WEBVTT NOTE This file was generated by Descript 00:00:00.870 --> 00:00:06.600 Welcome to Resilience Talk hosted by Paul Spencer of Second Nature Solutions. 00:00:07.020 --> 00:00:07.860 Let's dive in. 00:00:09.338 --> 00:00:13.388 Paul Spencer: The next topic for the ownership series is key dependencies. 00:00:13.928 --> 00:00:18.338 If you think about what we've talked about so far, financial performance and 00:00:18.338 --> 00:00:25.058 growth potential, we've talked about how as an owner, it's important to be thinking 00:00:25.058 --> 00:00:30.338 about how we're performing financially and having a rhythm and a process in a mature 00:00:30.338 --> 00:00:35.443 way of, um, evaluating our financial. 00:00:36.293 --> 00:00:40.583 Prowess, but then also understanding what is our growth potential. 00:00:41.213 --> 00:00:44.513 All within the mindset, which is the point of this whole series, is 00:00:44.513 --> 00:00:51.323 that as an owner, I own an asset, so I'm not just running the business. 00:00:51.323 --> 00:00:53.123 I don't just have a job. 00:00:53.603 --> 00:00:55.703 I'm not just doing a hobby. 00:00:56.513 --> 00:01:02.543 Anything that I'm doing as part of a business, as an owner is the aim is for 00:01:02.543 --> 00:01:07.883 me to create an asset, and that's the, that's the point of this conversation 00:01:07.883 --> 00:01:14.813 is to get you to start thinking about building value into your asset. 00:01:15.638 --> 00:01:21.908 So we've talked about eight different aspects that we can be evaluated or are 00:01:21.908 --> 00:01:29.948 called key evaluators that a third party may be using to come in and basically 00:01:29.948 --> 00:01:32.168 do an appraisal of your business. 00:01:32.648 --> 00:01:34.418 Now these eight aren't the. 00:01:34.803 --> 00:01:35.673 Only eight. 00:01:36.003 --> 00:01:38.733 Um, some of these will overlap with some of the things. 00:01:38.733 --> 00:01:42.573 If you do a Google search or if you go out and you talk to chat 00:01:42.573 --> 00:01:46.353 GPT or Claude, you'll get a, you'll get a mix of some of these things. 00:01:46.893 --> 00:01:50.673 These are the ones that I've learned through through my networks, and we're 00:01:50.673 --> 00:01:52.053 just gonna review 'em real quick. 00:01:52.383 --> 00:01:54.513 The first one is financial performance. 00:01:55.353 --> 00:01:57.093 The second one is growth potential. 00:01:57.953 --> 00:02:00.083 The third is key dependencies. 00:02:00.623 --> 00:02:02.933 The fourth is recurring revenue. 00:02:03.503 --> 00:02:09.053 The fifth is right to win, which basically means that I am a, 00:02:09.503 --> 00:02:13.433 uh, player in my market, and so people choose me over others. 00:02:13.883 --> 00:02:16.193 The sixth is corporate structure. 00:02:16.553 --> 00:02:19.673 The seventh is key management and leadership, and the 00:02:19.673 --> 00:02:21.833 eighth is owner involvement. 00:02:22.013 --> 00:02:25.433 And we'll be going through all of these through this, uh, through this series. 00:02:25.793 --> 00:02:30.833 Today we're gonna focus on key dependencies, and what that means 00:02:30.833 --> 00:02:35.033 is how dependent is your business? 00:02:35.033 --> 00:02:38.723 Is your asset on any one employee? 00:02:39.143 --> 00:02:44.813 Or supplier or customer, maybe even, um, a certain product. 00:02:45.383 --> 00:02:52.733 And what that means is how malleable, how fault tolerant is your business. 00:02:53.543 --> 00:02:58.973 Now we talk a lot about with key, um, not key but imposed inputs. 00:02:59.513 --> 00:03:03.533 So when we, when we have an awareness of the system and we know 00:03:03.533 --> 00:03:07.973 that sales has inputs, has leads. 00:03:08.318 --> 00:03:11.978 Has potential customers, has budgets, client budgets. 00:03:12.338 --> 00:03:17.678 Those are inputs that come into my system as a salesperson. 00:03:17.768 --> 00:03:20.018 And then my salesperson has a process. 00:03:20.078 --> 00:03:24.608 And what comes out of that process would be a closed deal, right? 00:03:24.608 --> 00:03:29.648 A new customer revenue, a signed contract, maybe some legal documents. 00:03:29.738 --> 00:03:32.528 Those inputs then go into service. 00:03:33.008 --> 00:03:34.268 Or into our product. 00:03:34.388 --> 00:03:36.878 And then there's a delivery cycle, right? 00:03:37.148 --> 00:03:41.378 So we know that as part of awareness and when we're thinking about 00:03:41.378 --> 00:03:47.318 the inputs, we have chosen inputs and then we have imposed inputs. 00:03:47.318 --> 00:03:52.628 And the chosen ones are, uh, let's use the sales example. 00:03:53.573 --> 00:03:57.053 A chosen input in sales would be our ideal customer. 00:03:57.683 --> 00:04:06.263 We serve, uh, this particular customer because we enjoy, um, their behaviors, 00:04:06.473 --> 00:04:07.853 their attitudes, the type of. 00:04:09.973 --> 00:04:15.163 Service that they thrive on or that they want or they enjoy fits right 00:04:15.163 --> 00:04:19.513 in exactly into the type of product or service that we provide, as 00:04:19.513 --> 00:04:25.123 opposed to this customer does not fit, and we constantly are at odds. 00:04:26.753 --> 00:04:32.993 Perhaps the quality or maybe, um, wanting to change our service or 00:04:32.993 --> 00:04:35.243 maybe our values are different. 00:04:35.243 --> 00:04:38.783 And so we're always kind of going at, we're at odds with each other. 00:04:39.173 --> 00:04:40.733 That is not an ideal customer. 00:04:41.033 --> 00:04:46.163 We get to choose who our ideal customer is, and we may start over 00:04:46.163 --> 00:04:50.963 here where we don't have the, the best relationship with our customers, 00:04:51.233 --> 00:04:53.453 and we learn that, you know what? 00:04:54.488 --> 00:04:57.998 Based on how we're interacting and the, and the services and products 00:04:57.998 --> 00:04:59.258 that we're, we're providing. 00:05:00.068 --> 00:05:05.018 It's not a match, but if we were to tweak this and this about our customer, 00:05:05.378 --> 00:05:07.238 we would get a more ideal customer. 00:05:07.628 --> 00:05:10.658 That is the flow of a chosen input. 00:05:11.288 --> 00:05:11.588 Right? 00:05:12.008 --> 00:05:15.488 An imposed input is one where I don't have a choice. 00:05:15.728 --> 00:05:19.238 So, um, one that we always bring up is the weather. 00:05:19.553 --> 00:05:25.433 So if we build houses, we're a residential contractor, uh, developer, if it 00:05:25.433 --> 00:05:28.643 starts raining, there's only a certain amount of things that we can do in 00:05:28.643 --> 00:05:31.283 the rain, and that's an imposed input. 00:05:31.283 --> 00:05:33.623 And we cannot change the weather. 00:05:33.983 --> 00:05:37.853 Now maybe we can build structure to build a house. 00:05:38.798 --> 00:05:43.598 Over our development so that it's shaded and so that there's, the 00:05:43.598 --> 00:05:47.648 weather elements don't, but that's probably counterproductive, right? 00:05:47.918 --> 00:05:49.628 So it sits in the inpost input. 00:05:50.048 --> 00:05:51.638 So why do I bring all this up? 00:05:51.998 --> 00:05:59.258 Because a key dependency can be from a buyer's perspective, an 00:05:59.258 --> 00:06:02.528 imposed input into your business. 00:06:03.338 --> 00:06:06.728 So let's say that you have. 00:06:07.148 --> 00:06:16.508 A key production manager who has been with your business for 15, um, 20 years. 00:06:16.868 --> 00:06:22.208 They know the business inside and out, and they're really good at what they do. 00:06:22.478 --> 00:06:23.798 Lots of experience. 00:06:23.978 --> 00:06:28.388 Um, they know your customers, they know how to run all the tooling in the shop. 00:06:28.958 --> 00:06:35.648 And what happens as a, as a key dependency is that if that, and when that person. 00:06:36.008 --> 00:06:42.158 Takes any significant time off, we have a significant drop in either quality 00:06:42.698 --> 00:06:45.428 or speed of delivery, or maybe both. 00:06:46.388 --> 00:06:49.328 And that's a well-known thing in our business. 00:06:49.538 --> 00:06:51.488 Um, but it doesn't really matter much. 00:06:52.433 --> 00:06:56.183 Or we haven't thought that it mattered much because John is a, 00:06:56.573 --> 00:06:58.673 is a dear friend of the family. 00:06:58.733 --> 00:07:05.633 He's, uh, really good and loved within the business and with all the employees, 00:07:05.963 --> 00:07:08.123 and the guy just never takes time off. 00:07:08.273 --> 00:07:08.993 Why would he? 00:07:08.993 --> 00:07:10.013 He loves his job. 00:07:10.013 --> 00:07:10.678 He loves what he does. 00:07:11.513 --> 00:07:16.553 And he may take a, a Friday off here and there, but most times 00:07:16.583 --> 00:07:19.733 he's here 24 7 because he loves it. 00:07:19.823 --> 00:07:23.693 And so we've never even had to address the issue that when he is 00:07:23.693 --> 00:07:28.163 out, 'cause we've had ex experience times when he's been sick or he's 00:07:28.163 --> 00:07:31.463 taken a, a longer, uh, vacation. 00:07:31.883 --> 00:07:34.683 So then we, uh, we've noticed these things, but we haven't. 00:07:35.118 --> 00:07:36.768 We haven't spent any time to address it. 00:07:37.338 --> 00:07:41.053 That is an imposed input to an own, uh, to a buyer. 00:07:42.278 --> 00:07:42.698 To you. 00:07:42.698 --> 00:07:45.128 It's not that big of a deal for me. 00:07:45.188 --> 00:07:49.478 If I'm gonna buy your business and John is the only one who could really dev, 00:07:49.538 --> 00:07:57.368 deliver quality and speed of delivery for your product, then that's a risk for me. 00:07:57.848 --> 00:08:03.368 What if I buy the business and John, who I've already described as a dear friend 00:08:03.368 --> 00:08:06.068 of the family says, I'm gonna retire. 00:08:06.923 --> 00:08:07.193 Right. 00:08:07.583 --> 00:08:12.803 That's, that's a perfect, uh, insight into an imposed input, which in this 00:08:12.803 --> 00:08:14.603 case we're calling a key dependency. 00:08:15.053 --> 00:08:18.653 So we, we may have several, or one, or two. 00:08:18.653 --> 00:08:22.853 Typically we have one, two, or three key employees within our 00:08:22.853 --> 00:08:25.883 business that match everything that I just described about John. 00:08:26.423 --> 00:08:32.483 And so we need as owners and as our asset. 00:08:32.873 --> 00:08:37.253 As we're building value into our asset, we need to be aware of that. 00:08:37.943 --> 00:08:41.273 And so, uh, we're not gonna push John out. 00:08:41.483 --> 00:08:43.223 We're not gonna force him to retire. 00:08:43.223 --> 00:08:47.273 We're not gonna, uh, do any of those, uh, what we would say 00:08:47.423 --> 00:08:50.003 manipulation or mean-spirited things. 00:08:50.273 --> 00:08:54.803 But we're gonna start strategically planning for how do we add more 00:08:54.803 --> 00:08:59.753 capacity in the pro, in the, uh, product management side. 00:09:00.683 --> 00:09:00.983 Right. 00:09:01.433 --> 00:09:05.813 And uh, and so then we starting to create a little more fault tolerance 00:09:06.353 --> 00:09:10.283 and what we're essentially doing in when we're aware of our system, 00:09:10.703 --> 00:09:12.353 right, aware of our how our. 00:09:12.998 --> 00:09:14.528 Processes are connected. 00:09:15.188 --> 00:09:20.378 We are starting to move that imposed input into a chosen input. 00:09:21.188 --> 00:09:27.278 And from a buyer's perspective, again, I am adding value to my assets. 00:09:27.278 --> 00:09:32.048 So when a buyer comes in and knows that we tell, we tell them about John. 00:09:32.328 --> 00:09:34.818 A key employee, he's really awesome. 00:09:34.818 --> 00:09:38.928 Does whatever he does, um, and we love what he does and we've got 00:09:38.928 --> 00:09:45.078 processes built around him and he has an apprentice, or he has a team 00:09:45.378 --> 00:09:47.178 that works very closely with him. 00:09:47.298 --> 00:09:52.698 And when John is out for a week or two, that team is 00:09:52.698 --> 00:09:54.348 able to do whatever John does. 00:09:54.828 --> 00:09:59.598 That is a chosen input and that reduces the key dependency on the employee. 00:10:00.108 --> 00:10:01.038 Super important. 00:10:01.718 --> 00:10:05.348 When you're able to say what I just said, because you are strategic 00:10:05.348 --> 00:10:08.828 about understanding key dependencies, especially with employees. 00:10:08.828 --> 00:10:13.358 Specifically with employees, you are adding value to your business. 00:10:13.958 --> 00:10:17.888 Um, another one that's that's well known is a customer. 00:10:18.188 --> 00:10:26.138 So, um, sometimes we get top heavy, especially if we are new, um, 00:10:26.198 --> 00:10:28.388 new meaning 10 years or younger. 00:10:29.498 --> 00:10:33.998 We tend to have some core accounts, um, that have been 00:10:33.998 --> 00:10:35.618 with us for a really long time. 00:10:35.978 --> 00:10:41.528 Um, we're able to build out those accounts and they account for 60, 70, maybe even 00:10:41.528 --> 00:10:43.868 80% of our business, of our revenue. 00:10:44.588 --> 00:10:49.598 And, uh, uh, sometimes some for some companies that are still young, 00:10:49.688 --> 00:10:55.988 again, 10, 10 years or, or younger, um, there is only one of those. 00:10:56.393 --> 00:11:01.703 So sometimes you may get three key accounts, um, but a lot of 00:11:01.703 --> 00:11:03.653 times it's one primary account. 00:11:04.073 --> 00:11:07.493 And again, that's an imposed input from a buyer's perspective. 00:11:07.673 --> 00:11:12.623 There's a lot of risk knowing that sure, you've got recurring revenue, which 00:11:12.863 --> 00:11:18.653 again, is the next, uh, evaluator that we'll talk about in the next, next topic. 00:11:19.193 --> 00:11:22.583 Um, but you might have good recurring revenue, but if it's 00:11:22.583 --> 00:11:24.263 from one, only one customer. 00:11:25.208 --> 00:11:27.248 That increases my risk as a buyer. 00:11:27.668 --> 00:11:32.948 So again, I need to be aware of that as the owner and I may be okay, and I 00:11:32.948 --> 00:11:37.388 have a great relationship with this, with this organization, this customer. 00:11:37.778 --> 00:11:41.828 Um, and all of those things feel good to me. 00:11:42.713 --> 00:11:47.603 And I'm not in any hurry to need to diversify or do anything for 00:11:47.603 --> 00:11:49.253 lots of various reasons, right? 00:11:49.733 --> 00:11:53.063 Um, but the buyer will not buy into that. 00:11:53.693 --> 00:11:58.583 Um, so again, another strategic thing is how do I add more recurring revenue? 00:11:58.583 --> 00:12:03.503 How do I diversify my revenue, and how do I reduce my key dependencies? 00:12:04.103 --> 00:12:06.023 With regard to customers and revenue. 00:12:06.833 --> 00:12:09.323 Another one, um, could be supplier. 00:12:09.653 --> 00:12:15.323 So, uh, we saw a lot of this recently over the last, uh, since 00:12:15.323 --> 00:12:20.724 COVID and especially up until about 23, maybe a little bit into 24. 00:12:22.058 --> 00:12:25.628 Um, and even, even, yeah, actually, even with the tariffs, right? 00:12:25.748 --> 00:12:30.428 Recently with, with the Trump administration applying tariffs, is 00:12:30.428 --> 00:12:37.328 that if you have a key dependency on an international supplier, and that 00:12:37.328 --> 00:12:42.998 supply chain is disrupted in any way, either through tariffs, government 00:12:42.998 --> 00:12:49.088 policy, which is imposed input, or through the health scare, right? 00:12:50.438 --> 00:12:54.008 The COVID virus, which is also an imposed input. 00:12:54.518 --> 00:12:59.738 And, uh, there could be other, um, more kind of like weather related. 00:13:00.128 --> 00:13:01.628 Um, there could be infrastructure. 00:13:02.603 --> 00:13:08.513 Maybe, um, cargo ships or railroad, um, disruptions, right? 00:13:08.513 --> 00:13:11.843 Any of those things affect supply chain. 00:13:12.023 --> 00:13:16.373 And so if I have a key, again, a key dependency of a supplier 00:13:16.373 --> 00:13:19.973 that's international in China, and I get hit with a multiple 00:13:19.973 --> 00:13:22.703 whammy of tariffs, COVID, right? 00:13:22.703 --> 00:13:28.133 I cannot get my supplies, I can't get my product in, in order to build. 00:13:28.493 --> 00:13:30.623 The product that I provide to my customers. 00:13:31.133 --> 00:13:34.733 And so there's lots of ways to evaluate suppliers. 00:13:34.733 --> 00:13:36.863 Doesn't need necessarily need to be international. 00:13:37.103 --> 00:13:40.973 It could just be, uh, materials, the type of material is hard to find, 00:13:40.973 --> 00:13:46.373 which we've been talking about also with, um, the rare earths, right. 00:13:46.433 --> 00:13:47.633 Those types of things. 00:13:47.633 --> 00:13:49.073 Or maybe even. 00:13:50.003 --> 00:13:56.453 Um, your supplier maybe is very robust or mature in a certain region 00:13:56.843 --> 00:14:00.413 of the country, uh, but you're on the other side of the country. 00:14:00.623 --> 00:14:07.193 And so getting shipments, um, may have long lead times or maybe, uh, 00:14:07.253 --> 00:14:10.883 because you're so far away, you have a lower priority on getting 00:14:10.883 --> 00:14:12.443 shipments, all kinds of things. 00:14:12.953 --> 00:14:14.783 There's a million variables that go into that. 00:14:15.143 --> 00:14:20.903 But anyway, the supplier side is another key dependency, an imposed input that 00:14:20.903 --> 00:14:23.393 the, that the buyer is going to evaluate. 00:14:24.053 --> 00:14:30.263 Now, you may say that part of our business model is to have a reduced. 00:14:31.568 --> 00:14:38.078 Um, to have an increased quality, um, reduced cost. 00:14:38.468 --> 00:14:43.508 And so that's my strategic model to have some of these 00:14:43.508 --> 00:14:45.428 key dependencies on suppliers. 00:14:45.758 --> 00:14:50.018 Um, and that's okay, and the buyer can buy that concept. 00:14:50.378 --> 00:14:53.318 Um, but you just need to be aware that any kind of. 00:14:53.963 --> 00:14:57.713 Um, failure mode that you've built into your business will 00:14:57.713 --> 00:14:59.993 reduce the value of your asset. 00:15:00.623 --> 00:15:05.783 So, um, any other things around that that I would encourage you to 00:15:05.783 --> 00:15:12.083 be thinking, um, around either key employees, maybe even your corporate 00:15:12.083 --> 00:15:17.723 structure, customers, suppliers, even raw materials that you may be needing. 00:15:18.293 --> 00:15:24.323 Um, if you're in the services business, you're probably heavily rely on software 00:15:24.323 --> 00:15:26.513 and vendor services, vendor software. 00:15:26.873 --> 00:15:29.963 So those are all things that fi fit into your risk analysis 00:15:29.963 --> 00:15:31.433 within your key dependencies. 00:15:31.793 --> 00:15:33.263 So all good stuff. 00:15:33.503 --> 00:15:38.393 I would assume at this point that you are well on your way on 00:15:38.393 --> 00:15:40.253 doing your financial performance. 00:15:40.763 --> 00:15:44.033 You've started a, a key, uh, group team. 00:15:44.708 --> 00:15:48.218 On understanding your growth potential, and now you can start 00:15:48.218 --> 00:15:50.738 working on your key dependencies. 00:15:51.458 --> 00:15:51.998 Have fun.