SPEAKER_01 0:16

Okay, today Mina and I would like to talk about how challenging it can be sometimes in business. And certainly we empathize really with anyone in business. There's always things to do. There's always, I was going to say things going wrong, but maybe not things going to our expectation. So I guess we own it, because sometimes our expectation is everything should be perfectly smooth in business. And it's not always perfectly smooth, of course. And of course, by you know, really working on your business, making it as robust as possible, which is certainly our goal, you know, over the coming weeks and months to help you do that and to give you the VERT framework in order to give you a structure to do that. The reality is that there's going to be times in business where you think everything is going fantastically well. You have no people problems, no customer problems, the financial results are really strong. But equally, there's going to be times, and it's unavoidable, where, certain, certainly in my experience over more than a couple of decades, there's times where it feels like everything is going wrong, right? And so in business, we think that we've got 160 problems that we need to solve. But today, the argument Mina and I would like to make is that we only have four. That we can trace all these problems down to one of the Vert flywheel pillars, being value, engine, reach, or team. And that's what we want to explain today, so that it gives you a framework for firstly being a bit more strategic. So instead of putting out spot fires, being a bit more proactive and finding the weak points in your business and fixing them before they become a problem, but also to hopefully help you not become overwhelmed. And we spoke about previously about the three killers of business meaner. And I think we can also relate the Vert flywheel to them as well.

SPEAKER_00 2:04

That's right, Stru. I think it was episode 187 where we sort of spoke about the three killers being sort of thin margins, poor reach, and weak intrinsic demand. And this really told you what's failing in your business, but doesn't really provide any insight on what needs to be built so you can actually sort of solve these issues. So the whole idea of this podcast is really to talk about what we can build to focus on those three core killers. And sometimes you're the victim of the industry you're in. Now, if I use, for example, the retail pharmacy industry and more particularly in the larger sort of states, they're sort of monopolized by larger retail chains. It's like trying to compete with the likes, if you're a supermarket, for example, trying to compete with the Aldi's woolies and the coals. They've got the buying power, they've got the volume, they've got the reach, and you're really a subject to that industry. It's very hard for you to sort of compete on margins in that because you don't necessarily have the same buying power. So you really need to focus on your model. Now there are unicorns in that industry, for example, that do very well. There's, you know, examples of some great rural, for example, pharmacies that they're able to sort of establish themselves as really a retail outlet that provides a lot of care and build a relationship with the community and they really set themselves apart. And they do really, really well. But you really got to set yourself apart from the rest. And that's where the Vert flywheel comes into play. It's really understanding the industry that you're in, what you're suffering for, and building a framework around that so you can actually survive in the industry that you're in. So Short, I'll probably hand it back to you now to talk about the four pillars properly so we can get a clear definition of what we're trying to achieve here.

SPEAKER_01 3:38

Thanks, Mina. And you're right, those three pillars of business being margin, underlying demand, and reachability can be industry settings, or they could be related to your business model in terms of those weaknesses. So we're gonna bash you to death with this vert flywheel methodology. So we're gonna talk about it a lot, and so we're introducing it today in terms of the four pillars, and we'll do a deep dive in each of these pillars and what our goal is to do is to give you some really workable practical ways of implementing this in your business and practical kind of lenses to help you identify and improve. So, and we'll be doing this over the coming months, including kind of sharing some worksheets and giving you some homework, doing these sorts of things. Because I mean, listening to podcasts is great, but sometimes the practical application can be the challenge. So I I know myself, I listen to podcasts, go, that's a great idea. How do I apply it to my business? Well, we want to bridge that gap and help you with this. So a little bit of a preamble just because we'll keep talking about the Vert flywheel for many weeks and months to come. But essentially, there's four pillars, as we've said, the four interactive pillars, value engine, reach, and team. And so, what we do just to give you a really quick definition of what each means. So, value is your ability to sell to your target customer at your target price. So it's why the customer chooses you, why they pay the price that you ask them to pay, why they stay, and why they talk about your business or they refer to others. It's not a feature, it's not a you know, different. It's really value really comes back to what value are you delivering to your customer and what value exchange do you have with them in terms of the price they give you. It can show up in pricing power. So if I'm delivering exceptional value to a particular target customer, they're going to be because that value hits exactly at their pain point or solves the problem they're looking to solve, they're gonna potentially pay me a higher margin, a higher price for that product or service and retention. You know, if I keep delivering that value consistently, then of course I'm gonna retain that customer. So, really, value is really about delivering a specific product or service designed for a specific customer need, and the customer knows they have that pain point. They know they've got a problem to solve. So that's value. Engine is the system inside your business that turns customer demand, those sales, into margin and cash flow. Pretty important, of course. So it's really how do you deliver that value consistently? So you want consistent quality and consistent timing in terms of delivering that product efficiently. So that comes down to margin. So the cost to you to actually deliver that product or service, and hopefully that cost is a lot lower than what you're charging your customers. And the engine doesn't rely on you, the business owner and business founder. So a weak engine looks like just chaos inside a business, that things are going wrong, there's not a lot of consistency, it's very dependent on the founder. So, really, the best way I can explain engine in one sentence is really it's all about quality, consistency, and profit margin. The third flywheel pillar is reach, and reach is your ability to find your target customer, to let your target customer know that you exist, to then like you and then trust you to actually do business with you. And you can have inbound or outbound reach. So, outbound reach is how do I educate my target customers that, hey, I exist, I'm offering this product and service, I think it's gonna be great for you. But equally, inbound reach is how do target customers find you? So, someone that has the problem, that needs the product or service, the solution that you're delivering, how do they find you? And that, you know, you want to make sure that it's really easy for them to find you, of course. So, no like trust is a really important aspect to that. And if we go back to one of the three pillars of business, reach was one of them. So, you know, if it's too hard to find or too costly to find the specific customer for your specific product or service, then it's always going to be hard to build a business like that. And the last pillar is team. And really, team is what keeps that flywheel turning and growing. So a great team looks like role clarity, accountability, individual accountability, decision rights, you know, so not everything needs to be decided by you. And essentially the team's responsibility is to pull those three pillars together, value engine and reach, and keep that flywheel turning and compounding efficiently. So spotting mistakes and iterating in terms of reach strategy, engine strategy, and value strategy. But perhaps the most significant thing we can or thought we can leave you with is this is not a checklist. These interrelated compounding pillars of a flywheel, which I'm going to invite Mini to talk about.

SPEAKER_00 8:34

The one that we wanted to focus on the most was really margins. And really, the margin is obviously the biggest driver of your business. It's probably the one that's the most easy to measure and the one that sort of drives your profitability. Now, margin alone, it's not its own pillar, but it sits at the intersection of value and engine. So what I want you to think about is sort of like a Venn diagram, two circles with an intersecting section, margin being in the middle, and value and engine being on the sides. Value is what really sets what you can charge. It's your pricing power. What demand do you have for the underlying product, what the competition's like, and where your consumers actually see value in the product or service that you're actually delivering. It's what sets the cost you deliver. So if you have a high margin, you're probably efficient, you're consistent, your quality is consistent, and you got limited rework. Now, reach is the next one. Reach is really important and you've got to be very careful here, especially with the introduction of social media and SEO products and so forth. It's very easy for you to go down that rabbit hole, spend a whole lot of money just to try to educate your consumer on your product or service. You can't manufacture reach if the demand isn't there. If you're trying to educate your buyer, then it's a really hard pill to swallow. You really need to understand what the underlying problem is from your consumer before you actually try to advertise and get that product or service out there. So think of a strong business model being something where you don't necessarily need to educate the consumer on your product or service. You've acknowledged what the problem is that you're trying to solve and you've marketed it to them and you've established what that niche is and you've got the right channels to actually reach them. Whether it be social media, a blog, a podcast, whatever it is, you've got the right sort of channel to reach them. A weak business model relies on educating the customer about the problem you can solve that you're trying to solve. And that's okay. It might be that you're trying to solve a problem that's actually genuinely there and that people will see value for. But the idea is that it's a slow turn. So you really need to factor that into your pricing, into your cash conversion cycle, because you might be uh it might take a long time before you actually see any profitability. Now, lastly, it's team. So that's the last sort of inovert flywheel. And we always put this last because without establishing what the other metrics are, your team don't know the why. If your team don't know the why, they're not executing on the value, the engine, or the reach. With a good team behind you with the right education behind them and understanding what the why is, the execution doesn't drag. It doesn't bring down margin, there's no rework. All at once they know that what their overall aim of the business is, what they're trying to deliver, and what their role is in the vert flywheel. That is why the team holds the whole thing together rather than sitting beside others. You've constantly heard us say that you can't build a great business with shit people. So it's really important to get this right. So to round this out, what I'm really trying to say is that each one of the three killers really traces back to one of the four pillars. So fixing a killer is never a vague effort to do better. It's always a specific pillar you need to strengthen, what you need to focus on. So basically what Stuart sort of started with in the sense that it's not 40 problems, it's really just four. It's understanding what those four problems are and how to build around those to solve a problem. But it's also recognizing that they're interconnected. Isn't that right, Stuart?

SPEAKER_01 11:48

Spot on Mina. And as I said, the Vert flywheel is not a checklist, because the checklist sort of suggests that everything on the checklist is equal in and independent to some extent. Whereas the four pillars in the Vert flywheel are exactly the opposite, that they're all interconnected. And so if you fix one or if one's broken, it'll have you know the same positive or negative impact on the other parts of the Vert flywheel. Well, actually, let's talk about how a flywheel works first. And I've got to give a big nod here to Jim Collins, who wrote Good to Great, which I think is probably one of the best business books I've ever read. And I don't think that's overplaying. I think I might have mentioned that previously. Anyway, Jim Collins was the one that came up with the flow wheel effect. And the flow wheel effect was really around consistency and regular improvements that you make over a long period of time has incremental and compounding benefits, and also that you can build a flow wheel strategy. And so very quickly, you know, if you look at Amazon's, this is true when it was formulated in 2001, and their flywheel might have changed a little bit since then. But essentially how Amazon became Amazon was the first part of their flywheel was lower prices on more offerings. And as a result of doing that, that increases the number of customers that visited their website. And as a result of doing that, it attracted more third-party sellers to the platform because you know they're getting a lot of views, a lot of traffic, and attracting more third-party sellers to the website delivered economies of scale, which therefore allowed them to deliver more offerings at lower prices. And around and round you go, and the flywheel compounds over time. And so with the Vert flywheel, it's exactly the same. And that's why, and we keep coming back to it, you've got four problems, not 40. So let me tell you, or give you a little bit of uh example of how they're interconnected. So it's stronger value. So if you're able to lift the value that you're delivering your customer through your product or service, it lifts your pricing power and retention. And better pricing power and retention gives you additional margin to build a better engine. And if you build a better engine, you improve the deliverability and consistency of that product. And deliverability and consistency strengthens your reputation, which strengthens your reach, of course. And reach brings in more target customers who value exactly what you do, which feeds back into value and around and round the vert flywheel goes. So that's why it's not a checklist, because a checklist you would go, well, I need to improve all four of these pillars. But the reality is that's not true. The reality is that there's probably a single point of friction that's slowing down the whole system, that's slowing the turning of the flywheel, and that's where your effort and focus should go. So improving all four pillars by a small amount kind of feels productive, but probably barely moves the wheel. Improving that one thing that's creating the friction, that's creating the drag really improves everything. So I think the natural question now that people are probably thinking about is how do you know which one to improve, Mina?

SPEAKER_00 14:58

I think it really comes down to spotting what green and red flags really look like in your business, understanding and stepping away from your business rather than working in the business and trying to determine in each of these pillars, what does a green flag and red flag look like? What am I doing right and what am I doing wrong? And I probably think it's good to sort of maybe provide some examples around what good and bad looks like in each of these four pillars. So I'll probably start with value. And if you're if it's a green flag, so healthy, it means there's a strong retention rate. There's a lot of repeat business, you're winning most of the new business at a full price. You're not discounting your pricing, but in fact, you could be actually increasing it and getting better margins. There's high conversion rates, the cash conversion cycle is not a problem. So these are really sort of good green flags in the business. Whereas a red flag in the value pillar might look like you constantly discounting your product or service just to win the business. It could be constant price pushback because the consumer doesn't see value in what you're providing or selling. It could be rising churn and rework. It could be customer friction, lots of questions from your consumer because they don't have trust in your product or service. These are things that are red flags that you would need to work on. Next is obviously the engine, part of the vert flywheel. This is if you're healthy in the green section, you got stable margins, there's low rework, there's the workflows without drama, there's no bottlenecks, there's no, there's no need for your team to constantly come to you for to make sort of decisions for those bottlenecks. There's a consistent quality in the product or service that you're providing. Whereas if you're at risk, this is where you're compressing margins just to survive in the industry or just to get the cash in the door. There's rising rework, so think of warranty works or work that you have to do again just to, you know, make the consumer happy. Your turnaround times are blowing out. There's a lot of sort of customer complaints, long cash conversion cycle, so people withholding cash because either there's a problem in the product that you're providing or that they're just not happy with the actual work. These are things that you will need to focus on. The next pillar in the Vert flywheel is reach, of course. And this is where if you're doing things right, you've got a predictable process and systems. You've got good quality leads from a couple of reliable channels. Think about like good referral networks. If I think about, for example, the finance industry, you might have a good network of accountants, lawyers, financial advisors that all, and credit advisors that might all refer to each other because they know that they're good at what they do. There's constant work through the door. It doesn't cost you a lot of money because the reach, you've got those established networks as well. And most prospects would actually convert because there's no better referral than word of mouth. Whereas at risk means that there's a lack of new business. You're trying to establish or get your product out there. So think of like a lot of costs involved in SEO management or uh social media management that can really blow out. And it's really can be for a lot of business ineffective marking spend because it takes a long cash conversion cycle. It requires for you to be in front of that consumer time and time again before they actually realize that they've got a problem and you try to sell it to them. So that could result in a very long cash conversion cycle and a poor revenue growth. The next is team, and a good team is where decisions are made without you. You know, we've previously spoken about the sabbatical test in your business, when it where you sort of step away from your business and see what actually breaks. If you could step away from your business and your team delivers without you, there's no bottlenecks, your team's proactive fixing things, there's a high retention rate in your team, very low turnover, then that's a great team. They're doing exactly what they need to do. They're empowered. You've got good systems and processes in there to deal with any sort of bottleneck and any sort of problems. So that's what a really good team looks like. Whereas an at-risk team look is where everything is bottlenecks and it comes back to the founder or the managing CEO. It's really missed commitments. Really, that the team don't understand the system or the process or the product. They don't understand the why. And as a result, they're always coming to you for answers. It looks like high staff turner. No one can make a decision, all the problems rest on your shoulders. Now, I can speak firsthand when I say this, no one gets into business for that. Everyone gets into business for freedom, and for freedom, you need the right team around you. Now, a mistake that a lot of business owners can do in this is that they focus on one pillar only. But a lot of these can actually intersect. So, for example, if I focus on pricing or value, now you might think that your margins are compressed because your prices are low. But if you get your engine right, your team right, you might establish certain efficiencies by and gain some better margins where the price is not necessarily an issue anymore. You can keep up with your peers in the industry, don't compress price, you don't have to increase price, so you price yourself out of the business, but you've established efficiencies in your business. They've got the right team behind you, you know, you might have implemented some AI tool that might have resulted less in sort of rework. It might be that you've outsourced something, you might have found a better supplier that might yield you a better margin. So it's understanding that it's not a siloed item, it's understanding what drives the underlying issue. The fact is that all these pillars can intersect. And sometimes we think that throwing more people at the equation is solves the solution, but that's not always the case. Sometimes it's a team system problem, unclear ownership and decision rights. So for example, in in our business, we always have a saying that if when something goes wrong, we blame the system, not the person. It's understanding what has gone wrong in the system for that person to have to have done that mistake. Again, coming back to this vert flywheel, the team. What do the team understand the why and what we're trying to deliver in the value and the engine? Or are they basically just flying blindly? So it's really important to focus on the order of the four pillars. We first focus on value, then reach, engine, then team. For most businesses, that is. But the rule is really simple. You always work on the current bottleneck first before fixing or moving on to the next pillar. So I want to sort of give two examples. The first is scaling reach before value or engine is ready. It's like building a house on rocky soil. If eventually, you know, with as weather turns and so forth, the house is going to fall down. You're pushing a promise into the market and the business cannot keep up. So you've really got a high revenue business, but your conversion's going to drop because you're pushing out a sloppy product or service. And then your reputation takes the hit and your marketing gets less efficient because your reach is not as valid anymore, because you're getting the bad reviews, you're getting the rework, and your engine fails as well because the margins aren't there anymore. And the other example is building a team before we got the engine bedded down. Because with no clear systems, no processors, no SOPs or anything like that, people tend to invent their own. Because essentially they're really just putting out their own spot fires. So you end up with five versions of the same process, and some of them might be correct and what would necessarily need to be implemented, but you got a different view on how something should be executed. And as a result, your quality drops, you could end up with a different type of service or product that is not intended, and that's where a lot of rework happens. Now, I did mention that there's an exception to this, and that's really when it's a really commoditized business. And this is where you really would necessarily start with an engine because margin is one on operational excellence. So think of like you're getting really big economies of scale. You got a premium, high trusted business, you start with value because the value is the business. Either way, The discipline is the same. Find today's constraint, not a generic order. But the vert flywheel really provides the framework around the decision making. Isn't that right, Stuart?

SPEAKER_01 22:25

Spot on Mina. Really, every decision can fit into one of the four vert flywheel buckets. But the power of the model really isn't the buckets themselves, but really what it does is give you context. And so what I would say is that when you make a business decision or are faced with a business opportunity, really there's three questions that we can ask ourselves and that we absolutely should ask ourselves to get this really good focus and context. Firstly, which pillar does this decision belong to? The second question is what specific metric or behavior will it improve and roughly by how much? Roughly by how much is because we can't be specific always about these things, but it stops sort of vague answers. It really invites you to get a little bit more specific and really interrogate what impact is this really going to have? And the third and final question is this pillar my current constraint? Or is this opportunity or idea just distracting me towards attention to a pillar that I think is kind of in maintenance mode, you know, that's doing okay. So really, again, you've got to have that focus. Let me give an example. Imagine someone approaches you and says, Do you want to sponsor a local sporting club? Now, a lot of people in business just make these sort of random decisions. Oh, it's going to get me in the community and get the brand out there and these sorts of things. But really, you've got to bring it back to those three questions. So, of course, the pillar that you're going to work on is reach. What does it specifically improve? Well, this is where it really gets interesting. Like you have to then ask, is it my target customer? Do these people need the product or service that I'm offering? Do they have the problem that needs a solution? And then also the third one is, well, do I need more customers? Like sometimes you don't need more customers. You know, sometimes it's really about doing a better job, delivering more value. You know, you've got to be focusing on the engine pillar or the value pillar rather than just throwing more customers at it, as Mina said, there's no point working on Reach if you don't have that value and engine better down yet. And so what the Vert Flywheel does is give you a context for those business decisions. And it allows you to really focus on the most important work and the most important part of your business. And certainly that's something that, you know, a lot of people talk about Steve Jobs and what he did. He only worked on one product at a time, one thing at a time, and really put his absolute 100% focus on that. And we think the same thing is true with respect to the Vert flywheel. You know, work on the pillar that's creating the most drag or most friction first, and then move to the next pillar that, you know, because once you improve that, of course, then there's going to be one of the other pillars that are going to need some of your attention. So over the coming weeks and months, we're going to do a deep dive into each of these vert flywheel pillars. And our goal is to give you a framework and a methodology for really interrogating and enhancing each of those pillars, as well as I said, some practical exercises to help you do that as well, to help you really apply it to your personal business. But maybe now have a think about, you know, those four pillars as they relate to your business and where you think, you know, which pillar you think the weakest is. And as I said, over the coming weeks, we'll be able to give you some tactics, strategies, and important questions and projects that will certainly help you do that. And remember, the whole goal of this is that, you know, business should compound and grow and become stronger by design, not by luck. Okay, we'll leave it there for today until next week. Bye for now.