SPEAKER_01 0:16

Okay, today Mina and I would like to continue talking about the engine, your business's engine. Of course, it's one of the Vert flywheel pillars. And just as a reminder, keep context around these things, the Vert flywheel is a flywheel that compounds over time. So there's four pillars value, engine, reach, and team. We're going to talk about all of them, of course, has spoken about value. And the whole idea is that you fix the weakest pillar first, but also all the pillars compound. So it's just a methodology or way of looking at business, trying to keep things as simple as possible, because sometimes in business we overcomplicate matters. But business is relatively simple. You know, you deliver value to customers, you build an engine that can do that consistently and profitably. You build out your reach so that more of your target customers know that you exist and are able to reach out for the product or service you offer. And then the whole thing is ran and put together by a great team. And it's really that simple. Of course, it's simple, it's not easy all the time. There's always things that get thrown at us. So over the last few weeks, we've been talking about the business engine. We've talked about kind of mapping out your processes and mapping out the kind of customer journey from end to end. We've talked about trying to make the you know quality repeatable. And then last week we spoke about the meeting rhythm. So we talked about weekly, monthly, and quarterly meetings. You know, I said a number of times, and I don't want to continue repeating myself, Maina, but we said a number of times that it's often said that communication is the biggest challenge in business. And so you can't really over-communicate. But one thing we haven't talked about, Maina, is the fact that it doesn't fix the problem. So the meeting rhythm identifies the problems, or at least that's, you know, one of the things that you want to do, particularly in those weekly meetings. And then you sort of triage them into the monthly meetings, but it doesn't fix the problem. What you want to do is build a business that not only identifies the problems, but obviously goes through and and fixes them. And really what you want to try and do is make a hundred things 1% better rather than rely on heroics and make one thing 100% better, of course. And it's that constant improvement that I think is so critical in business. Because if there's one thing that doesn't change, it's change itself. And that change can come from a couple of different directions. It could be regulatory or uh related to your geographical location that you're operating in. It could be forced upon you. It could be industry change, industry and product change. So, you know, obviously you've got innovators in industries and they're going to move the dial. Or it could be customer-led, client-led. You know, the requirements are changing. You really want to have a business that is able to respond to those changes and get better and better and stronger and stronger. And as we've said, Mina, you're either growing or you're dying in a business, so you're either really moving forward. And so that's what we want to talk about today: how to build a business that makes these small, compounding, important changes over time. And there's really five things we want to hit home. Why uh small beats big, you know, in terms of the heroics uh commentary, who owns the improvements, the loop that returns the idea, so so closing the loop on the idea, which is critically important, and the point at which change actually counts. So, you know, how do you measure these things? And then an audit that sort of proves that that it's sort of stuck. Because, you know, that's one of the other things, too, that happens a lot in business is that people might make changes, and those changes are great for a month, but we can't just sit back and assume they're always going to work. So, Mina, let's talk about why small beats big.

SPEAKER_02 3:51

Thanks, Stuart. And the term sort of frequently used for this approach is Kaizen. And a lot of our listeners probably are familiar with that, and that's where you there's sort of small, continuous, incremental improvements. And the reason it beats sort of heroic changes is because you're not you're not putting a whole bunch of resources or or uh putting a whole lot of money behind a 20% improvement in one part of the business, but rather uh 1% improvements in 20 different places of a business. So if you think about a lot of the, for example, ASX CEOs or bank CEOs, when they come in, it's all about heroics. They'll come in, it's all about restructuring, they'll get rid of departments, try to put tech in place in certain areas and all this kind of stuff. And it's just the focus is too spread thin. It doesn't work. You'll end up finding a lot of these larger companies rehiring the same people that they just made redundant, you know, just months before, or putting them on contractor arrangements. You know, it's really important to really focus on these 1% improvements.

SPEAKER_01 4:46

It's a r really a culture, isn't it? Mean, I mean, that the problem with heroics is that typically they're driven by one person or a small team. And it can be the founder in a business, and that's fine. But what we're trying to build in this podcast is a framework to build a business that doesn't rely on one particular individual. And so if you're always coming to the party with the solution, if you're always pushing through big change, then the business is always going to be relying on your next great idea to sort of push through and create those heroics. As opposed to if you can train, empower, reward, and mentor people to consistently come to work and every single day ask themselves, how do we make this better? How do we achieve more? How do we deliver more value? How do we become more efficient? How do we drive more profitably? How do we drive more growth? It can come from lots of different things. It's not always just about money, it could be I said delivering more value to customers. If everyone on the team is thinking like that and we're just making these small little incremental processes, nothing seems to change from day to day, but a lot changes from year to year. And that's really how you make a build a great business, I think. Now, of course, there's going to be times where big changes are necessary, but you know, I think the default is have everyone in your business push in the same direction.

SPEAKER_02 6:01

I think the temptation is that a lot of people in business they want one quick fix to sort of solve everything. They're a bit impatient. It's like investing, right? When you invest, you probably can attest to this a bit more than I could, Stuart. But a lot of people want to invest and make a 50% gain by tomorrow. You know, and it's very similar in business. People are too impatient to wait. They just want one quick fix and they'll put all their heart and soul and resources into it, but it never eventuates into something actually meaningful.

SPEAKER_01 6:26

It's like winning tatslot, isn't it? You think, oh, just win tatslotto and all my problems will be solved. You know, everything, everything is better. Unfortunately, I'm I mean the a better, a good analogy, man, is like exercise and and eating healthy. You know, you can't just exercise and eat healthy for one week. You need to do it, unfortunately, 52 weeks a year to really see the improved benefits. I think the same is in business. If we're going to improve things things and really move the dial, we can't rely on these heroics.

SPEAKER_02 6:53

100%. And so let's talk about uh an example, Stuart. British cycling. They're a really good example with this. Before 2003, the team actually had only won one single gold medal in the Olympics for over 76 years of competing. So obviously the UK, pretty sort of well, well resourced, got a lot of what do you call the people that actually compete in the I've forgot the terminology for it, athletes. Thank you. There you go. Lucky this podcast is about business athletes. That's it. But when Dale, uh, sorry, Dave Brailsford took over as performance director that year, he didn't look for one breakthrough. He went looking for those 1% improvements he could he could find. So examples were, for example, bike seat design or hand washing routines to limit sort of illness. He even repainted things such as the team van so that dust can actually show up before the athletes go onto their bicycles. So, and what he called this was the aggregation of marginal gains. And by the time the Beijing Olympics came around in 08, the team had won eight track cycling gold medals. And in 2012, Bradley Wiggins actually became the first British rider to ever win the Tour de France. So it was a pretty impressive overhaul considering what he came into place. I think it was was it 03 he came into place, sure? Or yes, it was actually 03 he became performance director. So, you know, in such a small time frame, he was actually able to turn around the the records of the British cycling uh the performance team. And it's quite incredible. And it wasn't one thing by itself, it wasn't the one the bike seat change, for example, that re really revolutionized their ability to win gold medals, but rather it was all the little 1% changes stacked together that made them go from the worst team in the sport to the actually the best team in the sport.

SPEAKER_01 8:33

And it's a good example, Mina, I think, because sport's obviously so competitive. And, you know, to be the bottom, if you think about the AFL, well, no, not a good example. Well, maybe think of the AFL, the bottom three teams, kind of in aggregate on average, probably, you know, have a lot in common with the top teams in terms of they've got really talented players, they've got a lot of resources, they've got coaches, etc. etc. What separates the top teams from the bottom teams is probably very marginal, very small differences. And those small differences, of course, we we can't underplay it. They're obviously the top teams are getting almost a hundred per things 100% of things right 100% of the time. And that's very difficult to do. So I'm not downplaying it, but really the difference is marginal. And I think it's the same though in business is that there's no one business or company in a particular industry that's absolutely nailing every single thing. They're just getting more right more often. And they're, you know, what's Buffett says he says you don't have to get a lot right as long as you don't get anything wrong. It's the big mistakes that really cost. And sometimes a big mistake is a bad hire, focusing on the wrong system to improve, you know, not making sure that you're delivering customer value in excess of the price or cost of the product. Anyway, I can go on. They all relate back to the VERT flywheel, which is why we sort of came up with the methodology. But meaning one of the big problems in business is that whose job is it to fix these processes? And I'd even go one step further, whose job is it to identify what's broken? And then sometimes you don't even need, you know, an improvement doesn't come from something that's broken. It could be just improved. So it could be working perfectly well, except that, hey, someone's sort of a much better idea on how to achieve this or in fact redesign the whole process. So that's the challenge. And when it becomes, well, typically it falls on the founder's shoulders to drive this, but when it becomes everyone's problem, then things get get identified, things get followed through, things don't get missed. Whereas if it's just one person's problem, that's where a business relies on heroics.

SPEAKER_02 10:37

So I think that really just comes down to cultural shifts, Stuart. I think it's really important for the owner to actually embed that confidence within their team, to pass on that knowledge and that ability, that autonomy for that, for the employees to actually think beyond their realm of the scope of work and the output of what's actually required in their work. You know, I think what a lot of businesses do, especially when they're starting out, it's always founder dependent. Every decision, every bottleneck relies on the founder. However, if you actually empower the staff to actually think on their feet, look for ways to actually improve, it's important imperative for the culture so that it can you can actually find those 1% changes.

SPEAKER_01 11:14

Yeah, and there's a good story of how Jack Welsh, who ran GE for many years, and he was sort of known as a really aggressive manager, you know, getting rid of middle management, sacking a lot of people. I'm not sure his approach would work as well today. I don't want to diminish it, but I'm not sure. But anyway, so he had a little process of getting all the line managers in the room and getting their bosses out of the room to talk about particular problems. And this is what he kind of arrived at was to try and reduce the time between identifying an opportunity to improve a business and it actually being improved, and then also making sure an owner is named. And so what we do at ProSolution is we talk to the team about certainly it's everyone's responsibility to be thinking about and constantly asking ourselves, is this the best way? Is there a better way? Should we be doing something else? Should is there an opportunity to deliver more value to a client? But they don't have to find the answer. They just have to identify the opportunity because of course not everyone's going to have the experience, knowledge of the process, you know, that the tools, the training to be able to solve all the problems themselves. But that's not the problem, right? Excuse the pun. The problem is actually the identify identification of the opportunities to improve business. So really that's the outcome is that it's everyone's job to identify and communicate, but not necessarily to solve.

SPEAKER_02 12:37

Yeah, that's right, Stuart. And I think in any business, if everyone's empowered with the ability to look for improvements and find those problems, you're going to find a uh probably an improvement log of about a thousand items. And it's not on those people to actually find what's the most important or how to find the solution for it. You need to allocate that to a responsible person. So what we generally do in our business is we triage it. So firstly, everyone logs it and we have a sort of a going log of what the improvements are in our business that we can actually identify. Then we triage it. So obviously, not every sort of problem is worth addressing. They don't have the same hierarchy, for example, or importance or priority. So someone ranks them by effort and impact on the work that will actually improve. And then thirdly, we test it. So we'll we test it on a small slice of the business before it's ever rolled out any anywhere. And that's really just to make sure that when it is rolled out, there are no kinks, there's no issues. And then that finally, we actually, once it's finally fully rolled out, we measure it. And that really needs to be an arbitrary sort of metric that you can actually measure what it's actually improved and what what you've done in the business so that it's always a good news story for the business.

SPEAKER_01 13:47

And it's good to measure it so that you can that feedback loop, hey, this person identified this opportunity. Yeah, sure, the project ended up being a lot bigger, but look what outcomes that produce. So it's good to sort of provide that feedback because you know, people want to come to work and do a great job. They want to come to work and have a positive impact. And so if you're able to sort of close that loop, it should be upfront that of course not every change goes through this process. So sometimes someone will come up with an idea and it's a really simple idea, simple fix, it's straightforward. I mean, it might be huge in terms of impact, but in terms of implementation, measurement, risk, all those sorts of things, it's very small. In which case, just go ahead and do it. We still log it though. So we can look back over the last 12 months, we can see who made the contributions, what were the contributions, what were the outcomes, all those sorts of things. Doesn't need to be really detailed. It's just a spreadsheet with a few different columns, I should say, and we put in some small comments for each of those. But it's good to certainly capture it. It's the big stuff, you know, the big stuff that people are saying, well, what about this? Or we could do this in the future, we could do that. If you have five great ideas in one particular department, you need to treat out, you need to sort of park them, discuss them, and then work out which one are you going to attack first. Because doing all five is going to create chaos, of course. And there's probably one that's going to be lower risk and higher reward. And of course, that's probably the one that you should use.

SPEAKER_02 15:10

Yeah, by doing all five, you probably lose a lot of focus and you don't really give it the right effort, amount of effort as well. So let's talk in about an example. Booking.com, they run this loop at scale, and they probably do it better than most anyone, or as far as I know, anyone anyway. So at any given time, the company actually has more than a thousand experiments running live on its own website, and nothing goes live just because a senior person likes it. So, for example, when one of the company's CEOs had one of their logos or one of their preferred logos on the site, on the website, sorry, they still had to pass a certain test for it to actually go live. Now, most of what the company tests actually doesn't win and you know it doesn't stick around forever. And that that's treated as a loop working, not wasted effort. Because a failed test still tells you not to spend money in a certain idea or by committing resources to it. So in your business, you don't necessarily need a thousand live tests to use this, but you just need someone to log ideas and rules around deciding what gets tested first, a way to try it small and a number you agreed on in advance to judge it, it judge it against. So something to measure it against. So Shu say the test works. When does an idea actually stop being an experiment and start being, you know, part of the business?

SPEAKER_01 16:22

When it's implemented consistently, reliably, and and you've got confidence that that new process is going to work. So that's more than just one person doing it after one week, of course. You know, we really need to dig in and build a really robust engine. So that looks like a standard operating procedure. So the new process is documented. It's backed up by templates and checklists where appropriate, training material, so everyone gets training on it, of course. And it's really systemized so that you're not just having one good week, your whole business is now on board in terms of this new process. And not until all that documentation is done and that implementation is done, I don't think you can sit back and say, I built a new system. And look, this can be laborious at the beginning in terms of documenting systems, but it too becomes part of the culture, right? And if we do it consistently, just like lots of things, you know, if we do it consistently, you know, sometimes you get in the car to go somewhere and then you sort of daydream along the way and you arrive at your destination thing, oh my God, did I just drive here? Like I wasn't even really concentrating, because it's sort of secondhand, if you like. So if the same is associated with documenting processes. So this is one of the things that I think a lot of business owners go, oh yeah, I know I should do it. I've got to get to doing that, but it's on the to-do list. But there's some more urgent things. It's the same with business improvement. It needs to be embedded in the culture, embedded in your processes. So everyone knows that if I'm going to change a system or process, it's really got to be well documented to the extent that you can have someone new come into your business that still has enough experience for the role that they're but that they're fulfilling, but then could run that system. You know, almost needs to be that foolproof because then you've got yourself a really robust system. And remember, this whole process sort of comes back to reducing founder dependence. And the perfect example, or at least a one perfect example, is the Big Mac. So the Big Mac started in a Pittsburgh store in McDonald's back in 1967. No Mina. I was not born then. I knew that was going to come out of your mouth. And uh that they just wanted to test these customers asking for a larger burger. They couldn't have, you know, didn't have any special bun or anything like that. They had to use all the same ingredients and whatever because head office hadn't provided that. Anyway, he tested it, the larger bun, the larger burger, and it killed it. Like sales were amazing. But of course, McDonald's had to systemize it. They had to make sure all their staff were trained, all their stores were trained. And so it wasn't until a year later, 1968, that it arrived on the menu across the country in the US, the Big Mac became the actual Big Mac. So it shows that, you know, and that's a business. Remember, McDonald's, something that they've got a tremendous business engine. You know, their value portion, okay, you might say it's questionable. Their reach is extend extensive because they've got such a strong brand. Their team, you go, well, they've got 16-year-olds. Anyone that has a 16-year-old child would know how difficult that would be to run a business with, but their engine is the strongest part from a vert flywheel perspective. But once you're improving these things, man, you've really got to look back and review these changes. You know, one of the reasons we reasons we keep well, what we call the engine room improvement log. That's a bit of a mouthful, but anyway, that's what we call our internal spreadsheet. And we have a couple of different tabs for different business units and also one for reach and so forth. So that's how we run it in our business. But important to look back over those changes, Mina.

SPEAKER_02 19:43

Yeah, definitely. And I think it's a step that almost everyone drops because I feel like once you're sort of happy with the progress you've done, it becomes a good news story, but it's quickly forgotten about because you just assume that everyone's run with it. It's sort of but you actually got to go back and check that re-written standard because if no one's following it, then you've got a bit of a problem. You've got to go back and check three things. Is everyone actually following the new version or are they following old habits, sort of like your driver driver analogy before? Did it deliver the result you tested for? And did it create a side effect you weren't testing for? So something that's come up as a result of it that, you know, might have just gone wrong without you actually accounting for it. Now, Pixar is probably a good example of this. They built this check into the end of every single project, not just the disasters. So whether good or bad, they've they got put this check in place. And it was really after the success of the original Toy Story movie, Ed Cutmore discovered that even a hit film had hidden problems. Could be production staff felt sidelined by the creative team or in ways leadership sort of hadn't noticed at the time. Could be a range of different things, really. But Pix's response was just to institutionalize a post-mortem at the end of every film. Win or lose, where the team lists what worked and what didn't, what didn't, specifically so that a good result doesn't sort of quietly hide a problem that resurfaces in the next project. And I think this is really important because it's really it's really easy for us to sort of document and and measure success of a particular change. But if certain things are going wrong, certain staff are being disgrunt disgruntled as a result of a new piece of technology that's been implemented or that they don't feel as useful anymore, then all of a sudden fix the problem in terms of a process problem, but you might have a team problem. So it's really important to go back and understand what's actually been done and whether it's actually felt you've been sort of got the outcome you've actually decided.

SPEAKER_01 21:36

I hate to sound like a broken record here, Mina, but I I think probably one of the most common problems is communication. And we've had it in our business too, where you make a change and then you think, oops, forgot to tell this part, these team members, or this part of the business, you know, and then they find out after the fact, oh, this looks different or this process didn't happen as expected. And it comes back to that one thing that communication is the biggest thing in a business in a team. And of course, we'll talk about that when we get to that vert fly wheel pillar. But that's why it's so important. Also, people can become a bit fatigued with change as well. So sometimes you might go, if you do that sort of feedback loop, you might go, okay, look, we're not gonna make any huge changes for at least the next two months. Give people a bit of a breather. Get used to, particularly if there's been a lot of change recently. So there's some of the things that you can really learn from doing that feedback loop.

SPEAKER_02 22:24

Yeah. So for your own business, I think the version of this is pretty simple. 30, 60, 90 days after a change, go back and check adoption. Check the number you set out to move and ask the people using it whether anything actually got worse or if anything else just really popped up. If you skip this step, you actually don't know if you improved the business. You could actually have gone the other way around. Everyone gets busy in their business. It's really common to sort of neglect this. And that's why we have this engine room improvement improvement log, sorry, so that we can actually keep record of this and ensure that it's actually being adopted the way it's intended to.

SPEAKER_01 22:59

And I don't think we need to attach ourselves to the outcome, right? So sometimes we really want to see change driven in our business. And sometimes we look for the cues of actually things changing and things happening, but every change is going to work. So don't be attached to the outcome. Like it's possible that you'll make a change and then you'll look back in two or three months' time and go, actually, it's clunky. It's more expensive. It actually really didn't solve the problem. And you want to unwind it and go back to the original process, don't look at that as a failure. That's part of that post-mortem process. Okay, so where does that leave you? Well, I think the first thing to realize is that if you're made, if the only improvements you're making are really big improvements in your business, big projects, you really don't have that Kaizen process, that continuous improvement process. Because the reality is there's going to be a large proportion, maybe 50% of changes that uh can be made on the spot. They're small. And that's what you don't want these massive ones. So that's the first thing to really think about. Does everyone know that it's their responsibility to identify these changes and communicate them? And then after that communication has occurred, maybe they're easy fixes and they can go away and do them. And that's the, I think, what we'd like to leave you with today is that sort of reflection process on your business. And if you if you if you acknowledge, okay, no, maybe not everyone's doing that. And I also think it doesn't matter what level the person is in a business. So you can have someone that's just a receptionist that's answering the door. Don't I shouldn't say just, that's still important work. And the CEO, I think they all have an opportunity to share information. It's possible that the receptionist might not have the context, of course, that the CEO has that understands the implication of changes. But don't let that potential risk diminish anyone's ability to be able to communicate. Because sometimes they come with very fresh eyes and they come with different perspectives that can be very useful. So it's really every single person's job to do that. And then you need to train them how. You need to coach them, it needs to be part of your language, it needs to become part of your culture, and also part of the way that you're giving feedback and rewarding your team members. Okay, so we're going to leave it there for today. Next week, we're going to talk about how cash flow can break the engine. So, of course, the engine's job is not only about execution in terms of operationally delivering the product, but of course, delivering that product in a way that makes the business stronger. So delivers cash, delivers profit on a reliable basis that still delivers value to the customers. So until then, bye for now.