Episode 61 Podcast Transcript
Speaker 1 (00:00):
The business breaks from internally because of the stress and the pressure of taking on such a big job. And that’s why we say just because you can doesn’t mean you should because it could break you rather than actually making you operationally. Hi everyone. Rob Kropp and Dan Stones here from Pravar Group and welcome back to another episode of The Trade Den, good to have you back, Dan. How are you?
Speaker 2 (00:29):
Good to be back, Rob. Thank you. Hi everyone. Looking forward to today’s episode. What a topic decision making such a massive, massive part of business ownership. If we could help people get this one right, I think it’s going to be a cracker of an episode.
Speaker 1 (00:43):
Absolutely. Because I know that in business everyone’s had that opportunity where a huge opportunity’s landed across their desk and it’s like, Ooh, do I take it? This is going to take me to the next level. I can’t wait. Let’s go for it. And that’s some people, that’s their first reaction, but other people that don’t take the action because they’re seeing too many hairs all over it. So yeah, really looking forward to unpacking it today.
Speaker 2 (01:06):
Yeah, we’ve got five key questions that you should ask. They’re going to come a little bit later on just to set up, set the scene for today, but where we’re going to start and where we’re going to kick in. I think you mentioned it in the intro, this idea of being able to take the right first step, and that’s all about balancing the decision making equation, we call it, and checking your bias because like you just said, everyone’s got a way that they’ll approach that opportunity. If you listened at the very start, you would’ve thought I’m all in or I’m not. And that’s fine. But what we’ve got to do is have this really conscious first step before we get into the tin tax of the opportunity itself, which is called balance, the decision making and checking your bias. So every decision we make, whether it’s hiring, investing or taking on a big client has two sides. There’s the potential upside, the opportunity, the excitement, the can’t believe this is happening, how cool, let’s go. And then there’s the risk side, the cost side, the complexity, the challenges that we’re going to see. But too often we lean probably too hard in one direction.
Speaker 1 (02:07):
I think it’s really important to understand which side of the equation we naturally lean to and we’ve got, because we either chase the opportunity without either thinking it through and looking at the downside, or sometimes some people get way overt, stuck on looking at the risks and they overanalyze the situation and that causes doubt and inaction in their world. So it’s so important that we understand a little bit about our behaviours and our risk profile, I suppose, and that really helps us understand which side of the equation we naturally sit, which helps us indicate which side of the equation we’ve got to look at to balance this decision making when these opportunities do land on our desk.
Speaker 2 (02:57):
And when we talk about that bias part of it, it’s that thing if you’ve ever heard of anyone, hey, you’ve got to go and see the guy I used for insert trade here or a dentist or whoever it is, I’ve got the best guy. We are always looking to back up our initial decisions or the decisions we make. That’s what happens in this instance too. What you’re describing is the big opportunity comes we’ll have a bias and we will just charge down that path or we’ll run in the opposite direction depending on how we’re built at the time. So being able to train ourselves to weigh both the pros and cons of the decision before we get into the nuts and bolts of it, not just the side that feels more comfortable is a really important thing to do.
Speaker 1 (03:37):
Yeah, there’s three questions that we can really ask ourselves is what’s the best possible outcome? Love it, what’s the worst possible outcome? So you’re balancing two sides of the equation. And then in the middle, what’s the most likely outcome? And so what you’re really doing is looking at either end of the spectrum and then trying to find that middle ground. So you’re not looking at all the negativity or looking at the situation with the rose coloured glasses on. You’re seeing the situation for what it really is, not how you hope or want it to be, depending on if you’re doing well or not doing so well in business at the time.
Speaker 2 (04:17):
Yeah, it’s a massive skill and I think you might be sitting there thinking, well, that sounds like I’ll be pretty neutral. And that’s what we want. We want to be able to neutralise the bias, bring you back to the Senate to make a really grounded decision. It’s about seeing that full picture and enabling you by asking those three questions, which just said it enables you to switch perspectives instead of just thinking, why should I do this? If that’s all you do or convincing yourself that I’m going to do it, ask yourself the question, why shouldn’t I? Or if you’re always on the fact that I shouldn’t do it, it can’t do it, won’t do it, ask yourself that question. Why should I do this? So switch perspectives for a bit, get into a neutral state, eliminate the bias, and then you can get into that next phase of what we’re talking about.
Speaker 1 (05:04):
Yeah, I’m a big believer in business and life. You’ve almost got to trust your gut to some degree.
(05:10):
I think that’s for me, it’s your intuition talking to you. But as you go through your journey in business, you’ve got to be able to have that space where you think strategically and make decisions based on fact and be informed so you’re making the right decision before you go all in on that decision. And so what this is really the bottom line here is what it’s enabling us to do is see both sides of the equation. So you could make that decision with clarity, not just make it by a gut feel hoping that it’s going to all just work out perfectly in the end of the day.
Speaker 2 (05:51):
Yeah, that’s just a guess. That’s a gamble. And we do this as an example. I know we do it in some of our programmes. We say, I gave you $500,000 and said, go to the casino, would you just go ahead, put the 500 on the table and hope for the best? Yet? That’s what a lot of business owners do when they make decisions at scale or decisions that come with significant upside, that’s what they’re technically, that’s what they’re doing. If you let your gut feel just run away with you, there’s no informed decision making, no process to it. You really are just gambling.
Speaker 1 (06:21):
So hopefully before we get into the five strategies, hopefully that’s helped at least give you a bit some tools to be able to make sure that going forward in business, you enter making decisions with a balanced perspective because there’s no point talking through the strategies if we don’t help you balance your decision making perspectives around looking at both sides of the equation. So hopefully that definitely helped.
Speaker 2 (06:49):
Yeah, it’s so important you get that right. You really are setting yourself up to make a beneficial decision
Speaker 1 (06:57):
To make these five strategies real. Today I want to talk through a real life example of a situation with a client who recently had a big opportunity land on his desk. Now this guy is a sparky, he’s based out of southeast Queensland. He’s in our launch programme. He’s roughly doing around $2 million at the moment and he had a huge opportunity to land on his desk from an existing customer, by the way, for a $2 million job to be completed in the next 12 months. And I want you to put yourself in that business owner. This client’s shoes around, well, what would you do in this situation? But for this guy, what it would mean is it would naturally take him from a $2 million a year run rate to a probably more like a $3 to $4 million run rate in 12 months. And for most people they’re like, oh, that is a no-brainer. Let’s grow. Let’s scale, let, let’s 2 x my business, let’s go for it. And so that’s the mindset of a lot of business owners.
(08:12):
And so this is the real life situation that this client was faced in. And so the power of coaching is it’s our ability to ask good quality questions. And that’s what we were able to do with this guy who’s a Sparky was able to ask him a series of questions to be able to help him balance his decision-making bias around this. So we saw the situation for what it really was, but then we took him through a series of questions which helped him really identify should he take on this opportunity even though it’s landed on his desk and he’s probably in the box seat to be able to win this job. And that’s what we’re going to take you through now.
Speaker 2 (08:58):
Yeah, absolutely. Before we do, you said at the time when you went through it on the surface, this might feel like a no brainer as you listen to that, maybe you’re on the other hand you were someone who might dismiss it. There might be the fear, you might be biassed towards that, so you might miss out on the opportunity of a lifetime. How do you know, so this is where we’ve got to go into it, but neutralising absolutely having neutralised, here are the five strategic questions that you can ask yourself to make an informed decision from that neutral or balanced perspective that we’ve set up at the beginning. So question number one, how am I going to fund it?
Speaker 1 (09:31):
This is a huge one, and this is the first question that I’ve fired at this guy is, mate, how are you going to fund it? How are you going to fund this growth opportunity? And this is the first question you should be asking yourself because so many business owners underestimate the cost to growth. They don’t understand the working capital requirements to take their business, especially on rapid growth. To be able to go from a $2 million to a $jj4 million run rate, the amount of liquid cash required to fund that growth is huge.
Speaker 2 (10:08):
So Rob, working capital, the working capital requirements that you talk about, absolutely. What are some of the, just break it into actual expenses if you like, or what are we actually funding when we think about this? How am I going to fund it? What am I funding?
Speaker 1 (10:23):
It’s not always more operational costs of running the business, it’s the cost really of delivering the job. It’s the labour, it’s the purchasing of materials, it’s the subcontractors, it’s the equipment, the motor vehicles, everything really related to that job that’s going to require to be delivered on that. But sometimes the business does need to naturally expand. They do need to bring in additional project managers or other operational resources or bigger premises to be able to do this if it’s a bigger, longer term contract. And so it’s most likely the direct cost related to that job, but it’s also the other indirect cost operationally from a business perspective to be able to deliver that big opportunity that’s landed on your desk over and above what you’re already doing as a natural workload run rate.
Speaker 2 (11:24):
Yeah, for sure. Because the person that’s asking you to quote the $2 million job isn’t factoring in the fact that he’s going to fund your job to deliver it. He just wants the job delivered. So things like you said, machinery, all that sort of stuff, where are you at? How are you going to fund it? So give us some things that you can consider then when you make this call, how am I going to fund it? What’s the answer and where do you go in that sense?
Speaker 1 (11:44):
Yeah, so when we talk a bit about how we’re going to fund it, you’ve naturally, you’ve got to bankroll that job. You’ve got to put people on, you’ve got to pay for labour, you’ve got to purchase materials that costs money and a lot of that money gets invoiced out and then there’s a whole payment terms in terms of waiting for that money to be able to come in. And so you’ve really got to be able to consider in your own mind, where’s that money going to come from to be able to pay for that? Is it, do you need to get a loan? Do you need to inject some of your own money in? Do you need to consider an overdraft? That’s just strategically thinking through where are we going to be able to get the cash to pay for these costs to be able to get this job kickstarted whilst we wait for money to flow through from the accounts receivables.
Speaker 2 (12:38):
And this is both sides of the equation. Can you consider the options of how you’re going to fund it from the point of view of, Hey, should I be doing this or Hey, there’s options that could get you over the line to do this. So it’s not that we’re always trying to talk people off the ledge of doing something. We’re also trying to just consider both sides of this as you ask those questions. So as we go through these important that as you listen to this with your own personality, your own signature way of approaching decisions, the questions will bring up different avenues, which is cool.
Speaker 1 (13:10):
You could definitely play around with invoicing terms and putting yourself in a positive cashflow favourable position to be able to make sure that you don’t have a big cash gap between when you pay for the cost versus when the money’s coming through. So there’s all those things to consider, but you’ve just got to remember this job is over and above what you’re currently doing from a natural workload. So if cash is tied at the moment, taking on more work is more likely to add more cash stress to your already existing cashflow, not solve the problem in the first part of this new job.
Speaker 2 (13:47):
And I like what you said the word consider. That’s what we’re asking you to do. At least consider this before you make your call. Second question, how am I going to resource it?
Speaker 1 (13:58):
Yeah, let’s face it. Finding good tradesmen and apprentices at the moment, it’s hard work at the time of recording this. It’s getting a little bit easier. There’s a few more subcontractors available, but if you’re in a tight labour market, it’s hard finding one or two tradesmen over a three to six month period at the moment, let alone landing a big job and having to get a whole crew of guys to be able to deliver this workload over and above your already committed works. And so you’ve really got to consider not just saying yes to the job and I’ll work it out later. You’ve got to put some thought into it to be able to go, well, how can I deploy some of my existing labour to this, but I’m going to need more resources. So who are they? Where are we going to get them from and how are we actually going to resource this thing to make sure we can deliver on what we say we were going to do when we took on the job?
Speaker 2 (14:58):
Yeah, again, it’s not getting caught up in the bright lights and it’s about having that plan, as you said, really considering it. Again, there’s that word.
Speaker 1 (15:06):
I think the reason why this is important is because if you don’t consider resourcing, the thing you’re going to be left with is overpaying for labour. Or you might be taking on through contractors, for example, expensive contractors or you might be relying on subpar labour through labour hire, which are sometimes lower quality, very expensive labour. And then that can come at a cost of you not hitting your margin on what you initially quoted it for because your labour costs to blow out because you are using expensive labour and subbies or labour higher. So that’s why you’ve got to really consider if you can actually resource it before you say yes, because if you take on the job and use expensive labour, you’re just going to be eroding margin all day long if you don’t have the correct resourcing plan to deliver it over the right timeframe.
Speaker 2 (16:02):
Yeah, absolutely. And I think that other part that you talked about with quality lend us into our next question. If you are going to take on that either subpar or guys that just dunno how you work, they might have some experience, but they’re not the best at it. Everyone’s sort of finding their way through. Remember, this is a job that doubles the size of your business. It comes with complexity, it comes with demand you haven’t seen before. The next question that comes as a result of all of that, how am I going to resource it is then how am I actually going to operationally deliver it? And for me, that starts to talk about things like even just how you’re going to manage that job, that sort of stuff, but how am I going to operationally deliver it? Talk us through when you ask that question.
Speaker 1 (16:42):
Obviously a big job like this is going to take a lot of time and energy and focus and demands on the business to deliver it because this might be the big thing that sets you up, but it might be the thing that breaks you as well. And you might take on this job, but what might happen is it might be at the expense of all your other customers and all your other work that you’ve got on because you just get dragged into delivering of this job. And operationally the business breaks from internally because of the stress and the pressure of taking on such a big job. And that’s why we say just because you can doesn’t mean you should because it could break you rather than actually making you operationally.
Speaker 2 (17:29):
Yeah, absolutely. And if you’re going to take people out and you’re a resourcing plan is we’re going to just put our guys on it, what suffers as a result? If you take all the good people in inverted commas, but your management, your leading hands, your best crew and all that sort of stuff, there’s something that comes on the other side. So what does it do? What does it cost you to put best people on it? What does it cost you in terms of time and your capacity to manage the other areas of business? Not even just the operational side, but then your office crew, what’s going to happen to invoicing and what’s going to happen to what has to happen from a compliance perspective? What’s going to happen when you stuck months down the track on this job still trying to bring it over the line and under budget and at profit when everything else also needs your attention? And the whole place is on fire. It is such a big one to consider, how am I going to operationally deliver this? So once we get onto that, how am I operationally going to deliver it? We can start to assess then the idea around, well, what’s the risk to my future? Not just what am I going to currently, what’s on my plate currently to deal with and how am I going to manage all of that? What does taking on this job, this opportunity mean? What’s the risk to my future pipeline?
Speaker 1 (18:41):
This is a huge one to consider because we’ve done a previous episode on breaking the win work, do work cycle. Often we see this where clients take on a big job like this operationally, it drags them out at the expense of quoting more work. And so the risk is that your pipeline takes a massive hit because you’ve got to think when you take on a big job. It sounds great at the time where it’s like, this is the thing that’s going to propel me to another level. But when you operationally get dragged into that, you can’t think around doing business development. You can’t think around quoting new work, you can’t think around converting new work, and you’re not thinking around, what’s my pipeline doing at the end of this job because of the demands of a big job like this. And so you’ve really got to consider the implications to your future pipeline by taking on this job because otherwise you might find that this job lets you have one cracking year, but you have an absolute rubbish year the year after because your pipeline is absolutely drivers. You haven’t put enough work into filling it.
Speaker 2 (19:57):
And this is so relevant to guys, especially business owners that we deal with and the size of businesses that we work on, because as the owner of the business, typically you will have direct responsibility for what that pipeline looks like. You are in the role of doing that. So anything that takes you away from it, anything that removes what you like to talk around feed the beast, it’s going to be hungry, right? The growing business is hungry. If you don’t feed it, you’re going to suffer consequences. So if you can’t answer this question sufficiently, this one for me is probably one of the biggest red flags that I see in terms of these go no go decisions on big deals.
Speaker 1 (20:33):
Yeah, correct. And we say to clients all the time, one good year does not impress me. What impresses us is stacking year on year on year on year of consistent growth. And so you’ve got to be really careful that you just don’t get lured into one big opportunity that’s going to propel you forward in one big year at the expense of the next year or the year after because it’s just decimated your current clients, your current workload and your future pipeline because you’ve taken on this job at the expense of everything else because you either haven’t been able to fund it, resource it operationally deliver it, or it just destroys your future pipeline. You don’t have the time to be able to actually put into quoting too busy operationally managing it.
Speaker 2 (21:20):
Yeah, 100%. And I think this is, let’s just check in here. I can’t wait to hear what happened with this client because these questions, again, just to remind you as you’re listening, these are the actual questions that we went through in coaching or you went through in coaching with this particular client when this opportunity presents, this is what we do with clients as we coach them through this stuff. So I’m keen to hear what happened. I’m dying. I’m trying so hard not to say, well, what did the client do? But we’ll come to that later. We’ve got one more question though that we need to cover off, and that question is, it’s so valuable and it’s such a good gut check question if you want to get back to that gut feel. The question is, have I earned the right, explain this to us.
Speaker 1 (22:00):
I love asking this question because it’s almost like, as you said, it’s a gut check to be able to go, have I earned the right? And sure, sometimes you’ve got to take on an opportunity to be able to put yourself in that position, but you’ve got to understand, you’ve got to see the situation for what it is and understand the risks of the decision you’re about to make and to ensure that you are not making a too riskier move, which will make everything unravel. And that’s why I love that question going, have I earned the right to be able to move and take on this job and move in this direction?
Speaker 2 (22:43):
For me, I look at it as that sort of thing. These big jobs come up, these massive opportunities, and people sometimes use them as a way to get out of jail free. It’s like, I can’t believe what’s just landed in my lap. This is going to solve all of my problems. But they have no consideration if you’ve already got issues in your business that you know need to fix. This is an example of not having earned the right. If things are busted, you sort of find yourself in a tough spot or hole. Maybe you’re in the win work, do work. Jeez, if I could only find some jobs, keep my guys filled, whatever it is you’re looking for, this job could theoretically solve this question’s. The one I think that acts as that backstop to say, Hey, yeah, from one perspective it might be good. It might solve a couple of things, but geez, if we’re not ready for it, it’ll sink this ship quicker than anything else.
Speaker 1 (23:29):
Correct. And sometimes it breaks you rather than makes you, and we see this a little bit, especially when trades businesses move from say, resi into the commercial space.
(23:42):
When you’re in the resi game, you’ve still obviously got to follow the letter of the law, but in commercial, it’s very much more a contractual game. It’s a different game that you’ve got to play. And sometimes guys get lured from resi and they go, oh, look at this big opportunity. It’s a big commercial opportunity. Let’s jump over there and take that. And then they just get absolutely annihilated around contracts, variations, all their management processes in play, and they’re dealing with these big commercial companies that just smash them, smash them on the little details of things. And this big opportunity, which was going to make them now is absolutely breaking them and destroying them. And so having the ability to ask that question, have I earned the right? It is the final gut check to be able to go, is this the right decision? Yes, yes or no.
Speaker 2 (24:38):
Yeah, exactly. And I’ve asked that question on so many calls, and I think we’ve saved so much heartache and that hard road for guys because to get out of this sometimes there’s no way out. I can think of clients sadly that have gone against asking these questions, ignored them, stayed with their bias, this is going to be the best thing in the world, and absolutely they’ve sunk. They no longer exist because they got this decision wrong. They didn’t know these questions, which is why we’ve shared the five of them with you today in terms of closing the loop. Let’s come full circle and they, they’re the five questions. Let’s close the loop on this story then. So what happened? Where do you go to once you’ve asked these questions with this client that you told the story about at the start of the episode?
Speaker 1 (25:26):
Well, with this client, what he did realise by asking these questions and talking a bit about looking at both sides of the question, what he realised was is that he was definitely looking, he was coming at this situation with an opportunistic mindset, which is, I love someone with a good opportunistic mindset, but what it enabled him to do is look at the other side of the equation and balance his perspective. So that was the first thing that this client did strategically, what he was able to do was take then a step back and it made him realise that the job actually did have hairs all over it. There was holes in the scope, the project, the timeframes, and that’s because he took the roads coloured glasses off and saw the situation for what it was, which I really did love.
(26:16):
What he did decide to do is that he was still going to go through the process of tendering the job because he knew that that was going to be a big opportunity to learn more about the process, putting his name in the hat for a big opportunity like this, sharpen his pricing, sharpening in his tendering process and negotiating if he got to the pointy end of the deal. But the caveat that he created for himself was he created a list of goes no GOs, and he then had the maturity to be able to know if there were certain things that he couldn’t negotiate into the contract, then he was going to have the ability to back out of that. And the maturity, I should say, to back out of that. And that’s what I really liked around where he ended up with that process.
Speaker 2 (27:11):
Fantastic. Can you remember any of those? The list of the tick boxes that he came up with?
Speaker 1 (27:18):
It really came back to all five. But for, the big thing for him was he was really wary around the funding, the resourcing of it and the impact to his pipeline. And so they were probably the big three for him, and he needed to make sure that he had a lot of green ticks in certain boxes to be able to make sure he went ahead. Now, this project is still sitting out there at the moment to being awarded, so I’m looking forward to seeing where this opportunity goes with this guy. But what I love about it is, is that he saw the situation for what it was and he acted with maturity and strategic thinking rather than just an opportunistic mindset, taking it on thinking this is going to be the thing that made him over the next couple of years.
Speaker 2 (28:05):
Yeah, I love that. The fact that he asked the strategic questions versus just let the gut feel override any sort of sense of informed decision making and just let’s see how it goes. Correct, which is such a sign of, I think, maturity as a business owner, as I said at the start, being able to learn how to make decisions is very different than just being decisive. It’s a world apart. So really cool. I love that story and I can’t wait to see where he goes with it.
Speaker 1 (28:33):
Well, that’s it for another episode of The Trade Den. Hopefully you’ve enjoyed today’s episode. If you’re in that position where you have some big decisions around where you want to be able to take your business and life over the next 12 months, but you want to be able to do it in a strategic and sustainable manner, jump across to strategysession.com.au and book in a call and looking forward to helping you make some strategic decisions going forward. Until next time, talk to you then. See you soon.