Entrepreneurs, Consider Your Quest!

Dave and Derek discuss how the principles of Essential Dynamics apply to early-stage startups. It's all about the quest: purpose, path, and people.

Dave and Derek are at Unconstrained.

Full show notes are on the Essential Dynamics Wiki.

What is Essential Dynamics with Derek Hudson?

Join Derek Hudson as he explores Essential Dynamics, a framework for approaching the challenges facing people and organizations. Consider your Quest!

Derek Hudson: 00:20

Welcome to Essential Dynamics. I'm Derek Hudson. I'm the developer of Essential Dynamics and, creator of the podcast. And I'm grateful to have my colleague Dave Kane from Unconstrained back on Essential Dye Dynamics podcast for yet another episode. Dave, thanks so much for joining today.

Dave Kane: 00:39

Hey. It's just my pleasure. How are you doing today, Derek? A little, frog in your throat.

Derek Hudson: 00:43

Yeah. Yeah. I just gotta get that out and, and then turn my brain on, and let's have some, some deep conversations.

Dave Kane: 00:50

Alright. So what I'm bringing today, and I'm gonna hijack the the question here and and take it in a different direction. With Essential Dynamics in the podcast and a lot of the clients you I know you work with, Derek, it's usually an established company that has a fairly entrenched system. And we've been working with them, trying to help them understand it, improve it, and and sort of, take the organization where they feel they can go. Get it unstuck.

Dave Kane: 01:19

Do all these cool things. I would say more often than not, when people start up these conversations with me, it's when they're in a very early stage of their company. They're startups, they're, they're innovators, they're trying to commercialize their their first piece. So they don't really have a system yet. And they're trying to figure out, you know, do I need to focus on the system?

Dave Kane: 01:42

What do I how do I apply these types of pieces? So I kinda wanna just take our conversations we've had and change the focus or change the lens on it to sort of say, how do you apply this or advise this towards somebody who's very early on in the process? So, if you got any initial thoughts on that, let's hear it and then I'll got a few questions for you.

Derek Hudson: 02:02

Well, that's, that's a great question, and it's come up recently in a, in a couple of different directions. And I haven't given it much thought. So we're going to do this live in, in front of our podcast audience. But I do have a lot of experience in advising startups, mostly as volunteer. So, so I work with the impact, sorry, the Threshold Impact Venture Mentoring Service, with the University of Alberta, as a plug for that.

Derek Hudson: 02:38

And then I also work with Innovation Masterminds Edmonton or IIM YEG as as a volunteer. And in both of those cases, I typically am working with a panel of mentors and, entrepreneurs that are in pretty early stages. I also have clients and, pro bono, relationships with people who are starting out businesses who like to talk to me as well. And I think that the principles are all applicable and there are things that you can do as you build your business that will let you move into a system instead of the sort of reclamation work that we sometimes do where there's a system, no one can describe it. It's not, it's not flowing.

Derek Hudson: 03:28

And, we have to, yeah, do some, do some hard work to change some things. I love that work. But wow, if you can, if you can have in mind some of these key principles as you're building a business, you know, all the better. So let's maybe just just discover.

Dave Kane: 03:45

So I think that the first starting point for me is as an entrepreneur or in the startup phase, you don't need to be focused on what is what is my system. You do like, that's that's not what you have the time for because you are you are moving along quite quickly trying to get revenue to stay alive. So, you know, going in with your project, oh, I gotta build a system so I can have my small business succeed probably isn't the right place to start. But I think it's the essential dynamics principles to me. That's where you start.

Derek Hudson: 04:19

Well, I've seen, some maybe over optimistic or over ambitious entrepreneurs, start to build systems too soon. And so they invest in technology or maybe hire too many people or something like that. The business doesn't come as fast or it goes a different direction, and now you've got, that you don't have the right system. So there's a

Dave Kane: 04:44

True. And and I've heard a lot of people who've experienced it, they've gone through it sort of say, when you are designing it, you have to design it in your head for when you're at scale.

Derek Hudson: 04:52

That's right.

Dave Kane: 04:52

So that you're not reengineering this. But but I don't think I mean, to to me, that's that's the other form of system of, you know, what is my what is what is the software I'm bringing in to make things work? When we're talking more about the systems of how the pieces interrelate Yeah. I think that's still, you know, still fundamental to this.

Derek Hudson: 05:13

So let's use this conversation as well then to revisit Essential Dynamics, you know, just the basic pieces of it. So the first thing about Essential Dynamics is it's based on this idea of being on an epic quest. And of course, the epic quests are hard and you have all kinds of unexpected challenges and you might get hurt. So that's one side of it. And then the other side is, but you're doing it for this high noble purpose.

Derek Hudson: 05:45

And, that's the sort of the best way to look at entrepreneurship is, is people, step into it because there's something that they really wanna accomplish, and they know it's gonna be hard, and they're, they're excited about the challenge.

Dave Kane: 06:00

You know, as you're saying that well, I should because I know we've talked about this a lot in the last while it was the flow of it. I mean, you you're on this epic quest that's hard, but you're energized and you have this great motivation, and those are the ingredients to have flow. And you can look at entrepreneurs. And when they get into it and they get working so hard, they they flow. They they find their groove for sure.

Derek Hudson: 06:21

There's a yeah. There's a lot of opportunities for that, you know, full immersion in a real challenging topic, challenging problem where you're all in and the the outcome is really important. And I can just kind of invest everything in it. So so there's a lot there's a lot to that and then that, I guess, legitimizes the connection between being an entrepreneur and looking at the other parts of Essential Dynamics. Because, it's one thing to try and get a middle manager to see, the quest that their organization is on, and that they're on.

Derek Hudson: 06:56

You know, that that's a process that we've done, but you don't have to instill that into the entrepreneur. It's now where it's like, what do we How do we use that? And how do we help, you know, that energy and willingness to do hard things? So we start in essential dynamics and with purpose. And it's not just purpose, it's purpose X and purpose Y.

Derek Hudson: 07:18

And I think there's a couple of things there that really, come to play. One of them is, this is a fundamental decision you have to make as an entrepreneur. And that is, are you an entrepreneur because you're trying to make money? Are you an entrepreneur because you have this thing to offer the world? And they're both kinds.

Derek Hudson: 07:47

And you have to figure out which, which kind you are. When I at the beginning of COVID, I talked to a lot of business owners, and a lot of people were really unsure about where their business was going to go. And I, and I kind of saw that some of them were business people that had a particular business. And if that didn't work out, they would be okay. Because they would go find a different business.

Derek Hudson: 08:09

And then there are other people who were craftsmen, professionals, and I'm not saying that was their occupation, but their mindset was, I have this thing I do that the world needs. And I will figure out a way to offer it to the world as a business owner, an employee, a partner, volunteer, whatever. This is the thing that has to come out of me. And, and those I think are different. And, entrepreneurs need to kind of figure out what really drives them.

Derek Hudson: 08:38

But then I think in each case, you have to find that tension. And so your purpose, Y compared to your purpose X might be the opposite. So for example, if you want to start a business because you're very passionate about, the product that you offer, and you're, you know, you love the qualities of the product, you're very creative and you pour your heart and soul into that, that might be a good purpose X. Purpose Y might be, and you have to make money at it

Dave Kane: 09:08

if you want to continue it, or if

Derek Hudson: 09:10

you want to expand it. Or if you're, more of a wheeler dealer and you're like, well, this is an arbitrage opportunity. I can buy low here and sell high over there. Yeah, sure you might make money doing that, but why this one? And, and, why how can you connect with customers and employees if it's just about flipping something?

Derek Hudson: 09:36

So so what what is it that that's that there's a sense of purpose that, that you can take beyond the deal?

Dave Kane: 09:44

Yeah. I I think that the piece I'm taking away from that as well, though, is a lot of people when they look at being the author, as you sort of say they sort of say, am I this or am I that? And it's after you've self labeled yourself, you have to stop and recognize there is a purpose x and purpose y. You cannot only be 1 and be successful, I don't think. Because if you are that artisan who, you know, just loves to get this piece out into the public for them to enjoy without the the other purpose thereof.

Dave Kane: 10:15

Oh, and I have to be able to get money at this, but I wanna keep doing it. And it's finding the balance and the tension in there. But to me, the purpose x, purpose y, and having that clarity at the front is is such a touchstone for the entire entrepreneurial journey. It helps so many decisions down the line. Oh, absolutely.

Dave Kane: 10:34

Start having the clarity of with yourself of of what those 2 are.

Derek Hudson: 10:39

Yeah. And the confidence in them so that you can explain them to people that, you know, you're trying to help her, that you're trying to get to help you, including investors, employees, customers. Look, this is why we're here. And you don't have to apologize because you're so settled on it. Now, the other thing I would say about purpose is, as an entrepreneur starting a business, there's what you want to do, and then there's what someone out there needs as a customer.

Derek Hudson: 11:14

And so as soon as you get clear on, kind of, where you want to go, now you have to go on the other side of the table and say, and get really empathetic with your customer, your potential customer. What's their purpose? What's their purpose, X purpose, why? What would my, product offering mean to them? And there's a lot of, you know, helps for entrepreneurs where they, you know, they talk about that.

Derek Hudson: 11:43

But let's, let's patch that into our model and think, well, you've got a purpose X, a purpose Y, Your customer has a purpose x, purpose y. When they all line up, now we're now we're creating value. Mhmm.

Dave Kane: 11:57

That's what you're saying. That's that's where you're bringing in the value, and you're starting to move towards the path piece of it, purpose path in people.

Derek Hudson: 12:05

David Stein Yeah. Yeah. So if you want to create value, you need a system for creating value. We call it value creation system, and that's the path. That's the journey that you take.

Dave Kane: 12:17

David Steinke Right. But you don't need to stop and sit down and and draw out your your system and all the pieces and do the analysis on it. I think, to me, that comes in time as it evolves, but it's understanding that value and how you create value and how you give value your customer. You are creating your system then. You're creating a value creation system without stopping and defining it

Derek Hudson: 12:39

that way. Absolutely. And I've seen a lot of pictures where that's just plain not clear. And either it's not clear because we're we've got this product, but you can't say how, that sort of new angle on that particular product category, it makes your customers any better off than they already are with what they're using. Or you can't say, this is how I'm gonna create that product, and this is how I'm gonna create it in a way that others haven't.

Derek Hudson: 13:13

And so I'm gonna have some kind of competitive advantage. Like if everyone's in the industry is taking the same inputs and making the same outputs and using a similar process, then you're in a, I don't know, a battle for cost or, you know, customer service or something like that, and you're in a commodity market, and it's it's really hard. So you wanna look for that unique thing, and and it's going to be a combination of the offering and the value that the customer gets in the way you and the way you deliver it. And a lot of times, I don't see anything, any thought given to that. And so, yeah, we have this great idea, and we're just gonna offshore the all the production and stuff like that, and have commission sales and

Dave Kane: 13:57

Yeah. Yeah. I think a lot of times it sort of starts with, oh, I see a market demand. Are we gonna go fill it? There's an opportunity there.

Dave Kane: 14:03

And it's like, okay, but pause and also figure out how am I generating value in that process? Because you're gonna wanna be able to understand that as you go find and sell to your customer, but you really wanna be able to articulate how you're generating value to your investor, whoever's gonna seed you later on.

Derek Hudson: 14:23

Yeah. And and, so for example, these days, everything is software as a service, and you know, what we're looking for is recurring revenue and customer attention. And you know, and those are important things and why, you know, wouldn't everyone love to have a product where if you make a sale once, then people send you money every month forever. So that's a model, but then you have to say, and what do we have that's, special and unique to introduce to that? Because, you know, as, as much innovation as we see, coding is coding.

Derek Hudson: 15:09

And if you say, well, I'm matching this to that, and well, you know, that's not that unique. So what's, what's gonna protect you? If you prove to the world that that's a lucrative business to be in, you'll get squeezed out if you don't have a if you don't understand how you, you know, sort of uniquely create value. And I'm not saying that you have to have that all figured out before you do anything and that this idea of putting a minimum viable product out there and learning from it, I think that's very powerful. But you're not just this it's not just the features in the product.

Derek Hudson: 15:45

You also have to look at how do we, how do we create this? How do we deliver the value to the customer? And as you say, that system then forms as you think about that.

Dave Kane: 15:56

Yeah. Because if if you stop to sort of say, how am I generating value, and what is the value to the customer? Then how am I generating it? You start to focus in on, okay, what are the key pieces of that value creation? What are the key inputs into it?

Dave Kane: 16:11

What's the key the magic sauce inside the black box? And it just it allows you to focus on what's important. And unknowingly, you're you're building your system. You're defining it. You're focusing on the the driver and the constraint almost.

Derek Hudson: 16:26

Yeah. And then and then when you say what's important, then you say what's hard.

Dave Kane: 16:30

Yeah.

Derek Hudson: 16:31

Like like, what's hard about, you know, turning this these inputs into that outputs, and, you know, what has the industry not been able to solve? Why don't people already have this, and why don't they have an infinite amount of it? And, and then what can we do at that key point to do it that much better? But I mean, we're jumping ahead a little bit, but we talk about startups, but every startup wants to become a scale up, which I think is just, labels that just get thrown around. And not necessarily understood that well, but, if your goal is to have that impact either in, you know, helping the world or financial returns, then being bigger is usually an indication that you're doing better at that.

Derek Hudson: 17:19

But how do you scale? And if the if the key operation in your value add process is something that's not easy to scale, you're gonna have a difficult time scaling your business. Yeah. I agree.

Dave Kane: 17:32

K. So here's a question for you. So many of the the startups that I've been working with, the drivers for revenue is I would minimum by product, we gotta do what we can to get out there and get our first revenue to survive in a lot of cases. How important is it with that focus with the building the process along the way? Because we've talked about it's the process, not the outcome, but outcome of survival.

Derek Hudson: 18:01

That How do you

Dave Kane: 18:02

find that balance?

Derek Hudson: 18:03

That's an excellent question. So, so first of all, I would say good for you because there is a subset of the startups who don't think revenue is the key. And they're more interested in cash. And they get excited about non non dilutive funding, which is grants. And dilutive funding, which is additional investors, and maybe somewhere along the line, some borrowing of some kind.

Derek Hudson: 18:37

The problem with those is that you're convincing someone to give you money. And if they give you money, there's no indication that your customers are gonna think you're doing a good job. So for an investor, you say, if you give me money, someday you can convince someone else that I'm worth more than you paid me. You know, sometimes that works out really well for lots of people. Sometimes the second or third buyers in get the get at the peak and never see the value.

Derek Hudson: 19:12

So that's, you know, there's maybe a speculative part of that, but what I'm really interested in is, if you get money from a customer, that's honest money. And I'm not saying that the others is dishonest, but there's information that comes with that money. You can value that information more because they're buying your product for the value your product provides.

Dave Kane: 19:33

That's really good information.

Derek Hudson: 19:35

Feedback. Yeah.

Dave Kane: 19:35

I mean, there's a lot of the innovation in the tech side that when they do get these non dilutive funding, that they have a luxury of focusing on the process first. Mhmm. And then they kick it into gear and go chase the revenue. And and I guess maybe there's a bit of a a chicken and an egg here Yeah. Of of which one you go for first.

Dave Kane: 19:56

No. But Eggs my question was kinda like, how do you find the balance? So because I I mean Yeah. In both instances, you're you're hyper focused on on one or the other when when you do need to be finding a balance.

Derek Hudson: 20:06

Yeah, absolutely. So, you know, I talked about that experience at Microline, you know, where the stuff that we made, we didn't have the process nailed down. So I don't think we got the balance right. I mean, I think we got better at it over time. You know, if you can make something once, and then you have to make it again, it's it's hard to replicate the craftsmanship at scale, and so now you don't have a scalable process.

Derek Hudson: 20:34

And so, you know, there's things like designing for manufacture. So that's a specific part of design that if you were in physical products. I'm gonna design this product for 2 things. 1, for utility for the customer. And the other is I'm going to design it so that it can be manufactured.

Derek Hudson: 20:57

You know, Toyota did something probably 40 years ago where they reduced the number of components. There's, you know, 5 sizes of bolts on a Toyota, you know, a 1990 Toyota compared to 27 on a General Motors vehicle or something like that. Like, it's no more expensive to design for manufacture if you do it while you're designing. And then, and then you can't, then you build the process. And so there's that, there's that mindset for sure.

Derek Hudson: 21:27

I would say the other thing is, with this minimum viable product idea, you want to standardize and modularize and do short loop experiments and only change the thing that you need to change. And that helps you control the process as well. And again, that's part of the part of the mindset. And then there's times when you have a demanding customer, and they want custom work. And you have to ask yourself, you know, if we get this revenue stream, and then we backfill the process, And we'll have, we'll be so focused on it because we'll know what the customer wants.

Derek Hudson: 22:08

And I think that's a, that is a good recipe for growth, but you have to be very deliberate and know the risks of doing that.

Dave Kane: 22:17

No. I like that. Yeah. They were those were the thoughts on my mind of of the experimentation and and also that pursuit of first revenue at all costs without sort of being, okay. How do I get the 10th one?

Dave Kane: 22:32

Yeah. Because, if I haven't built the process or haven't built a product behind it that I can find other applications for. You're not too distracted by the first one.

Derek Hudson: 22:43

Yeah. That's right. So we're moving in on time here, Dave, and I think if we want to treat this properly, we should talk about the people side too. We gotta hit the people, because

Dave Kane: 22:55

that's the one I was thinking doesn't get enough attention. The startups that I've sort of worked with and seen, everybody's driving so hard. People are just they're all in. Everybody that working for them is all in, And, you know, eventually, they don't burn out, but they they certainly create a lot of stress in there. And I don't think it gets enough consideration of those two elements of people.

Dave Kane: 23:21

What is what is the individual need from the group, and what does the group need from the individual? And even just a bit of thought to that through what you're asking them to do for you, I think is valuable in the end.

Derek Hudson: 23:35

John Absolutely. So, if we think about the typical sort of type A personality, single entrepreneur, who hires a team, but there's a big distinction between the commitment to drive and buy in of the owner and everybody else. And sometimes you bridge that with things like stock options and equity plans and stuff like that. That's never enough. I'm not saying you need more stock options.

Derek Hudson: 24:07

I need like you need some other connections to the business. And so this idea of shared purpose really helps. So if you have your purpose X, and your purpose Y, and one of them, and it doesn't we don't say which is which, one of them is to make the entrepreneur a lot of money. That doesn't translate well to the team. They don't care.

Derek Hudson: 24:35

But, but the purpose, and that, and you know, and that financial purpose could be expanded, because I've had clients who say our, our, you know, sort of goal on that side is financial capacity for our family and our work family. The people can buy into that. And then the other one that's sort of save the world purpose. Well, yeah, that's, that's pretty cool. And other and there's other purposes we've talked about, you know, sort of being on the team or being part of a challenge or doing excellent work and learning and stuff like that.

Derek Hudson: 25:04

They can all be part of it, but that has to be designed in as deliberately as the production system.

Dave Kane: 25:13

Yeah. And the thing is, it's all, when we go back to purpose path and people, they're not siloed. They're a system. And and so bringing your purpose and your process into how you're viewing the people and how they're engaged in the organization is absolutely critical. Because, yeah, I've seen I've seen organizations where it's it's almost become a bit of a a co op where it's the the paramount thing is making sure everybody within the organization is is financially fine, and they get lost on on the other part of the purpose.

Dave Kane: 25:46

Or they ask too much of the individual contributing that as opposed to what are you giving back to the individual as you go. So it's just it doesn't get the attention, I don't think, that it needs through the pro through the the evolution of this.

Derek Hudson: 26:03

Yeah. So if you're on a quest, and you have this lofty vision of really changing the world with your product, and creating this wake of value that spreads everywhere, Because you think about it, a really high performing business takes care of its owners, and its employees, and its suppliers, and the customers are getting more value. So that's all covered if you do that. If that's what you want to do as an entrepreneur, from day 1, you have to be thinking, what how what's our system for adding the value? And, and how do our people fit into this?

Derek Hudson: 26:40

Because the people are gonna make it happen, and it's gonna get bigger than the entrepreneur pretty fast.

Dave Kane: 26:49

And then there's also how many times have you come across, the small businesses where the owner or the the central figure is key to the value, And they can't sell it because they have to go with it.

Derek Hudson: 27:02

Well, they're key to the value and they're then they're 100% the limiting factor of the potential of the organization.

Dave Kane: 27:08

And if you didn't build the people up properly from the beginning, you're building a system that limits value because you're the center of it.

Derek Hudson: 27:16

Yeah. So, I don't one of the things we say on the podcast is that we test the ideas of essential dynamics through conversations. And so in this conversation, we've tested essential dynamics at the very beginning of the of the creation of an of a company, and I I think it's holding up.

Dave Kane: 27:36

So It it does. And and I think, you know, anytime I've gotten into a conversation with people, it's it's the very fundamental ones of your purpose. Be clear in your purpose. That's purpose wide at the beginning. Be clear on how you're generating value, and be clear on the relationship with your with your people.

Dave Kane: 27:54

And if you take care of those, you are you you are going to become and grow into these organizations that we're talking about that have these, you know, well understood and well functioning systems.

Derek Hudson: 28:09

And then you'll and then you'll get flow. Dave, that was a fantastic summary, so I think we have to cut it off there. We're at time as well. Thanks so much for the conversation, and, to all our friends who are starting businesses, who are in a startup that's 5, 10, 15, 20 years old, because there's lots of those, where you're thinking about it, yeah, use these principles. And if you want to, talk discuss more offline, please reach out.

Derek Hudson: 28:34

We're at GetUnconstrained dotcom. Thanks, Bryn Griffiths, for all the value you create in a unique way, Brendon. Thanks so much for that. And until next time, everyone. Consider your quest.