Join Derek Hudson as he explores Essential Dynamics, a framework for approaching the challenges facing people and organizations. Consider your Quest!
Welcome to Essential Dynamics. I'm Derek Hudson. Back today with Glen Vanstone. Glenn, welcome back to the podcast.
Glen:Pleased to be here, Derek.
Derek:Okay. So essential dynamics is a framework that we use to sort through tricky business problems and other things that that challenge us in our life. And the essential dynamics podcast is an opportunity to attest to test the principles of essential dynamics through deep conversations with interesting people. Glenn and I are picking it up, after episode 77, which was, which was a fun one. Actually, I just before I before we jump on to this one, I have to, highlight that Glenn and I spoke on episode 37 Yeah.
Derek:Back a cup back a couple of years ago, and we're still going strong here. So so, Glenn, on our on our last episode, we were talking about Canadian economy. We're talking about your mainstream businesses and how even though the public sector wants to help them, systems not set up to provide the kind of help that mainstream businesses need to grow in, in the complex world that we're in now. Do you have any more to say about that, or should we jump to, like, solutions?
Glen:Well, I think that, just kind of a a recapping onto that. The the the value, that the public sector brings in terms of that early stage business formation is where there is commonality in learnings and understandings, right? So, here's how you create a business plan, here's how this goes from customer and marketing, tried and truism, etcetera. So like general early stage common understanding, but as soon as businesses differentiate themselves, get established and are are delivering on their, on how they create value, they are differentiated, they are competitively moving away from others as part of that dynamic. That's part essential for their success.
Glen:And so you have that what works for many, the one size fits all solution. Here's how you start up a company, doesn't work anymore when the business owner is going, you know, but my needs are uniquely mine. Right? Because I'm not the same as every other business. And so there's a disconnect, a natural split between the needs of the private sector and what the public sector reach can do and that that's an important thing to think about.
Glen:Our system does not have a continuity in it that says, you're starting a business, the the business culture expects you to go from zero to five, five to 50, and there's no reason why you shouldn't be 500. Right? That's that's not part of the, of the the culture that we have set up. It's more of a build a funnel, hope they survive through natural selection, and emerge big companies successfully at the far end.
Derek:So I appreciate you sharing it that way, Glenn. If I think about my own experience, I've, I've done a lot of work helping companies in the startup space. I've operated I mean, I was a CFO at a tech company. It wasn't a raw startup when I joined. We were fighting to to scale and to grow the the whole time I was there.
Derek:We kinda got lumped into start ups, but we certainly didn't have start up issues. We had operating issues. Now I work I I'm way more interested professionally in working with companies that are a little more complex. I do volunteer with venture mentoring service threshold impact venture mentoring service at the University of Alberta and Innovation Mastermind's YAG. I wanna put those in the show notes because they're two great organizations.
Derek:But one of the things I find there is a lot of the problems are consistent. They're the same. You haven't explained your value proposition. You need to demonstrate why you how you're unique in the market. And then, you know, the prize is you get a round of investment.
Derek:And, you know, it's not that different, but once you get in operations, all kinds of things can go wrong.
Glen:Correct.
Derek:Especially as you've been emphasizing, last time and today that we're we're talking about companies that are are trying to differentiate themselves. So now when a consultant comes around and says, I have a solution to all your problems, well, and I can tell you as a consultant, this is the reaction I get. And I I don't use this anymore, but years ago, you would come with a really solid principle, a really solid approach to something, and they would say, but you don't understand. We're unique. Mhmm.
Derek:And the problem is I heard that from every client. So there's something that was in common, and there is something that's unique. So how do we help, how do we help companies or how do the companies get help if they're set up so differently from others?
Glen:Well, I think this is where the the the essential dynamics and the unconstrained, value really kicks in. So, again, back from what I was talking about, you know, when we first met on this this podcast, you know, I talked about every single day, people in organizations show up, get up every morning, with the intention of creating value. They they're that's the natural energy that powers any organization is this desire to create value. And then the business itself has these barriers or constraints that temper or in some cases can accelerate that? How do you maximize that desire to create value and then what are the things that that get in the way?
Glen:So maybe that's kind of a way of of describing that uniqueness as well and why, you know, the single solution one size fits all is is kinda rejected, right? They they don't see the connecting the connection there. So how do we start to speak the same language, right? In terms of the idea of being stuck and getting clarity on your business model in order for you to point the organizational value creation energy in the right place that you can you can maximize your value. A lot of the times you you'll get the advice saying, oh, you should be exporting, oh, you should be doing this, you should be doing that, except they're not there yet.
Glen:They're not in a position to be able to say, now I can succeed at that. You're telling me all the checklist and stuff that I need to do in order to, export to Japan. But I my wheels are hung up here. And this is this is what my issue is. There isn't that kind of, intercession, if you will.
Glen:And it's and it's where I think that the, challenge is gonna be when the five public sector says, what are we gonna do to help more companies scale up? Certainly, there's a 12 step program that we can divine that says you need to be doing this, you need to be doing that, you need to be doing that. If that gets pushed out into the marketplace, the likelihood is you're still gonna not get the take up from the private sector simply because they're going, yeah, but I'm stuck on this thing. It's been a burr in our saddle for the last years, and we can't get over it. So part of the essential dynamics and the constrained attraction for me is, well, companies that that aspire to accomplish some path of growth first need to get clarity on on how they create value.
Glen:And that's not a given, right? That's an assumption in the in the system that says everybody knows exactly how they create value, everybody knows exactly where their their group is and all we have to do is open doors for that. That's that's not the case. The case is that a lot of companies simply have business models that were built for conditions that no longer exist and they actually haven't got clarity on how to tune those business models to actually maximize that value creating potential. And once that's released, now it's, oh, you know what?
Glen:It's not Japan. We're gonna go and, tackle into New Zealand, something like that. Right?
Derek:So I wanna divide my response to that into two areas, and I'll probably lose my way. But one of them is, this idea that government can consent specific actions. I mean, they can consent specific actions through tax breaks, grants, subsidies, regulation, whatever. But they do it without an understanding of the systems that they're impacted. And I I'm not saying that they do it completely ignorantly, but I don't know how you could understand all of the ways that would impact the system.
Derek:So, we talk about export programs. That's a good example. Another one, you know, is, we're looking at, for our own company, the Canadian digital adoption program. Right. So so you can get money to improve your presence on the web, particularly if you're selling products online.
Derek:Mhmm. $25,000 15 thousand I guess, $15,000 I think is the maximum. So it's a small program. But is that the next thing that companies should do? Is that where their constraint is?
Derek:They'll chase the money. They'll do the thing. The constraint is in the production facility. More online orders are not gonna help until they break the construction constraint. If, if your job is, if you if you if you get an opportunity to go on a trade mission to Japan to sell a product that has a quality problem, Mhmm.
Derek:Well, one thing we know about Japan is they have no tolerance for quality problems. Right. And so you need to get your house in order, you know, number one. But number two, if you're not working at the constraint, then improvements in other places don't help, even if you get a grant or a subsidy. Right.
Derek:So so governments, pick and choose those, actions that they want to incent, in isolation of what is really happening in each of those companies. That's I would say I'd say that's not a great way to solve the the problems that you're trying to solve.
Glen:Correct. But and and, again, the intention is how do we derisk this particular thing. Right? So we'll create these can export grants or something that will help the company, make that trip over to Japan to go find that transaction. You know, I get that, you know, in terms of what they're trying to accomplish at that.
Glen:But again, the business system making a decision based on what they say, Oh, you need to be doing this in Japan. Well, intuitively they haven't done the housework to position what they their organization to be successful and part of that is overcoming these constraints that are are are there and too often they try to brute force their way through it. Right? We'll we'll just, you know, somebody is is gonna try to pound this thing through and if it doesn't work, they don't go ever again.
Derek:Right. So I wanna I I remember the second thing I wanna pick up on and that was this idea you said that, companies are, frustrated because they have a business model for an environment that no longer exists. There's two two parts to that. One is the environment's changed. The business model hack hasn't.
Derek:The second is it's a pretty good chance that even though the business has a business model that's adapted to a point in the past, they haven't actively managed that. They couldn't tell you what the business model is, because they're embedded in it. And so that there is some value, as we've talked about in previous episodes, of stepping back and defining your business model or another way we describe it is the system with which you create value. And if you're very clear on the system with which you create value and you understand the inputs, the the process steps, and the outputs, the drivers, the constraints, if you understand that, if you've if you've taken a position on that, when the environment changes, you can lift up the hood and tinker with what you've got, which is far more productive than, hoping for the time when the conditions realign around the model that you've sort of, developed unconsciously.
Glen:Yeah. Yeah. Exactly.
Derek:So how do you do that?
Glen:Well, it's it's kind of this this bit that has to recognize that businesses are distinctly unique and then understanding what moves that business forward and what holds it back. So the idea of drivers and constraints, I use the expression and you and you touched on a little bit is take the Alberta economy for example is to me the the poster child for this one which was, well what drives the Alberta economy? Well it has been in new investment capital, right? Because when the price dropped in 2015 for the price of oil, the first thing that happened was those who touched the money first emptied out of the towers in Calgary and when as that pack was dropped off, it took a while for the capital to circulate its way through the system and exhaust itself. So we saw this the the latency of of impacts in the field and some other stuff.
Glen:And so driving the the economy is what's under the hood, right? And if you ask the business, we were doing the, one of the strategy exercises for the city at one point in time and we were asking businesses, you know, what drives your business? And, you know, they would say, well, customers. Well, no. No.
Glen:No. What if it what's the one thing that if it didn't exist, your business would be terribly imperiled with PayPal? And he really struggled with that. The city had a difficult time understanding what it was that was essential for their business to thrive, but they were really good at identifying all the impediments that got in their way. And the majority of those were external.
Derek:Right.
Glen:Which was I'm not sure what drives my business model, but I know everything I don't control that stops it from functioning well. Right? So when labor based petroleum resource extraction was no longer, the value proposition of Alberta, everything had to change, right? So now we saw the Mesquite Industrial Park starting to empty out and some of these companies that showed up just to make money, not earn money, pulled up stakes and disappeared. That's also part of that Alberta example was there was so much capital flowing through the Alberta economy of new money that there was a mantra in the market at some point in time that said that word is where you went to to make money, not earn it.
Glen:And that's a really important distinction when we're talking about established businesses today who really have to figure out how to earn money And why do they earn their way?
Derek:By earning money, you're talking about legitimately creating sustainable customer value.
Glen:Correct.
Derek:So we gotta get we gotta get to some direction of a solution here in our next in our in our last few minutes. So every business is unique. They see themselves that way. Cookie cutter solutions don't work. Can we do mass customization?
Derek:What are what are the ways that policymakers could stimulate, helping these companies get unstuck?
Glen:Well, I think this is where versus the the program dollar for the transaction, the the activity. This is where, policy shifts can really, start to shape a culture that encourages businesses that do create value to take on bigger and broader, opportunities. So how do we create the culture that inspires businesses to say, I'm really good at this. I make do my hickies here, but the world wants widgets. We can do that.
Glen:And and away we go, and there's a there's a a set of policy frameworks built to, support that kind of effort at the private sector level in different forms of benefit to derisk that choice. Again, there's gonna be a bunch of businesses that say, hey. You know what? I'm good. I don't need to do more.
Glen:I'm perfectly fine where I am and everybody needs that. But for the businesses themselves, most of them are in this point of a big change and big transition around them that they cannot not transition themselves. And one of the things that if there is no 12 step program solution that is copy pasted from one organization to the other, we have to understand that all of the business knowledge rests with that organization. They know their business. They've been in it.
Glen:They absolutely have. So doing a transition or doing a pivot is based on that body of knowledge, and I think it's really important that any type of shift has to happen at that organizational level of tapping into that business knowledge, getting the expertise that doesn't exist but is necessary at a certain point in time. But I think it's the leadership that is going to be the ones that are gonna say, We're really good at doing this, but we know we need to change and transition to be able to do that. And how is it that we we can work with our own business model? What do we need to do to make sure that it is optimized for doing that?
Glen:And a lot of the times, if they knew that, they'd be doing it. It would be easy, but they tend to be stuck somewhere on something that they haven't been able to overcome internally and that's where I think the idea of before you can create value at a different level in a growth, you gotta get the wheels, back on the ground. You gotta get, off being hung up. You gotta get unstuck.
Derek:You gotta get unstuck. And so we've made the case in previous episodes that one of the ways to do that is to step out from your day to day and look at the model, look at your business system that you're creating. And another way, which can be done in conjunction, is to get some objective qualified third party to help talk you through. And one of the great things about the work that we do is we always see that as equal partnership, that there's a respect for the legacy that the business has brought to this point. And we're just trying to apply some well tested principles to break through the break through that position of being stuck to create new opportunity.
Derek:Now I wanna introduce a word we talked about using on the on the podcast and have have a it's been it's been, we we haven't brought it out yet, but I can bring it out, and that's where resilience. We're not talking about designing models for a specific, projected, environment in the future. We don't know what that's gonna be. So so we need to have a model that's resilient that can deal with opportunities and threats that come flying at you. That's a better approach than the one that you talked about where companies are really good at complaining about external factors.
Derek:Instead, we bring it in, we build resilience. What does building resilience look like?
Glen:Resilience is having that confidence and knowing where to put the attention to make the change that needs to make or to be done when something is impacting the model. So there are portions at work and I talked about them earlier that are at play that will impact every business in in the in the economy to some degree or another. So resilience is being able to absorb that, and to absorb that is to have real clarity on how exactly do we as a business create value. And knowing what those impacts are allows us to be focused on where we need to make the a change. Where do we need to adjust?
Glen:What do we need to, do ourselves to absorb that and or to take advantage of it? Because again, you know, we look at things tend to from a negative perspective that something happens that impacts us is negative. The the the idea here is no. I've got enough clarity that if something happens, I can take advantage of it, and I'm faster at being able to use change as a competitive advantage because I know my business model and I have clarity and we we know what we need to do, because we pay attention to the to to what we do. The the the resiliency, what happens normally in a business environment when there's a downturn or there's, you know, you lose a customer, you lose something.
Glen:They tend to, turtle. Right? They they get into preservation mode. It's becomes I need to survive in order to come out the other side. I need to endure.
Glen:And that's what COVID was about. Remember, we did relief, relief, relief. Let's just make sure that companies survive this so that we can get busy recovering and try to kinda by the way, I don't like that term because it implied that we are going back to the way they we were. Yeah. So companies will go into preservation mode.
Glen:And what we're talking about is, well, you have to understanding what you do and when hap some things happen and you're resilient, it's not about preserving, it's about making those, subtle changes into your unique value creation system that can take advantage of it and or or take the blow and move on. Right? So that to me is this, aspect of build resilient companies by having management focused, or understanding where management attention needs to be so that when there are opportunities or when there is danger, they know, you know, where to put their attention and to where they can impact their organization, preserve their their value.
Derek:So so let me, just dig into that resilience, try and state it really simply. So if you understand the model, the your system for creating value, there are only a few key levers that you have to pay attention to. Then there are some other things that you wanna not be a factor. So you you need to have excess capacity. You need to have a buffer.
Derek:It might be inventory. It might be cash. It might be lent intellectual property. But you have to have some things that protect the levers. Right.
Derek:So then when a shock comes to the system or an opportunity comes to the system, you work the levers. And if you're running out of capacity on one of the buffers, then you have to deal with it, but you know what they are. Yeah. And you don't know anything about the shock that's gonna come, but you know your system. And then your system responds to threats, it's a response to opportunities.
Derek:You're you're, very, efficient in in your work because there's only you only pull the one lever because you know that's what it is, and you know how to pull it because you practiced it. And that may be maybe a little bit too more metaphorical, but I certainly have seen it seen it work. I have, I have a client right now that's, I guess I guess they're about double the size they were a couple years ago. Because they paid attention to the system, and then when the opportunities came, they could just work the levers that they had already set up. And it's it's crazy work for them, but it would be have been impossible otherwise.
Glen:Yeah. Which is, exactly true. And and we're we're getting here to simplify or maybe oversimplify to a certain extent, but I think sometimes we need to simplify it because, everything is much more complex, much more dynamic, and dramatic sometimes, that you know what? Let's let's simplify, what we're talking about here so we can get more understanding around, what needs to happen both at the private sector and the public sector. So, yeah, I think this this notion of, instead of trying to do something new, you know, to, diversify the economy as as that was the, acquired for a long time is we have a lot of really good companies that and a lot of assets that we can use particularly here in Alberta but Canada in general where we can compete toe to toe anywhere in the world And I I would say most of our companies are in a position where if they did have that kind of clarity, if they were in a position to know what those levers were, they'd be far more successful in the arena in in the in the global marketplace, than waiting for the next boom to give them enough momentum to say, well, I'm gonna try something and and if it doesn't work, then I'm just gonna go back because I'm good.
Glen:That sounds So
Derek:I think I think we could pull it together there, Glenn. Thanks for joining me. Thanks for your insight. I love, I love the way you put things, and it certainly clarified some things for me. So I would just recap and say that, a business that understands how it creates value has the potential to be resilient in the face of both opportunities and, ad adversity.
Derek:And so we're gonna we're gonna call it at this point. Again, Glenn, thanks very much. Brynn Griffiths, thanks for your help with the podcast. I'm Derek Hudson. You can find Glenn and I at getunconstrained.com.
Derek:And until next time, consider your quest.