has to be at the right cost.
And if someone's a professional services firm, it's continuing to make sure that you're having the right projects, you're doing the, the service that you promised at the, at the margin. So we. What I like about it, I just have this visual because it's always identifying the bottleneck and then opening that up.
So if you have throughput coming in, so back to your whole module. If you got revenue, predictable revenue coming in, and we've identified our target margins on the last milestone, we have to make sure that we're constantly looking at the bottleneck and opening it up because then we can continue to grow.
And so that's literally the whole point of the book of the theory of constraints is there's a constraint, and that constraint is the bottleneck based on physics and first principles. And if we can figure out a way to identify it, what that bottleneck is, then we need to open it up. And that's the only thing we should be working on. So I think that's where like to come up with a dashboard of all these different things, then it confuses you more about what to focus on versus what's the bottleneck. Go figure out what it is. Go figure out what the problem is. The root, the root issue. Open it up and then the throughput will continue.
[00:07:09] Speaker B: Now, can the bottleneck not just be a production thing? Can it be like pricing too, or your bottle? Like you're Getting pressure from like, maybe your costs have gone up because of inflation and everything else and your prices have not gone up and you identified that's become your bottleneck. Like, can that be a reasonable situation too?
[00:07:27] Speaker A: I think so. And you and I have talked about pricing and like the conversations that sales and operations have to have together, which is why they're compensation together.
It absolutely could be because you could be pricing yourself out of the market. Like your pricing elasticity has been hit as it relates to this milestone. I think what we want to cover is just the operational throughput. So let's take.
We have to kind of. Thank you, Kyle Schul, like hit the I believe button.
So let's assume that they went through the predictable revenue module, which I think pricing in that, that those conversations are in your strategic plan with your icp, then going through their customer journey, your client acquisition cost and your, your, your data and your forecasting systems. Like, let's assume that that conversation of the right pricing mechanism has done, has been done there. And now we're trying to just in, you know, hold the margins, identify the margins and, and understand when they're triggered because we have cost, our costs are rising or we're not having enough throughput because the capacity of our operations is not allowing us to deliver what sales has already sold at the right price.
[00:08:35] Speaker B: Okay, I like it. I like it.
[00:08:38] Speaker A: We're. Okay.
There's a couple of different places to figure out where to look. And so there's three, three big questions. And I've got some more notes on this one because there's a lot more KPIs and not. And, and not KPIs but math equations that again, I think are worth looking into. And I'm pulling on like Marcel was a podcast that I've done. I've got stories that we can talk about from my old company as well as what I know are realistic stories.
Do we. Are the people doing what they should be doing for the price that we're paying them? That's our people. Like, like at the end of the day, every company, Kim, is people like labor is one of the largest line items for every company. And whether it's even manufacturing you have, labor is still a part of it. I mean, yes, we have depreciation from equipment and robotics and all that kind of stuff, but we're trying to understand for the price that we're paying from our equipment or from our people, how much throughput do we have? And then it is, is the work going through the system. Like, are we like Are we doing the amount of jobs that we want? Do we have the products that are going out that we want? So it's the throughput of the, the volume and then are we actually getting, how are we actually getting the return on the dollar that we're spending and then is the money moving through the company which is actually working capital? So inventory turns and understanding how like payroll is impacting your ability to provide the services. So there's a couple different ways to look at. It's the people, the throughput for the volume and then the actual working capital.
Because for a company that's privately held that doesn't have VC funding, there's a sustainable growth rate like you, you have like there, there's like between 20 and 25% where you can cash flow from operating activities and that's what the one you know Ken, on the side note like the amount of dysfunction where like these companies don't make any money and when you raise a bunch of money and you don't have to adhere to that theory of constraints, that's how so much waste goes through. So like people are comparing themselves to these other companies like well they don't make any money.
[00:10:50] Speaker B: Right.
[00:10:51] Speaker A: They just keep burning money because. And then it really up supply chains. I read this whole, whole article. We'll have to find it for this. The show notes how the venture capital has, has destroyed the restaurant and food delivery because they don't have like that one chain in the or the link in the chain doesn't have to make any money because of how much VC funding the DoorDashes of the world have made or how much money that they've raised. And it breaks the economics of the supply chain.
[00:11:23] Speaker B: Oh that's interesting.
[00:11:24] Speaker A: Yeah because you can't grow that fast otherwise. Because you need to like if you think about, if you're growing that fast you have to hire ahead, you have to, oh get that off.
You have to hire ahead, you have to buy inventory. But like a company has to be in reinvesting back into that com and into the business. And like there's only there's a sustainable cash flow from operating growth rate that like otherwise you're going to need to raise money. So that's why when we sit down with an owner and say like well what's your goal? I mean it's like if you go to that five year goal you're like, you need to like raise a shitload of money. It's just a math equation. Well I don't want someone in my company like okay, we'll reduce your goal then. So I think it's really important to understand that sustainable growth rate, cash flow from operating activities to then say okay, how do we reinvest that back into breaking that constraint?
[00:12:22] Speaker B: Yep, I like it. So you had mentioned the three main segments. First being people. Do you want to start with that?
[00:12:29] Speaker A: Sure. The, we all want to know our people doing what they should be doing. So let's, let's take this from like my, my. I'll just tell the stories for like that are most familiar with me because it's my past. Like any services based business, which probably a lot of the listeners are, we were a distribution and service and so we sold things and we serviced them. When we look at just the people we want to know are the people doing what they need to do for us to actually keep the billing and keep the machine going. And so utilization rate is a really good number to understand. Like is are we getting the return for the payroll that we have? So you would look at and say okay, well how much did I bill based on what it, you know, by my salaries, my payroll. So you're, you're, you're taking that math equation, say okay, well at around 77 or you know, 70 to 80% we're billing that much as it relates to the whole payroll of what we could be billing.
That make sense. So like if, if you're, let's say if it's $10 million that you know, you, you build and your payroll, you would say okay, well we're billing 70%, 70 to 80% to get to that $10 million of our total payroll.
[00:13:49] Speaker B: It makes sense. One of the great debates I'll call it, that I've seen over the years is the payroll side of the equation on do you include everyone who's involved in productions payroll and the entirety of that payroll or do you take a percent of it and you apply?
So I'll use my old firm as an example. They used to take a percent of it and say well we're going to assume that 30% of their month time is going to go to research, not production work. So we're only going to take 70% of their payroll and apply that.
[00:14:26] Speaker A: But billing utilization. Right, I'm sorry, that would be efficiency, I think billing efficiency, not utilization.
But so you would be taking 70% of their salary and that equipment using
[00:14:38] Speaker B: it in the utilization rate, which would make the utilization rate look better because it's a smaller payroll number that's being used. And that was always like one of the big Great debates in the exec meetings was always like, should, like. So I'm just curious your thoughts on
[00:14:54] Speaker A: would you need to do that research in order to have your services?
[00:14:59] Speaker B: Yes.
[00:15:01] Speaker A: Well, then, I mean, was that reflected in your cost of goods?
[00:15:06] Speaker B: That. I don't know if they put it all in the cost of goods or not. But let's go with the running assumption that that research was needed to produce the good. And therefore wouldn't that be counted as part of their production time is doing the research? And therefore you'd want to use their entire payroll.
[00:15:21] Speaker A: You would think so, because then you would say, like, well, how much payroll do we have and how much are we billing? This is essentially what we're trying to ask. And so to take a chunk of that out wouldn't make any sense because you're just saying like, well, our total billing capacity would be 100%.
[00:15:37] Speaker B: Right.
[00:15:38] Speaker A: And so you could stop doing that research and then you would have maybe some other ramification behind it. But the goal would be to say, okay, what's our, you know, one of our clients calls it billing efficiency. It's just taking that the total. The total billing would be the. Would it be the payroll divided by the total billing? Okay, I'm getting a little confused myself here.
Yeah. So the. To get to the 75%. Ish. Right. So that's what we're trying to say is like. Because then the question would be is what else are they doing with their time?
Right. Like, why aren't we billing? And so what I like then is to go from the billing efficiency or however you want to. I, I think efficiency and utilization are interchangeable. As for this conversation, everybody might have different definitions internally, but we're trying to say of total payroll. How much did you bill in revenue? Then what I would want to know then inside of that is like, what is Kim doing?
Right. So then I would go down to the person. And so we used to do this with the copier text as well as the manage it. And it would be like, okay, well what is Kim or what's the individual staff member doing? And we would then look at the time tracking system and say, okay, now what are the different levels of like, depending on the time tracking, are you. You suggest or. And manage it. Even Paul.
So like, let's take Paul because now people are getting more familiar with him. If Paul's logging into ConnectWise as a Level 2 technician, because he, he is identifying that this problem he's solving is a level 2 technician, yet he's our CIO I would be able to look at a total pie chart of his 20, 80 hours and be like, what the hell? You spent a third of your time in level two work.
So then we'd say okay, on this healthy six figure salary, one third of it is doing level two technician work. We should be able to hire $80,000 level two techn to get Paul to elevate up. So then I would be looking at individual contributors to say what are they actually spending their time on? Because everyone says I need more help. What are you doing with your time?
And that's when you know, we even talked about when we were identifying our gross margins identifying, well that salesperson actually half their salary should be in cost of goods. So now we only have half of it that's actually devoted to sales. So we're trying to figure out each individual person, what are they actually doing to then look at that throughput to say okay, well how are we going to do more work? And so with, with if someone's in services and whether you have contracts, time and material or fixed rate in time and material, you want to just keep billing. I mean like that's like welcome to the hellhole of attorneys. Like I can't imagine, like I wonder if they ever get out of that mindset even into retirement.
Like it's just such a ingrained. I have to be billing per hour.
So you want to bill as many hours as you possibly can. Pretty straightforward at the dollar amount that you should. So realization rate would be what you want to be doing for your like let's say you're doing time and material and say okay for 150 bucks an hour is what we want to charge.
Well, you would say well how many total hours could Kim bill this year?
And then you would say okay, well that would be. And then you times that by your 150. That would be your total potential.
And then your realization would be rated is like what you actually build.
[00:18:59] Speaker B: Yep.
[00:18:59] Speaker A: So are you 70% of what you. That means you're discounting or you're doing something. There's, there's waste going on inside there. So we're like what we're trying, we're hovering around is the people part of this. Like how do we keep our people as productive as possible?
So we'd be looking at the total team of delivery. Then we would go to the individual contributors. And a lot of this has to do with how we're billing and how we're engaging with our clients. So time and material, like we just said. And then it Would be if you have flat rate projects, you want to be having the throughput of those flat rate projects with in not. Not logging a bunch of time against those.
[00:19:36] Speaker B: Right.
[00:19:37] Speaker A: So you want. The whole point is that if you're going to do flat rate, you're getting really good at doing those. So you can do more flat rate. And then you're decoupling your direct correlation with time and the dollar amount. So you're creating more leverage.
And then there's all the different. Like any kind of KPIs inside of these would be helpful for people to understand how to use your time more effectively. So in the copier world and then the manage it where there's two really interesting ways. Well, in the copier world, first call effectiveness is a thing.
So if we were to dispatch a copier tech and they. Because like I don't remember when it would have been, but like, you know, because incentives drive behavior. It was go fix it.
Right. That's how it started. Well, Kim calls back, we gotta roll a truck again and okay, that means more time. Yeah, Gas the truck, more consumables. And then you just like. So you keep having this repeat and you didn't fix it. But we had a flat rate contract.
So every time we rolled the truck, we're eating into our margins.
[00:20:47] Speaker B: And like the H vac story you were telling me about like the guy that was like, if something's not right, just let me know, I'll come back and I'll fix it. You're like, hey, thanks. Without billing me.
[00:20:55] Speaker A: Yeah, exactly. It's like in like so you know, every customer service rep would like that, but I think everybody wants it fixed the first time.
Well, what we would then look at and say, well, why are. Why does Brad have a cons? You know, he has a low first call effectiveness which is just a repeat call.
Training issues.
Is it actually a lemon for the piece of equipment?
So that's how we started actually getting into debates with the manufacturers about lemon. Lemon pieces of equipment. Like this is not us like this. We've thrown all this at it. This person certified and you can see all their first call effectiveness besides this one piece of equipment. So it's just helping us identify how do we do more work with the current people.
And then with manage it, what was really cool, which was baked into like the whole process of like the service offering of manage it was Paul and I would sit down once a week as we had the help desk tickets and we'd look at the help help desk tickets and in Manage it, you could identify, okay, what's the most common and repeated ticket.
The Minnesota Wild had a VPN issue that was like, is my favorite store, like 330 employees. They're constantly calling in.
Well, their VPN kept breaking.
You know, some remote employees are like they had. And they had a hosted services and so like they're constantly calling. I can't get into my whatever, like my software. Well, we would then take our most expensive engineer, Brian, and then Brian would write a script and he would literally patch updates. So he would deploy that script into that entire network.
So then like every two seconds it would look to see if the VPN was connected and if not it would fix it. So like 200 tickets disappear.
So we can. And so with manage it, you like in that. In that every single one of those fixes got used across all networks then so you're constantly getting better and then you can actually increase your margins over time because on a flat contract like that you're spending less human hours against the contract.
[00:22:59] Speaker B: Yeah.
[00:23:01] Speaker A: So I'm going into these different nuanced stories because like we're just trying to figure out how do we do more or less or do more with the same amount of people and how do we go and identify the bottleneck of where people are spending their time. Low level projects and that's like the whole like higher, you know, look at the work.
Expensive people should be elevating up so you can then build more work. And you're constantly buying your time back by like understanding where people are spending their time.
And I think AI is like such an accelerator to behind all this stuff. If people know where they're spending their time and what their throughput should be and their margin should be. Because it's like we can do way more with the same amount of people now.
[00:23:48] Speaker B: Yeah. And I wonder so bringing up AI that brings into my mind other technologies and other types of processes people use to identify like where they might have throughput issues. So where does like Six Sigma, Lean Manufacturing and like I think the book the Phoenix Project. I don't know if you read that one or not, but it's not about operations. It's a really good book. I liked it a lot. It's all about operations and how to identify where things were going awry and stuff.
[00:24:16] Speaker A: So like what were some of the takeaways?
[00:24:20] Speaker B: Actually a lot of examples that you were giving like they identified through like utilization rate and these other things that they're very high, highly skilled IT person was doing hundreds and hundreds of low Tier tickets because everybody would just go immediately to him instead of to the other technicians because they knew Bob could get it done faster and the right way at the very first time. And so people were just overusing his time for things that were beneath his pay scale.
And so they had to set up like some sort of system that made it easier and the employees to feel more confident they were going to get a good result from the lower tiered technicians and stuff. So it was really just a lot of investigating. And then I like how so it's written in story form. So. So that way it's like they, they
[00:25:11] Speaker A: build up the goal.
[00:25:12] Speaker B: Yeah, yeah. They build up the characters and everything else.
[00:25:14] Speaker A: And so are they smoking cigs in the office?
[00:25:16] Speaker B: Yeah. And as you're going through the book though, you're like, oh, well, we have Darren or we have a Sam or we have a Linda. Like, and you can start like applying Personas to people in your organization based upon the character development and the issues that they may have in their own organization. So I'm just wondering like, would this diagnose process with looking at the people lens of it? Like, where do some of these other techniques fit in from your perspective?
[00:25:44] Speaker A: I wish I could answer it in more of a throwaway, but like, I've never personally like implemented Six Sigma or any of that stuff or lean. Like, I mean, I just, I have a bunch of books back there about process mapping and all that stuff for when the document management days.
And like, so I guess like complex systems and throughput has just been like ingrained in me from day one. And so like every time I hear like process mapping or like Six Sigma, it's like just do the least amount of shit to get the deal done, to get it done right. And like, and I don't know if I'm just oversimplifying it. Like, I mean Elon's like, get rid of waste until it breaks. So it's like this thing should have seven steps. I mean like, I can't remember if it was PayPal or which one it was like too many clicks and they took it from like 40 clicks down to six or whatever the hell it was. And so I, I, you know, for all the people that have black belts and all this stuff, and I'm not, I'm not trying to like simplify all of that hard work other than the fact that we have so many steps, it should probably be less while looking at the quality.
[00:26:52] Speaker B: Right.
[00:26:53] Speaker A: Like it has like, so that's why the first call effectiveness is a quality Metric, like don't just go throw parts at that because then our gross margins will disappear and we're going to go back and back and back and forth and we can't sell more stuff.
So like looking at it from multiple angles is how I like to look at it from the financials and then double clicking into these operational things to say how much can we bill as a organization? Right. So I mean robotics is just helping with that. Right. And then you get into depreciation and the fact that they don't have, you know, sick leave and like the fact that you can do a section 179 tax write off goes okay per person versus equipment. I mean that's a whole another, that's a whole another conversation. But this is still the same question, which is how much can we bill whether it's a product or whether it's a service with what we have.
And we want more throughput and more cash flow given what we're doing. And so like reducing the amount of steps, reducing how fast it goes through the project, how fast it goes through the plant, whatever it might be, and then figuring out like how do we answer those questions about where to invest to decrease or to increase that throughput and reduce the bottleneck. So back to the people part. It's the p, you know that the overall billing efficiency helps you determine with your whole payroll how effective are you? Maybe with robotics and other AI things you can help with that whole number. Then you go into the individual contributor.
And so like let's take an example. Let's say we go back to Paul, like let's say one third of his time is low level tier one, tier two. Well, if he's getting paid a healthy six figures, you go, okay, well it would be very common, a lot of common sense to say, well let's get Paul working a more strategic high level work. Right?
Well what if we don't have that work, Kim? Go sell more. Now we like what we want to have is that visibility months in advance to say if we keep doing these things we should get Paul backfilled over the next, you know, if these things happen. Let's say we start like, okay, Kim, here's the forecast. When we close these things, we're gonna hire that eighty thousand dollar tier two technician and then Paul can go lean into that so we don't have to go hire another Paul. So we're looking at sales and operations at the same time because we're always having to hire ahead or buy inventory ahead. And so if we have that visibility of hot like the per person or that that output then we can have more confidence with if you've built the predictable revenue engine. I'm going, okay, when these things happen, pull the trigger on that hire versus like you know, in the, they call it the step up. You know, we're like in IT services it was like in this is professional services in general. And I why I fucking hate it. Like you're never making cash. It feels like you're never cash flow positive because like we have more sales like higher ahead because we need the bench, because salespeople won't. I mean we've got a couple clients in this space, right? Like we salespeople won't feel confident selling because we don't have the people. Well you put the people on the bench and now you've got 20, 30, 50, 100 grand a month burning a hole in your pocket until you lead into sales. So managing this balance is so important to keep that growth rate. So that step up is like you go from no salary to salary, right? So like we have to be managing this dynamic in a thoughtful way and it has to be having that conversation with sales and with pricing and, and all of these different new like looking at the person then helps us ask the question of when can we invest to reduce that bottleneck.
Is it training or is it backfilling another hire?
Can we afford to take someone out of the field? So like I'll give you an example on the, on the copier technician. So training was a big deal. Like when we hired this Pat Somnisky, we were behind on all of our Canon training. And you, we could see that in the first call effectiveness.
You know, everybody's already busy though, right?
So then it's like, well if we're going to pull people out of the field, well that makes everybody more busy.
So every like how do we have handle that situation? Well, you go, well if we take people out the first call effectiveness will increase to this, which means we'll have more capacity. So are we looking at a three month window here? You know, I mean like then we gotta, so we have to like we had to go buy tech and so then we decided to have this Friday rotating. So instead of going to Canon, getting on a plane, paying for people to go to New York, sitting there out of production for a week, so then other people are picking up their jobs. I mean it just would be way too hard on the team. We decided to have a rotating training program in the warehouse. So every Friday you're going to spend half a day in them or whatever it was.
So that way we were balancing that.
If we do the training, we know that there will be an increase in the first call effectiveness which will allow us to take on more clients without hiring another tech.
[00:32:05] Speaker B: Yeah.
[00:32:05] Speaker A: So we're just trying to diagnose the. The source issue.
[00:32:09] Speaker B: Yeah, that makes a lot of sense. I mean my mind goes. There's. So there are a lot of different ways to diagnose, like the people perspective. Right. Like I think back to even like again my background being in sales. But I would look at an account manager and find out how many accounts can each account manager effectively handle. And it's always different. Right. And they find out, well, why can Chris handle 100 accounts? But. But Andy can only handle 50 accounts when they're virtually the same scope of work. I imagine there's something similar to that in the people side of it too. In production too, where you have somebody that gets something done in an hour versus somebody that's going to take four hours to do it.
I don't know what your thoughts are on that.
[00:32:49] Speaker A: I mean where, where my head goes with all this is like it has all of the. The. This whole conversation has to be after we've clearly identified our gross margins and what cost goes into every line. Because like, I don't know about your past, but like when we go down this route of like someone needs a backfill and someone needs this, or they need training or they need AI, or they need to spend X amount of tokens or they need a document management system, whatever the fuck it is. It's like everyone always needs something else to do their job better. Got it. But when is it actually justified to do something?
We should be able to first go like, what are we making in this product or service line? We have to have those gross margins. So that way we're all on the same page of like the depreciation costs in the equipment is already accounted for. We have Kim's time. So like back to your account manager is, is everybody accounted for in the product or service? And like, are the systems and the subscriptions and all that stuff in the cost of goods?
If everyone's agreed on that, then it shouldn't be overly complicated to just do time analysis.
That's all we're doing is going okay. How is Kim spending her time? Because if we can spend more time delivering products and services or because your time could be production manager and aware in a manufacturing plant. Well, more throughput if we can sell more stuff or you can build more time. That's it. It's like, isn't those. Those are the two things.
[00:34:13] Speaker B: Yeah.
[00:34:13] Speaker A: And like I don't know what else there could be is sell more stuff. And that stuff could be a subscription, it could be a widget, or it could be your time.
Somehow it always ends up collapsing down to time. And then how the people are spending their time managing the good. The, the cost of goods.
[00:34:30] Speaker B: Yeah.
[00:34:31] Speaker A: So then we would just do. And we're just analyzing. Okay, is it a training issue for Kim? Is it a competence thing? Are our tools or our systems or our software or equipment not working? We're just trying to figure out what's holding up the time management.
And too many times people are in that situation arguing about what's in cost of goods.
[00:34:53] Speaker B: That's a good point. I think. I think that's a really good root cause. And so if you've already determined that before you get here, it makes this stuff a lot easier.
You had three main topics when we started. So people was the first. Working capital was the third. I forget what was the middle one.
[00:35:08] Speaker A: So are you people producing utilization output per person, cost per hour for capacity? Is the worker product moving your yield first call fix hours against estimate inventory turns on time delivery. I mean it's just.
[00:35:23] Speaker B: Are you.
[00:35:24] Speaker A: Do you have the. The throughput. The third thing is working capital because we. People can grow themselves into bankruptcy.
Like I mean it. We have to look at the cash flow of this. And that's why I think the COO has to have a direct correlation to if someone has inventory.
It's the inventory turns because you don't want two years worth of inventory sitting on your shelf. That's devaluing and it's. That's cash actually locked in.
So understanding when and how to buy that inventory. And like you and I and Alex on the profit war room podcast, like we're the globe and the global economy is going from just in time inventory to can you actually find it?
[00:36:15] Speaker B: Right.
[00:36:16] Speaker A: So like there, there's dynamics going on right now that I think are going to catch people off guard. So having that person that, that COO knowing thinking about risk. So it's not just throughput The Justin inventory, the just in time inventory culture was driven off of everything we're just talking about here keep growing and like let Amazon put it in their warehouse and like China ships it to Amazon, Amazon puts in their warehouse and I only, you know, the Amazon, you know, fulfilled by Amazon companies. Like well it's not it. It's just a store it's just a digital storefront. Other people own the inventory. But guess what? All of a sudden you can't find the inventory. You have no business.
So that was driven off of cash flow dynamics because like you got $2 million stuck in inventory.
That's cash. Right.
So understanding about availability and your ability to turn your inventory every year. So it's called inventory turns. And this is so the really realistic on the geeky, it's just a cash flow conversion cycle. How fast are we turning our sales into cash? Yeah, and I know that a CEO doesn't have responsibility over receivables or payables. So there. That's why I don't go straight to working capital as a percentage of revenue, because that's the CEO's metric.
Because the CEO, they should have insight and foresight about the inventory turns. And if people don't have inventory, it should be your utilization rate of your people.
[00:37:51] Speaker B: Right.
[00:37:52] Speaker A: Which then it comes down to training.
Are you billing your time? Are you giving discounts? Are you like, are we inflated with our costs?
Are we having the throughput that sales is delivering to us? Because like, I'm curious if you're what your thoughts on this or where I'm about to go is.
I find that most of the people in our community are operational experts to begin with.
Like they, they were involved in delivery of the product or service and or were an expert for the most part. It's not everybody, I'm just saying it as a, as a bell curve. Like they were a technician, they were a service provider. They understood how to like, you know, whatever it might be in the business to understand the guts of the company. And even the multi generational businesses that we've worked with, they learned the company's operations over time, which means that like through gut and through experience, they're generally good at that stuff.
The predictable revenue engine makes it more difficult if they don't have that, which a lot of people don't, they're not as confident in the bets they want to make. So I think the things that we're talking about, people have a pretty decent handle on, I think clearing up your gross margins and clearing up your cost of goods and being in violent agreement of what is actually in there. The analysis part of what we're talking about tends to be more straightforward.
And then people can go, well, if I got a predictable revenue engine and I can see the forecast and see the conversion rates and see the level of confidence, hire that technician, buy that inventory because they're gamblers anyways, on their gut and this just provides them the data in order to be more confident.
[00:39:43] Speaker B: Yeah, I agree with that. I'm thinking through all the clients that I work with over the years and like inventory trying to remember like the common term that I always heard is like inventory turnover rate. And so it was like how quickly again were they moving their inventory through the facility? When you were talking with these leaders about that, like they know like if I hit right this duration in time, I know I'm in trouble or I know I'm going to start getting antsy in my pants and getting worried about it if I'm like my ideal rate is at this amount. Like they have that nailed down to that part. To your point, the question was, well, how do I know the demand coming into my business? And that's where we always help them with the demand side of the equation. They had the if it's sitting on my shelf for this amount of days, then I'm sol.
[00:40:28] Speaker A: So no, it's, I was at the board meeting last week and person listening in will know this so that one of the board members is 90 and he still comes into the office and every once in a while and he's like those pumps have been on the warehouse floor for a couple months. What's going on there?
Because they just see dollars, right? They're like get that out of the warehouse. And so we want to get that out. And I, I think so the, the working capital, specifically the inventory turns and, or the people utilization. I mean it's so I, I the third KPI is your cash conversion cycle. And so where I think that could be part of the COO's job as it relates to the, the top eight KPIs like changing a project to charge a percentage of money at the closing at down payment. I don't know how ITR did this but like because professional services hiring ahead is why you're always cash flow in this. I mean it just sucks because you're hiring ahead.
But like if you can change the dynamics of how you get paid as part of that project, you can use other people's money to do the hiring.
[00:41:45] Speaker B: Yeah, we had it different based on the product type and the like how the duration of like how long it would take us to produce it. So for like any of the types of like reporting and stuff, it was like paid in full at time, receipt of contract, but it wouldn't be all completely delivered until at least 12 months later.
So we were always paid up front and then with speaking it was the 50% at time of signed contract and the other 50 when we do the event. So that way there was always that advance of cash from the different projects
[00:42:17] Speaker A: and that's a, it's a big deal for professional services companies because you're, I mean you're to grow, you have to hire ahead often. So if there's a way to like make sure you're billing as much as possible but then looking at that cash flow KPI of the throughput that allows you to then potentially build your bench which then allows you to then increase your competency and your training which then could help you increase your focus call effectiveness which could increase. I mean like so like all this stuff becomes self reinforcing and I'm trying to think of like there's a lot of different ways we can go with this but like, I mean we're probably end up kind of just spinning around the same point here. I, I, I think it's so freaking important that people clarify their cost of goods and what's actually in it before looking at these KPIs because as part of EOS everybody's got to have the accountability chart with their KPIs.
I would be floored if people actually had the level of detail that you and I are talking about. Yeah, they could, they're like well we know that people always have to call in or like it's so it's like it's all these numbers and dashboards and even with AI now it's even more dashboards on top of dashboards. But it's like, like we were on our group call this week and like I can't remember what I mean whatever software people are talking, I'm like literally in the financials. Look at that. You hit that club button like next thing you know you got all these charts. It doesn't get to these, these numbers. So the numbers that we're talking about will be in an ERP system. Yeah, you know what I mean? So like time tracking, whether it's NetSuite, Oracle, SAP, ours was called E Automate or Connectwise. So time tracking and your, you know, employee, your enterprise resource management is where you're going to be finding these actual day to day KPIs of how people are spending their time and your throughput and your you know, budget to actual of your contracts or whatever it might be, setting up the ERP system to accumulate that data is going to be so freaking important and then that, that operational because that stuff like we've said does not land on the income statement Right, right.
[00:44:31] Speaker B: So with that though, because we're always talking at the CRO, COO and CFO level and then the CEO and then off to the board.
So the CEO, we know that he or she have their own KPIs that we do have. Right. On the three statement model that we're looking at and that's where we get them from. So how does one roll out like who owns these other KPIs and how does that like kind of look and how it rolls up to the COO who's ultimately responsible for would be just
[00:45:03] Speaker A: like when we talk about your CRO role, like I don't really want to be diving into the conversion rates per stage, per product, service line. Yeah, right.
[00:45:12] Speaker B: You can live and go high level with me. It's fun in there.
[00:45:15] Speaker A: Clock can have it like.
And so that same thing with the client acquisition cost and then like the lead score, I mean that's a very similar example. Like if we took your, like you want to look at lead score and the influencing dynamics to the lead score and to like page views and like all that that goes into the conversion rates and the stages.
It's the same thing on the COO saying okay, inventory turns, utilization rate, billing efficiency, you know, and then per employee, what are they actually doing as it relates to their job and as it relates to the throughput. So like and the ERP system is where you go for all that versus in your world it's a CRM. Something like netsuite might have both which would be, you know, like, or connect wise in my old space. Would it have. Yeah, I know do like this is where the, the challenge on the system side.
NetSuite was an accounting system, then they got into CRMs.
[00:46:12] Speaker B: Right.
[00:46:13] Speaker A: I mean HubSpot was marketing. Then it's like I think for everybody. My personal recommendation is go to the system that's supposed to be doing what you're supposed to be doing first.
And what I, I don't know what your thoughts about this Kim, but I think what's going to be interesting is as that COO is looking at their product and service throughput, the ability to use AI to get more data instead of having to rely on these software companies or shitty ERP systems like E Automate that I came from.
Like you can spin up like I'm just thinking about something right now where Net Promoter score on customer service.
Like if your system doesn't do that, you could probably spin up a software pretty fast to have after a ticket is closed, like spit out a you Know, a, a survey or something like that. Like, or someone's getting called right away to ask about how the service was. I mean, like, so I'm watching about like bottlenecks and this is how I would choose what AI projects to work on.
It's like, okay, what's the bottleneck of time for these people in relationship to the utilization rate and billing efficiencies? Let's go figure out how to open up that bottleneck.
And it's usually through systems, processes, procedures, back to the like workflow or the Six Sigma or all that. It's like, okay, well through AI you can. Then that's how I would identify what AI projects to work on.
Don't just go pick something random because someone's complaining. You say, no. What's the biggest time suck that's reducing our billing efficiency and of our highest value people. We're going to take five people and Paul's working one third of his time into these things.
Let's take one or like our AI specialists are, you know, whatever the person's, you know, software person, and go build something to save this time.
So that's how I would apply, like AI. And because it's the exact same decision tree of how we would choose what workflows to build out in document management, accounting accounts payable is the biggest time suck. Okay, well, like, I mean, it's. So that's how I, I mean, AI is just another document management automation process. In my mind it's just automating things. But determining what to automate and when I think is the bigger challenge that most people have.
[00:48:30] Speaker B: Yeah. And in my mind, it doesn't have to be that big of a challenge anymore. Also because of AI, I actually just went through the similar exercise with one of my clients where they're looking to adopt AI. Roll it out in the team, get a corporate subscription first. They're manufacturing, want to use it to create efficiency gains and so on and so forth. They're like, but we have no idea where to start.
I said, okay, as an outsider, I'm going to record us and I'm just going to ask you a bunch of questions because you know everything from the very first time you get a phone call somebody with an RFQ all the way through to it being shipped out and so on and so forth. And so I'm going to ask you just why and how and can you dive into that type questions all the way through that, recording it. And then we're going to plug all of that. You're going to plug all of that into your Claude. And then you're going to ask Claude, where are my biggest efficiency gains based on my internal processes? It pumped out like a. I think it was like a four page document on phase one. Start here, phase two. And then like calculated how much time savings they were going to have per type of role in there and like how many hours each person was expected to save each week. And so. So again, I think the analysis has become that much easier too because of, because of analysis and the billow.
[00:49:44] Speaker A: Because like, let's take that and go. Okay.
Because one of the biggest challenges in the past pre AI was getting the data.
And then so it's like, okay, like let's say you wanted to map that process out. I mean, that's where document management from 15 years ago is. Like, we're going to digitize this process so that way you can actually see the information.
[00:50:06] Speaker B: Right?
[00:50:06] Speaker A: Because like if it's all in manila folders, like, you can't see where. I mean, like I. One of my.
[00:50:13] Speaker B: I was just trying to picture you using a manila folder.
[00:50:18] Speaker A: I should. Oh, Kim, like, look at this. Like, I'm not joking.
You think I'm joking? Look at this. This is from my document management. Like workflow processes flow in the office, creating the ultimate lean office. I mean, look at these. I mean I got. Oh, isn't that the best mock or the stock.
[00:50:38] Speaker B: Oh, yeah, yeah, that's a good one.
[00:50:42] Speaker A: But like what we did is we sat and so like, I mean this was.
It really scratched my intellectual curiosity because like we automated the entire HR process of Salvation Army.
Yeah. And like with Minnesota Wild, we did their entire ticketing process or a very, very large, I mean, company that was doing explanation of benefits.
All of this is about throughput. And so what we would do is like, I mean, because this is back in 2009, you know, 2010, 2011, people had paper everywhere. I mean I was, we were in the business of printing and then we would get into conference rooms and everyone would have post it notes and like it would take days to agree upon the process.
It was so crazy. Like, well, I do this and I walk over to Jane and Jane goes over to Bob and it's like, oh my God. Everybody just wakes up and does random stuff all day long. And so that we would like figure out the actual process.
Because it like there was one that I had to watch. It was this manufacturing plant. They were implementing SolidWorks. And I followed someone I like, it was a manila folder for their job. And I followed this person around Their office for like days going okay, like what document do you add next? And like, oh, I don't know, I give it over here and I add another document. And it was like specs and then it was then you know, pricing and then it was like, well we need these part. And like so it was just accumulating stuff.
And so the reason I'm bringing this up is getting it digital allows us to see the information.
And so where I look at the biggest pain point and why software companies exploded in, in in value and abundance over the last 15 years is because people wanted that visibility of the information to answer the questions that we're talking about. It wasn't to have cool software. It was like, I don't know what order to do what things in and I just need to sell more shit to increase my gross margins. Like more throughput is the name of the game of business. But they were trying to figure out with software where that data resided with how people are spending their time. And then what's the process of that job that goes through the office and the plant. And so then like all of these software started popping up and people didn't process map them so they would like literally automate the out of something that sucked. Like, well Sally's been here for 40 years and she loves doing this thing with her like her rubber thumb. And so we built a software around Sally's rubber thumb.
I mean like it's so crazy. But like, my point is, what I think is so fascinating about AI is like were collapsing all that bloat of all that software that got built on top of shitty manual processes.
Like if we wanted to build a time tracking tool because we realized that we could not track Kim's time, you could probably build a time tracking tool in a week or less is my guess, not going to. And you could do it around your company and your process and your procedure so you don't have to go to a software vendor and have them jam your process in their fields and their drop downs, which it never ends up getting the information that we trust. So if we take and actually understand our business, how people are spending their time and how things come in and out of our plants and our offices for the product and service that we're doing at the margins that we want, then we go to AI and say, okay, well there's this whole first phase that I would envision of if we don't know how Kim's spending her time or why she's not trained up on the things that she has or any of the questions that we've, you know, risen out of this conversation.
Building a tool to accumulate the data is step one.
And you don't need to go off to a software vendor, bid five people against each other, spend $50,000, they implement it wrong and two years later you're like, what the fuck was that? Like everyone hates software implementations.
[00:54:54] Speaker B: Everyone.
[00:54:55] Speaker A: But if we said, I am looking for the ability to analyze my employees time and to determine whether training is an issue, let's work on a tool that we can create for that.
[00:55:11] Speaker B: Yeah.
[00:55:12] Speaker A: And then if we understand then that then from that information we will be able to determine whether we have a product issue, a process issue, or a education issue.
Is this making sense? Because like, I just think that the software world has taken advantage of people's lack of understanding of this throughput and like the true metrics. Because then all these tools get built on top of things that shouldn't actually exist.
[00:55:38] Speaker B: It all makes sense to me.
I'm trying to think. You said process product and then you said education. I was waiting for you to say people. So that way we had all P's for alliteration.
[00:55:47] Speaker A: Well, the person is the, the person's the stick figure as the process, the I don't forget what it was.
[00:55:54] Speaker B: So the an education.
But it does all make sense. A couple of things that popped into my head when you were talking about that too is I love the idea of explaining to AI what your constraint is. I mean, that kind of brings us full circle back to getting another conversation.
And the constraint we're currently discussing is not having visibility into knowing what your bottleneck is. And that's because you don't have some sort of technical term to track it for you and answer that question for you. So using AI to come up with a solution to take care of that right out of the gate, awesome first step.
And then again using AI to analyze it, diagnose it and come up with a plan. I mean I'm working with, with a client right now where they have limited staff, they don't want to hire more, but they can't handle any. They're a professional services company, they can't handle any more clients at their current staffing. And they're like, but we don't know like where any efficiencies lie. Is it in our CRM? Is it like we need better integration with our systems? This, that and the other thing. So I've interviewed them all again about what your process is looks like from very beginning to end.
And again, AI just Took the interviews, throw it into AI and again, AI has come up with, here's why. When Carla does this, it's less efficient than when Andrew does this and when Jason does that, it's way more efficient than Carla. And that's like it can analyze all those nuances for you instead of you having to think through it all and figure.
And it will give you a, a debrief on, here's what you need to do by person to get to the most efficient and here's how many hours you look to stand to gain by doing this. And then you can make the educated decision of okay, great, this is the most efficient we can possibly run in the type of business that we are with our current staff.
Does it allow me to reach our target goals or do I now need to look to hiring?
[00:57:55] Speaker A: And again, that's all through just instead of guessing right? And like, so I'm gonna totally geek out for a moment because I'm gonna pull up our three statement model because what you just said is so important.
And I built IBD and the operating system, the ownership operating system from the lens of the theory of constraints using the financials and the goals. I think we talked about that on episode 500. I'm not. I think so.
[00:58:24] Speaker B: Yeah.
[00:58:26] Speaker A: But this has got a lot of context now. So the, the theory of constraints is so powerful because it's based on physics.
Like, and the actual constraints are time and money and money as it relates to cash flow and wealth over a period of time. And then there's the actual physics, like physical world. But like just let's assume that we're not trying to tackle changing physics. But like when I look at like what's has to be true, Kim, is that when I look at our financial model that we're constantly showing the reason that the, the IBD owner's road map exists with the 27 milestones is we're actually adhering to the constraints. So instead of denying them, we're, we're, we're respecting the constraints so we can make decisions in the world of the truth. And like then when you look at like this is the language AI loves to speak because it's like we're not making stuff up. And this is why even though new updates come out of AI and it hallucinates and all that, it's like, no, like when I. So like when I look at this, every single, every single business decision has an answer inside of here. And so like the conversations we've been having in this call have a. They're A derivative of gross margins and gross profit. Right. So here I am looking at the gross profit and the gross margins over the next five years.
Like if we have said that this is the constraint, everything has to bend to that.
Right? And like that gross margin is in relationship to, I'm going down to the cash flow statement to the cash. So we have, we're going from 300 grand in cash every single year. We can see at the end of the year how much cash we have to have in our bank account.
That takes into consideration distributions, taxes, capex and debt payments which are all ownership decisions. So like we're saying that all of this stuff exists and back to that, the sustainable growth rate, this cash flow provided by using or cash flow provided by operating activities.
This is what self funds it. And if we grow faster than this. I was working on the call with Bill and like you're, we can't do this plan unless you're planning on taking a shitload of debt or raising money.
And it's a physical constraint. So that's why when I look at the five year forecast and it has to be tied to that valuation target like so if we say well this is the valuation target that we want. So it's $21 million in 2030 at 3 million in normalized EBITDA at a 6.6 multiple. And this is my go like okay, that we've, we've pegged our point B. Therefore we can literally mathematically see what does it all have to be, what's the revenue, what's the margins, what's the normalized EBITDA and then the cash flow.
And we could literally say to someone, you can't grow that fast and take your distributions. It's mathematically impossible.
Well it's like well I'm not again I'm not Jerome Paul or now I'm not Kevin Marsh. Can't print. We have double entry accounting, we don't have one side accounting like and so with that then we can go all the way into. You see how I keep double clicking Kim? And then inside the, the income statement is the operations. So now we have the whole puzzle. The, you know, the five year valuation target in constraint of the three statements over five years we've identified your revenue that you're going to do. So I got your name there and you say okay, within that now we want to hit these margins and you and I could go in here, we could tweak those margins because right now it goes from 35 to 43 and if we kept it at 33 or 35, we would. So it just eats up cash. Well, I want more distributions in my valuations. I'm like, okay, sell different products and services. You know, you start to like, continue to double click constantly. Which is why this is milestone 17 and not 2.
Because we have to then say, well, what's the cost in your gross margin that with the target gross margin? And then when we look at this, it's all about how do we push more products and services through with that cost structure.
So, like, don't automate anything unless it's starting from all of that.
So now it's like, okay, now we have the ability, we need to hit 42 margin in this year. With these lines of business, with this staff, how do we do more with less? Well, is it AI? Maybe it's robotics may. You know, like, there's all of those questions that can be answered insider. But I bring this all up because if all of this is done and we have all the information behind milestones 1 through 16 to get to here, this is like one prompt for AI.
And then it's like, oh, by the way, Claude, can you please build out a software to do this?
And then it's going to build the exact thing that we need where everyone I see is starting from. I need KPIs and dashboards. And then Claude will gladly build you a bunch of fucking dashboards.
And it's like, well, it's a dashboard to nowhere because it's not tied to anything. So, like, everything that we're talking about is based on the theory of constraints for the owner. How do you have more throughput of cash flow with the time, which time is the first constraint? Then we go, okay, well, if this is the timeline, which is five years, and this is the cost structure, how do we sell as much shit and have as much throughput with that structure and like the analysis behind it and then figuring out what to do and how to do it becomes, honestly, not very complicated.
[01:04:25] Speaker B: It becomes the easy part.
I think you summarize all of that very, very well. Right? That's everything that we started talking about from the beginning, the constraints all the way through. Where does somebody go with it from here? They need to have gone through. To your point of if you've done milestones one through 16, to me, that was critical and foundational to everything else that we just talked about. Because if you've done all of those pieces in that order, this, what we've been talking about today on this piece of cake becomes easy. I know.
[01:04:56] Speaker A: Oh, and that's why it's just another
[01:04:57] Speaker B: step in the journey. It's not a headache and it's not some big elephant to eat.
[01:05:02] Speaker A: You're not, because you're not arguing about what the baseline truth is in the meeting. You're like, you're all there with a specific reason, with a specific goal, with specific clarity, and all in agreement and how it all works. And like, I mean, the next milestone, which I don't know if we're gonna do a podcast on, it's using a business operating system, like eos. Scaling up. Great game of business. I mean, maybe we'll do one at some point. I mean, like, I think we should do something a little bit more interesting about how people are integrating IBD with that. But, like, create an org chart, have weekly meetings, monthly meetings, quarterly meetings. And like, it's not. Yeah, like, and hold people accountable.
[01:05:40] Speaker B: I mean, it's 15 minutes later. Podcast wraps.
[01:05:44] Speaker A: Whether you like EOS or skit. I mean, like, and my gripe with all of those operating systems are there's no process for the inputs, which is milestone one through 17. So, like, and I struggle, Kim, really, I really struggle with.
I am a.
I and a lot of our people in our community are adhd. Love to, like, do flashy object stuff, but I let. I was saying it with Jason, one of the new members. I'm like, hey, man, I like, let's put the boundaries and then be a ping pong ball inside those boundaries.
Yeah, that's like, literally, like, it describes it really well.
[01:06:23] Speaker B: Right?
[01:06:24] Speaker A: Like, hey, I'm gonna be a total, like, lunatic all over the place. But I know that it's a pipe that's going up the direction, right? So I'm gonna go. I'm gonna bounce in. Like, by the way, I get. By the time I get there, I'm gonna use my. My time, like, in. Somehow I'm just. I know I've put the guardrails in for myself and that's what all this is. And I say that because I was on a call yesterday, I was telling you about where people aren't doing the work and it makes me make. I want to crawl out of my skin because it's like, I understand we're dealing with a bunch of. And we have to keep fixing the plane while we're flying.
That's the whole point of the boardroom. Blueprint is in 90 days, you're going to get the total red pill and see all because, like, if we can see the whole picture, you can bounce around. But, like, Know that you've got your edges.
Does that make sense? Like, but like, what happens is people want to go right to one of the things. It's like, well, you want to build the freaking roof for your house, but you don't. Like, it's such a cliche example. But like, build the freaking foundation first. And like, the go slow to go fast is, if you do all of this work, this is not a big deal.
So like, if we have like the whole timeline that we're going to smush the harder work at the beginning, which is why everyone has to clean up their financials, then we can actually see what we're doing. And I don't wanna, I don't wanna sit here and do depreciation schedules. Like, that sucks. Like, I. Pat and I were talking about, like, I don't wanna talk about the three staving model anymore.
I wanna make really cool decisions.
And we can't do that if we don't trust everything. So I know that's my little rant. Like, I just. The work in the order does make sense because otherwise you're not going and fixing the bottleneck. You're.
You're wasting time and you're. It's this illusion that you're going to save time by getting there faster. And I can just say with a lot of confidence, I've spent a lot of time trying to figure out how to get there the fastest way possible.
I haven't come up with a better way.
[01:08:31] Speaker B: And this way does not take that long. It's just, you have to follow it. And a lot of people, like you said, just want to jump to what they want to jump to. It amazes me how much time people waste when they think that they're saving time. Like, I had to jump on fires all last week and I didn't get to any of the items that would move my business forward because I was too busy putting out fires all week. Okay. What would have really happened if you let those fires go on for another week and a half and you applied that time to moving the needle on working on the business which fires still exist a month from now or those same fires going to still exist a month from now because you didn't actually do what you should have been working on, instead you were putting out fires? Like, I feel like that's a.
A thought process that a lot of people in business that I've worked with over the years don't. They say that they go through it and they've exercised it out. And I don't Think that they really thoroughly have.
Yeah.
[01:09:32] Speaker A: And, and I, I agree. And I will give people an out because until one part, I'll give people an out because I know what it's like to not know which one of those fires is going to burn down the freaking house.
And without that level of understanding, it makes sense why you're jumping all over the place because you're not sure. Like, you're not sure if I, If I leave this thing, it's just in a smolder and I can, I'll get to it in two weeks versus, oh my God, that thing is going to catch fire and the whole thing is gonna be gone. The whole point of the 90 day boardroom blueprint is that level of clarity in 90 days. So you got to take 90 days is two to three hours a week.
Like, if you can't do that, good luck. It's kind of like, I mean, like, it's, it's, it's. As I said it to the group yesterday, I don't know what else I could do. Each video is 15 minutes. You can watch it, you can listen to it, you can read it, you can ask Claude. You can literally consume it in any way, shape, or form that your brain likes. But go through it in order in that way. And then by the end, you'll have the full picture.
And then, so once that's done, then there's no excuses.
So I think that's really where, where I go from insane amount of empathy to like zero. Where it's like, okay, you took the freaking red pill. Like, what are you doing? Like that, that.
The conversation's like, oh, my God. Like, you just were. What, what random stuff were you doing for two weeks?
Like, I think it's people's tolerance for wasting time.
Like, I have zero. Like, I need to know that if what I'm doing right now is worth it at all given moments.
[01:11:16] Speaker B: I'm really bad about it. Chloe laughs at me because I like, even have to do my errands in a circle because I hate going back over the same road that I already had to drive on. So. And like, I always. And I also map out my errands, so that way they're more often than not, wherever possible, a right hand turn.
[01:11:33] Speaker A: I was, I was going to. Is that FedEx or UPS?
[01:11:36] Speaker B: I don't know. But so that way I don't have to sit there longer.
[01:11:40] Speaker A: Do you not even know what I'm talking about here?
[01:11:41] Speaker B: No, I have no idea. Oh, this is just me and my natural.
[01:11:44] Speaker A: So it's either UPS, UPS or FedEx. Back to throughput. This might be a great way to put a bow on this entire conversation.
I can't remember if it's UPS or FedEx. No, no. Left hand turns is their entire company because of how. What Back to their throughput. They could deliver more if it was only right hand turns.
[01:12:02] Speaker B: And it really drives me nuts. Like, Chloe will laugh because, you know, she has an appointment every Thursday.
And so her appointment, we'll call it, is over here on my right.
And she wants me, every time, every the Thursday at her appointment to drive 15 minutes back over the road. I just had to drive on to pick her up McDonald's for dinner and then drive back to her 15 minutes to the right to go pick her up.
And then I take a different road home. So I don't take the same road home. And it's like a shortcut, back road type thing that 15 minutes back and forth each way drives my brain.
[01:12:37] Speaker A: Like, is it like you like, it's like a. It's like a magnet. It's like you're trying to, like, go against gravity.
[01:12:43] Speaker B: I actually have to fight myself from getting irritated. But so I think to your point, not everybody's built that way. And some people just are accustomed to. I go here, I go here, and they just kind of waste their time. But.
[01:12:55] Speaker A: But then no complaining.
[01:12:57] Speaker B: Yeah.
[01:12:57] Speaker A: Like, so that's where, like, again, I go back to. I mean, I got empathy tattooed on my arm for remembering. Like, I will be very empathetic to anybody if they're trying their hardest.
The moment that awareness enters the psyche, I got, like, very little.
Because it's like, okay, we said that this is. We now know how it works.
We now know that these behaviors are no longer sufficient.
I know that things are hard. I'm not perfect by any means. Like, I am constantly struggling with my own, like. But I just want to know, am I trying my hardest on the right stuff?
But it's like when I watch people complain and it's like, well, you're just.
What are you doing?
So it's. As a summary, Milestone 17 is helping us focus on the right thing, which is the throughput of the bottleneck in relationship to the goal.
[01:13:54] Speaker B: Yep. I love that. And I like how we talked about the constraints, understanding them. I think that understanding is very powerful and it helps you with increasing that throughput and then using systems and tools in AI that make it like, AI just made it so much easier to do all of this than ever before.
[01:14:14] Speaker A: I think the elimination of consultant BLOAT and software bloat is it's, it's going to hit the consulting in the software space with a vengeance, and it's going to take some time for that to happen, but it's going to accelerate as people start taking the data aggregation and the efficiencies into their own hands.
[01:14:32] Speaker B: Yeah.
[01:14:33] Speaker A: All righty.
[01:14:34] Speaker B: Good conversation, Ryan.
[01:14:36] Speaker A: We want to put the CEO functional assessment attached to this podcast, and then so people can go, I've got, we've got a functional assessment for the operations that people can check out Boardroom Blueprint. I think our next one, by the time this is out, will be in October if we want to keep an eye out for that.
Otherwise, we will be.
I don't know what the next episode is, so see you next time.
[01:15:02] Speaker B: Sounds good. Thank you.
