WEBVTT 1 00:00:00.000 --> 00:00:03.840 we're going to get into the next stage, which is to look at the edge training, 2 00:00:04.720 --> 00:00:08.320 getting so many of you talked about more revenue. 3 00:00:08.320 --> 00:00:11.920 If we need more revenue, we need more revenue streams. 4 00:00:12.840 --> 00:00:15.160 We were rethinking our economic model. 5 00:00:15.680 --> 00:00:20.040 And so, you know, we we know that we always start upstairs. 6 00:00:20.040 --> 00:00:22.600 Right. So when the father 7 00:00:22.600 --> 00:00:26.360 partners with you in your work or in your job, for that matter, 8 00:00:27.160 --> 00:00:29.480 the difference, of course, being your work pays the bills, 9 00:00:29.480 --> 00:00:33.400 your your work is your is workmanship created in Christ. 10 00:00:33.720 --> 00:00:38.800 So the father, the son, the Holy Spirit, the three and you, 11 00:00:39.240 --> 00:00:44.600 you know, you get you get caught in that beautiful relationship with them. 12 00:00:45.480 --> 00:00:46.880 We call it first love. 13 00:00:46.880 --> 00:00:50.600 Right before man was created, there was this intense love 14 00:00:50.600 --> 00:00:52.560 between the father, the son, the Holy Spirit. 15 00:00:52.600 --> 00:00:58.480 And now that you are included in Christ, you get the full first. 16 00:00:59.600 --> 00:01:01.640 You get the full first love. 17 00:01:01.640 --> 00:01:05.960 And so what I wanted to share with you today is a little bit about 18 00:01:06.440 --> 00:01:09.680 some real practical things as you're asking the Lord. 19 00:01:10.880 --> 00:01:12.720 You know, where is it? 20 00:01:12.720 --> 00:01:14.560 Where is my money? Father, show me. 21 00:01:14.560 --> 00:01:16.600 It's like in World War two. 22 00:01:18.320 --> 00:01:21.840 There was an advanced team and they would go ahead in the desert, 23 00:01:21.840 --> 00:01:24.280 especially in North Africa, and they would go ahead. 24 00:01:24.280 --> 00:01:28.920 The Allied forces and they would dig holes and they would bury water, 25 00:01:29.320 --> 00:01:33.480 food and diesel, and they would and then they would cover it, hide it 26 00:01:33.480 --> 00:01:37.200 and then make maps and send the maps back to the commanders 27 00:01:37.200 --> 00:01:39.680 like X marks the spot. Dig here. 28 00:01:40.400 --> 00:01:44.440 And for some of you, I think you're in that mode of Lord, where do I dig? 29 00:01:44.840 --> 00:01:46.040 X marks the spot. 30 00:01:46.040 --> 00:01:50.360 And what tools can you use to quickly process what the Lord is saying? 31 00:01:50.880 --> 00:01:55.200 Because downstairs he's giving he's not going to give you a poor economic model 32 00:01:55.200 --> 00:01:58.920 and say, trust me, you know, he's going to give you a great economic model 33 00:01:58.920 --> 00:02:03.080 that goes with the call and will fund the call that you have. 34 00:02:03.800 --> 00:02:06.960 So as we get into that for a second and we look at this concept 35 00:02:06.960 --> 00:02:09.840 of black box modeling, I put a couple of just a few slides together. 36 00:02:09.840 --> 00:02:11.080 Help us visualize. 37 00:02:11.080 --> 00:02:13.440 I know some of you love visualizing things. 38 00:02:13.840 --> 00:02:17.200 So we've done a couple of things to help that along. 39 00:02:17.840 --> 00:02:24.080 But fundamentally, there are three ways to look at an economic model. 40 00:02:24.600 --> 00:02:27.120 The one is to look at it as an employee. 41 00:02:27.600 --> 00:02:29.680 You know, how much do I get paid? 42 00:02:29.680 --> 00:02:34.360 Even if you're a solopreneur, you're still working for a boss yourself 43 00:02:35.120 --> 00:02:37.720 and, you know, you're working to have, 44 00:02:38.840 --> 00:02:41.320 you know, a salary and income, which is fine. 45 00:02:41.400 --> 00:02:44.360 I mean, it's a great everybody starts there if that's where you're at. 46 00:02:45.120 --> 00:02:46.560 But that's one way of thinking. 47 00:02:46.600 --> 00:02:50.280 A better way of thinking is to think as an employer and an employer 48 00:02:50.280 --> 00:02:54.400 now thinks of whose time can I buy to better serve the people 49 00:02:54.400 --> 00:02:56.080 God's entrusted to me. 50 00:02:56.080 --> 00:02:59.360 So, you know, God isn't asking you to serve the world. 51 00:02:59.760 --> 00:03:02.120 He's asking you to serve your world. 52 00:03:02.120 --> 00:03:06.520 And that world usually starts fairly small and then he expands it out. 53 00:03:07.040 --> 00:03:10.080 And the reason it starts small is because in his kindness, 54 00:03:10.080 --> 00:03:13.960 he's teaching you what the economic model is and he's teaching you 55 00:03:14.200 --> 00:03:17.520 how your partnership with him works, because he's remember, 56 00:03:17.520 --> 00:03:19.280 he's not just involved in the upstairs. 57 00:03:19.280 --> 00:03:21.560 He's involved in everything downstairs, upstairs. 58 00:03:22.040 --> 00:03:26.920 And often when we transition from when our vision upgraded, 59 00:03:26.920 --> 00:03:30.840 many of you, you know, have shared that you in this transition point, 60 00:03:31.040 --> 00:03:35.280 you were in one place, you're now economically in a less place than you were. 61 00:03:35.640 --> 00:03:38.280 It's because you're discovering a new economic model. 62 00:03:39.040 --> 00:03:43.040 And and we have to start thinking in different ways 63 00:03:43.320 --> 00:03:45.320 and open our minds up. 64 00:03:45.320 --> 00:03:48.040 And so there's a third way you can think. 65 00:03:48.600 --> 00:03:53.480 So employee, employer, and then as an investor. 66 00:03:54.240 --> 00:03:58.520 Now, you know, what what that does is and we'll 67 00:03:58.520 --> 00:04:00.720 we'll get into it here in a second. 68 00:04:00.720 --> 00:04:04.800 What that does for us is it allows us to look at the economic model 69 00:04:04.800 --> 00:04:06.680 in its purest form. 70 00:04:06.680 --> 00:04:08.120 What do I mean by that? 71 00:04:08.120 --> 00:04:11.520 I mean that we are not married to it emotionally. 72 00:04:11.920 --> 00:04:16.079 It's very easy to get attached to to your economic model 73 00:04:16.079 --> 00:04:19.399 because businesses sometimes become like kids, you know, 74 00:04:19.480 --> 00:04:22.079 and then somebody says, oh, your revenue streams. 75 00:04:22.079 --> 00:04:24.760 And then somebody says, we should get rid of this revenue stream. 76 00:04:24.760 --> 00:04:27.040 It feels like somebody said, you get rid of one of your kids. 77 00:04:27.480 --> 00:04:29.240 It's like, no, but I love that. 78 00:04:29.240 --> 00:04:31.240 You know, I'm attached to that. 79 00:04:31.240 --> 00:04:33.240 That's how I started or whatever it is. 80 00:04:34.080 --> 00:04:37.840 And and when you're looking at your business, 81 00:04:38.440 --> 00:04:42.680 Henry Cloud gives a fantastic analogy when you're thinking about this. 82 00:04:42.680 --> 00:04:45.040 So think of a rose bush. 83 00:04:45.040 --> 00:04:50.080 So the question you need to ask yourself is what's in your business is dead 84 00:04:50.600 --> 00:04:52.560 and just needs to be cut off. 85 00:04:52.560 --> 00:04:55.960 And it's amazing how many times we will leave the dead thing on there. 86 00:04:55.960 --> 00:04:58.320 Maybe it's a person who's not performing. 87 00:04:58.560 --> 00:05:00.000 Maybe it's a revenue stream. 88 00:05:00.000 --> 00:05:07.760 that's not functioning well. Cutting off what's dead. Second question is what is sick and not 89 00:05:07.760 --> 00:05:13.680 getting better? So what in your business economically is sick and not getting better 90 00:05:14.560 --> 00:05:20.960 and is unlikely to get better? And the third thing is what's great but not best? 91 00:05:22.800 --> 00:05:28.480 These three questions are really brutal and they they're hard to you know answer and one of the 92 00:05:28.480 --> 00:05:36.880 stories that Henry shares in this regard is of a guy who came in and bought a 50 million dollar 93 00:05:36.880 --> 00:05:41.440 business. By the way that's smart. Much better to buy a business than build one. Whole lot easier. 94 00:05:41.440 --> 00:05:45.360 Somebody's figured out the economic model, figured out the market, figured out the whole 95 00:05:45.360 --> 00:05:50.000 mechanism for it. But if you're the pioneer and in your partnership with the Lord 96 00:05:50.000 --> 00:05:55.360 He's giving you a new place to pioneer. You're like a way maker. You know like a 97 00:05:57.040 --> 00:06:03.760 a ship that is breaking through the ice to make a new a new shipping channel. A new place to travel. 98 00:06:04.400 --> 00:06:08.400 If that's what's in if God's called you to be that kind of pioneer you're often 99 00:06:08.960 --> 00:06:14.800 going into it not knowing the economic model. So first permission. Firstly do this from rest. 100 00:06:15.440 --> 00:06:20.640 It's very normal that when you're doing something disruptive you have no idea what 101 00:06:20.640 --> 00:06:28.480 the economic model is. So in a book called Innovator's Dilemma Christensen, the professor 102 00:06:28.480 --> 00:06:34.240 wrote it, points out that when you do something disruptive like hey we're going to start a whole 103 00:06:34.240 --> 00:06:40.320 new industry it's very hard to know. Like imagine you were the person who came up with email. 104 00:06:41.120 --> 00:06:45.680 Well good. How are we going to make money? So you're pitching your boss. You know those letters 105 00:06:45.680 --> 00:06:50.080 we get every every week and then we have to pile them up we have to write letters back and the 106 00:06:50.080 --> 00:06:56.240 Lord and then and then your boss says to you yeah but how okay so we're sending this all digitally 107 00:06:56.240 --> 00:07:01.040 but but how are we going to make money? No idea. Who's the client still working on that? 108 00:07:02.240 --> 00:07:08.800 What team do you need? Not sure. And we just don't know anything and the reason is is that's what 109 00:07:08.880 --> 00:07:15.360 that is the very nature of innovation. At the nature of innovation so that doesn't mean we 110 00:07:15.360 --> 00:07:21.280 shouldn't do it. It just means we need to be aware of it. So I wanted to take a second 111 00:07:21.280 --> 00:07:27.920 talk through this concept of what we call black box modeling. So what is black box modeling? 112 00:07:29.520 --> 00:07:35.680 I could put it to you this way. There is probably 20 percent of your revenue on average that you 113 00:07:35.680 --> 00:07:42.480 haven't accessed yet and I say at least 20 percent because for most of us we don't have 114 00:07:42.480 --> 00:07:49.040 such a deep clarity of our own economics. You may think you do and having come from a private equity 115 00:07:49.040 --> 00:07:54.240 background when we're about to invest in a business I would sit down and use this exact 116 00:07:54.240 --> 00:08:00.160 technique I'm about to show you to figure out exactly how good this business is. How healthy 117 00:08:00.160 --> 00:08:06.880 the economic model is. And when I do the simple model modeling I have a very deep knowledge of 118 00:08:06.880 --> 00:08:11.600 that business and it's always amazing to me that the founders of the business and even if it's been 119 00:08:11.600 --> 00:08:18.560 going 10-15 years are not that clear on it. They have a general sense of course. So the question 120 00:08:18.560 --> 00:08:25.200 here is I'm happy to show you but I'd love you to actually do it. So if you want to make notes or 121 00:08:25.200 --> 00:08:30.720 you want to open a spreadsheet or a google sheet or something it'll be helpful. But I was going to 122 00:08:30.720 --> 00:08:37.440 walk you through because this mechanism gives deep insights quickly into your business and often you 123 00:08:37.440 --> 00:08:44.000 find you know where's my money hiding you know where where is the what have I not tapped into 124 00:08:44.000 --> 00:08:52.400 yet. And so we want to help go through that process. So let me share a few quick slides 125 00:08:52.400 --> 00:09:01.920 with you here around this. Can everybody see those slides? Yep. Are we good? Okay. So as we go 126 00:09:01.920 --> 00:09:09.680 through this think of the black box as this. This is black box modeling. I try to get chatgpt or in 127 00:09:09.680 --> 00:09:14.960 this case dolly to generate this and after about 30 attempts I almost gave up because what I was 128 00:09:14.960 --> 00:09:20.160 looking for here was I was looking for the I was looking for something very specific and this is 129 00:09:20.160 --> 00:09:25.120 about as close as I could get. And what we're what we're seeing in this in this model what we're 130 00:09:25.120 --> 00:09:32.560 seeing is that we've got cash coming in. So think of a box. Your business is a black box. Cash is 131 00:09:32.560 --> 00:09:38.080 coming in one end. That's the investment that you have to make. The external. Now whether that's 132 00:09:38.080 --> 00:09:44.080 retained earnings from last year or it's actual money out of your pocket as the as the owner 133 00:09:44.080 --> 00:09:49.120 going into the business that's what that is. Coming out the other end is cash coming out. 134 00:09:49.120 --> 00:09:53.120 Well that's obviously enough. Hopefully there's a whole lot more cash coming out 135 00:09:53.120 --> 00:09:59.840 than cash going in. Now notice I did not say revenue and I did not say profit. 136 00:10:00.000 --> 00:10:03.400 Cash in through the black box, 137 00:10:03.400 --> 00:10:06.620 cash out through the black box is all that matters. 138 00:10:06.620 --> 00:10:08.760 If you think this is overly simplistic, 139 00:10:08.760 --> 00:10:12.320 this is exactly how Warren Buffett looks at a business. 140 00:10:12.320 --> 00:10:16.200 He calls it looking at what the free cash flow is. 141 00:10:16.200 --> 00:10:18.480 For those of you a little more accounting minded, 142 00:10:18.480 --> 00:10:21.280 you say, well, I managed to EBITDA, 143 00:10:21.280 --> 00:10:23.520 earnings before taxes and so on, 144 00:10:23.520 --> 00:10:26.280 before taxes and depreciation and all that. 145 00:10:26.580 --> 00:10:30.600 Yes, that's a pretty worthless number in real terms 146 00:10:30.600 --> 00:10:32.800 because that number can be easily confusing 147 00:10:32.800 --> 00:10:34.480 or even manipulated. 148 00:10:34.480 --> 00:10:37.520 So now we're looking at this black box 149 00:10:37.520 --> 00:10:39.440 and we're saying, okay, I got cash coming 150 00:10:39.440 --> 00:10:40.260 and cash coming out. 151 00:10:40.260 --> 00:10:43.120 The next question is the handle that you have to crank. 152 00:10:43.120 --> 00:10:46.880 How much work is this business? 153 00:10:46.880 --> 00:10:49.680 What is the work involved? 154 00:10:49.680 --> 00:10:51.400 And how often do we crank it? 155 00:10:51.400 --> 00:10:52.680 So maybe you have a business 156 00:10:52.680 --> 00:10:54.920 that runs sort of on a monthly cycle, 157 00:10:54.960 --> 00:10:58.960 or maybe you have a business like maybe Brilliant, 158 00:10:58.960 --> 00:11:00.400 the School of Brilliant, 159 00:11:00.400 --> 00:11:03.960 School of Ministry, School of Leadership rather. 160 00:11:03.960 --> 00:11:06.360 I should know it, it's my company, 161 00:11:06.360 --> 00:11:07.800 but can't get the name right. 162 00:11:07.800 --> 00:11:09.640 So the Brilliant School of Leadership 163 00:11:10.520 --> 00:11:15.280 works off this model where we have one big event in March, 164 00:11:15.280 --> 00:11:17.000 one big conference. 165 00:11:17.000 --> 00:11:20.620 We sign up the next intake of leadership for training 166 00:11:20.620 --> 00:11:22.280 and then we deliver for the rest of the year. 167 00:11:22.280 --> 00:11:24.600 So the crank handle there, the frequency there, 168 00:11:25.280 --> 00:11:27.160 the cadence is once, once a year. 169 00:11:27.160 --> 00:11:29.600 But maybe you've got something that cycles every two weeks, 170 00:11:29.600 --> 00:11:31.680 or you've got something every week or whatever it is. 171 00:11:31.680 --> 00:11:34.120 If you're in social media, 172 00:11:34.120 --> 00:11:36.080 you're cranking that thing almost every day. 173 00:11:36.080 --> 00:11:38.380 You're pumping out social media stuff. 174 00:11:38.380 --> 00:11:42.560 So how fast are you cranking it and how much work? 175 00:11:42.560 --> 00:11:44.720 And the amount of work that it takes 176 00:11:44.720 --> 00:11:47.240 means I have to have a lot of help and a lot of people. 177 00:11:47.240 --> 00:11:50.240 So bigger staff, bigger overhead. 178 00:11:50.240 --> 00:11:52.980 And then the last one is the key dial. 179 00:11:52.980 --> 00:11:55.980 There is one dial in this model 180 00:11:55.980 --> 00:11:58.860 that makes the thing way more sensitive. 181 00:11:58.860 --> 00:12:01.420 So if you took a little financial model, a spreadsheet, 182 00:12:01.420 --> 00:12:03.980 and I'll show you in a moment how to do that. 183 00:12:03.980 --> 00:12:07.140 If you look at your business in this way, 184 00:12:07.140 --> 00:12:10.100 cash going in, how hard is the effort? 185 00:12:10.100 --> 00:12:13.140 Overhead, expenses, team size, all that stuff. 186 00:12:13.140 --> 00:12:16.260 How much cash comes out the other end? 187 00:12:16.260 --> 00:12:19.860 Usually there's one dial that if you turn that dial, 188 00:12:19.860 --> 00:12:21.060 everything changes. 189 00:12:22.060 --> 00:12:26.780 In 35 years, I've never found a founder 190 00:12:26.780 --> 00:12:28.440 who knows what that dial is. 191 00:12:31.300 --> 00:12:33.780 I wanted to let it sit with you for a second 192 00:12:33.780 --> 00:12:36.580 because we all go, oh, well, I just need more sales 193 00:12:36.580 --> 00:12:37.820 and less expenses. 194 00:12:37.820 --> 00:12:40.780 Yeah, we're not talking about that. 195 00:12:40.780 --> 00:12:43.180 What we're talking about practically. 196 00:12:43.180 --> 00:12:46.820 You know, recently we just did this black box 197 00:12:46.820 --> 00:12:50.460 for our upcoming Velocity event. 198 00:12:50.820 --> 00:12:53.820 So Velocity's coming up, we modeled it as exactly, 199 00:12:53.820 --> 00:12:57.460 and Dia and I were going through the financials of this. 200 00:12:57.460 --> 00:12:59.780 Now, Dia, would you say that you were surprised 201 00:12:59.780 --> 00:13:02.540 what the main dial was that moved everything? 202 00:13:02.540 --> 00:13:03.620 100% surprised. 203 00:13:03.620 --> 00:13:06.220 Not at all what we assumed would actually make 204 00:13:06.220 --> 00:13:08.300 the most impact on ticket sales, yeah. 205 00:13:08.300 --> 00:13:10.340 Yeah, and because we thought, 206 00:13:10.340 --> 00:13:13.780 well, it'll be the ticket price, it'll be the whatever, 207 00:13:13.780 --> 00:13:15.900 you know, the acquisition costs from the sales, 208 00:13:15.900 --> 00:13:18.580 how much does it cost us to bring a new person in? 209 00:13:18.620 --> 00:13:20.500 All those mattered somewhat, 210 00:13:20.500 --> 00:13:23.420 but they all turned out to be secondary to one thing. 211 00:13:23.420 --> 00:13:25.500 And when we found the one thing, we turned that dial 212 00:13:25.500 --> 00:13:27.100 and suddenly the numbers went crazy. 213 00:13:27.100 --> 00:13:29.260 We went, who knew? 214 00:13:29.260 --> 00:13:34.140 So, you know, for us, it was surprising 215 00:13:34.140 --> 00:13:36.060 what that number was. 216 00:13:36.060 --> 00:13:39.140 Every time we got to invest, when people came to us, 217 00:13:39.140 --> 00:13:40.380 well, I'm not an investor. 218 00:13:40.380 --> 00:13:41.860 Yes, you are. 219 00:13:41.860 --> 00:13:44.500 You are investing yourself and your family 220 00:13:44.500 --> 00:13:47.140 and your family's money into the venture 221 00:13:47.140 --> 00:13:48.780 you currently have. 222 00:13:48.780 --> 00:13:51.620 So you have to take an investor mindset. 223 00:13:51.620 --> 00:13:53.820 So that means the following, right? 224 00:13:53.820 --> 00:13:56.860 Let's think of how this box really works. 225 00:13:56.860 --> 00:13:58.740 How hard is it to crank the handle? 226 00:13:59.740 --> 00:14:04.260 So this is like your command and control center, right? 227 00:14:04.260 --> 00:14:05.940 This is where, so people say, 228 00:14:05.940 --> 00:14:07.460 well, I have an accounting package. 229 00:14:07.460 --> 00:14:09.500 I'm not talking about accounting. 230 00:14:09.500 --> 00:14:12.380 I'm talking about putting a little model together 231 00:14:12.380 --> 00:14:15.340 that teaches you, when I turn this knob, this happens. 232 00:14:15.340 --> 00:14:16.180 I turn this knob. 233 00:14:16.180 --> 00:14:18.060 You say, well, I'm not very good at spreadsheets. 234 00:14:18.060 --> 00:14:20.900 Then either, you know, you can literally tell 235 00:14:20.900 --> 00:14:22.740 ChatGPT to create one for you. 236 00:14:24.380 --> 00:14:26.820 So in this simplest thing, you know, 237 00:14:26.820 --> 00:14:29.580 I create every single business we run 238 00:14:29.580 --> 00:14:33.140 has this command center, every single one. 239 00:14:33.140 --> 00:14:34.700 And at Brilliant, for instance, 240 00:14:34.700 --> 00:14:36.460 it's now got about 15 tabs on it, 241 00:14:36.460 --> 00:14:39.820 but it started as one simple half a page spreadsheet. 242 00:14:39.820 --> 00:14:42.140 And then as I learned and grew, 243 00:14:42.900 --> 00:14:43.860 I always tweak, tweak, tweak, tweak. 244 00:14:43.860 --> 00:14:45.660 So when I was running 12 companies, 245 00:14:45.660 --> 00:14:48.020 when it was four operational businesses 246 00:14:48.020 --> 00:14:50.100 of which I was the CEO for all of them, 247 00:14:50.100 --> 00:14:54.260 I was tracking these underlying economics all the time. 248 00:14:54.260 --> 00:14:55.700 And so I create a spreadsheet. 249 00:14:55.700 --> 00:14:56.540 I give it a name. 250 00:14:56.540 --> 00:14:57.980 In this case, if I was doing my own, 251 00:14:57.980 --> 00:15:00.020 it'd be I-49 model, and I put it. 252 00:15:00.000 --> 00:15:06.560 date. And I update this every single month. We are not talking about P&Ls. We're not talking 253 00:15:06.560 --> 00:15:10.720 about a report from your accountant. We're not talking about any of that. We're talking about 254 00:15:10.720 --> 00:15:18.000 understanding the heart, core heart of your business. So, we start with simple revenue, 255 00:15:18.000 --> 00:15:22.800 and you can put your different revenue streams in there. You can add your cost of sales, meaning 256 00:15:23.680 --> 00:15:29.040 your variable cost. Cost of sales are different from expenses. Cost of sale is connected to a 257 00:15:29.040 --> 00:15:34.480 sale. So, if I'm selling pencils and they cost a dollar, and I'm selling them for three dollars, 258 00:15:34.480 --> 00:15:38.960 then the cost of sale is a dollar. If I don't sell any pencils, I don't have any cost. So, 259 00:15:38.960 --> 00:15:43.520 that's the way to know. If I don't sell anything, do I still have this expense? In other words, 260 00:15:43.520 --> 00:15:46.960 is it a fixed cost or a variable cost? I don't know. That's very elementary. But for those of 261 00:15:46.960 --> 00:15:52.880 you who are starting out, maybe that's helpful. So, you add three expense items to your model. 262 00:15:52.880 --> 00:15:58.320 I don't want to know about postage stamps and accounting stuff. I'm not interested at all. 263 00:15:58.320 --> 00:16:02.480 All I want to know is what does my team cost me? The big ones, the three biggest numbers. 264 00:16:02.480 --> 00:16:07.760 What's my team cost? What are my operations cost? What's my general admin stuff? That's all I want 265 00:16:07.760 --> 00:16:14.960 to know. And the reason is, this is not about managing expenses down. Sure, you should be 266 00:16:14.960 --> 00:16:20.800 very careful and manage costs carefully. What I'm looking for here is not trying to tweak the 267 00:16:20.800 --> 00:16:27.680 expenses. This is, again, not an accounting exercise. And I go through this with accountants 268 00:16:27.680 --> 00:16:33.040 very accomplished accountants. And they say, why do you have your own spreadsheet on the side? 269 00:16:33.040 --> 00:16:38.000 And I said, because I want to understand the business. And so, when we got serious about 270 00:16:38.000 --> 00:16:44.560 investing in a business, I would put one of these models together very, very quickly. And when I put 271 00:16:44.560 --> 00:16:51.360 these models together, here's how I'm looking at this so that you can sort of see it through my 272 00:16:51.360 --> 00:16:57.200 eyes. Right? So, in the command and control center, what I'm doing is I'm putting all the assumptions 273 00:16:58.000 --> 00:17:04.079 that I'm assuming. Well, I'm assuming the max amount of customers is x. I'm assuming our ads 274 00:17:04.079 --> 00:17:10.079 cost y or our marketing costs or whatever. All my assumptions are at the top of the list. Did you know 275 00:17:10.720 --> 00:17:16.079 that if you go to an investment group and they're going to invest in your company, how well you've 276 00:17:16.079 --> 00:17:21.520 pulled those assumptions out and how well you've documented those assumptions is going to determine 277 00:17:21.520 --> 00:17:27.359 whether they believe anything in that spreadsheet. You know, in private equity world, we say, 278 00:17:27.359 --> 00:17:33.120 you know, spreadsheets never denied ink. You just make the columns wider and then you got making 279 00:17:33.120 --> 00:17:39.280 billions. It's wonderful. So, you know, because most spreadsheets are worthless. Most five-year 280 00:17:39.280 --> 00:17:43.440 projections, one-year projections are pretty worthless for the most part. We're not talking 281 00:17:43.440 --> 00:17:50.000 about creating a pro forma or five-year projections or one-year project. We're talking about 282 00:17:50.000 --> 00:17:55.120 understanding the underlying economics. So, I put all the blue numbers that can change in blue. 283 00:17:55.760 --> 00:18:01.760 Everything that's calculated in black. What am I doing? I am identifying the knobs, the dials we're 284 00:18:01.760 --> 00:18:07.440 going to turn. The blue are the numbers we can turn. The black are all the calculated numbers. 285 00:18:07.440 --> 00:18:12.640 Again, not an accounting model. An executive tool to learn where the money is in this model. 286 00:18:13.760 --> 00:18:19.600 Then what I do is I look for that key driver. Finding that key driver is playing around with 287 00:18:19.600 --> 00:18:26.480 the numbers, looking to what the bottom line is. And what I do to do that is I turn, what's the most 288 00:18:26.480 --> 00:18:30.480 money we could possibly make? What's the number of customers? The most we could charge them? 289 00:18:31.040 --> 00:18:35.920 The quickest time with the least expenses? What would be the most optimal situation possible? 290 00:18:36.560 --> 00:18:40.160 You know, if everything was just wonderful and perfect, what would that number be? 291 00:18:40.880 --> 00:18:45.600 And usually when you hit that number, you might decide this is not a business at all. 292 00:18:45.600 --> 00:18:50.720 Because all my economic model is just terrible. Because even if we hit it out of the park on every 293 00:18:50.720 --> 00:18:59.360 single dial, then we still don't have much of a business. So, that's a wake-up call. B is I go 294 00:18:59.360 --> 00:19:06.560 for the minimum. Why? If my model survives the minimum and all the knobs turn to the lowest level 295 00:19:06.560 --> 00:19:13.280 and we still can survive, then I've got a reasonable risk. Then I'm trying to find my 296 00:19:13.280 --> 00:19:18.720 break-even. Okay, so here's the minimum. Here's the maximum. Somewhere in between, there's a break-even 297 00:19:18.720 --> 00:19:23.120 where the amount of money going in, the amount of money coming out. Again, we're talking about cash. 298 00:19:23.120 --> 00:19:28.160 We're not talking about P&Ls, balance sheets, cash flow statements. We're talking about cash itself. 299 00:19:29.040 --> 00:19:36.480 How much cash went into my business? And finally, I put together a probable case. Why do we do this? 300 00:19:36.480 --> 00:19:43.520 Here's why we do this. So, should you do this? So, let me ask you this question. Here's a quick 301 00:19:43.520 --> 00:19:47.200 example. Grab your calculator, your phone, whatever you want to do. Calculation. I want 302 00:19:47.200 --> 00:19:55.440 to ask you this question. Should you invest in this business? Do you have a business 303 00:19:56.160 --> 00:19:59.840 if you charge $297 a month for your consulting? 304 00:20:00.000 --> 00:20:05.000 and you can handle up to 20 clients at the same time 305 00:20:05.840 --> 00:20:07.960 and you grow by ads, 306 00:20:07.960 --> 00:20:11.260 which costs you $500 to get a new client in. 307 00:20:13.720 --> 00:20:15.920 Should you build this business? 308 00:20:15.920 --> 00:20:16.840 Any answers? 309 00:20:16.840 --> 00:20:20.040 Do some math and tell me what you did. 310 00:20:22.440 --> 00:20:25.160 So now we're getting out of the little presentation stuff. 311 00:20:25.160 --> 00:20:26.000 So. 312 00:20:26.000 --> 00:20:30.960 In here, Dion, how long is a client with you? 313 00:20:30.960 --> 00:20:34.040 Okay, let's assume they're with you. 314 00:20:34.040 --> 00:20:36.800 They sign up for a year, but they pay you, 315 00:20:36.800 --> 00:20:40.240 they say 300 a month, 297 a month for a year. 316 00:20:47.600 --> 00:20:50.040 Anybody have any instincts around this? 317 00:20:50.040 --> 00:20:53.120 What did you all do when you went through that calculation? 318 00:20:53.120 --> 00:20:55.560 Somebody wanna walk me through it? 319 00:20:55.560 --> 00:20:57.400 How many of you took roughly, 320 00:20:57.400 --> 00:20:58.560 cause I would just round it up, 321 00:20:58.560 --> 00:21:03.280 300 times 12 times 20, right? 322 00:21:03.280 --> 00:21:04.920 Is that what everybody did? 323 00:21:04.920 --> 00:21:06.520 Said, okay, what was the number? 324 00:21:06.520 --> 00:21:08.320 Somebody give me your number quick. 325 00:21:10.720 --> 00:21:11.640 We're gonna talk about what's the difference 326 00:21:11.640 --> 00:21:14.160 between this and what I'm suggesting. 327 00:21:14.160 --> 00:21:19.160 So I'm trying to get as practical as possible today. 328 00:21:19.520 --> 00:21:20.360 71,000. 329 00:21:21.320 --> 00:21:22.200 There you go, exactly. 330 00:21:22.200 --> 00:21:27.200 300 times 12, cause it's for the year, times 20 clients. 331 00:21:27.200 --> 00:21:30.440 So now you have 72,000 minus what? 332 00:21:32.080 --> 00:21:35.480 $500 times the 20 clients, right? 333 00:21:35.480 --> 00:21:38.360 So it's minus $10,000 for the total expenses. 334 00:21:38.360 --> 00:21:42.280 Everybody got 62,000 on your little calculator? 335 00:21:42.280 --> 00:21:43.600 Yeah? 336 00:21:43.600 --> 00:21:45.840 Everybody know how I got that? 337 00:21:45.840 --> 00:21:49.920 Well, I did multiply the month per month 338 00:21:49.920 --> 00:21:53.480 times 12 times 20 clients minus the cost. 339 00:21:53.480 --> 00:21:55.240 The cost was 500 per client. 340 00:21:55.240 --> 00:21:56.080 How many clients? 341 00:21:56.080 --> 00:21:58.160 20, 20 times 500, 10K. 342 00:21:59.280 --> 00:22:00.600 Good? 343 00:22:00.600 --> 00:22:02.520 Okay, let's keep going. 344 00:22:02.520 --> 00:22:07.520 Then you have to put in $10,000 to get it all started. 345 00:22:08.720 --> 00:22:10.840 How did I get $10,000? 346 00:22:10.840 --> 00:22:12.520 Does anyone know? 347 00:22:12.520 --> 00:22:14.880 Because that's what the clients cost. 348 00:22:14.880 --> 00:22:17.040 If it costs $500 to get a client, 349 00:22:17.040 --> 00:22:20.040 and you want 20 clients, it's gonna cost 10 grand, right? 350 00:22:21.480 --> 00:22:24.480 If you put in 10 grand into this business, 351 00:22:24.480 --> 00:22:27.240 would it be a business that you would get a return on? 352 00:22:29.160 --> 00:22:30.960 So I'm skipping past the employee mode, 353 00:22:30.960 --> 00:22:32.680 cause you go, oh, well then that means, 354 00:22:32.680 --> 00:22:34.840 oh, I'm making 60 grand, that's five grand a month. 355 00:22:34.840 --> 00:22:37.360 That's a nice salary, right? 356 00:22:37.360 --> 00:22:39.360 I'm not thinking as an employee. 357 00:22:39.360 --> 00:22:41.680 In a business case, if I'm thinking as a CEO, 358 00:22:41.680 --> 00:22:43.760 I'm thinking, well, how many people can I hire 359 00:22:43.760 --> 00:22:45.160 to do the coaching? 360 00:22:45.160 --> 00:22:46.840 How can I buy the people's time? 361 00:22:47.640 --> 00:22:48.480 Here I'm going one level up. 362 00:22:48.480 --> 00:22:50.200 I'm going to the investor mode. 363 00:22:50.200 --> 00:22:52.080 And in this investor mode, 364 00:22:52.080 --> 00:22:55.400 if you put $10,000 into this company, 365 00:22:55.400 --> 00:22:56.760 would you get a return? 366 00:22:59.880 --> 00:23:01.480 Little harder to answer, 367 00:23:01.480 --> 00:23:03.640 because we don't know what the expenses are 368 00:23:04.800 --> 00:23:06.240 to crank the handle. 369 00:23:06.240 --> 00:23:09.240 What's missing here is we know the cash going is 10 grand. 370 00:23:09.240 --> 00:23:13.080 We know that what's coming out the other end is $62,000. 371 00:23:13.080 --> 00:23:16.400 What we don't know is how hard it is to crank the handle. 372 00:23:17.000 --> 00:23:19.480 So we're going to get to that in a second. 373 00:23:19.480 --> 00:23:21.400 So now, more importantly, 374 00:23:21.400 --> 00:23:25.440 if you were asked to invest $10,000 in this business, 375 00:23:26.480 --> 00:23:28.280 some of you, I think, Ray, 376 00:23:28.280 --> 00:23:30.560 you talked about owning pieces of businesses, 377 00:23:30.560 --> 00:23:32.840 which is what private equity fund is, 378 00:23:32.840 --> 00:23:34.480 or well, at least a personal fund 379 00:23:34.480 --> 00:23:36.160 when you're investing that way. 380 00:23:36.160 --> 00:23:38.800 If you're asked to invest 10,000 in a business, 381 00:23:40.200 --> 00:23:42.960 will you get a return or would you see your money back? 382 00:23:43.960 --> 00:23:45.920 Robin, it's got to you. 383 00:23:47.120 --> 00:23:50.800 Didn't we already take out the $10,000 384 00:23:50.800 --> 00:23:53.600 when we multiplied 20 times five? 385 00:23:53.600 --> 00:23:55.640 We put the 10,000 in, 386 00:23:55.640 --> 00:23:58.600 but then we got it back over that year. 387 00:23:59.640 --> 00:24:01.920 Yes, so you would get it back on condition 388 00:24:01.920 --> 00:24:04.040 that you didn't eat it up in other things. 389 00:24:05.280 --> 00:24:07.360 Exactly why that was a good spot. 390 00:24:07.360 --> 00:24:09.560 That's exactly why I put it in there. 391 00:24:09.560 --> 00:24:11.480 Because what normally happens is we say, 392 00:24:11.560 --> 00:24:12.400 what normally happens is we say, 393 00:24:12.400 --> 00:24:14.920 oh, I'll get it back and then we don't get it back. 394 00:24:16.120 --> 00:24:18.920 So being there, done that, 395 00:24:18.920 --> 00:24:21.240 I can see everyone going, yep, done that. 396 00:24:22.800 --> 00:24:26.840 Let me call up the spreadsheet that I want for this quickly. 397 00:24:26.840 --> 00:24:29.320 So I've put together a simple little spreadsheet 398 00:24:29.320 --> 00:24:32.160 for us to use. 399 00:24:33.760 --> 00:24:35.000 Give me one second. 400 00:24:37.080 --> 00:24:38.960 And in this little spreadsheet, 401 00:24:38.960 --> 00:24:40.720 I wanted to give you a real example. 402 00:24:40.720 --> 00:24:41.760 So let's just go through. 403 00:24:41.760 --> 00:24:44.720 So let me share my screen here with you. 404 00:24:47.560 --> 00:24:48.680 What happened to my Zoom? 405 00:24:48.680 --> 00:24:49.720 Give me a second. 406 00:24:51.840 --> 00:24:52.680 There we go. 407 00:24:55.880 --> 00:24:57.840 All right, so let me... 408 00:25:00.000 --> 00:25:02.000 share. 409 00:25:07.560 --> 00:25:08.960 OK, I'm going to go here because 410 00:25:09.160 --> 00:25:13.440 everybody see a little spreadsheet with his example consulting on it. 411 00:25:13.640 --> 00:25:15.680 We can drop this little spreadsheet in here. 412 00:25:15.880 --> 00:25:19.840 So now what we did is we said, OK, well, the cash going in was ten thousand. 413 00:25:20.040 --> 00:25:22.240 I was assuming that we would spend two 414 00:25:22.240 --> 00:25:25.160 thousand a month over a five month period to make it ten thousand. 415 00:25:25.360 --> 00:25:26.840 Just make the example simple, 416 00:25:27.000 --> 00:25:31.480 because what I'm trying to get to is to show how the black box approach works. 417 00:25:31.680 --> 00:25:35.320 So let's what we're doing on the side here is we're writing down all our 418 00:25:35.520 --> 00:25:38.840 assumptions. We can do one on one training for two ninety seven a month 419 00:25:39.040 --> 00:25:42.120 over a 12 month period. That's what we that's what we're looking at. 420 00:25:42.320 --> 00:25:46.000 So here's here's how the black box works. 421 00:25:46.200 --> 00:25:48.640 Number two, I now need to know what is 422 00:25:48.840 --> 00:25:53.360 the crank effort that it's going to take to make this work. 423 00:25:53.560 --> 00:25:55.560 So let me pull this in. 424 00:25:55.760 --> 00:25:57.840 So let's bring in the crank part of it. 425 00:25:58.040 --> 00:26:00.280 So the crank effort is we said it's 12 426 00:26:00.480 --> 00:26:05.680 months, but now I have to put in those three categories, team, general and 427 00:26:05.880 --> 00:26:09.480 operations. Notice you can do a little thing on the side and just write on what 428 00:26:09.680 --> 00:26:13.200 those three numbers are. But if those three numbers are six 429 00:26:13.400 --> 00:26:15.400 thousand dollars, how would I come up with that? 430 00:26:15.600 --> 00:26:18.120 What do you think the number one mistake 431 00:26:18.320 --> 00:26:22.400 that founders make is when it comes to calculating the actual costs? 432 00:26:22.600 --> 00:26:24.840 Anybody want to guess? 433 00:26:25.000 --> 00:26:27.840 They don't pay themselves first. 434 00:26:28.040 --> 00:26:29.440 Number one mistake. 435 00:26:29.640 --> 00:26:31.440 And when you don't pay yourself first, 436 00:26:31.640 --> 00:26:37.400 you are the primary asset in the business, you should get paid first. 437 00:26:37.600 --> 00:26:42.720 If it can't support you and you start to make sacrifices, your team can do it. 438 00:26:42.920 --> 00:26:44.200 Being there, done that. 439 00:26:44.400 --> 00:26:45.840 Anybody made that mistake? 440 00:26:46.040 --> 00:26:48.240 So here is the first question you can ask 441 00:26:48.440 --> 00:26:51.040 yourself as you're putting the simple black box together. 442 00:26:51.240 --> 00:26:53.280 We'll come to this other stuff in a second. 443 00:26:53.440 --> 00:26:55.080 And let's say as I'm sitting looking at 444 00:26:55.280 --> 00:26:58.440 this and I'm realizing, well, I think I can come up with a premium 445 00:26:58.640 --> 00:27:02.360 product for, you know, three times that for a thousand dollars. 446 00:27:02.360 --> 00:27:04.440 And let's say 20 percent of people will take that. 447 00:27:04.640 --> 00:27:06.560 That'll give me another four clients. 448 00:27:06.760 --> 00:27:12.080 Now I'm starting to look at and saying, OK, this seems to be this seems to be 449 00:27:12.280 --> 00:27:17.000 dropping out at about total cash coming out will be all my income, 450 00:27:17.200 --> 00:27:21.400 my monthly income, my monthly expenses, total cash out per month is this. 451 00:27:21.400 --> 00:27:23.080 Here's my total revenue. 452 00:27:23.280 --> 00:27:24.960 I spent that much in cost of sales. 453 00:27:25.160 --> 00:27:26.400 Ninety four thousand. 454 00:27:26.600 --> 00:27:29.400 So my total net profit is twenty two thousand. 455 00:27:29.600 --> 00:27:33.640 If I put out twenty two thousand and I put two and I put ten thousand in, 456 00:27:33.840 --> 00:27:37.600 then I've got a two point three X return on my money. 457 00:27:37.800 --> 00:27:38.120 Right. 458 00:27:38.320 --> 00:27:43.160 Seems simple enough until I start looking for what's the key driver. 459 00:27:43.360 --> 00:27:47.200 So one would look at the key driver and say, well, maybe it's the you know, 460 00:27:47.200 --> 00:27:51.920 maybe it's more marketing investment or or if those of you very familiar with 461 00:27:52.120 --> 00:27:56.200 cost of ads, what if this was two hundred and fifty dollars an ad? 462 00:27:56.400 --> 00:28:00.440 What would happen to the we went from two X to twelve X? 463 00:28:00.640 --> 00:28:03.320 Well, that's interesting to know. 464 00:28:03.520 --> 00:28:05.360 So let's put it back to five hundred. 465 00:28:05.560 --> 00:28:06.400 Turn another down. 466 00:28:06.600 --> 00:28:08.680 Notice I've already set these dials in. 467 00:28:08.880 --> 00:28:11.320 What if I took my marketing 468 00:28:11.520 --> 00:28:14.200 variable costs a month to four thousand a month? 469 00:28:14.400 --> 00:28:14.720 Right. 470 00:28:14.720 --> 00:28:16.280 That now I've got 40 clients. 471 00:28:16.480 --> 00:28:20.480 Can I manage 40 clients as like two a day or something? 472 00:28:20.680 --> 00:28:22.160 And can I actually do that? 473 00:28:22.360 --> 00:28:25.440 So now what we're doing is we're dealing with a crank effort. 474 00:28:25.640 --> 00:28:29.520 So what happens is there's where is the inherent limit? 475 00:28:29.720 --> 00:28:32.360 The inherent limit is the effort it takes 476 00:28:32.560 --> 00:28:36.600 to crank the handle and which knob is it most sensitive to? 477 00:28:36.800 --> 00:28:39.200 Notice that I can get more clients in, 478 00:28:39.400 --> 00:28:43.360 but it's not necessarily unless I can carry it with a team, 479 00:28:43.360 --> 00:28:46.720 because as I bring in more clients, maybe I need more staff. 480 00:28:46.920 --> 00:28:50.840 So what's happening is there gets to be a balance, a trade off. 481 00:28:51.040 --> 00:28:55.680 All this mechanism is called the underlying economics of the business. 482 00:28:55.880 --> 00:29:00.360 We can do the same for, you know, if you have a subscription product. 483 00:29:00.560 --> 00:29:02.760 Right. How do your subscription products work? 484 00:29:02.960 --> 00:29:06.360 By the way, extremely tough business for those of you think, you know, 485 00:29:06.560 --> 00:29:08.920 oh, we'll charge twenty dollars a month for a subscription product, 486 00:29:09.120 --> 00:29:10.480 whatever it might be. 487 00:29:10.680 --> 00:29:13.280 So what do we when we're looking at the business, 488 00:29:13.480 --> 00:29:17.200 what I'm trying to understand really, really quickly is, 489 00:29:17.400 --> 00:29:19.960 will I ever see my money again? 490 00:29:20.160 --> 00:29:24.120 And to answer that question, I need to go back to and say, 491 00:29:24.320 --> 00:29:27.000 what is the most sensitive dial here? 492 00:29:27.200 --> 00:29:29.080 And the only way to if you don't build 493 00:29:29.280 --> 00:29:32.920 the spreadsheet yourself, I don't know how else to say this, 494 00:29:33.120 --> 00:29:36.160 you you don't ever get to that depth of knowledge. 495 00:29:36.360 --> 00:29:37.720 So I'm not good at spreadsheets. 496 00:29:37.720 --> 00:29:41.440 Well, it's really uses very, very basic spreadsheet skills, 497 00:29:41.640 --> 00:29:45.600 which you can get on YouTube in 10 minutes or half an hour if you if you're new to it. 498 00:29:45.800 --> 00:29:48.440 Seriously, build a simple model and start 499 00:29:48.640 --> 00:29:52.400 to turn the dials and see what's the most sensitive of the dials. 500 00:29:52.600 --> 00:29:55.680 Once you know what the sensitive dial is, 501 00:29:55.880 --> 00:30:00.000 the question is, how focused should you then be on that? 502 00:30:00.000 --> 00:30:07.040 one dial, because it's that one dial that and so if we're an investor group and 503 00:30:07.040 --> 00:30:10.960 we're talking to the management team, which they normally are focused on other 504 00:30:10.960 --> 00:30:15.960 things, and they are married to elements and revenue streams, that what they're 505 00:30:15.960 --> 00:30:20.720 doing is they're using up their resources for stuff that's sick and not 506 00:30:20.720 --> 00:30:25.040 getting better. They're using up their resources for stuff that's dead and just 507 00:30:25.040 --> 00:30:29.800 needs to be cut out, just stop it already. And they and then the hard one is they 508 00:30:29.800 --> 00:30:35.760 using their resources for doing what's good but not best. All the nutrients need 509 00:30:35.760 --> 00:30:42.200 to go to the top very best roses. So in the example that Henry Cloud shares, is a 510 00:30:42.200 --> 00:30:48.040 guy buys the business for 50 million dollars and it's got five revenue 511 00:30:48.040 --> 00:30:53.200 streams, got five parts of the business. Here's the fun thing, they're all doing 512 00:30:53.200 --> 00:30:59.720 fine, they're all profitable. What do most leaders do? Try to keep all five. What is 513 00:30:59.720 --> 00:31:06.800 he do? Sold all four of them. Why? Why would he sell all four of them? He's 514 00:31:06.800 --> 00:31:10.040 selling all four of them because he knows something, he's thinking at this 515 00:31:10.040 --> 00:31:15.400 third level. If you're a CEO, you're keeping all five. If you're an investor, 516 00:31:15.400 --> 00:31:22.080 you're selling all four of them. So you know Jack Welch used to say, you're 517 00:31:22.080 --> 00:31:25.760 either number one or number two in your industry or you're very sold. You're very 518 00:31:25.760 --> 00:31:29.360 profitable or you're very sold. And that what they're doing that and you say well 519 00:31:29.360 --> 00:31:33.320 that sounds mercenary. What you're doing is you're looking to make sure you 520 00:31:33.320 --> 00:31:38.440 deeply understand the economics of what you're doing. So this means selling off 521 00:31:38.440 --> 00:31:44.400 the other four, not only provided capital but now all the best, all the resources, 522 00:31:44.400 --> 00:31:49.000 all the best people, all the capital, everything is going into that one thing. 523 00:31:49.000 --> 00:31:57.400 And I can say you know for one part of my career after I got out of my 524 00:31:57.440 --> 00:32:03.280 last business, I spent a couple of years doing CEO consulting. Which is funny 525 00:32:03.280 --> 00:32:09.000 because now we're doing this. And what I found is I made a strategic mistake 526 00:32:09.000 --> 00:32:13.880 when I went in. So I used to back in whatever it was 2003, 2004, I used to 527 00:32:13.880 --> 00:32:18.920 charge you know you know what I thought was a very reasonable sum. I come in for 528 00:32:18.920 --> 00:32:25.600 90 days and I try to revamp the business. What do you suspect was my number one 529 00:32:25.640 --> 00:32:30.360 challenge or some of my top challenges? Let me hear it. Just unmute 530 00:32:30.360 --> 00:32:36.040 yourself and talk. Don't worry about stopping doing stuff. Absolutely 531 00:32:36.040 --> 00:32:42.040 getting people to stop doing stuff. Number two thing I found is the CEO, the 532 00:32:42.040 --> 00:32:48.240 leader was married to certain ideas. And no matter how much, no matter how 533 00:32:48.240 --> 00:32:54.480 clear the numbers were, they refused because they're just blind. They're married 534 00:32:54.480 --> 00:33:01.320 to this. We do this. And so this is an interesting conversation because getting 535 00:33:01.320 --> 00:33:05.680 see so I found that I would develop a model that I could execute on but the 536 00:33:05.680 --> 00:33:11.280 person I was working for he or she was not willing to do it. They were not 537 00:33:11.280 --> 00:33:15.800 willing to sell off parts of the business to outsource. So when I first 538 00:33:15.800 --> 00:33:19.440 came to Brilliant, there were two businesses. There were Brilliant 539 00:33:19.440 --> 00:33:22.760 Perspectives and there was Brilliant Bookhouse. Brilliant Bookhouse was in 540 00:33:22.760 --> 00:33:27.720 Oregon and it was doing all the book public publications and so on. 541 00:33:27.720 --> 00:33:33.040 User manufacturer in Michigan and there was a team and a staff that was doing 542 00:33:33.040 --> 00:33:37.320 shipping and handling and all that stuff to do with book publishing and all that. 543 00:33:37.320 --> 00:33:45.160 And Brilliant Perspectives which is in Santa Barbara had a $20 a month product 544 00:33:45.160 --> 00:33:49.640 and as you all know for those of you that knew it back then as Brilliant TV 545 00:33:49.680 --> 00:33:55.400 now Brilliant Plus, that's what that was. And so you can do quick modeling and you 546 00:33:55.400 --> 00:34:01.400 can go cool so all we need so I remember when we got to over 6,000 subscribers we 547 00:34:01.400 --> 00:34:05.120 thought this is great. So as we were going through all that because you you 548 00:34:05.120 --> 00:34:11.639 know even a small number like 20 bucks times 12 times you know a nice 549 00:34:11.639 --> 00:34:17.520 subscriber base sounds like a fantastic business. What was the number well no Ray 550 00:34:17.560 --> 00:34:21.159 you know that answer because you know the answer to this I think because you've 551 00:34:21.159 --> 00:34:25.840 probably got the the battle wounds on this yourself I suspect. What was the 552 00:34:25.840 --> 00:34:33.800 number one thing that we didn't see coming with that model? The massive 553 00:34:33.800 --> 00:34:41.820 churn rate. You think your churn rates low. Figuring out the lifetime value of a 554 00:34:41.820 --> 00:34:46.920 client in that model my goodness the math was so complex. I was on all these 555 00:34:46.920 --> 00:34:53.480 university sites and modelings and trying to find out how and so finally we 556 00:34:53.480 --> 00:34:57.840 started guessing and we said okay and guess what we found out it was our 557 00:34:57.840 --> 00:35:01.960 number one problem. 558 00:35:00.000 --> 00:35:03.960 don't have stickiness to your service if people if you got a if you got a back 559 00:35:03.960 --> 00:35:08.680 door that's rotating as you know people are coming in you know and then rotating 560 00:35:08.680 --> 00:35:14.200 and leaving straight away that bleed actually costs you more because the 561 00:35:14.200 --> 00:35:20.440 acquisition cost so we cracked the code we found out there were two problems one 562 00:35:20.440 --> 00:35:25.880 the acquisition cost to get a new person who have never met to get to know us and 563 00:35:25.880 --> 00:35:31.600 start writing us you know letting us charge him $20 a month that thing 564 00:35:31.600 --> 00:35:38.640 required us to acquire better quality leads at a much higher rate so what 565 00:35:38.640 --> 00:35:42.600 would be your intuition well you shouldn't spend more than $20 if you're 566 00:35:42.600 --> 00:35:48.840 getting a $20 subscription well you might say well if you cost you $60 then 567 00:35:48.840 --> 00:35:53.560 you have to carry the cash for three months right because it takes 20 20 20 568 00:35:53.560 --> 00:35:57.880 what if they leave after the second month and that's why trials are 569 00:35:57.880 --> 00:36:02.240 ridiculous they never worked in our world all we did is burn through cash 570 00:36:02.240 --> 00:36:06.640 right because people get busy and they forget they won the trial and then hey 571 00:36:06.640 --> 00:36:10.720 what's this charge and then you get angry customers so we made another big 572 00:36:10.720 --> 00:36:14.960 mistake on scale what did we do we came up with annual subscriptions what if we 573 00:36:14.960 --> 00:36:17.720 made it easy for them and they only trust them once we gave him a little 574 00:36:17.720 --> 00:36:24.040 discount instead of $240 we only charge them what was it 196 192 192 one you 575 00:36:24.040 --> 00:36:27.320 know there'll be a discount and so a whole bunch of people bought the annual 576 00:36:27.320 --> 00:36:31.160 thing and then got really annoyed at the end of the year when there was another 577 00:36:31.160 --> 00:36:35.320 charge oh I thought I bought that like they bought it permanently I don't know 578 00:36:35.320 --> 00:36:39.280 and we end up with this adversarial relationship with our clients so we get 579 00:36:39.280 --> 00:36:43.320 a rid so we realize this annual things are really bad idea one of the first 580 00:36:43.320 --> 00:36:47.520 things I tried to bring to when I went to 100x was to stop that annual thing 581 00:36:47.520 --> 00:36:53.160 and then the the next thing we learned was hang on a second you know what we're 582 00:36:53.160 --> 00:36:58.280 missing we don't have an economic driver in this thing we're missing something 583 00:36:58.280 --> 00:37:04.280 key in this revenue stream so we came up with a $400 lifetime membership and we 584 00:37:04.280 --> 00:37:08.080 learned very quickly that 10 to 15 percent of all our customers will buy 585 00:37:08.080 --> 00:37:13.280 one of those and if we use that money to go towards the ads now we're buying new 586 00:37:13.320 --> 00:37:18.880 customers basically free we're using lifetime members to buy the monthly 587 00:37:18.880 --> 00:37:25.360 members correct the code now the good news is we did that in under what are 588 00:37:25.360 --> 00:37:31.120 you gonna say three weeks six weeks three and a half years because we're 589 00:37:31.120 --> 00:37:39.520 really quick that way right it's I mean it's literally exactly what I did I mean 590 00:37:39.520 --> 00:37:45.200 it's you're literally saying the exact journey you know we got a little bit 591 00:37:45.200 --> 00:37:50.280 over 9,000 members and our low ticket and I mean every single thing you just 592 00:37:50.280 --> 00:37:58.080 said we had to learn and it took us yeah a little bit longer okay we'll go 593 00:37:58.080 --> 00:38:03.320 through enough years the point we're making here is this is not because we're 594 00:38:03.320 --> 00:38:09.240 slow I mean I did this for a living and it took long what I'm saying is what 595 00:38:09.280 --> 00:38:16.360 got us there was the relentless monthly update of the black box we refused to 596 00:38:16.360 --> 00:38:20.840 let it go and when we crack the code that the lifetime members can buy the 597 00:38:20.840 --> 00:38:27.200 monthly members guess what we can now do we can scale right as long as the 598 00:38:27.200 --> 00:38:32.080 lifetime members can keep paying for and it turns out that the assumption of what 599 00:38:32.080 --> 00:38:37.680 percentage of new people coming that are lifetime 15 20 percent that continues to 600 00:38:37.760 --> 00:38:43.680 be steady as a rock it's amazing so the thing we thought would fluctuate didn't 601 00:38:43.680 --> 00:38:49.120 here's one thing I wish I knew which I didn't know and took me a long long time 602 00:38:49.120 --> 00:38:52.560 to learn it brilliant and I'm saying all that because there's several brilliant 603 00:38:52.560 --> 00:38:56.280 people on you they've been on this journey with me and know exactly so dear 604 00:38:56.280 --> 00:39:01.320 was director of marketing at the time Jenny was director of operations at the 605 00:39:01.320 --> 00:39:06.800 time and we went through the pain of this and yes when we did it we realized 606 00:39:06.800 --> 00:39:13.080 we didn't have we didn't we didn't have the big-ticket item that we could do 607 00:39:13.080 --> 00:39:17.280 something so we launched a thing called it was a discipleship a 60-day 608 00:39:17.280 --> 00:39:22.000 discipleship program that Jenny Teresa ran which we called impartation and I 609 00:39:22.000 --> 00:39:27.120 think we paid charge was $7.95 or it's about $800 around there now if when 610 00:39:27.120 --> 00:39:31.360 you're used to charging people 20 bucks to suddenly get an offer for $800 this 611 00:39:31.360 --> 00:39:36.020 caught our this caught our community a bit of God and then I realized I made a 612 00:39:36.020 --> 00:39:41.100 strategic mistake how many of you think I went too high my mistake is I went too 613 00:39:41.100 --> 00:39:47.060 low so when we realized hang on a second we need a separate school because there 614 00:39:47.060 --> 00:39:51.340 are people who want to go further what do they do so with that's why we launched 615 00:39:51.340 --> 00:39:54.940 the school getting our inside story here but the reason we launched the school 616 00:39:54.940 --> 00:39:58.100 it's because now we can make a seven and a half thousand dollar offer for 617 00:39:58.100 --> 00:40:01.940 something we know costs way way 618 00:40:00.000 --> 00:40:08.220 more than that to have Graham and me for 40 weeks is a deal because I know what 619 00:40:08.220 --> 00:40:13.560 I paid when we ran catalyst we paid a speaker to come speak for 40 minutes we 620 00:40:13.560 --> 00:40:19.140 pay them 15 to 25 thousand if it was if it was someone like Simon Sinek back 621 00:40:19.140 --> 00:40:26.360 then in 2017 there were 75,000 for that one talk yeah they're getting both of us 622 00:40:26.360 --> 00:40:34.800 for 40 weeks what a deal right so what I'm saying is when the Lord says one do 623 00:40:34.800 --> 00:40:39.760 not fear in our partnership then the next thing he says be bold be full of 624 00:40:39.760 --> 00:40:47.680 courage and here's the funny thing let's say you have your product that's let's 625 00:40:47.680 --> 00:40:55.640 go back to our our group there with their $300 297 a month if you had that 626 00:40:55.640 --> 00:41:02.040 group for $297 a month and then you just decided you know what don't get 627 00:41:02.040 --> 00:41:09.160 don't go 5x or 10x above that you want to have two at most I think three price 628 00:41:09.160 --> 00:41:14.180 points but they have to be very well separated the closer your pricing 629 00:41:14.180 --> 00:41:17.760 structure is the harder it is to distinguish what you're doing and you'd 630 00:41:17.760 --> 00:41:21.560 make it too complex and too nuanced and now they need a whole explanation and 631 00:41:21.800 --> 00:41:26.360 your sales deployment your conversions will be terrible so if you've got this 632 00:41:26.360 --> 00:41:32.080 $300 product what should be your next product be price-wise anyone want to 633 00:41:32.080 --> 00:41:40.840 guess pick a number right because you basically got a 300 times 12 product or 634 00:41:40.840 --> 00:41:43.920 if you're doing it on a monthly basis you should have a three thousand four 635 00:41:43.920 --> 00:41:48.240 thousand dollar product now here's the funniest thing if you put up a $8,000 636 00:41:48.240 --> 00:41:54.520 product 5k exactly if you put up a 5k product 10 to 15 percent of people will 637 00:41:54.520 --> 00:41:59.800 buy your premium product because they just want the best just want that hard 638 00:41:59.800 --> 00:42:03.960 data known while in the industry and that's not just for online people that's 639 00:42:03.960 --> 00:42:10.360 for anybody and the fascinating thing is if you have so now we have you know the 640 00:42:10.360 --> 00:42:18.120 $3,600 a year product let's say we put up a 10k product and then as you get a 641 00:42:18.120 --> 00:42:22.600 little bit momentum and a little bit of credibility you can go to a $25,000 642 00:42:22.600 --> 00:42:26.360 product did you see what I did with the gaps and you don't need a lot of 643 00:42:26.360 --> 00:42:33.680 $25,000 product people so I was speaking to the person who helps us run our event 644 00:42:33.680 --> 00:42:39.520 and she was telling me that in their space somebody was trying to run their 645 00:42:39.520 --> 00:42:44.840 first virtual event they thought they'd have 300 people attending they end up 646 00:42:44.840 --> 00:42:51.440 with 50 and he had a 10k offer so what he did what they did is they pivoted at 647 00:42:51.440 --> 00:42:59.120 the last minute and they are open up an offer for 50k that's the most that 648 00:42:59.120 --> 00:43:03.920 seems like exact that seems like the wrong way because 50 people pitched 3 649 00:43:03.920 --> 00:43:11.080 sorry 5 people bought and he walked away with a turn of 50k event it's a lot 650 00:43:11.080 --> 00:43:16.060 easier to sell a high ticket item to a few people than a small ticket item to a 651 00:43:16.060 --> 00:43:19.600 lot of people so while we're on the subject of pricing let me throw in let 652 00:43:19.600 --> 00:43:24.000 me throw in Warren Buffett here so here's Warren Buffett's view to pricing 653 00:43:24.000 --> 00:43:30.640 Warren Buffett's view to pricing is this on if you take a scale and he calls it a 654 00:43:30.640 --> 00:43:34.680 commodity product that means there's a lot of people in the space if I was 655 00:43:34.680 --> 00:43:41.480 selling a competitor to Netflix right I there's it's a commodity product right 656 00:43:41.480 --> 00:43:46.080 if you sell cars or whatever it is I'm trying to think of our own group here 657 00:43:46.080 --> 00:43:49.920 whatever it is if you have a commodity product you don't have a lot of price 658 00:43:49.920 --> 00:43:54.880 control over what you're doing as you go to a different as you go along that 659 00:43:54.880 --> 00:43:59.640 scale you get to the point where you're doing something so unique that you get 660 00:43:59.640 --> 00:44:04.720 to control the price because there's no way to measure it against anything so 661 00:44:04.720 --> 00:44:08.780 what you're trying to do is you're trying to get along so now we're in a 662 00:44:08.780 --> 00:44:12.920 discussion with the Lord in your partnership so father do I need to think 663 00:44:12.920 --> 00:44:17.960 differently do we need to package things up in a different way do who is my 664 00:44:17.960 --> 00:44:23.880 right-fit client because everybody thinks big mistake start with a small 665 00:44:23.880 --> 00:44:28.560 and then build it to the big and while you can't go for the mega big one at the 666 00:44:28.560 --> 00:44:33.840 top of the list what you can do is you can start at a lot higher than you 667 00:44:33.840 --> 00:44:37.160 thought because I mean if you're gonna you can't go put together a mastermind 668 00:44:37.160 --> 00:44:40.000 and nobody knows who you are and you want to charge a hundred thousand a year 669 00:44:40.000 --> 00:44:46.160 for that maybe you can maybe I just haven't enough courage but it's a fun 670 00:44:46.160 --> 00:44:50.960 conversation because the Lord loves the possibility of that because then people 671 00:44:50.960 --> 00:44:54.800 say well I want this to be for everyone okay let's address that because there's 672 00:44:54.800 --> 00:45:02.000 a common Christian thinking thing and it's very church world well if we charge 673 00:45:00.000 --> 00:45:03.200 people anything you know then those people can't come and those people 674 00:45:03.200 --> 00:45:06.400 here's what happens if you start with your big ticket item and you build an 675 00:45:06.400 --> 00:45:10.000 economic engine that works your black box is 676 00:45:10.000 --> 00:45:13.120 profitable you can give away the cheap stuff 677 00:45:13.120 --> 00:45:16.640 you can give away something to everyone would be wonderful and brilliant our 678 00:45:16.640 --> 00:45:20.000 goal someday is to offer brilliant plus free 679 00:45:20.000 --> 00:45:24.480 that would be our goal but to do that we have to build an economic engine 680 00:45:24.480 --> 00:45:27.840 they can afford to do that otherwise we're relying on people 681 00:45:27.840 --> 00:45:32.400 giving gifts so 682 00:45:33.280 --> 00:45:37.760 so bruce yeah tell us what you did there where's bruce 683 00:45:37.760 --> 00:45:40.960 i just saw your post you said you started on the high end working yeah 684 00:45:40.960 --> 00:45:43.760 tell us what just we've always done like custom works we 685 00:45:43.760 --> 00:45:47.520 had a handful of clients starting at like they're at least 100k 686 00:45:47.520 --> 00:45:51.920 a year and then we've slowly built a product for 30k 687 00:45:51.920 --> 00:45:55.520 and kind of holding that right now we have some other coaching that stuff 688 00:45:55.520 --> 00:45:59.280 that's like a you know four or five k stuff so we've we 689 00:45:59.280 --> 00:46:02.800 tried to get like the least amount of people up front is less 690 00:46:02.800 --> 00:46:07.920 clients to manage less uh infrastructure needed um and also 691 00:46:07.920 --> 00:46:10.720 easier to work with so when you're getting started 692 00:46:10.720 --> 00:46:14.400 the the more people pay you the less maintenance they are 693 00:46:14.400 --> 00:46:18.640 somehow um the people who give you just a few thousand dollars are the ones that 694 00:46:18.640 --> 00:46:22.560 need all the attention in the world so they're making marriage plans and they 695 00:46:22.880 --> 00:46:25.520 they're picking out the furniture for how you're going to live together for 696 00:46:25.520 --> 00:46:29.520 the rest of your life so yeah it's the there's like a meme of 697 00:46:29.520 --> 00:46:32.960 that where it's like the 500 client it's like i'm so looking forward to 698 00:46:32.960 --> 00:46:35.760 partnering together in this new venture we're doing 699 00:46:35.760 --> 00:46:39.840 and the 50k client is like money wired it's just 700 00:46:39.840 --> 00:46:43.360 you know it's pretty true in the space yeah 701 00:46:43.360 --> 00:46:47.040 this is the truth i see you you use tesla as an example they started with a 702 00:46:47.040 --> 00:46:50.160 model s and they work down to the model 3 703 00:46:50.160 --> 00:46:53.680 you start with your you start with well actually before 704 00:46:53.680 --> 00:46:57.920 the roadster you did say that the roadster which was over 100k 705 00:46:57.920 --> 00:47:03.040 then the model s which i think was around 60 70k the three is now 30 40k 706 00:47:03.040 --> 00:47:07.920 see what's going on there so what you do you have to go and find 707 00:47:07.920 --> 00:47:12.080 here's the most fascinating and unexpected thing about this 708 00:47:12.080 --> 00:47:17.680 because i have i have seen that people especially ministry people have a very 709 00:47:17.680 --> 00:47:21.600 hard time with us because they feel like oh now we're 710 00:47:21.600 --> 00:47:24.400 just concentrating on the rich or whatever it is 711 00:47:24.400 --> 00:47:28.320 and the point is if you want to have the highest impact and the highest reach 712 00:47:28.320 --> 00:47:33.600 start with your highest product first i'm telling you guys i wondered if i 713 00:47:33.600 --> 00:47:36.880 came into your business not because i have any magic but we 714 00:47:36.880 --> 00:47:39.760 just applied this principle what if i came into your business increased all 715 00:47:39.760 --> 00:47:45.440 your prices by 25 percent oh we'll lose clients i bet you'll gain 716 00:47:45.480 --> 00:47:51.200 more and in my experience if you can 717 00:47:51.200 --> 00:47:54.400 if you can but here's the cool thing we're not doing this on our own we're 718 00:47:54.400 --> 00:47:58.800 doing this in partnership so go to the lord and say lord what am i 719 00:47:58.800 --> 00:48:03.840 what are you seeing that i'm not seeing where's x marks the spot where we can 720 00:48:03.840 --> 00:48:07.680 drill what do you see as dead that needs to 721 00:48:07.680 --> 00:48:09.680 go and then the lord says and then you say 722 00:48:09.840 --> 00:48:15.440 but i love that thing it's my favorite toy 723 00:48:15.440 --> 00:48:19.120 so it's a fascinating conversation because when you get to that level of 724 00:48:19.120 --> 00:48:24.000 partnership there's a clarity and a precision 725 00:48:24.000 --> 00:48:30.960 and a freedom to rethink your business and when you're thinking in these 726 00:48:30.960 --> 00:48:34.000 terms everything shifts for you right so let 727 00:48:34.000 --> 00:48:37.360 me go back for a second to some of the notes here 728 00:48:37.360 --> 00:48:43.840 that i was sharing with you sorry if we can get me back on the screen 729 00:48:46.160 --> 00:48:50.080 okay so we said should you buy this business well it was a difficult 730 00:48:50.080 --> 00:48:53.280 question to answer because we didn't know what the expenses were 731 00:48:53.280 --> 00:48:56.880 we couldn't figure what how hard is to crank the handle 732 00:48:56.880 --> 00:49:00.960 the cash in cash out and how hard is to crank the handle is everything 733 00:49:00.960 --> 00:49:04.240 how much effort does it take and knowing the one dial 734 00:49:04.240 --> 00:49:07.840 so that's my simple solution to the whole thing 735 00:49:07.840 --> 00:49:12.480 so here let me share with you and i'll drop end up with this 736 00:49:12.480 --> 00:49:16.000 when we're looking at your business if you gave me your pnl 737 00:49:16.000 --> 00:49:19.920 to look at this is what i would do with it the first thing is i'm going to look 738 00:49:19.920 --> 00:49:23.200 at your profitability these are your first three groups of 739 00:49:23.200 --> 00:49:28.480 numbers right so we're looking at your revenue minus cost of sales is your 740 00:49:28.480 --> 00:49:32.720 gross profit so what that's telling me what that's 741 00:49:32.720 --> 00:49:36.480 telling me is how profitable how good is your black 742 00:49:36.480 --> 00:49:40.960 box so how how easy is it to crank the handle 743 00:49:40.960 --> 00:49:45.360 so if you make a hundred dollars and your cost of goods is ten dollars 744 00:49:45.360 --> 00:49:48.640 and you're dropping ninety dollars to your gross profit 745 00:49:48.640 --> 00:49:53.440 that's a good business if it starts to drop below forty percent 746 00:49:53.440 --> 00:49:58.560 in my experience it's very hard to keep the business going 747 00:49:58.560 --> 00:50:01.680 and 748 00:50:00.000 --> 00:50:02.880 Uh, if it's 60 to 80 percent, that's fantastic. 749 00:50:02.880 --> 00:50:07.760 If you're Red Hat, which runs Red Hat software, the Linux people, 750 00:50:08.480 --> 00:50:12.480 if you're running Red Hat, now acquired by IBM for $37 billion, 751 00:50:12.480 --> 00:50:14.720 I think it's the biggest cash transaction in the history, 752 00:50:15.360 --> 00:50:16.800 you know, in the history of the world. 753 00:50:17.920 --> 00:50:20.720 But Red Hat give away their software. 754 00:50:20.720 --> 00:50:23.760 And analysts could not figure out how Red Hat makes their money. 755 00:50:23.760 --> 00:50:25.920 And they make it by the support of the software. 756 00:50:25.920 --> 00:50:27.520 They'll give you the source code. 757 00:50:27.520 --> 00:50:28.640 They'll give you the code. 758 00:50:29.520 --> 00:50:32.160 And they'll control what they're giving, but all their money. 759 00:50:32.160 --> 00:50:35.520 So guess what? Red Hat is sitting at 92 percent profitability. 760 00:50:36.160 --> 00:50:38.400 If you look at a big company like IBM, 761 00:50:39.200 --> 00:50:42.640 the selling of big computers will be a tiny fraction. 762 00:50:42.640 --> 00:50:44.720 Most of their money is going to come from services. 763 00:50:44.720 --> 00:50:47.840 Why? Because I would say 90 percent, I'm guessing, 764 00:50:47.840 --> 00:50:49.600 because I haven't looked at IBM for about five years, 765 00:50:49.600 --> 00:50:51.680 but I would guess it's still similar. 766 00:50:51.680 --> 00:50:54.400 There's something like 90 percent of IBM's revenue 767 00:50:54.400 --> 00:50:56.800 or some very large number is coming from services. 768 00:50:57.440 --> 00:50:58.960 So you say, well, I have a product. 769 00:50:58.960 --> 00:51:02.400 Well, if you have a product and you can add a service to it, 770 00:51:02.400 --> 00:51:04.400 especially if you can combine the two, 771 00:51:04.400 --> 00:51:05.760 we're looking for that number. 772 00:51:05.760 --> 00:51:10.160 If your number is below 40 percent, right? 773 00:51:10.160 --> 00:51:12.400 So there's an old, there's an old, old joke. 774 00:51:13.680 --> 00:51:15.120 To give a moment of comic relief, 775 00:51:15.120 --> 00:51:18.080 there's an old, old joke about two guys 776 00:51:18.880 --> 00:51:22.640 who haven't seen each other for 30 years since high school. 777 00:51:23.360 --> 00:51:25.840 And they connect and they decide to have lunch together. 778 00:51:26.640 --> 00:51:29.200 And as they're sitting there, the one guy, 779 00:51:30.800 --> 00:51:34.720 we'll call him Bob, drives up in a, you know, 780 00:51:34.720 --> 00:51:37.200 a brand new Rolls Royce, chauffeur driven, 781 00:51:38.080 --> 00:51:40.160 person lets him, you know, chauffeur lets him out. 782 00:51:40.160 --> 00:51:42.880 He walks in and he meets his friend, John. 783 00:51:43.600 --> 00:51:44.720 And John is stunned. 784 00:51:45.440 --> 00:51:46.800 Bob, so good to see you. 785 00:51:47.440 --> 00:51:49.200 But man, I got to ask, 786 00:51:50.000 --> 00:51:54.000 how are you driving around in a Rolls Royce? 787 00:51:54.960 --> 00:51:58.240 You were the worst at math of anyone in the class. 788 00:51:58.240 --> 00:51:59.920 In fact, not to be rude, 789 00:51:59.920 --> 00:52:02.560 but you were the worst in math of anyone I'd ever known. 790 00:52:03.920 --> 00:52:05.200 How did you do that? 791 00:52:05.200 --> 00:52:09.360 Bob's answer was, well, I buy these pencils for a dollar 792 00:52:09.920 --> 00:52:13.120 and I sell them for three dollars and then I live off the two percent. 793 00:52:14.880 --> 00:52:17.840 So if you didn't catch the joke, 794 00:52:17.840 --> 00:52:20.640 we have other, we have other discussions to have. 795 00:52:21.280 --> 00:52:22.320 So the point here is, 796 00:52:24.240 --> 00:52:25.120 here's what we're doing. 797 00:52:25.120 --> 00:52:26.560 You don't have to be good at math. 798 00:52:26.560 --> 00:52:29.360 You just have to have an amazingly good profitable business. 799 00:52:29.360 --> 00:52:33.680 And so if you're in a commodity business where that shrinks, 800 00:52:33.680 --> 00:52:36.240 you have to find services or something else 801 00:52:36.240 --> 00:52:40.080 that's going to push up that black box, improve the black box. 802 00:52:41.520 --> 00:52:42.960 Second part of the rule of three, 803 00:52:42.960 --> 00:52:45.920 I now take the next group of three numbers. 804 00:52:45.920 --> 00:52:49.280 So the first group of three was revenue, cost of sales and gross profit 805 00:52:49.280 --> 00:52:51.520 tells me how profitable you are. 806 00:52:51.520 --> 00:52:55.680 The next thing tells me how efficient you are with those profits. 807 00:52:55.680 --> 00:52:57.600 So now I'm looking, I'm starting with the gross. 808 00:52:57.600 --> 00:52:58.880 Sorry, I'm misspelling there. 809 00:52:58.880 --> 00:53:00.480 I start with a gross profit. 810 00:53:01.440 --> 00:53:06.000 The gross profit that we ended up with in the previous calculation 811 00:53:06.000 --> 00:53:08.160 is now the first line item on the next three. 812 00:53:08.160 --> 00:53:10.400 And I look at your expenses and I have a net profit. 813 00:53:10.400 --> 00:53:13.440 This tells me how well managed the business is. 814 00:53:14.640 --> 00:53:17.200 So let's say we started with a hundred dollars. 815 00:53:17.200 --> 00:53:18.320 We spent $10. 816 00:53:18.320 --> 00:53:19.840 Now we have $90 left. 817 00:53:19.840 --> 00:53:25.600 And let's say after our expenses, and let's say we spent $70 on expenses 818 00:53:25.600 --> 00:53:27.760 and we end up with $20 net profit. 819 00:53:28.400 --> 00:53:32.160 That tells me how efficient the business is, how good the management is. 820 00:53:33.120 --> 00:53:38.080 So the tougher your business is, the lower your gross margin is, 821 00:53:38.080 --> 00:53:42.000 the smarter you have to be, the more efficient you have to be as a manager. 822 00:53:42.000 --> 00:53:42.720 Does that make sense? 823 00:53:43.680 --> 00:53:47.280 Because if you have a low margin business, you have to run that thing 824 00:53:47.920 --> 00:53:50.640 worrying about every single cent, every single dollar. 825 00:53:50.640 --> 00:53:56.080 You have to be an extraordinarily good manager and not to be brutal. 826 00:53:56.080 --> 00:54:01.440 But if you run Coca-Cola, honestly, I'm not sure what you have to be 827 00:54:01.440 --> 00:54:03.600 because that thing has such massive margins. 828 00:54:04.480 --> 00:54:09.840 So in that particular case, you can afford some management learning, 829 00:54:09.840 --> 00:54:11.840 some difficulty or whatever it is. 830 00:54:12.640 --> 00:54:15.120 The last rule of three comes down to, 831 00:54:15.920 --> 00:54:19.520 and we'll end with this for this part, is your environment. 832 00:54:19.520 --> 00:54:21.760 The last three numbers tells me your environment. 833 00:54:21.760 --> 00:54:25.040 This is, we take your net profit, which is what we ended on the last one. 834 00:54:26.080 --> 00:54:29.760 We move out depreciation, taxes, and all those other things. 835 00:54:29.760 --> 00:54:32.000 And we end up with your net operating profit. 836 00:54:32.000 --> 00:54:34.720 This tells me where you're operating in. 837 00:54:35.360 --> 00:54:39.520 A lot of companies leaving California is because of this, the environment, 838 00:54:40.160 --> 00:54:43.520 the taxes, the costs of whatever. 839 00:54:43.520 --> 00:54:46.720 By the way, depreciation, these are very real costs. 840 00:54:47.280 --> 00:54:49.120 Depreciation isn't an accounting thing. 841 00:54:49.120 --> 00:54:53.520 Depreciation is, what is it going to cost you to replace that asset? 842 00:54:54.080 --> 00:54:58.640 Even let's say it's a computer and it costs $3,000 843 00:54:58.640 --> 00:54:59.840 and you're only allowed to write. 844 00:55:00.000 --> 00:55:03.360 of $1,000 a year, in three years' time, 845 00:55:03.360 --> 00:55:05.240 it's assumed that asset is now gone, 846 00:55:05.240 --> 00:55:06.760 and now you have to put another 3,000. 847 00:55:06.760 --> 00:55:10.160 So depreciation is like your savings plan 848 00:55:10.160 --> 00:55:12.120 to replace the asset, 849 00:55:12.120 --> 00:55:14.280 the simplest way I can explain that. 850 00:55:14.280 --> 00:55:16.840 So when we're looking at these numbers, 851 00:55:16.840 --> 00:55:21.080 what I wanted to share with you today was the simple idea. 852 00:55:22.560 --> 00:55:27.560 We're not looking to be ruthless with the numbers 853 00:55:27.760 --> 00:55:29.000 for the numbers' sake. 854 00:55:29.000 --> 00:55:32.640 We're looking to be people who, like David, 855 00:55:32.640 --> 00:55:34.960 have a contrite heart upstairs 856 00:55:34.960 --> 00:55:37.480 and skillful hands downstairs. 857 00:55:37.480 --> 00:55:39.600 We don't have to have a contrite heart 858 00:55:39.600 --> 00:55:42.000 and then be clumsy and kind of be half-blind 859 00:55:42.000 --> 00:55:44.240 about our actual economic model. 860 00:55:44.240 --> 00:55:46.840 We have to know it extremely well. 861 00:55:46.840 --> 00:55:50.120 And I found that when you dig that deep 862 00:55:50.120 --> 00:55:51.480 and you ask the Lord, 863 00:55:52.560 --> 00:55:54.960 please don't make my mistake of, 864 00:55:55.000 --> 00:55:57.000 please don't make my mistake of, 865 00:55:57.000 --> 00:55:59.200 because math's my thing and modeling and all that, 866 00:55:59.200 --> 00:56:00.440 so I jump in and do it all 867 00:56:00.440 --> 00:56:01.480 and I'm struggling through it all, 868 00:56:01.480 --> 00:56:04.240 and then I get a brilliant idea. 869 00:56:04.240 --> 00:56:06.680 Why don't I ask the Holy Spirit to help me? 870 00:56:08.720 --> 00:56:10.240 Try to start there, 871 00:56:10.240 --> 00:56:12.840 because it's amazing how quickly He leads you 872 00:56:12.840 --> 00:56:14.920 to the key dial you need. 873 00:56:14.920 --> 00:56:17.640 He loves to be in it with you. 874 00:56:17.640 --> 00:56:19.640 And it may not be that He speaks to you and says, 875 00:56:19.640 --> 00:56:21.720 do this or do that, maybe, 876 00:56:21.720 --> 00:56:24.960 but more than often, He guides the thought process 877 00:56:24.960 --> 00:56:27.400 so that you land where you need to land. 878 00:56:27.400 --> 00:56:29.160 And why does He want you to do that? 879 00:56:29.160 --> 00:56:32.880 Because He wants you to help you dig where X marks the spot 880 00:56:32.880 --> 00:56:35.680 so you can find the resources you need, 881 00:56:35.680 --> 00:56:38.160 because every promise from God 882 00:56:38.160 --> 00:56:41.400 is an invitation to become someone in the Lord. 883 00:56:41.400 --> 00:56:45.960 It's got built-in economic model that goes with it, 884 00:56:45.960 --> 00:56:48.280 and it comes with His permission 885 00:56:48.280 --> 00:56:50.160 to learn that whole business, 886 00:56:50.160 --> 00:56:53.120 every tiny aspect of it from leading people, 887 00:56:53.120 --> 00:56:54.880 how to price your products, 888 00:56:54.880 --> 00:56:56.680 how to sell them, how to promote them, 889 00:56:56.680 --> 00:56:59.320 how to market them, how to serve people, 890 00:56:59.320 --> 00:57:01.600 how to bring the kingdom in goodness. 891 00:57:03.760 --> 00:57:04.600 How are we doing? 892 00:57:05.760 --> 00:57:06.960 I need a voice break. 893 00:57:09.200 --> 00:57:10.720 Was that helpful, guys? 894 00:57:13.600 --> 00:57:17.920 So my challenge to you is think like an investor. 895 00:57:17.920 --> 00:57:19.880 You say, well, I'm not an investor, but you are. 896 00:57:20.560 --> 00:57:21.840 You're investing in your own business. 897 00:57:21.840 --> 00:57:26.560 You're investing your kids' inheritance in this business. 898 00:57:26.560 --> 00:57:29.600 Wouldn't you put the same focus and energy into it? 899 00:57:31.040 --> 00:57:33.480 I love the way Warren Buffett talks about investing. 900 00:57:33.480 --> 00:57:35.240 He said, if I gave you, 901 00:57:36.960 --> 00:57:40.320 if I took your entire working life, 902 00:57:40.320 --> 00:57:43.880 and I gave you all that money today, all of it, 903 00:57:43.880 --> 00:57:45.920 you're 25 years old, 904 00:57:45.920 --> 00:57:49.120 and I've figured out what you're gonna earn until you're 65, 905 00:57:49.120 --> 00:57:51.080 and I write you a check for the full amount. 906 00:57:51.080 --> 00:57:52.080 Let's just make up a number. 907 00:57:52.080 --> 00:57:54.440 Let's say it's $2 million. 908 00:57:54.440 --> 00:57:56.120 I write you the check for $2 million. 909 00:57:56.120 --> 00:57:57.480 Here's the rule. 910 00:57:57.480 --> 00:58:00.000 You're only allowed to invest in one company. 911 00:58:00.000 --> 00:58:02.600 That's it, the whole 2 million. 912 00:58:03.680 --> 00:58:07.800 What kind of due diligence would you do on that one company? 913 00:58:09.440 --> 00:58:12.520 That's what you need to do for your own company. 914 00:58:14.840 --> 00:58:17.720 Your whole core, your partnership with the Lord 915 00:58:17.720 --> 00:58:20.000 is all in on this one thing. 916 00:58:20.000 --> 00:58:24.880 So go in and become, get as deep as you can go. 917 00:58:24.880 --> 00:58:26.560 Model it out, keep trying. 918 00:58:26.560 --> 00:58:28.920 And if you model it and it doesn't work, 919 00:58:28.920 --> 00:58:30.560 do it again and do it again, 920 00:58:30.560 --> 00:58:34.440 and every month update it until you become an expert 921 00:58:34.440 --> 00:58:36.680 on the underlying economics of this business. 922 00:58:36.680 --> 00:58:39.440 And then the Lord says, we're doing this. 923 00:58:39.440 --> 00:58:40.760 We're launching that. 924 00:58:40.760 --> 00:58:43.200 You know exactly what that means. 925 00:58:44.800 --> 00:58:45.640 So. 926 00:58:46.640 --> 00:58:49.800 We'll be dropping the spreadsheet and the notes 927 00:58:49.800 --> 00:58:53.760 and the replays into the group after the call today 928 00:58:53.760 --> 00:58:55.280 or early tomorrow. 929 00:58:55.280 --> 00:58:56.560 So if you have any questions, 930 00:58:56.560 --> 00:58:57.960 go ahead and post them there as well. 931 00:58:57.960 --> 00:58:59.440 And this is a great thing. 932 00:58:59.440 --> 00:59:01.240 I would recommend taking a stab at it yourself. 933 00:59:01.240 --> 00:59:03.480 And then this is a great thing to book an SOS call 934 00:59:03.480 --> 00:59:04.600 to go through with Dion. 935 00:59:04.600 --> 00:59:07.560 I've done dozens of black box models with him 936 00:59:07.560 --> 00:59:08.840 and it still is really helpful 937 00:59:08.840 --> 00:59:10.720 for the first time to run through it and go, wait, 938 00:59:10.720 --> 00:59:11.560 does this go here? 939 00:59:11.560 --> 00:59:12.400 Does this go there? 940 00:59:12.400 --> 00:59:13.400 What am I missing? 941 00:59:13.400 --> 00:59:15.960 So highly recommend that you do that 942 00:59:15.960 --> 00:59:17.800 and take advantage of those sessions. 943 00:59:17.800 --> 00:59:20.320 And then I think Robin has a question 944 00:59:20.320 --> 00:59:22.200 and there's some good feedback in the comments as well. 945 00:59:22.200 --> 00:59:25.360 But after that, let's take a five minute break, Dion, 946 00:59:25.360 --> 00:59:27.120 and then we'll move into our next session. 947 00:59:27.120 --> 00:59:30.160 Yeah, I definitely need the five minute break, Robin. 948 00:59:30.160 --> 00:59:31.880 We'll go to the break after Robin. 949 00:59:32.840 --> 00:59:34.040 Yeah. 950 00:59:34.040 --> 00:59:37.000 You know, I started our company without any knowledge 951 00:59:37.000 --> 00:59:39.280 of what to do as a CEO. 952 00:59:39.280 --> 00:59:41.200 And I just picked something out of the air 953 00:59:41.200 --> 00:59:45.920 that was basically said, I wanted 25% cost of goods sold, 954 00:59:45.920 --> 00:59:50.920 25% marketing and sales, 25% admin and 25% profit. 955 00:59:51.480 --> 00:59:54.920 And we pretty much run that for seven years 956 00:59:54.920 --> 00:59:59.920 and it worked until we got to where all of a sudden 957 01:00:00.000 --> 01:00:09.280 sudden our expenses started going up and not keeping a good handle on our admin costs was 958 01:00:10.480 --> 01:00:16.000 what I ended up struggling with these last seven months. And so now we're taking another look at 959 01:00:16.000 --> 01:00:25.680 that. And so what happens when, I guess, you have this model and it works okay. I mean, obviously 960 01:00:26.480 --> 01:00:31.760 we weren't 100% on everything, but I would watch it every month with P&L and see where we were 961 01:00:31.760 --> 01:00:38.400 with the cost of goods and our expenses. And if things needed to change, I would change them. But 962 01:00:38.400 --> 01:00:43.040 I really didn't have to change much along the way. But what happens when all of a sudden you start 963 01:00:43.040 --> 01:00:49.600 seeing some dramatic changes in your original business model and you have to change to a 964 01:00:49.680 --> 01:00:56.240 different business model to stay afloat? You always ask such great questions, Robin. 965 01:00:57.280 --> 01:01:02.000 I love this question. I'm trying to think of how to answer this in the simplest way. I think the 966 01:01:02.000 --> 01:01:09.280 simplest thing I could say would be business models are living documents. They are living 967 01:01:09.280 --> 01:01:14.880 things. They're not like, okay, we cracked the code. Now the cookie jar will always do this. 968 01:01:14.880 --> 01:01:18.240 It doesn't always do that. It changes. The market changes, 969 01:01:18.240 --> 01:01:23.040 economics change, your clients change. Here's the coolest thing. It's often 970 01:01:25.280 --> 01:01:30.640 interesting to ask the Lord, you know, because some economic models, which I've made a huge 971 01:01:30.640 --> 01:01:36.480 mistake in this in my early career, kept investing in businesses I should have stopped in. I should 972 01:01:36.480 --> 01:01:41.840 have let them die, let alone stopped investing in them. That is such a great question. Lord, 973 01:01:41.840 --> 01:01:45.840 is this dead? And it just needs to go lie down. And I take the losses and figure out with you 974 01:01:45.840 --> 01:01:51.760 what to do about that. Sometimes that's the answer. It's not a nice answer. Unless the seed 975 01:01:51.760 --> 01:01:56.560 falls to the ground and dies, it bears no fruit. And sometimes what comes out of those ashes are 976 01:01:56.560 --> 01:02:03.440 the most extraordinary opportunities. And then the second thing I want to say to you, in general, 977 01:02:03.440 --> 01:02:08.960 this isn't always good, but in general, when the world downstairs is full of fear, 978 01:02:08.960 --> 01:02:16.480 it's time for you to be bold. When the world is hugely optimistic and gone into this crazy 979 01:02:16.480 --> 01:02:23.280 spending like the town drunk, then you should be cautious. Always do exactly the opposite of 980 01:02:23.280 --> 01:02:29.280 what Wall Street says. There's a 90 something percent correlation to that value. That means. 981 01:02:31.120 --> 01:02:37.520 So. In the Great Depression, there was this little company that kicked off and it had 982 01:02:37.520 --> 01:02:42.240 very small opportunity to become something. The company I'm speaking about is General Motors. 983 01:02:44.640 --> 01:02:48.960 When you look back and you look at something, if you think we're going into a recession 984 01:02:48.960 --> 01:02:54.640 as a believer, as a kingdom leader, you're going, yes, that's fantastic. How are we going to grow? 985 01:02:54.640 --> 01:02:59.680 And if you have this command of the model, then you know when to stop it and let it die. 986 01:02:59.680 --> 01:03:04.800 You know how to invest it to make it grow. You know what you're doing in terms of how to keep 987 01:03:04.800 --> 01:03:14.560 trend and how to take advantage, because it's like, you know, the world is in an economic recession, 988 01:03:14.560 --> 01:03:17.760 but we as kingdom leaders have decided not to participate. 989 01:03:21.760 --> 01:03:28.320 We opted out. So why don't you opt out of what the world says you can and can't do and opt in 990 01:03:28.320 --> 01:03:34.000 to what the Lord's giving you to do? Listen, he changed for Israel the entire economy in one day. 991 01:03:34.560 --> 01:03:39.600 Fixing your business, you're not a challenge to him. But a lot of the times we don't have our 992 01:03:39.600 --> 01:03:45.200 hands on the handles. We don't know where the dials are. And it would be so much easier to 993 01:03:45.200 --> 01:03:53.200 walk with him and partner with him if we could. It's like, imagine if you, when I grew up for a 994 01:03:53.200 --> 01:03:59.360 few years, I spent some time on a farm. We had this little buggy, which was like a car with no 995 01:03:59.360 --> 01:04:04.880 anything. It was just an engine, basically, and wheels. And it was really dangerous. But you know, 996 01:04:04.880 --> 01:04:09.600 you're teenagers, you're invincible. So it's good to do it then. And so and literally had no steering 997 01:04:09.600 --> 01:04:14.080 wheel. It had a pair of vice grips that had been climbed on. And that was the steering wheel. 998 01:04:15.040 --> 01:04:19.200 And I think that's kind of the picture I have. Sometimes the people run their businesses like 999 01:04:19.200 --> 01:04:24.480 there's got no steering wheel, no real brakes, don't know when to stop. So great question, Robin. 1000 01:04:25.120 --> 01:04:28.160 Great, great question. Short answer is your partnership will tell you. 1001 01:04:30.000 --> 01:04:32.400 But don't invest past the point of death. 1002 01:04:36.160 --> 01:04:39.120 Says the guy who's turned that into an art form.