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.
Kim, you just had a great intro, got a little personal, so we're going to have you redo what you just said and then we'll get going.
[00:00:22] Speaker B: I'll do my best to redo what I just said. So I think the purpose of today is to dive deeper, Alex, into your session. Just because last week episode that's publishing this week, on Thursday, we did kind of a high level of everything. So your session, the price input analysis that Ryan, you'll be walking folks through, and the communication strategy that I'll be walking folks through, we did a little bit of a deeper dive into the geopolitical factors that we see causing the need to have this kind of a workshop. But so what I was thinking, it would be really neat, Ryan, if you want to ask specific questions of Alex, too, because you are well versed in all of these geopolitical things that are going on, like the example of the Simon podcast you had me read through yesterday and some of his perspectives. So I would love you just to kind of pick Alex's brain on some of these facts, too. I know we've talked with Alan about some of them, so I'd love just to have another economist perspective on the subject as well. And Alex, you're always talking on the circuit about a geopolitical environment and everything, so really excited that you're here and going to be able to share your wisdom with us.
[00:01:30] Speaker C: Yes, I'm also excited to be here. I hope you still think it's wisdom. When we're all said and done, we'll let you know.
[00:01:37] Speaker A: Well, if people are listening in that, I don't know what comes out of my mouth, but it's whatever's at the
[00:01:40] Speaker C: top of my head.
[00:01:41] Speaker A: So welcome to the circus. Alex, I'm very excited to chat with you as well. And I was, I'm trying to. I was trying to think about how to frame it up to let you know, give your philosophy and your lens. I think that would be, like, the best way to start because one of the things that's been interesting to me is I've been talking to Alan and now that he's not with itr, trying to see if I can open up, like, different avenues of thought processes. Like, I think from my experience of, like, the research that I've been doing and following stuff, Alex, that because the money is so broken.
And it's not just free trade and we're generating new cash flow anymore. It's debt refinancing based on who controls the money supply.
That geopolitical tensions and supply chains based on world leaders and greed and corruption are driving where things are being allocated. So being more aware of where the hell things are going, AKA there's this main artery called the strata for Moose that's closed.
We can see it's closed. And I don't understand the full implications of like the second, third and fourth order effects of like, oh my God, it's closed.
What happens in seven months when we're not getting helium or sulfate and nitrogen and so my brain explodes. And you can say you can see that a little bit. And so like your maybe just explain to the audience your lens and how you're coming at this so that way we can maybe unpack the why the current state and then what to think about it.
[00:03:23] Speaker C: Yeah, I think that's a great place to start, Ryan. So I guess for me, when I think about the term geopolitics, it breaks down into the two components, right? Geo, which is geography, and politics, which is people. Right. And so the occurrence of events is driven by both kind of deterministic and human led forces. There are certain things that countries are able to do and want to do based on where they're located and what their environment is like and what they're trying to achieve. And then some of the policy and the regulatory environment and the things that they end up actually doing vis a vis the rest of the world is led by their leaders and the things that they want to accomplish personally. Right. Their view of the world. And of course, President Trump is a great example of that. I think that for the US My view for President Trump and his cabinet is basically that he looks at the world very much from a business lens. And so he understands, for example, that the, the U.S. remains the largest economy in the world. And he's asking the rhetorical question of why have we not leveraged that fact to our advantage in the past? And this is applied equally to both Republican and Democratic administrations. Right.
If we are the market share leader globally, if you think about it from a business perspective, if you dominate an industry, you're able to extract concessions and throw your weight around and achieve certain things with the scale and the buying power that you have. And so I think equally applied to both adversaries and allies, one of the questions is a how do we make sure that we preserve US Economic superiority? We have been successful at doing that so far over the last, call it 45 to 50 years. Right. We started back in 1980 with about a quarter, maybe 26% market share of the global economy. That's where we ended 2025, about a quarter of the global economy. So that's been consistently maintained share. But when we look at our traditional allies like Europe, for example, back in the 80s, Europe represented almost 30% of the global economy. Today that number is less than half.
It's like 15%. The Japanese, another great example. At the peak of the Japanese electronic golden age in the mid-1990s, they accounted for 18% of global GDP. Today, Japan's economy is 4% of global GDP. So like he observes this and says, how do we make sure that doesn't happen? Given, of course, that the meteoric rise of China, which is very clearly his primary adversary, not Russia, but rather China has been the benefactor. They benefited from the subsidized outsourcing of production that the rest of the world has sent over there. Right? And they're not looking to slow down. They're now looking to up the value chain and, you know, compete directly head on with the US on the latest technologies, on green tech, on supercomputing, on everything from AI to electric vehicles and so on. So I think that that's one key driver that dominates the posture and the policy making and the agenda that President Trump and his cabinet are trying to push forward, the second major component has to do less with the actual economic footprint of the US and more with purchasing power. Parity. Right. If you think about this idea of affordability and what a country can do given its local currency, the cost of living and all of these things, you know, the Big Mac index approach, basically, that think things cost very different amounts all around the world. I think it's important for us to recognize that while the US Is the dominant military and defense player in the world, in terms of spending, right, we spend more every year than the next nine countries combined.
the same time, what the Chinese and the Russians are able to accomplish with much smaller amounts because of this purchasing power parity perspective is what has allowed them to close the gap with the US Militarily over the years. So, you know, you look at raw numbers, the US Spent about a trillion dollars on national defense. The Chinese, according to official statistics, which are of course to be taken with a major grain of salt, they say they spent about 315 billion. But for that same money, they can afford a lot more missiles and ships and planes and tanks and or $50,000
[00:07:57] Speaker A: drones that are shooting on our $2 million missiles.
[00:08:00] Speaker C: Exactly, exactly. So I. I think the second kind of predominant driver for the administration is that we want to slow down that closure of the gap, that delta that exists between the US And China, which still the dominant military force. I think it's very obvious because of the aircraft carrier fleet that we field and the ability to project power around the world. But if you look at the Indo Pacific, for example, the Chinese are becoming much more confrontational, much more belligerent in some of their actions, and they're emboldened by feeling. Feeling like they can actually compete with the US in their region. Right. They're not looking to unseat the US as the global power. So I think the second thing driving the administration is kind of try to preserve that control of the military and defense apparatus and remain the strongest economy in the world, as well as the strongest military in the world. And that's driving a lot of the policy actions that we're seeing out of the government and a lot of the kind of actions in the military and defense space. For example, this Venezuela thing. Right. I mean, yes, we've been at odds with the government in Venezuela for a long time, but in anticipation of this Middle east crisis, what did the administration do? Basically coerced the Venezuelan government to sell us a bunch of oil that we used to rely on other parts of the world from. Right. So I just read an article that was really interesting. Chevron is basically saying that they're importing so much crude into the US From Venezuela right now that it's actually having a tangible impact on keeping nationwide gasoline prices for rising any further than they are. Right. And so there is a sequence here.
People tend to dismiss, I think, a lot of the things that the administration does, but there are smart people there that do plan and strategize. And so you can kind of see the dominoes lining up in anticipation of this potential closure of the Strait of Hormuz. I'm sure the DoD planners were not fooling themselves that they knew that this was the choke point that Iran was going to react with in response to US And Israeli strikes. And so we took some steps to prepare. So I think to wrap all of that up, I will say that this interplay between what countries want to accomplish based on their geography, mixed with the goals and the personalities and the perspectives of the individual leaders, whether that's Trump or Xi or Putin or the ayatollahs in Iran, that is kind of the culmination of where we find ourselves in this crazy world today.
[00:10:37] Speaker A: So I love the framing of that and I think it's back to why is this important? And Kim, I want your help making sure that you can steer the conversation in a way that's tied to the pricing, the margins, and all the practical stuff that we're going to be doing in the workshop. But also today.
And maybe we do like around two and I like because where I want to go, like just where my brain goes. Alex. So you have an idea, Kim already's laughing is I spend a lot of time because I really, really, really enjoy strategy and game theory. So like understanding what is going on and why becomes such a fascinating passion of mine.
Not always where we want to spend 100% of our time on these kind of conversations. So maybe just as like a, as a springing off of that. And then we can talk about what are the actual business implications of this stuff. And then I think it's important to understand the why because then we can look at what do we think is going to happen four moves from now.
My little two cents on kind of how I've been analyzing this, Alex, is like the whole global economy is an inverted pyramid Ponzi scheme based on the US Dollar. And the bottom of that inverted pyramid is the petrodollar that the, you know, that the administration made after Nixon decoupled from gold.
And by choking off the straight, it's going to force a recalibration of the $300 trillion US bond market and all of the power. Because yes, we've got the supposedly military power. And if they, I think that they actually wanted this choke point to happen to actually allow us to not become the global hegemon anymore because it'll recalibrate and reprice most commodities and all the force majeure that's going on. And I think that there's all of this stuff going on at the top of renegotiating the dollar and the pricing of commodities that is going to ripple down all of it. So all of that to be said, the why I love spending time because I don't know. I really don't know. But I'm just following motivations and money.
But what I do know, Alex, that I think is really relevant for this conversation is I'm having ridiculously high volumes of conversations like you do. You fly around, speak to a lot of people.
It appears to me that no one has a freaking clue how important this is. I was on a call the other day with a investment banker who does deals in private equity I'm like, how are you, like, repricing things because the straits closed? Like, what do you mean? I'm like, what the f.
How do you run the discounted cash flow if you don't have any idea of the risk of future cash flow and supply chains and raw material because it's going to hit all these industries.
And that's. So Kim, I don't know if you want to like or Alex, you want to grab that because I like, I do like to spend the game theory, like time on the game theory and the why and all that stuff. But I want to do get to like, what's actually going on from like the molecules that people have to like create things with and sell things to.
And what we can see on how that's going to impact pricing, inflation, because they're going to have to print, I think, in order to keep this going.
So I don't know there's a lot there, but I'm just kind of like doing that for my own benefit and for the listeners of like, okay, we don't have to go down a ton of these rabbit holes, but I think synthesizing the truth becomes very important. Like, hey, there's a lot of this going on. That's that we can see you go to the IMF port data and it's closed.
There's no ships going through the street. So there's going to be impacts regardless of what you believe. That's. That's a fact. So I don't know. Alex, any comments or Kim, any comments about like, how I'm framing that up and how to help me steer us in the right direction?
[00:14:10] Speaker C: Tim, do you want to take a crack at it?
[00:14:13] Speaker B: I was just going to say there's a lot in there to unpack, I think to keep us kind of, you had mentioned there maybe keeping us pointed on the inflation impact because that's what we're really focused on for this workshop is why is this going to drive inflation? Where is like going to like, what are some major concerns that we should be aware of? And then why is this type of a workshop so necessary to build a battle plan for your pricing and even further, take it the step next, which is the communication plan, because you can have a pricing strategy and say, I'm going to increase prices, but they can do it like your protein powder guys did it, Ryan, and double your prices
[00:14:49] Speaker A: overnight and not tell you about $60, not $40, right?
[00:14:52] Speaker B: Yeah, $62. $62, not 40 and make everybody mad. So maybe, Alex, if you want to Jump in from that lens. And then after we cover that, I would love to circle back around to what you were talking about with your perspective on the upside down pyramid and all of that. And I think that'll just be a neat philosophical discussion that we can end
[00:15:12] Speaker A: our conversation with maybe Alex, as you head that direction. I think the reason that I like to spend that time and just a quick comment on is like, it's like debating the truth becomes very frustrating to me, you know, and it's like the Straits close. So I guess that's why I spend time on this, because I think I spend a lot of time debating what is true and what's important with people, which is just ridiculous. And I so kind of like, in order for everybody to believe the rest of the stuff that we're going to talk about, they have to believe that this is actually an important event and that things are probably going to change instead of just be the same.
[00:15:46] Speaker C: Yeah, there is so many ramifications from this closure that people are not pricing in right now. In fact, I was just talking with my brother who's a foreign policy analyst at a think tank in Washington, dc. We had a joint keynote at a trade association meeting yesterday in Clearwater, Florida.
The keynote title was the impact of geopolitics on your business.
And it was fascinating. So on the one hand, the guys at the meeting, Most of the CEOs and the owners, there was this kind of elephant in the room. Apparently all of their equipment suppliers raised prices within a week by 12%. They had never seen a double digit increase.
It was to your point, Kim communicated super poorly and like no explanation given other than we're doing this and it was all done, there's, you know, four or five major suppliers and it was all done within a week of each other. So. So like it's the word collusion was being thrown around. So many hurt feelings about how unfair it all was. Right. And they're like, why is this happening? Why would they just do this? And so I had to spend a lot of time explaining kind of the dominoes that are going to fall. You know, let's put it into some very simplistic terms. Even if war ended today, no more fighting, no more hostilities and the strait was reopened, okay, we're talking about six months minimum to kind of get things flowing normally again. But that ignores the fact that much of the regional infrastructure has already been destroyed. For example, some like you're having things
[00:17:30] Speaker A: blown up that you can't start tomorrow.
[00:17:32] Speaker C: You know, perfect example. There's a Couple of natural gas liquidation facilities in Qatar that were blown up. Best case estimate, five years to rebuild. I know those facilities produced 20% of the natural gas that was exported from Qatar. So like we're talking about, give or take 2% of the global liquefied natural gas market offline for five years and no easy fix to, to replace that. Right. And, and the ramifications, they're so widespread. So you mentioned a couple of things like helium affecting semiconductors.
I tend to focus on the bigger impact stuff.
[00:18:13] Speaker A: So a good example, fertilizer and nitrogen
[00:18:16] Speaker C: fertilizer, of course, I mean the impact on the food industry outside of the U.S. i mean I talked about this earlier with the administration kind of putting some dominoes in the mix. What's interesting is a lot of the fertilizer in the US has already been put down.
So like they waited until we were past that tipping point before the effects. But countries like India, countries like, you know, where, where people are much poorer, that they depend on kind of farming to, to get by, they're going to be significantly hurt. And, and I would not be shocked at all if there's you know, mentions of famine increasingly hurt around the world as a result. We're talking about like potentially 20% of the world's food supply, not tens of millions of people. And that's where like it's incredible.
[00:19:02] Speaker A: I agree.
[00:19:03] Speaker C: And of course, you know, the more pragmatic like people talk about the price of oil and paying more at the pump, right. That's something that's tangible. We feel that God bless being an
[00:19:13] Speaker A: American, that's the only thing we have to worry about.
[00:19:14] Speaker C: Right, right, right. I think a more interesting conversation is around diesel and specifically not the fact that diesel prices are record high, but the way that much of the US transportation sector is actually concentrated in these self owned owner operator truckers and they usually have to front the, the cost of fuel. And so there is a non zero chance that many of them will go out of business because they simply cannot afford to carry that frontage with the prices being where they are right now. I mean they're up so substantially. Right. So what do you, what happens if you know, 10 or 15% of the trucking capacity in the US goes away? What happens to prices? Right. Transportation costs. Another really good example, and I'll end here. Aluminum, right. Most people don't talk about that. But 20% of the aluminum that we import into the US comes through the Strait of Hormuz from places like Qatar and UAE and Oman because natural gas is so abundant There aluminum, super expensive and energy intensive to produce. And so therefore they have a bunch of smelting facilities right now that's offline. We're talking about potential stockouts of certain classes of metal that will potentially hit later in the year. So I mean, again, you go from food to aluminum to helium for semiconductors.
[00:20:36] Speaker A: I know it's the bottom of the pyramid, right? It's a, it's just, it's like it ripples through everything. And like, and the way my brain goes too is so, you know, you say 2% and I think a lot of people poo poo this and like where I think my brain and probably how you both analyze this stuff too is none of this is linear. Like my favorite example is like if we all remember in right after Covid, like the trucks couldn't get a chip, so you got a bunch of like multi ton paperweights sitting at four dealers because they can't get to the dealership and the dealership can't get it out. And like, it's because you have 99.9% of the truck and you can't get this one thing and that you can't ship the truck if you don't have like a steering wheel. And so, and it's, so it just, it doesn't like have this linear effect where like that 2% and then it magnifies out and it mushrooms into like supply chain issues that are you can't pay your debt if you can't sell trucks.
[00:21:32] Speaker C: For sure, for sure. I mean, 2% at the global level might not seem like a lot, but keep in mind the Europeans pivoted wholly away from Russian natural gas imports and towards Middle east natural gas imports. And so you're talking about a massive problem come this winter if they can't get natural gas, which they use a lot for heating. We're already talking about real capacity cuts for the European flight industry, like the commercial airfare. They don't have jet fuel and they have no alternative way of getting enough jet to meet summer peak demand. Right? So like your trip that you're planning this summer, you better be sure that you're not flying a European carrier because the propensity for them to cancel that flight and not offer you a rebooking is very high at this point. Right. I know.
[00:22:23] Speaker A: I talked to someone that was like, well, I'm planning going to South Korea and Vietnam in October. I'm like, ooh. And you're like, what do you mean? And I'm like, oh, I don't, I Don't know. So the, and, and I think what you're saying is you're, you're talking about Europe, you know, you're talking about East Asia and these different areas. And you know, you talk about dies with trucking, you know, into the spirit of nonlinear. And at the end of the day, everybody listening in here has to invoice a customer and then pay their bills. And the, the challenge that I think the US Is going to and why, I think, Alex, there's like this slow like boil until it happens like gradually, then suddenly is.
And you would probably know these numbers a lot better than me, but the.
We are, we export dollars and we are a service based economy. We don't build shit anymore. So what happens is like my customer, I got a person in the building product space. Like when the China tariffs happen, they're like, we can't sell doors anymore. And like, oh, and then they like, it took a year and a half to move the, move the supply chain to Indonesia. Well, now it's like, okay, now what's the problem? And I got another person that they switched their dress manufacturing from China to Indonesia. So like we get stuff from other places to then resell it. And so like we are, we are going to feel these effects that you're talking about. My point is you're mentioning different parts of the world that people might go, I don't know, I live in the US and I'm not seeing that right now. We're, we're trying to explain to people that that domino is going to land because things are already happening.
[00:23:52] Speaker C: Yeah, yeah, most definitely. And you know, I think what will happen as a result of this is there will be a realization that price is no longer the dominant factor in a world where you can't guarantee availability. Right. This idea of parallel supply chains.
Yeah. You might not be able to get it at the low price from Brazil or Europe, somewhere Eastern Europe, but it is insulated somewhat from the conflict because at least the shipping lanes are open and are not being disrupted. Right. So the cost benefit analysis that every CEO is going to have to make is how do I balance availability versus cost? And what is more important to me vis a vis my customer relationships, my ability to meet market demand, how do I ensure that I'm not exposed? Right. This diversification idea is so critical. How do I mitigate that risk from geopolitical conflict in the future? Because it's very clear it's not going to get any less crazy. Right. Most likely. I mean, the big risk factor right now, people are looking at the Strait of Hormuz. Right. There's another place called the Strait of Malacca. That's the passage where you're talking about the Indonesia, that part of the world that is even more important.
[00:25:13] Speaker A: And they're going after. There's like, there's heated up conflict this week on that area.
[00:25:17] Speaker C: There's conflict. Me think about if the Chinese navy decides to blockade that the same way that the U.S. i mean, are we prepared for a naval battle between the US and China at this point, given that it's in their neighborhood and the scale of ship production is while we've
[00:25:33] Speaker A: got Ukraine and, and Iran going and potentially Taiwan. I mean, like, the whole thing is just.
[00:25:38] Speaker C: Right, Right. So it's, it's so interconnected. People say globalization is dead. I think what this proves what's going on right now is, is that globalization is not only that, but it has a stranglehold on the global economy. Like there is no escaping it at this point.
[00:25:54] Speaker A: Yeah, well, let's. I think. What is such a fascinating way of looking at this stuff? You ever read anything by Nassim Taleb?
[00:26:03] Speaker C: Name sounds very familiar.
[00:26:04] Speaker A: He wrote the Black Swan and then Antifragile. So he's a probability genius in my mind. And so he calls it, you know, the Long Tail. And the way of thinking about the supply chains that you're talking about, I think is so people look at the bell curve like, well, there's only a 2% chance, Alex, of this happening. It's like, well, the 2% chance kills the whole machine.
So the price of that risk is not appropriate because if you actually have a 1% chance of this happening and it kills the whole thing, you can't price that thing in at like, only it's only 1% because it's disproportionately risky to the whole thing.
[00:26:43] Speaker C: Yeah, most definitely. And every market that we talk about has that 1 or 2% kind of deal killer. Right.
Hiding in the midst. Most people don't realize it's there. They don't think about it because they do attribute such a low probability to it. But it's absolutely there. And a lot of times it's 2020 vision in hindsight. But when we try to look forward, it's so difficult to predict what the next Black Swan is going to be. That's going to derail the whole thing. And yet we know for a fact that the Black Swan will continue to happen. Right. Whatever it might be, it's going to surprise us and it's going to cause a huge Disruption in the way that we're currently doing things.
[00:27:25] Speaker A: And what I'm excited for is kind of continuing the conversation, Kim, is like the battle plan is recognizing that all this is the case. And I think, Alex, what to comment on what you just said is growing up. So I'm turning 40 this year and growing up in like the 80s, the 90s and the 2000s, it was the most peaceful, prosperous time. And so people haven't had these issues.
And so I think that's the complacency to. Then we're going to recognize that this is a constant state now because of some of the things that we've talked about. So once people recognize that this turmoil and volatility is a constant state now we need to talk about a battle plan of how do we navigate this? Because just in time, inventory, you can't get your shit. Doesn't make any sense anymore.
[00:28:12] Speaker C: Yeah.
[00:28:12] Speaker A: So like how do we then price everything and build a business around? Because we're. We still got to do stuff. We still got to have consumers.
[00:28:20] Speaker C: And yet this is something that I talk about a lot from the stage in terms of trying to help people understand the evolution that's gone on. And I use 2025 and 2026 as examples. If. If last year, if you remember, uncertainty was like the word of the deer, right? Like everyone was talking about uncertainty, uncertainty, uncertainty, and they were pumping the brakes. Let's just wait and see. Let's kind of see how it all plays out. We didn't know what the tax climate was going to be like. We didn't know what tariffs were going to end up looking like. Everyone's just like, let's wait and see. I think the realization is dawning upon everyone, especially with this Middle east conflict, is that we've shifted from uncertainty to. To complexity. And the idea here is that there are so many moving pieces that you can no longer have a single strategy and focus on execution. You have to be war gaming the environment. You have to be simulating different scenarios and you have to develop plans, at least skeletal structures of plans, of what levers will I be pulling if scenario A comes to pass versus B, C, D, E and F. Right. In an ideal world, every CEO has a secret filing cabinet, whether the physical or digital one, where they pull open a drawer, pull out folder, scenario F. And it's what's actually happening right now. But they've already thought it through. They already know what they're going to do in advance, right? Pricing response, inventory response, supply chain diversification response. And they're actually like moving forward with implementation rather than scrambling to develop a plan in response to what's happening. Right. That's the first mover advantage that becomes critical in this kind of environment.
So one of the things that I've actually been doing with my brother who I mentioned earlier, is we're running crisis simulations at the trade association and the corporate level. We just did a gig for trade association in the fluid power industry where we had 300 CEOs in the room. The crisis scenario was complete breakdown in trade between the US and China. We looked at the specific components and materials that they're importing that would be affected. We then gave them three decision vectors, meaning what do you do with prices, what do you do with inventory levels and what do you do with your supply chain diversification initiatives? And we had them actually roundtable the conversation and then vote using slido to pick which one they think that they should do. We did two rounds of that with an escalation in the middle where it was like really bad. And then at the end we compared the decisions that they made as humans to what an AI model, in fact multiple AI models would do. And we talked about the pros and cons of each one. And the realization dawned on everyone that AI is not a replacement but a compliment to human decision making and that both need to be in the mix. But we that's the kind of thing that you have to do in order to have confidence. Right before people wanted confidence or what would happen. Now the confidence has to come from we've prepared for this. I've built a team of capable, smart individuals around me and I will be able to get through whatever it is that happens no matter what.
So that's kind of like the reframing of the corporate strategy approach is you don't know what's going to happen and things will surprise you all the time. Hopefully you've war gamed it in advance and you know what to do in response. If not, you still have the belief that you're capable of adapting. I mean we, most of the business leaders have calluses right on their hands, on their brains from going through Covid from going through major adjustments fairly recently. Right. So it's like you can do this. And that's the message that the CEO has to bring to to his team in terms of instilling that confidence. Yeah, the world's a crazy place. It might be on fire all around us, but we'll figure this out. And by the way, how do we do that better than others? We gotta War game it we gotta simulate, we gotta prepare in advance so
[00:32:27] Speaker A: much there like my drive, I love all of that. Yeah. So Tim, would you want to go somewhere there? Because I have to process because I don't want to spray shot my brain.
[00:32:37] Speaker B: Just a couple of things that stood out to a lot stood out to me, Alex, and I love everything that you just said. Where my mind went was boardroom meetings. Right. That completely changes the dynamic in a boardroom meeting from standard. We're going to build out our five year plan or this, that and the other thing to know we got to be like we should be war gaming and crisis planning. Like so I'm just curious your reaction and thoughts to where my brain went with all of that.
[00:33:01] Speaker C: Yeah, I mean we've got an engagement in Montreal coming up in a month where we're doing specifically that for a aerospace and defense defense company that's looking at divesting their US assets in response to the breakdown in relations between the US and China. So US in the US and Canada. And so like yes, 100%. Like I said, there are best in class companies that not only are already doing this right now, but have been doing it for some time to come. My brother and I, we've been doing the simulations for the Strait of Hormuz closures for 24 months with companies. So I believe that there are companies out there that they didn't necessarily anticipate that this was going to happen, but they asked the question what will my business look like, looks like if that happens and what can I do in response. And so they've been implementing those plans for quite some time and you will have an emergence of those winners relative to the rest of the pack that's going to be reactive and you know, responsive but behind the curve of, of, of you know, implementation.
[00:34:09] Speaker A: So yeah, I think Alex, you know, we're in the, the risk of being reactive, I think nowadays is that going back to that truckers example of like the diesel and I, I, I said an example on Kim and I's podcast last week. Right.
Or the equipment dealers that you're talking about. I don't think people are going to like the reactive like it's like, oh like this is a bummer. It's like, it's like it's bankruptcy because all of a sudden you can't float the cash flow. So it's not just a small risk, it's the actual big risk that we need to look out for while someone else is making a lot of money because they have a plan. For it. And so where my brain went when you were talking about this and Kim talking about the boardroom, the way we are explaining to people what a good plan looks like is a five year forecast that has a three statement forecast. So they're all mathematically tied together because it's all about actually seeing that cash flow statement, Alex, of the working capital debt and taxes and distributions in relationship to the five year valuation.
So this becomes a peg and we're tethering today to a five year plan. The way I kind of think about it is like if you're flying or if you're sailing, you like the destination's non negotiable but what we need to do is constantly course correct with all the flight controls and all the data and like in like, you know, back, you know, you know, a long time ago in the airline industry didn't have any of the computers, but the computers got better and more and more data and you just increase the chances that you're getting to that destination safely and on time with the right input cost. So I'm saying that because this is kind of the frame that we're constantly preaching.
Where I am interested in is when you're running these simulations, it's like the importance of the goal is so important to the planning, even though it's all uncertain is still that important because that anchors us into the simulation where like if we're looking at AI, Alex, as an example, like AI or decision making or the roundtable example that you're giving is trying to run the ideas to increase our confidence. So what I'm interested in is like how are you picking what variables and simulations to run? Like what are the supply chain scenarios to run? What are the geopolitical scenarios to run? It's not just hey Kim, we need a new marketing message. It's like it's all the stuff we've talked about so far. How do you pick what simulations you want?
[00:36:30] Speaker C: Very, very important point to say. You don't just randomly come up with a scenario. You have to kind of plan in response to what you think is the most probable scenario, as you mentioned earlier. So I think there's a couple of things that I'd like to say here. Number one, the enormity of the task that we are describing can be super overwhelming to people, which is why what you find is that small and medium sized companies just don't do it. They are just reactive most of the time. Now you better believe that large scale organizations portion 500 companies have entire teams dedicated to this task, but it's the little guy that oftentimes is left out of that process.
So you have to combine a element of geopolitical analysis and forecasting with then scenario planning. So the reason why I teamed up with my brother Eugene, who I mentioned works in Washington D.C. at a foreign policy think tank, is they actually produce a quarterly report that is a forecast for all of the hotspots active around the world. So there's coverage of Russia, Ukraine, coverage of the Middle east, coverage of the Indo Pacific, and then they look at other scenarios and the smaller hotspots. But you know, they were, for example, in December, mid December, they released their annual report in which they actually predicted that the highest probability of action against Venezuela was a removal of Maduro by the US and of course two and a half weeks later that's exactly what happened. As I mentioned, they have been forecasting that the flare up between Israel and Iran, kind of with a little bit of US backing that happened like six months ago, we was likely to repeat and become more intense. And so the forecast in terms of probability was they actually break it down into three different potential outcomes. First is military escalation, the second one is diplomatic de escalation and the third one is hybrid escalation. So non kinetic stuff, right? More cyber attacks, you know, kind of undermining of the political process, these kind of things. And so they give guidance into the direction that each one of these hotspots is going. And then you can use that guidance, the highest probability events, to then build the scenario that you're planning for. Right. So it's the combination of what is the likeliest thing to happen given the development. And the way they do this is pretty phenomenal. They have an entire team of analysts monitoring news events all over the world every single week. They put out a report on that, they analyze the impact of the events and the effect that that has on the probability of each scenario becoming higher or lower. And so as a result, it's a continuous monitoring process. You cannot build that kind of capacity in an organization unless you're very large. Right. So the idea that I'm propagating here is small and medium businesses need to recognize that this level of expertise oftentimes needs to be brought in from the outside.
You, it's okay to rely on subject matter experts that have a different skill set than you. And this is a great example. I mean what, you know, what Alan did for many years for companies was that right. He was the subject matter expert that they relied on. And of course I had the Benefit of working with him and for him. And then this is another example of that. Right. So bring in expertise when you need it. Get people to give you some directionality and then simulate based on that forecast and hold them accountable. Right. Like, hopefully they're pretty good at predicting this stuff. Which, you know, as I mentioned, my brother and his team are.
[00:40:13] Speaker A: And even when I say, when I think about like going one step further, it's like taking the probable scenarios that you're talking about that your brother Eugene does. But then what does that mean for your company and your input cost? So you equipment and just in.
In just taking that string and continuing to pull it. So what is the risk of my manufacturers, of my suppliers of the like? So taking the scenarios and go, okay, from that scenario, what does the implications on certain materials and supply chains, do they go that far or is it just scenarios? Then we have to take it by ourselves.
[00:40:52] Speaker C: No, no, you. I think we do in our simulations that we run for people. Right. I mentioned this fluid power group. So we actually looked at the specific components that were overtly exposed. It wasn't everything that they're importing, but very specific things. Coils, for example, were a big exposure for them. You don't think of that as a major component of the flu power industry, but based on the concentration of production in China and in the surrounding region, that was a particular point of exposure. So we're now talking about where else can you get it? What impact does that have on price? So yeah, you do make it very specific to the inputs of that industry, both materials and components. You make it specific to where is it coming from? Are different industries import from different parts of the world. And so yeah, you do specific specify the exact points of friction that will be created as part of this scenario and then you go into the planning and response.
[00:41:55] Speaker A: Got it. So I think that's fantastic. And Kim, to your expertise on communication because like we're trying to connect the why is this happening? What are the risks? What's the ripple effect?
I think we talked on the last podcast of like different ways to measure the rates of change and input costs. We can come back to that on that part of the battle plan. But talk about like what this means from like a communication, customer service, brand equity to avoid the con. The conflict that Alex had mentioned with like, hey, there's a 12% increase. Good luck. So like talk about like from the outside brand perspective, the implications of having plans like this and what you would do with it.
[00:42:41] Speaker C: I.
[00:42:42] Speaker B: From the example that Alex gave with the 12% increase. I mean, I don't think there's any way that the companies could have avoided that. I think it's what they do with that in that particular situation. So when they find themselves across the board, like I have this 12%, do I push it through to my customers? Do I take it on? Are there internal efficiencies that I can have to try to offset? Things like these are all the standard questions that people are going to have to ask themselves.
[00:43:06] Speaker C: Themselves.
[00:43:06] Speaker B: But at the end of the day, my very simple, concise answer is with any price increase, it's important just to be honest and transparent and give as much heads up as possible.
And so you don't try to fluff it, don't put any marketing jargon on it, don't try to like make it seem like something that it's not. Just honesty goes along. Honesty is the best policy.
Just use a cliche and just to give as much advance notice as you can. And if you can't, because it was sprung on you, then communicate that too. So I think it's just all about. And also we talked last week about segmentation as part of the strategy. Like I just touched upon the communication side of things. But as far as like the strategy side of things, you don't have to push the same increases to every single customer. So looking at what customers have, what margins and what type of relationship and segmenting your customer base with a segmented price, it's not a one size fits all.
[00:44:00] Speaker C: Yeah, it's, it's so interesting you say that Tim, because one of the decision vectors, the pricing one that we put to the group, a menu option was keep prices the same. A second menu option was increase prices, but only for tier 2 and below customers. So like the segmentation approach then we had like raise prices by 10%, raise prices by 20%, like so, so the decision making vectors that you consider as part of the simulation process are so important and they have to reflect the reality of the industry that you're in, but they can be in line with that idea of transparency and honesty that you're talking about. I think that people understand it's not going to be a shock to anyone the cost of doing businesses going up. It's so much easier to like accept that if you understand. Oh, okay. Well, of the 12%, I can see your transportation costs are up 4%, your material prices are up 5%, you know, your wages are up 4%. So like the combination of those things is kind of how you're getting to that number I'm not really going to argue with any of that because it's all very logical. Right. I still might not like it, but at least I'm not going to feel offended by it. Right. So that communication is so key.
[00:45:16] Speaker B: Yeah, I agree wholeheartedly, Alex. And you actually said something earlier that I wrote down with the availability versus pricing. I mean, I could very see very much see a world where that becomes the norm with everything that's going on. And so instead of trying to compete on price, competing on availability, and having your prices higher for some target audiences, they're going to be willing to spend that higher cost to get what they want when they want it. I mean, we live in a generation of I want it and I want it now and I don't want to wait for it. And our generation are all the business leaders these days, so I could see that becoming a new strategy too.
[00:45:51] Speaker C: Exactly. And you know, this whole K shaped economy, right, with the top 20% driving much of the growth of consumption. Right. Like there are people that will continue to spend the money. You're not going to address maybe 100% of the market, but the well to do will pay higher prices in order to get the things that they want. Right. So I think it calls into nature, like questioning a little bit the soul of what kind of business you are and who your target customer is. Right. At the end of the day you have to say, okay, well we're going to be targeting a specific subset of customers, understanding that we're leaving some business on the table by not going under maybe some of the other categories, but this is where we're going to make our bread and butter.
[00:46:32] Speaker A: Alex, what you said there just really like, it reconciles with how I've been thinking about the, the potential of customers. And I, I had a debate, I was on a panel about six months ago with this guy because we were, he was a business advisor and we were talking, we got into the weeds and like 2% of business owners have actual cash flows that could even do an esop, if not less. And so he, he was like arguing like Ryan, like what you do doesn't apply to anybody. And so we need to help the business owners. I'm like, well, there's an actual constraint of money that someone has to be able to afford your product or service.
So I think it is a struggle, honest to God, Alex, of like people denying the fact that 10% of the economy is driving 60% of the spend. So like you can be a 5o C3 and then provide services to people. But, like, there's a real situation here that I think people need to think about. With the simulations that you're talking about, who are your customers and what's their risk for disruption of supply chain issues, AI and their ability to buy your stuff.
So, like, literally going to that end because like, I, Kim and I are talking, when I'm like, Kim, I only want to walk with business, work with business owners that do real shit for the real people in the real economy who have real money, not like, I mean, there's real risk for all of these other factors that have to be taken into consideration.
[00:48:02] Speaker C: Yeah. One of the things that I'm always very specific about mentioning during my presentations is reminding people that they're not in business to grow revenue, but they're in business to make a profit. Right. It is the profit that is going to determine the future success of your company. And so that means that when you look at your profitability, you can't just look at it at the overall company level. You've got to look at it by product line. You've got to look at it at the customer level. And yes, that means that if certain customers of yours are not where you need them to be from a profitability perspective, you have to have that tough conversation and be willing to walk away from them. Which is getting at the heart of what we're talking about right now, which is understanding who your customers really are. Like, yeah, you might be able to sell things to people if you take a loss or break even, but that's not what you're in business for. You're in business to make a profit and so understand who are the people that will buy your stuff that will help you make the profit that you want to make.
[00:49:00] Speaker A: Tim, how do you think about this from a chief Revenue officer perspective of like, how do you go about analyzing customers? Like, think about the scenario planning that we're talking about. How would you think about ways to.
To think about your customers?
[00:49:16] Speaker B: Well, what comes to mind immediately is working with someone over the last few months and we've implemented just a profit margin analysis across the books of business by sales rep.
And once a month they're reviewing them to identify what those margins are. And anybody that's not meeting the that we documented what the definition of a good margin and good customer looks like also in terms of how much money they're bringing in the door and such. Anybody that doesn't match that profile, they're having conversations with their sales leader to say, why are they still a client? Like how can we have conversations with them to get them into the ideal customer range? And if we can't and they've actually let some customers go over the last several months that we've been doing this or a few months that we've been doing this and it's allowed them to take other jobs in with better margins. And so that's a situation where some people might be too scared and be like, well, we want the revenue. But now they still, they have the revenue and better margins on the new projects coming in the door. So I don't think it's a one and done. It's an ongoing process between leadership and the boots on the ground.
[00:50:22] Speaker C: Yeah. Yeah. 2 thoughts in response to your comments, Kim. Right away, number one, you got to make sure that there's an incentive for your salespeople in place to focus on profitability. Like if you make revenue their goal, that's what they're going to focus on and they'll get revenue however they can. Right. So make sure that they're incentivized to keep the margin in mind. And then the second thing, even if you find that certain customers are not where you need them to be, it's really fertile ground for the conversation of, look, we don't expect necessarily overnight, like to flip a switch and get you to our 12% margin target. Right. But let's have a conversation of how we get there over time. Right. It, it sets the stage for a real kind of trust building exercise with your customers.
Moat building around that relationship. Right. In terms of, you know, we can be understanding, but we also need to accomplish what we're, you know, setting out to do. So I think those two things are really important is to realize it is not black and white or binary. Right. It creates a process that you can follow and you better make sure that your folks are incentivized to be aligned in their interest with what you have as a business.
Yeah.
[00:51:37] Speaker A: You know what? I have two examples and stories that this conversation makes me think of. Like the power that the owner CEO gets is the ability to communicate in a realistic, honest way like you said, Kim. And the two stories that I'm thinking of are Zappos and then Whole Foods, you know, in the book Conscious Capitalism and then Zappos Delivering Happiness. Two really good examples of like when we have the data, clear goals and a clear understanding and trusted relationships with our suppliers and vendors and customers. So in Zappos, what Tony Hsieh did is he opened up his pricing to his vendors and he's like we need to hit this much margin in order for us to be surviving. And they lit like everybody was freaking out. But then like he had his vendors helping him try to figure out how to make more money so they could all maintain their margins. And then in conscious capitalism, they talked about how early days, like Whole Foods had this major issue and like almost went bankrupt. And then they went to their suppliers and their vendors and were like, we need help because it's always back to cash flow. Like, how does a business go bankrupt? You don't have enough cash flow. So they went and had these conversations and everybody was fine. And I had the same issue with our family business. It's like, hey, we're in a problem. We got no money for payroll. Can you cash the check next week? So it's the data, the goal, the communication and then it allows because everybody, I think if it's the right partners want you to win and everybody wants to win together.
[00:53:04] Speaker C: Right. I think this idea that you're talking about is the, the fact that we need to remind people that it is not a zero sum game. It is not a if I win, you lose. It's. It doesn't have to be like that. We can both make goal and target and margin and all this kind of stuff and help each other. This can be a creative strategy that, where we synergize and like really succeed together. At the end of the day, you're right, you don't want me to go out of business because then you lose a great customer. Help me stay in business, I will help you make more money. Right. That's the idea. But I think the world seems so polarized that inherently human psychology almost applies this idea of zero sum game, especially when it's so reinforced forced in social media and in the political landscape. Right. Like this notion that I cannot win unless you lose has to be challenged at every step of the game.
[00:54:04] Speaker A: The, the agreed from a moral. Like my soul at like a fundamental human level agrees with you, Alex. But my experience is when we have a fiat based D debt Ponzi scheme that runs the global economy, it actually is a zero sum sum game of capital accumulation at the top of the K.
So like, unless. Because like the banking system is all about debt refinancing, not building new future cash flows. Because if the way that money works, that we all wake up and we need to create value to create additional free cash flow for the rest of the world, if it's just trying to debt refinance, whoever, like the consumer has to have enough money and we have productized all of the consumers to load them up with debt to buy our shit. And they are running out of money. So that's why we're like, okay, well it's the top 10%, then it's going to be the top 9% and then it's going to be. And so I say this because it's, it's not totally untrue that it is actually becoming a zero sum game of the people that actually have the money and can buy our shit.
[00:55:13] Speaker C: Yeah, I don't disagree with that notion, as disillusioning as it might be, because the evidence that the system isn't working and is not sustainable long term continues to build. Right. Like we can look so many places around the world.
But I guess I have hope that the younger generations, I think that they are maybe less materialistic, less focused on like profit as the be all, end all driver. Let's, let's, let's try to like make the world a better place. One of the things that I always liked, you know, when, when Alan talked, is like this notion that potentially when the young folks that are being so negatively affected by this debt crisis that we're in, when they get into positions of power, whether that's leaders of companies or politicians, like when they no longer are just like focused on just being reelected, but it's actually affecting their entire lives, Right. They might actually be willing to do something about it. Right. And maybe we'll have things like term limits that will help with some of that. One can hope. But I mean, I guess at the end of the day, I agree with you. There is this like underlying rot at the core of the system that makes it very difficult to continue to extrapolate into the future how this can be sustained, you know, in the decades and the centuries to come, for sure.
[00:56:44] Speaker A: And I agree with you, or I'm an internally optimistic person and I like Ray Dalio, I love his statement recently, if you worry, you don't need to worry. If you're not worrying, you should worry. And it's like we could use that. We could replace those words with simulations that we're talking about. We're like, and because I agree with you, like, and I, and I think, Kim, that we're doing that at ibd, which is like, I want to watch other people make more money, so we want to tie our incentives together. So I'm kind of contradicting my own point, Alex, where like, I agree with you. Where like it's recognizing that this is the real world of the Real system of the K shaped economy, what's going on.
But we need to do the stuff that Kim talks about, find the customers that have the money that can buy our stuff with the right people, tier the products, communicate with everybody. It's like doing all of the stuff that we're talking about here so we can protect ourselves like Noah's ark and then just start to build out from there. So it's kind of like both and I guess is my point. Cause I am an optimistic person, but I also am a realistic at the same time.
[00:57:46] Speaker C: Yeah, yeah. I mean, I'll give you an example of like I'm always thinking creatively about how things will evolve. You know, I, I was the lead analyst for 3D printing back in the early 2010s at a market intelligence firm. And so like on the one hand I was trying to temper people's expectations that we're not going to be 3D printing everything at our house anytime soon. On the other hand, I said, you know, certain industries are going to be hugely benefited by this. So the example I'll give you is the automotive space. Okay. Inherently very volatile industry boom and bust cycles right now automotive is not doing well. It's down year over year, High costs, high interest rates, all of that. Those things driving. I was in Phoenix doing a presentation the other day and I had a chance to write in my first wayo.
[00:58:33] Speaker A: Okay, so I've never done that. How was it?
[00:58:36] Speaker B: I did it when I went and visited Joe recently. Alex.
[00:58:39] Speaker C: It's wild, super cool, Cool. I really like. It was, I'll admit it was, you know, a bit nerve wracking at first because you're just like so not used to it. But I had about a 30 minute drive by. I would say by about 10 minutes in, I was fine with it. I just like, it was normal. But as I'm driving in the Swaymo, I'm looking around and you know, and Phoenix is a relatively flat place. There's not a whole lot of high buildings. And I noticed that predominantly it's parking lots of. Right. And so then I started to think, what happens to parking lots if cars are no longer an asset that people own, but rather a service that is provided to you on demand. What happens to parking garages? What happens to all the infrastructure that exists? And then I was like, okay, well that's kind of scary.
[00:59:25] Speaker A: Interesting, right?
[00:59:27] Speaker C: For all the parking lot owners and all the garage owners. But on the other hand I'm thinking, okay, well what about all of this automotive debt that we have, right? Like where, you know, the delinquency rates for automotive right now are pretty high. They're, you know, I wouldn't say they're like recession indicating, but they're 82 month.
[00:59:47] Speaker A: 82 month loans are not ideal.
[00:59:48] Speaker C: Yeah, you know, things like that. Then I'm like, okay, well that, that could be a totally like silver lining to that situation. And so again, disruption will happen. Entire industries will change. What about gas stations or car washes? Right. If you no longer own the car, are you going to want to wash a rental vehicle? Probably not. Right. Will it be all centralized at the hub where all of those things go to recharge overnight? Probably, but it's these kind of things. I guess the reason I'm talking about this is for us to be able to project into the future, it requires a realization that change is exponential and that human beings are very poor at being able to forecast anything exponential. Like if you imagine yourself standing on an exponential curve, you can look backwards and understand very clearly how you got to where you are right now. But you turn towards the line and it's at your face. All you can see is the next kind of like 12 to 24 months. Right. Realistically, with some sort of confidence.
So projecting into 10 years from now, 50 years from now, a hundred years from now, I think that I remain hopeful because I imagine that we are capable, we'll figure some things out. Right. Whatever ends up happening. So that's where my optimism stems from is the realization that I'm terrible at forecasting exponentially.
[01:01:10] Speaker A: It's such a fascinating thing that human beings are that terrible at it because we're linear thinkers. And I was at this conference, I was in my early 20s, Alex, and when I really understood exponential, this guy had this book and he was talking about how fast a lake could fill up with the lily pads, if it starts with one.
And it was like 18 days or something like that. And it was like people didn't understand, but like by day, like 10, it was not even ha. I mean, like, you know, I mean like you start to realize how fast this stuff goes. And all that to be said is the importance of this stuff that us three are talking about.
Is that important to start thinking about. If there's anything that we're trying to stress is like, this is not like business as usual anymore. It's just there's things changing between the technology and the geopolitical environment where I think the luxury of like the 90s and the 2000s is just not. It's just not as simple as it used to be.
[01:02:12] Speaker C: Yeah, yeah. We seek comfort, we seek predictability, but the only constant is change. Right? My favorite example is that whole, you get a penny and it's doubled every day for a month. And most people are like, or you could. They say, you can have a million dollars right now or a penny doubled every day for a month. Which one would you rather take? And the penny ends up being way more than a million.
[01:02:34] Speaker A: How much is it? I can't. I don't know if I. I don't remember.
[01:02:36] Speaker C: But it's like substantially more like, it's very easy to make that decision. I have to do the math for you.
[01:02:42] Speaker A: You can't do that in your head. Come on, we're talking about logically.
[01:02:46] Speaker C: Logically, right? You're like, $1 million a penny will never get to that. And yet BY like day 22, you're, you know, you're right where you need to be. So I think that you're right.
Having the conversation, being open to the idea that things are changing and that you need to continue to challenge the status quo and evolve with reverberates throughout everything that we do as people, right? Business, personal life, self growth, all of this kind of stuff. And I think that there are people that are really good at it and there are people that will continue to struggle with it. So my message to those listening would be like, force yourself, try as much as you can to be at least open to that process. Right. Don't be like, well, you know, I see it all the time with kind of older CEOs or business owners. I'm three years away from retirement. I don't want to go through all the hassle of change and adaptation. I'm just going to kind of like, keep doing what I'm doing and hope that it's going to be enough.
[01:03:50] Speaker A: But a lot of times, because it takes energy, right? And I think this, I think it really compounds on the whole demographic thing that all three of us, plus ITR and everything we've been talking about where it's. You have this humongous cohort of people were like, I mean, I was on this call with someone and they were like, they're probably called mid-60s now. And they're like, I am exhausted. Like, it was the dot com and then it was 9 11. And then it was the great financial crisis and then it was Covid. It's like, can we just like, pause and take a break? And I think that that complacency is something to put into check, to think about what Is the long term plan from the job versus the asset and what their goals are. And there' I can't remember if it was Ben Franklin.
There's a comment about freedom where if we outsource our decision making, we don't deserve our freedom and the responsibility. We're like, this responsibility is tough, but if we actually take on that responsibility, we can actually get our freedom. So it's just. And it's a lot of energy and I think about trying to help people move one step further because I like to get into the weeds of this stuff in the big picture. But Alex, what are the some of the biggest fears and blockers that people have from acting? And then if you were to like tell someone, like, we cover a lot, but there's just like a put your one foot in step in front of each other. What do you see as successful? So some of the biggest blockers and some of the people that you see that start to build momentum, how do they start?
[01:05:25] Speaker C: I think the mentality when it comes to making mistakes is the biggest blocker that people have. Right. They're so averse to making the wrong decision or to falling down that they never actually engage in the process of decision making. And the framework of that is, well, I can make a decision and be wrong, or I can make the decision and be right, But I don't like my odds. So I'd rather kind of delay that decision or give it over to somebody else. Right. I think that the successful people are the ones that embrace mistakes as signposts on the path to the desired outcome. That basically means like, oh, I made a mistake here. I've eliminated the thing that it is not right. I'm now that step closer to the thing that it is. So that that would be my, my advice is like, mistakes, we have this kind of very negative connotation and association. Like I'm somehow worse than or less than if I make a mistake. No, you're closer to the end goal because you now know that that is not the thing that you need to do to get there. Right. So we should embrace mistakes. We should of course, try to mitigate the impact of those mistakes as much as we can, but understand that they are very much part of the journey and you cannot get to the goal of where you want to be oftentimes without making many, many, many mistakes. So I think it's that mind shift of saying, I won't let myself be paralyzed. I'm okay with making mistakes and, you know, misstepping on occasion because I realized that that is getting me closer to where I actually want to be.
[01:07:11] Speaker A: That is fantastic. And can't tell you how much I love it. I think, Kim, how we're trying to help people do. What Alex is saying is this is my personal opinion is I think the people that we work with and that are listening in here hopefully lean more towards.
There's a this the F around and find out. You ever seen that? That made sure. I've been talking about it a lot lately. Like, we want to F around and find out really fast so we can move towards the best outcome. I think some of the biggest challenges are because people can't see their cash flow. And Alex, I didn't grow up as a finance guy, but I really think that the cash flow, the debt, the working capital becomes the driving fear. Because if you make a decision about your pricing or something like that, and you actually have a realistic risk of your bank pulling your line of credit, you not getting your distribution, or, you know, putting your taxes on, you know, a deferred, like, it's a real risk. That is a real fear. And what we're trying do is build those mechanisms in to say, okay, like, we can give you visibility over that.
So that way you can get more confident in screwing stuff up.
[01:08:22] Speaker C: Yeah. So I started my own company in January.
[01:08:26] Speaker B: And I'll tell you, congratulations.
[01:08:27] Speaker A: Yeah, welcome. Welcome to the pain.
[01:08:30] Speaker C: Thank you very much. It's called 3DM consulting. The 3DM is a bit of an acronym. Stands for Data driven decision making, 3Ds and an M. And so, like, it encompasses everything we've been talking about. Economics, geopolitics, talent, strategy, you know, all the things that I've been doing throughout my career. And I can tell you, the realization of, I mean, how like, cash flow is the lifeblood of a business is so, so stark to me. You know, this is the first time in my life that I have not had any kind of safety net or, you know, stability in terms of income.
And so when I have to write the mortgage check or pay whatever kid activity that I'm paying for at the time, I'm like, do I have the right amount of cash in my account? That's the only thing that I think about is, is there enough money to cover this check that I'm writing? And if there's not, you're basically one step away from disaster. Right. So, like, hugely important is all about the cash flow.
[01:09:34] Speaker A: And I think being a business owner is very similar to being in war, because I was listening to Ray Dalio Again. And he said, the enemy has a say. And it's not about posturing. It's about who can endure the most amount of pain longest.
And I think about the clients that we work with and like, I remember my dad and I was like, quarter million bucks every other Thursday. Gotta have the money for the bank wire for payroll. And like that realistic or that reality is like gravity. It doesn't stop. No matter whether we go to the cabin and hang out and just want to take a, take a rest, it's like, nope. Quarter million dollar payroll every other week. And the business owners we work with are very, very aware of that. And we become numb to the insane stress that that takes. And what I want to do, Kim and Alex, is give people the courage that they had. I mean, do good for you for jumping into this insane circus in January and the level of risk and self responsibility for the desire of independence that we, that I'm assuming part of that was part of the equation of like, let's do this.
I want to encourage people to have that even though they have a $30 million business, because all of a sudden you have 115 employees and you have all like in the risk of that gambling is so high that if we have the visibility and the scenario planning, we can calculate what are we actually gambling here. Like, oh, it's not actually that big of a deal if I go increase my cost by. Or increase my prices to my customers by 10% to this cohort of people. Because if they, if five of these people say no, I still could pay my mortgage and pay my line of credit.
[01:11:15] Speaker C: Yeah, yeah, I will say, you know, there's calculated risk and then there's irresponsible risk. And so the process of me starting my business was a basically a five year endeavor. When ITR and I parted ways during the pandemic, basically, or the immediate aftermath, I built a consulting practice for a recruiting firm out of Chicago. I was a W2 employee, you know, that was kind of. But I was responsible for the P and L for the first time. I was responsible for all of it. So I learned a lot of the things that are necessary to know to run a business.
Then when the fervor pitch of the labor market started to subside in 2023, kind of I moved away to the next thing that I thought was going to be the big thing, which is I worked for an investment bank helping M and A stuff, particularly on the sell side. And that was a contractor role. So there was kind of a step in the right direction. Again, P and L, but not having a W2. And then as I continued to build the Rolodex of clients, then I said, okay, now I'm ready for that full independence. So, you know, it was a process for sure. I didn't just jump into the deep end with it, but taking steps down that pathway, I think is absolutely key. And I'm glad that you're helping people do that.
[01:12:33] Speaker A: You had way more of a plan than I did.
I was like, I got out of a management meeting after we sold, and I walked right into the CFO's office. I'm like, I quit. Walked home and I said to my wife, I quit. She's like, you what? I'm like, I don't know.
I have an allergic reaction to applause.
[01:12:49] Speaker C: So.
[01:12:51] Speaker A: Good for you, Alex.
[01:12:52] Speaker C: Yeah.
[01:12:53] Speaker A: Kim, what are your thoughts about how to wrap up this awesome conversation?
[01:12:57] Speaker B: This has been fantastic. I guess just to wrap it up. Alex, what are your closing thoughts that you want to share in preparation for our workshop that's coming up on the 27th?
[01:13:07] Speaker C: I think for the folks that are going to be joining the workshop, they're already taking the important first step of, like, putting in the work. Right. Listening to expertise from the outside, being open to the idea that they need to change their processes and the way that they think about things and leveraging that, you know, collective wisdom that we bring to the conversation. Right. It's. It is. It does take a village sometimes. And so this workshop is a really great environment for them to bounce ideas, to explore things that maybe they're not doing right now, to kind of tackle the things that they're doing that they probably shouldn't be doing. And so I'm really excited to talk to all of them and to help them become better business leaders with better companies that they're leading.
[01:13:52] Speaker B: I love it.
Ryan.
[01:13:55] Speaker A: Yeah.
I mean, at the risk of deviating away from closing here, because I wanted to talk to you, Alex, for another four hours, but I will be shutting my trap. Kimmy will put the link in the show notes. Everybody can go to the website as well. This is fun. Alex, I can't thank you enough. I know you're busy. You're also footing your own work and effort to make money for your mortgage. So your time is valuable and I respect it and I appreciate it.
[01:14:21] Speaker C: Yeah, thanks for having me, guys. This was fun. Looking forward to the workshop.
[01:14:34] Speaker A: This episode is brought to you by Kastos Productions.
