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This file was generated by Descript 

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Welcome to Resilience Talk hosted by
Paul Spencer of Second Nature Solutions.

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Let's dive in.

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Sometimes there are things that we're
told or maybe even mentioned, um, from

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friends advisors about, um, maybe advice
around how to do something a little

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differently that runs counter to what
we would normally, um, think about

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taking the approach or runs counter to
our values about how we were taught.

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To run the business or how
things are meant to go.

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Um, so that's what I
wanna talk about today.

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Last time we were talking about Deming
and the, uh, seven deadly sins, and

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there's an interesting, um, comment
that he makes in his 14 points.

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And again, that's in the, out of, out
of crisis book, uh, that he wrote in 83.

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And so one of his points in his 14 points.

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Is to to end the practice of awarding
business on the basis of a price tag.

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Um, and what he means by that is we
do spend a lot of time in business

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and as owners to get the best deal.

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Um, and we even have created
whole departments, uh, that

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come out of the accounting side.

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Called procurement and their
entire aim is to get the best deal.

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And if you've ever, um, normally,
um, uh, the family businesses

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do not have procurement offices.

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So you are normally on the other
end of a procurement interaction.

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Um, doesn't, doesn't say that you're
not looking for your best deal, um,

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but when procurement gives you a call.

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From a current customer of yours
and says, Hey, we need to, um,

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cut your overall cost by 10%.

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They're looking to get their best deal.

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And so what is their
input in their system?

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Well, they have an aim to reduce
costs, and they're probably

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most likely incentivized.

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And so if they can save.

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A thousand dollars.

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If they can save a million dollars,
whatever that range is, then they may

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get a a, a commission on that, right?

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And so that is very normal, unfortunately.

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And this is what Deming is talking about.

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So in the practice of awarding
business on the basis of price

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tag, and why does he say that?

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So let's think about that.

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Why?

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Why does that even matter?

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Well, Paul, why would I not want to
cut my expenses, increase my margin

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right by getting a low, um, instead
of spending, uh, $2,000, I can spend

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$1,200 and book the $800, right?

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Why wouldn't I do that?

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Well, maybe that's, uh, um,
maybe in the short term, right?

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Just like what we talked about last
time with the dead deadly sins.

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Is emphasis on short term profits.

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Same thing here.

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Uh, sure.

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That may, they may help, uh, for you in,
um, this month, maybe even this quarter,

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maybe even this year, uh, that does have
an effect on your overall profit margin.

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Um, but one thing that we, we
did talk about in the deadly

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sins is management by use.

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Only of visible figures.

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I'm not sure if I mentioned that before.

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Um, but the whole concept there is that,
um, there's a lot of emphasis on that.

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Uh, our customer's $2,000 price
tag and can we get it to $1,200?

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Can we save $800?

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Which is a big percentage, but we don't
spend a lot of time on what Deming calls.

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The figures that are unknown or maybe
even unknowable, and you say, well, Paul,

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how can I run a business on things that I
don't know or that are not even knowable?

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And that's his point.

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His point is, uh, what are the
unintended consequences of reducing,

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uh, that cost the $800 from a.

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Primary supplier of yours,
what are they going to do?

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Right?

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So now you've said, geez, we've won.

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And Paul, the procurement officer,
gets a nice, uh, incentivized check

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for saving, say, $800,000 this
year, uh, from a key supplier.

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And the key, what's the key
supplier's, uh, perspective of this?

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Well, geez.

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We just lost a huge percentage of our
income and our revenue, which is going

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to affect, uh, our labor and our costs.

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So what are they going to do?

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They're going to cut costs, right?

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And so what happens in the long term?

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Uh, their quality goes down, and then
what happens in the long term for you?

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Your quality suffers because now
the supplier, um, is giving you

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products or services that aren't
as good as they used to be.

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And you may say, well, we didn't
need that high quality of product,

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we just need a bare minimum product.

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Um, and that may be the case,
but if you're doing that across

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all of your customers and
across all of your suppliers.

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Which again is to, uh, award
business based on price tag.

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Uh, the unknowable or the unknown
figure in this case is quality

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of your own services and your
own products will go down.

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And, uh, we saw a little blip
of this with, uh, Boeing a few

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years ago when they were having
all these quality issues, right?

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You go back in and you dig into
a lot of the stories from there.

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And they had made some
changes based on price.

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They had made changes based
on labor, based on price.

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So, um, it's very interesting.

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It's very counter right?

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It's a counter thought.

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Um, and so Deming would say, um, why
don't we move towards a single supplier?

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Now, this is a very thought
provocative term, right?

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He says, instead of award
business based on, um.

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Basis of price tag alone.

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He says, move towards a single
supplier for any one item and build a

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long-term loyalty and trust with them.

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Build a long-term relationship.

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And, uh, and so what does that counter?

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The counter of that is risk
management and redundancy.

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And having flexibility with multiple,
um, suppliers, having redundancy.

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What if that supplier goes outta business?

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What if that supplier,
um, is unable to provide?

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Then I'm, I'm SOL, right?

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And those are worth those thoughts and
those conversations are worth having.

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But Demming is counter that and saying
that if you de build a deep relationship

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with a single supplier on a single item.

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Um, then your quality will go up.

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Um, you may pay more for that, that item,
but the interaction that you're having

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with that customer, the relationship
that you're having with that com

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customer becomes, and you think about
it as part of our system, is now we

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get closer and closer and closer, and
now our supplier is actually giving

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us what it, what we really need, what
fits within our own business, our own

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infrastructure, um, our own services.

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It's increasing the unknown
and unknowable, right?

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Those unknown unknowable
figures, which is quality.

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And with those quality things go up,
uh, things tend to snowball, right?

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Here's another example is that, uh,
we often talk about, uh, within the

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Deming world about sub-optimization.

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And, uh, the, the counter thought to that,
the typical thought is we need efficiency.

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And this is all in the same,
it's all in the same realm.

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Um, because when we talk about price
tag, um, then typically that's, um, a

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mandate that's coming down that says
that we need to be more efficient.

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What does that mean?

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That means let's not spend as much time.

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Let's reduce our labor costs, right?

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Let's reduce our expenses.

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Let's do it in the most thinnest
way possible through the p and l

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so that we can increase our margin.

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And, um, and so that's the way we,
we tend to think of our business

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and that's the way we're taught.

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Um, so the counter thought
from Deming is to suboptimize.

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And what does that mean?

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That means that, um, instead of.

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Thinking about each part of your business.

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Um, and we, uh, from a corporate
standpoint, you think about them as, as,

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um, departments, but, um, we have those
departments, even though they may just

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be one person in our family businesses.

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So you have the accounting side, right?

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They're doing their taxes, the end
of year taxes, um, payroll, all of

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those things kind of fit together.

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You have the delivery side.

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Uh, you might have a, um,
technology side or an IT side.

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Uh, you have the sales, you
have the marketing, right?

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All of that is your system.

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And, um.

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If we were to crank up, meaning let's
be super efficient with every single

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one of those, uh, departments, which
again is how we're taught and what

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we're what we're told to do is that,
uh, we want the technology innovation

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IT side to do be the most efficient.

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And we want delivery to be most efficient
and we want sales to be most efficient.

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And what happens is that
they tend to make decisions.

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On their own, in their
own unit to be sufficient.

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Right?

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And we can go right back to, to
procurement with this, right?

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So in procurement, they're
looking to be efficient.

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And what's their efficiency
is to save the company money.

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That's their aims.

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Save money for the company.

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And so what do they do?

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They go, and here's a nice story
that, uh, they go and they, um,

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they cut back on travel expenses.

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They, um, they get the, uh,
the, the red eye flights.

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Um, this is for their internal team.

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So sales is, is traveling
across the country.

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Um, they've got a big, uh, $20
million deal that they're working on.

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And what does the, uh,
travel agency work on?

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Their efficiency is to save money,
and so, um, they, they link the

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sales team through multiple stops.

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Um, at weird hours, they arrive
late, um, uh, in the evening.

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Uh, they're not in a very great
hotel 'cause they're saving money.

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They don't get a good night's sleep.

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They don't get a nice breakfast.

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Um, they're not really close to the
customer or wherever the meeting might be.

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And so it's a, it's a nice 35, 45
minute drive, uh, without traffic.

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But.

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There's lots of traffic where they are.

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So it takes them an
hour and a half, right?

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And then they get into the meeting.

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You can just see how that's not
efficient for this customer, their

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internal customer, which is the
salespeople, but they're winning.

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They're optimized, they're efficient.

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And so in this case, we would say,
let's sub to optimize the travel

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team, the travel agency, right?

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Whoever the travel, whoever the
person is, is responsible for travel.

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Suboptimize that spend the extra
$350 and put 'em in a nice hotel

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close to where the customer is so
that they can walk across the street.

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Right.

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Spend another $1,800 to get
them to direct flight, uh, at

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one o'clock in the afternoon.

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So when they get there, um.

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It's before dinner.

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They can have a nice meal, settle in,
prep, get be well rested for their

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meeting in the morning and just walk
across the street that is sub-optimizing.

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That is super important.

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We do this all the time in our businesses,
and that's a great physical example,

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but we're doing this everywhere.

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Within all of, um, all the
aspects of our business.

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We're optimizing, optimizing,
being efficient, being efficient.

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Going back to what Deming talks about
with the seven, seven deadly sins.

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These are the unknown and
unknowable figures, which

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is what I just talked about.

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The, uh, the rest or lack of rest
for your sales team to go close A

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hoe up high profile client, right?

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That is not tracked anywhere
on a spreadsheet, and it's

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not anywhere in our EOS.

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Uh.

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Um, meetings on our rocks to
be able to improve that number.

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It's not recorded anywhere.

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It's unknown or unknowable.

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Right.

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Unknowable meaning that it's so far
through so many variables, so much

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complexity that you can't measure it.

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And why would you, it would take
you forever just to measure it.

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So anyway, this is important to understand
that sub-optimizing is actually better

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for your business than going through.

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We talked about this too, but
Right, right around accountability.

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Um, efficiency is another word that we
throw around pretty, pretty, uh, easily.

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Like, let's be more efficient,
let's be more efficient, let's be

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counter thinkers, and let's say,
let's sub, let's sub-optimize that.

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Hmm Interesting.

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What if we suboptimize that that
is counter thinking and that'll

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get people thinking about all the
things that we just talked about?

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What are the things that we're doing
where we're so focused on being

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efficient and so focused on the price
tag that it's creating unknown and

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unknowable figures around our business?

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This is counter thinking.

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And another one other one.

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Um, just one last one is, um, to
embrace the competition, right?

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Uh, Deming talks about this all the time.

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That the, that your competition is within
the system of your, your business, right?

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So we think about the system, you
have your business, and then you

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have your customers, your suppliers.

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Okay.

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Um, you have your vendors, then you have
the government, meaning you have might

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have state, city, and local regulations.

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Uh, even if you're not in a regulated
industry, you have your taxes,

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right, all fit within that system.

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Um, and then you have your competitors
and they're all within the same system.

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So being aware of all of that
and embracing the competition

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and understanding where they are.

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Maybe even working with them
all creates a better ecosystem.

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Um, again, very counter
thinking, counterintuitive.

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Um, and it's worth spending some
time thinking about these things.

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And I would encourage you to, um, I think
out of all of these, probably the, um.

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Well, they're all, they're all doable.

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Um, I would say the easiest
one to experiment with is

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the sub-optimization aspect.

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And so anytime somebody says something
about efficiency or you and your

00:16:10.508 --> 00:16:14.828
brain is thinking efficiency or
it comes outta your mouth, is to

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stop yourself and say out loud.

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Um, instead of us being efficient,
I know I just mentioned efficiency.

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Let's think about how we can best
sub-optimize our organization.

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And then let's see what, what
kind of outcomes we get from that.

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You'll enjoy it.

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It's fun, and I guarantee you you'll
get better outcomes than optimizing

00:16:36.668 --> 00:16:40.418
everything in your business and
being quote unquote more efficient.