(EP 21) Rob Olver – Forget evolution! When should you revolutionise your business model?

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Rob Olver helps business leaders and business owners to reimagine and transform their business models for new and sustainable growth. He’s particularly interested in established businesses who want to innovate and develop new product services and reinvent their business models. He calls them the 20 year old start-ups.

They’ve got the domain knowledge, people, customers, networks, and the balance sheet to often make them a better bet than typical start-ups. He’s repurposed proven start-up methodologies and developed a framework that works for established businesses. Today Rob’s going to share what he does and tell us a story or two of his favourite case examples.

Rob, welcome.

Hello, John. Nice to be with you.

It’s great to see you. So Rob, how did you get into this business model transformation game?

Well, it was kind of interesting. I’ve got a side gig with the Federal Government and I noticed around the time that NISA and the “ideas boom” was being announced that it was pretty frothy out there in start up land but I was working with some fabulous businesses, very innovative people.

Mature businesses that were doing some unbelievably new and exciting things and NISA and the ideas boom was like a party that they just weren’t invited to. Had no idea of what the opportunities with government were, the opportunities in the start-up community the meetups and all of that energy that is in that particular start-up space.

That was my first foray into thinking, we better get hold of this. In talking with government about it, we launched this particular service around business model transformation a couple of years ago. It’s been enormously successful because we are targeting businesses that have a good balance sheet, they’ve got customers, they’ve got experienced staff, a lot of them have got great products and services.

And so the chances of them succeeding, probably a lot higher than a bunch of start-ups who typically just have a good idea and a bit of a hidden hope in getting it to market. So that’s the sort of origins of the species, but it was interesting because the start-up world it’s 35 to 40 years now that we’ve been talking about this concept and some of the biggest companies in the world have come pretty much along a pretty empirical journey from idea through to market fit. So when I was looking at reference material that I thought would be useful for my established businesses, I went straight to an open source framework that hasn’t been around for a long while.

It’s basically four distinct, stages that a business needs to go through from this notion of problem solution fit to creating a company which is around owner vision fit to then getting a product to market and having product market fit. And then if it’s all successful, having business model market fit.

I found generally that those four chevrons and the ability of a business to move from one chevron to the next was directly governed by money. If you’ve got an idea and you think the idea is solid enough, you will want to raise some money to form a company to build that idea.

So the first test of your idea is have you solved a problem that’s actually worth solving? And is there a solution to that problem that’s actually worth investing in? That journey applies every time you move from one of those chevrons to the next stage of the journey.

Interestingly, I would say that the founder or the start-up company’s journey Is completely opposite. It could look like snails wandering over a lawn, the way that these things double back on themselves. Everyone’s journey to the market is riddled with success and with failure and the mistakes that they’ve made on the way through.

And so what I try and do, particularly with the established businesses, is to put this framework down and use it like a set of railway tracks and say, look, essentially if we can follow each of these and pressure test ourselves on each of these, then one will get the other. And so that journey can then unfold in a kind of easy and comfortable way.

What I did do was I flipped problem solution fit and owner vision fit around. And the reason I did that is because established companies are just that. They actually have a core business that’s actually up and running.

And the dilemma that I found quite quickly in the piece was that core business was both an opportunity, but also an anchor on the innovation that was going on in the business. And the businesses need to think of how they were able to run a core business and run an innovation strategy that may be delivering a new product or a new service, and particularly a brand new business model.

And I think as we saw with COVID, anyone with a service business, was looking to productize it in some way, shape or form, and anyone with a product business is looking to servitize it in some way, shape or form. So this business model transformation that may go from delivering services or selling products to more of a subscription or annuity based environment is a vastly different business model than a lot of these companies have come from.

So, you know, really interesting set of challenges. One of the first things that I do is, really spend some time with the board and the owners of the business and the founder and the executive team to pressure test them as to whether they really understand the journey they’re on and whether they’ve made the fatal mistake, which is fall in love with their solution.

Have they built something that actually no one will want? And we’ll perhaps talk about some of those stories in a moment. And then have they got a sense of where they want to be in 18 months, 36 months down that particular journey? And look, I have to say there’s been some moments in boardrooms, when you have those discussions.

When, they talk comfortably about the 1 million investment they’ve made in building this new piece of technology that’s going to revolutionize their industry. And there’s no customers. There’s no sign of customers. It’s a gold moment. Unpacking where the business has been, to get to this point is, a key moment in time.

And I say to a lot of my senior guys. And I think it was Abe Lincoln who so eloquently said if you gave me the morning to cut down the tree, I’d spend the first three hours sharpening the axe. I say to them in my own vision discussion, we’re going to spend three hours looking at every mistake we could make and try and risk mitigate this journey because it’s fraught with failure.

It’s a particularly good moment to pressure test. various aspects of the business. Has it got the right team of people? Are we taking people out of the core business? And if so, how are we accounting for their time in the new business?

We look at whether the skills are right or whether we need to find new skills. We then understand what is the impact on the core business. Quite often what happens in the space that I’m in is that, and this is definitely in recent times in mining where the cadence to get something out of the ground has gone through the roof.

And so what happens is the beautiful, new, fantastic, idea that’s just had a whole lot of money invested in it suddenly gets left on the shelf because the core business is one, two or three major contracts. And everyone goes back, hands on the pumps. And so the idea sits quietly by the side. Sadly, the start-up down the road who doesn’t have the core business, is the business that makes that traction and gets ahead of the entrenched player.

So, Understanding the perils of two businesses and how to make that work is critical. You also don’t want to encourage this kind of skunk works environment either. I’ve seen that fail terribly, where three or four people leave the core business, they disappear into some space for a period of time, and then a year later come out and go, ta da, look what we’ve done and the core business the hill, and no one knows what’s going on, and it’s completely disconnected.

So, I put a lot of rigor with the businesses around the structure of the team that’s doing the innovation. I make sure that it’s cross functional. It doesn’t mean that we fully take someone out of sales, but we have a sales voice in that team that needs to attend meetings and be part of that journey.

Be the voice of the customer.

Yeah, absolutely. Or we might bring someone in from the production part of the business because we need to understand what we’re doing with this new concept going forward. And I try and bake it into the reporting structure of the business so we’ve got a sponsor, we’ve got a product manager and by the time it gets to the board, there are no surprises.

The team is reporting on what the innovation is doing at any given time in the business. And there are definitely stresses and pressures that come out of this. I work with a really impressive environmental fuel science company out of Newcastle some years back that had developed an outstanding piece of data technology that allowed them to do incredibly accurate assessments of environmental conditions and they built a massive data engine.

And this whole product was sitting nestled inside a 20 year old services company that reported on utilization, reported on head hours, reported on all the things that normal services businesses got involved with. As the product idea and the data idea began to mature and emerge, and we were sinking headcount and capital into it, we actually found the board wasn’t capable of managing both businesses because the reporting and the notion of what was coming out of the core business.

We’re so dramatically different than what we had in the new business. In that case, we actually built a purpose built advisory board that reported to the old board but gave the new business the governance it required, to move forward effectively. So you get a lot of those issues in this foundational area, not withstanding then.

The joy of money, you know, the R and D tax offset is a, beautiful thing. It’s 43. 5%. It’s got a bit harder in technology these days, but it’s still a fantastic place to recover some of your investment in your R&D and your thinking. The other aspect that came out of Turnbull’s ideas boom and NISA was a concept called early stage innovation classification.

This was a company that, you could demonstrate to the ATO that it was in an innovative part of its life. It was solving some novel problems. If you could get the hundred point test, you assembled an accreditation for the business that allows for any investment coming in, to be welcomed with a 20 percent tax offset.

And then very favorable capital gains treatment further down the track. I have a number of businesses that have spun off product companies that have subsequently got ESSEC classification as well as R&D. And those businesses are now in the capital markets bringing fresh money into the new idea, and they’re likely to take off and be a future solid goal investment for some of those businesses.

So you do need to sit there and do exactly what start-ups do, which is go looking for money. And the mindset of a successful company is the balance sheet is strong, the capital reserves are great. So let’s go ahead and build it. I can tell you that’s a very dangerous place to get to without having the sort of prudent kind of smell of an oily rag approach that a start-up has because you want to open yourself up for scrutiny as quickly as you possibly can and particularly boards need to be very mindful that they really should treat the new idea with some very clear, objective lenses.

That sort of talks to both the advantages and disadvantages of being a solid and resource rich, mature business, but also identifying that, there’s a need for fundamental change. This is not just about new product development.

When you look at it from the point of view of, servitizing or productizing, what do you see as business model transformation? And what’s your approach to that?

I think if you really about creating new revenues from new customers, in new geographies with new products and services. That’s where I am. And the, ability to adopt a completely different business model is critical to that journey.

That is a point where there is a fair bit of tension within the business, because suddenly we’re looking at, 36 months of reoccurring revenues on a subscription model instead of a big upfront cost, or may well be that we are offering memberships to information and data that you can get on a subscription basis as well.

So the business model is potentially the most impactful moment within the whole journey for a company because highly successful businesses become a photocopier. You get all your systems, you get all your processes, and you rinse, repeat, rinse, repeat, until you get this finely tuned machine.

In amongst all of that comes this new idea that doesn’t even look like that kind of service. I always loved Christensen’s work around innovation and disruptors. He summed it up exceptionally well with that innovator’s dilemma, which was the notion that there was lots of opportunity at the feet of the big players. Definitely go down there and have a look because they’re usually stepping over things that could be your little bits of gold in those environments.

I think, ultimately, it’s the moment when the rubber hits the road. The businesses that I’ve enjoyed working with have a fabulous CEO who said I’m in coal concrete, and steel. He said, I’m not looking good for the next 20 years out. I feel like my business needs to rethink what we’re doing.

In that environment, we found them a very lucrative space in the recycling environment, in circular economy products. And he was a business with a enormous competency in being able to move materials and handle materials. They’ve worked in mines, they’ve worked in steel, they’ve worked in smelting, they were really across the dynamic of businesses handling materials that have different shapes and sizes at different times in their life.

So, once we started to move them towards this notion of recycling and circular economy products, we exposed some unbelievably talented people in their business who had been thinking about this. We also got them close to one of the universities to work in partnership on some trial ideas.

We’re sort of three to four years down the track on that journey but there’s a business that’s probably pulling 50 to 60 percent of its revenues now out of its new markets using technology in a fascinating way. Typically they had piles of recycled material or disposed material.

They had an ability to create recipes with that material. It might be building waste or construction waste, something out of a steel mill. Or something out of a quarry, they are able to reconstitute that material into really lightweight, highly usable roadbases that councils loved. But the great dilemma of knowing which stockpile is what we’ve got on the stockpile, and how much have we actually got, because big trucks are just coming in and dumping it. Was a continual problem for them when they’ve got a forward order book. So we took a leaf out of the Domino’s pizza business.

Even the CEO said, why can’t I have an app that lets the council know when my truck’s arriving with my particular road bed mixed on us? Well, we could probably do that, but we need to fix the other end. There’s a fabulous business out of Sydney called Propeller Aero, which does some marvelous work within drones.

And they have these, smart squares about the size of a baseball mat. You can position those around a large pile of material. And a drone flies over the top using them as accurate anchor points to measure quantity anywhere on the planet.

So we were able to use that technique to get an incredibly accurate understanding of how much material was actually undone and what flavor of material it was. And if we had a recipe from the Newcastle Council, they wanted X, Y, Z, we knew we could mix that. So once that was up and running, the ability for the, council to operate an app that was linked to the weighbridge that was linked to the truck that was taking material is exactly what’s happened.

They’ve had a massive increase in business because of their precise, just in time delivery of these materials in construction works. And infrastructure works both by council, state and federal. So yeah, a very interesting business that’s completely changed the way it makes money

but, has leveraged its core skills and services in that environment.

What do you see as being the core benefits of the transmission process?

Look, I do think that services work can be terribly patchy. I think if you’ve got IP and you can unlock it and revalue it by putting it on a platform and reselling it making it an important part of someone else’s story that ability to monetize

intellectual property that used to corrode in your own business from job to job. That’s a fantastic opportunity. And, you know, using SaaS based platforms, opening things up to global markets now. That’s the other exciting thing is, I think I’ve shared with you that case study off the Gold Coast with that company Waymaker, that’s a strategy.

Which now it’s called a performance management platform. I think that he’s had phenomenal response in the U.S. He’s got more customers in the U.S. than he has in Australia. And he’s just doing exceptionally well. So, if you think about what have I got that I could repackage or redeploy or revalue?

Contemporary technologies are a great way to give you access to that opportunity with products or services. Making old products smart, is kind of nice because typically the manufacturer of a particular widget or device

has way more domain knowledge than the person that’s using it in their assembly line in their factory but nine times out of 10, they don’t get a call until it’s broken and then the plant shut and everyone’s got a fair bit of tension. So I think what we’re seeing hugely now is manufacturers taking full ownership of the widget in situ and signing up to the business that they will keep that business online with their products and services, because they will be monitoring their products and services and providing that either on a remote oron an as needed basis.

For many companies, no one can be good at everything. Having a hive of third parties in your business, looking after their constituent bits of IP is a fantastic notion for a business going forward. I mean, potentially less headcount for you, but it allows you to concentrate on what you’re actually doing and what you do well.

And not worry about side cases. In the product environment servitization we’re seeing underpinned by technology, but, certainly accessible. There’s actually quite an interesting story. I think, out of Melbourne for a company that a very old established Melbourne company that makes gauges.

Now, I think they’re selling the gauges as a service now which I think is a very interesting concept for what was just a functional piece of equipment in a large integrated factory environment. Yeah, we’re in very fertile times and things can move quite quickly and create opportunities in the start-up space, we have a saying, which is why now and I think you’ve always got to be mindful that,you don’t want to be

the person five years away from when the market really will be right. But if you can time it correctly, not only can you make some dramatic inroads to your core customers and enhance your core business, particularly if you’re selling a plugin solution to your services, you can rapidly grab market share of competitors.

You might have a product that can stand alone and start to sell to your competitors. That’s a fabulous place to be, if you’re making rents out of the people you used to compete against. That’s a good opportunity as well.

Talking about the approach, would you like to walk me through a case example, on how you actually approach this and help them bring it to fruition?

I think there are a number of businesses I’ve met particularly in mining equipment technology where the dollars are big. Getting the right solution can be potent, particularly with Australia, because we have such a good reputation worldwide for our technology in the mining space.

You know, we’re an absolute market leader in many ways. One business that comes to mind, I’ll respect their confidentiality, but they were consultants in a key area around assessing valuing and managing tenements. They built their consulting business to do that over the years and was very successful.

They’re very successful in Queensland and Western Australia. They built a product using their own technical team. They hired a few people internally. It emerged over three or four years within as they were looking at ways of automating some of their services and making it easier for their consultants to deliver more functional work to their clients.

They began looking for ways to let their clients play in their own data. And if you like self select or self manage your business with us, so we have no people on the ground, no head hours going out at all, but we can still charge you interesting amounts of money for that service.

Look, I think they made the cardinal sin error in the space. And that is falling in love with the solution and not falling in love with the problem.

What do you mean?

They had the hubris of being consultants in the space for a long time and thought they knew better because it had come largely out of their own heads.

They largely solved deep problems that they understood and that they’d experienced. In reality, a lot of their clients and all the people that they were trying to sell to just didn’t see the value proposition in what was being put in front of them. And that’s about the time that I met them.

There was a fair bit of crying about spilt milk going on at a board level. The capital investment had been quite profound and it staggered me in my first meeting when I asked, have we had a conversation with anyone, but a customer. Have we had a conversation with a competitor and have we had a conversation with a piece of business we’d love to have got but we never have. Have we actually got to talk to the market about this or why would we miss the response?

You know, we have our own customers and we’ve done it our own way. So that was the moment. I use a particularly good technique called the lean canvas. It’s out of that sort of business model canvas. environment. I like it because it’s very focused around start-ups.

It’s around what problem are you trying to solve? Who do you think the ideal first customers are? Where can we make money from day one? It answers nine very specific areas. That any start-up should answer before they start any journey. In fact, a lot of the businesses that I’ve left it with are now habitual users.

They love the fact that in two hours they can put an idea up on their canvas, pressure test it and go next, it’s not going to work. So it does give you a fantastic sense of what the gaps are. And the two most interesting areas on the canvas is on the right hand side and the left hand side.

On the right hand side, down the bottom. Is this notion of an ideal first customer. So you have a segment, which you understand because you’re playing in the space. But within that segment, there are multiple different kinds of potential personas and customers that you could talk to from day one.

Invariably, the one you’re thinking of is not the one you would have thought of. And it’s the one you wouldn’t have thought of that becomes interesting. A little, sidebar story. When, our friends at Uber kind of, you know, finally that got acceptance and we’ve got our phones now and we can do things geographically on the phones.

They developed this fantastic app. But of course there’s no ride sharing at that point. And taxi drivers certainly didn’t want it. So they were in a bit of a hiatus for their business model. Like, we’ve got a great piece of tech, but we don’t have any drivers. So how do we, take this market off?

They allegedly were having lunch at a swanky San Francisco restaurant. Came out of the restaurant and there parked in the street is a big black Lincoln Continental. And they looked at each other and went, bingo, here’s a driver sitting in a car with surplus time, runs his own business, he’d love this app.

So they developed Uber Black. Uber Black was the first way that brand got paying customers sufficient enough to build a brand and momentum. So that finally when Lyft came to the market and gig economy drivers emerged that actually had a proven platform that had been highly popular with users in the Bay area.

So, yeah, the ideal first customer is often not who you think it is. If I go back to my tenement management gang, one of the things they hadn’t considered was that ideal first customer would likely be someone who loves tech. Cause it’s tech, it would be someone who probably got multiple tenants and has got a slight burning head issue around that sort of technology.

And I realized that didn’t really profile like any of their customers. In fact, some of their customers made really good money because they had point offerings, like one or two tenements. But some of them had 10, 15, 20, 30 tenements. That was a piece of administration nightmare. Off the back of that, one of the gaps that came out of it was that we just didn’t know enough about the problem from the user’s perspective.

We suggested five current customers, five past customers, and five customers you’ve never met but would love to as the basis for a series of customer interviews. These are really critical things to do. They’re not for the fainthearted and you really need to think about it because you have to leave your ego at the door and zoom in on the problem.

And so a call, and I think it’s a highly successful way of engaging new clients actually, because the call kind of goes like this. When you may have found someone on LinkedIn who’s the right person in that particular business for you and you reach out to them, you might say, look, we’ve been in this space for 15 odd years.

We’re seeing a lot of problems around data in this tenant management space. We’re thinking of building something but we just don’t want to go ahead without someone as influential as you in giving us your two tenths worth of whether you think the market has got a problem or not.

And, yeah, can you give us 45 minutes of your time? We’d really appreciate it. If you do it well, it invariably gets you a first customer as well, if you handle it correctly. But it was in those first meetings in, the message came back, spreadsheets are fine. Spreadsheets do the job perfectly.

These guys, talk about sat on their heels. They couldn’t believe that all their wisdom, their tech, their experience was completely disregarded because spreadsheets were fine. And that really showed them the size of the problem because they were trying to have a conversation on features and benefits that people didn’t even know existed or knew they wanted.

So, it really sat everyone on their heels and we had to go back to the beginning on value propositions and work with a good marketing company and work with a way of being able to reach out to our heavy users. One thing we did know with the heavy users that were managing lots of tenants on lots of spreadsheets was that yes, data does break.

And when data gets break, it’s a pain for me to find where it’s broken and repair everything. So we found a niche there around the fact that Excel works well but if it could just do a bit more for me with more safety and security, I’d love that.

That was the kind of ad line we ended up with. We ended up with a value proposition that makes Excel work harder and smarter for you in tenant management. That was an early branch to people because they saw the benefit of it. It had an Excel like interface, did everything that Excel did, but it had all these other bells and whistles.

Our guys had been on the journey for five years. So they didn’t develop the bells and whistles overnight. They incrementally hatched them, maybe one a month for three or four years. So they allow by unbundling the product. And instead of giving the whole thing to the client in one hit, they allowed you to buy feature by feature

That’s now their model. They’ve got three price points price point. One gives you the basic features, which is makes it a smarter Excel. And then price point two and price point three goes up depending on what features that you want to turn on inside the application. So understanding that we needed tech savvy first adopters or ideal first customers.

Who had multiple tenants, really had a potential burning head problem and had probably seen Excel fail on the odd occasion as the right person to have that initial conversation with. I’m a believer that you should monopolize your first market, even if it’s the tiniest market. If you can monopolize it, you build customers, you build brand, you build early revenues, and then you go and photocopy that into other segments.

And so that business now is, I’m pleased to say it’s got a fantastic product suite. They’ve replicated that journey now on three other categories and they’re now looking to export. They’re looking to the U. S. marketplace for one of their plug ins to that system. And it’s a great story. You know, I think that if you sat with them, the hubris is gone.

They understand that they’re in the problem business for their technology to work. Their incremental revenues, on license fees now are fantastic. The gross margin is extraordinary because there’s no direct cost, there’s no human being involved anymore, except it’s a piece of SAS software.

So the business model has gone from being utilization and head hours into this ability to have grow your revenues, great, strong margins, very good EBIT, little cost on the way through.

Which then underwrites the parent business to a large degree which is fantastic. So when you then look at the numerous case studies that you’ve worked on over the years, Rob, what are the things that can actually go wrong with the business transformation journey? Cause you’re really sort of talking about

helping organizations who want to turn their business on its head.

Yeah.

See as being the things which, where you’ve seen failures? What do you see as being the core challenges that they need to guard against?

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I think it’s, wrong assumptions. It’s this intel that someone has on their market, their belief that this is the problem worth solving and they don’t do enough spade work at the front. You can also get quite beguiled by the sheer beauty of the solution because some of the stuff is fantastic.

I know a business that was doing global data science for one of the bigger fast food brands. It was a work of art. They can almost predict sales, pulling down temperature graphs. They understood what the market would be looking for if there was a football match the next day, they knew all this stuff.

They believe that the rest of the world was waiting for that product. So, they built it believing that everyone had a real yearning for data science. But, for the bigger businesses, they didn’t see the value because they already had data scientists. And for the smaller businesses, they didn’t understand data.

They didn’t have an application for it. So it kind of got into no man’s land. Waking up one day and finding that your children are ugly is a very bad moment. That is the bad moment that, brands have, particularly when they’re trying to innovate

The lean start-up came out of that fail fast, fail early approach. Don’t invest everything. Go out, test, try prototype, come out the other side. that framework is kind of implicit because if you think about a lot of people talk to me about, Oh, I’ve got product market fit. So if you think of the continuum that I have is, are the vision fit?

Are you ready for the journey? Do you know what you’re up for? You’ve got expectations on it. Excellent. Okay. You’ve got a problem. You’ve got a solution. You think you’ve solved it. We’re now going to put an MVP, a minimum viable product or a minimum lovable product together. And we’re going to go to the market and see what sort of traction we get.

From that product market fit stage. So a lot of people kind of the analogy I would give would be, they get listed on the shelves of Woolies and they go, wow, I made it, but product market fit for me is keeping up with demand, the product’s so highly sought after that it’s being ripped off the shelf.

You often find that when you’ve raised your money, you’ve gone to market, you’ve solved a problem. You’ve got people saying to you, it’s great, you’ve solved a great problem. You get to market. And the rate of growth and sales is nowhere near what you expected

It’s interesting because when you talk about value of businesses now, we should come to this in a minute in terms of raising money. The days of having a great idea in a great segment and then raising lots of money around that, are gone.

What you’ve got to demonstrate now is that you have built a machine that can bring a customer in for a certain amount of money. That customer will use the product actively and you know empirically how many months it takes for that customer to pay back the cost of marketing them then you’ve got to show the rate at which you can do that over a given period of time, and that’s what people will invest in.

We’ll put 10 in the top of the funnel. To see 10 customers come out at the bottom of the funnel, no magic anymore. It’s just straight, hard data science around what works and what doesn’t work. So there’s no doubt that you’ve got to be able to demonstrate that not only have you got a product that people want. The best product ever made has marketing baked in because people just want it, it just solves the problem for them.

And then you build that network effect. The word of mouth happens around the product, you get third parties beginning to sell the product because it fits nicely to something they’re offering. And suddenly you’ve got that kind of momentum. So the most crucial point after problem solution fit is that product market fit moment in time.

When you look at the start-up space, they call it the Valley of Death. Right. It’s where typically a business runs outta cash or hasn’t got the resources to hire the people and the services and the marketing needed to get the customer satisfaction required. I’m a big believer in the more things you say about the brand, the less it is on point.

If you’re overtalking the brand or overselling the brand, you actually haven’t solved the real problem. I think that’s where businesses have to be careful about licking their wounds and being happy enough to go back to square one. Rethink it or just kill the idea and move on.

There are some unbelievably good stories of businesses that got to market, realized the real problem they were solving with that one three down the track, not the one that they thought. And they’ve pivoted their business accordingly to, take on that new market. And again, what you find withstart-ups versus established businesses goes back to my earlier comment, the established business has

turned itself into a machine over 10, 15 years, you know, lean processes. If you’re in manufacturing, you’ve got as much waste out of business. You are so single minded as to what you’re doing, but think about you’ve got written job orders. You’ve got written compliance. You’ve got written quality controls.

You’ve probably got a training program. You are hardwiring your business. With all of the things that need to be there to reproduce it daily. Whereas the start-up is like a range rider, they will go in one door and go, nah, not good, go to another door. And so the ability to continually evolve by failing, changing, pivoting, and, crawling your way through the market is a, absolute weapon that start-ups have against those established businesses.

You can almost get the sense of the cultural difference between those two businesses and those two attributes.

With that cultural difference, do you also see the opportunity in established businesses that are going down this path for tissue rejection,

Yeah, totally.

Where the old guard really struggles with the concept of continuously investing in the new guard or the new opportunity and the new kids on the block.

Because it’s not a static machine that they’re so familiar and so proud of.

No. the job of the leadership at that point, backing an owner vision fit, is to make sure they clearly articulate their why. Why are we doing this? Why are we going on this particular journey? I think steel, coal, concrete guy had a view 20 years out that all his staff members probably you’re right. So they became a bit bound to the journey. And you do need the lighter, brighter culture with a different style of management than in the core business, is you make sure everyone has a little sabbatical. This is why I like the cross functional team, particularly technical guys who are maybe involved in IT in the old business and it’s very much rinse, repeat.

When you bring them out and you give them three to six months working in the new business on the new product and a new idea and that little sabbatical regenerates there but it also breeds this culture because arguably I would suggest that more people when they’re looking at business model transformation.

I’m not looking necessarily to spin off another business, they’re looking to reposition and reinvent their old business, arguably, what starts as being two things side by side, slowly becomes one thing on top of the other, guiding it for its future, and then people buy into it. If I think about that materials handling business. That’s exactly what’s happened to them, to go from one world into circular economy and recycling they’re a 55 year old company.

They’re a chance of doing it for another 55 years, aren’t they?

Yeah.

Being able to tell that story to staff is critical, isn’t it?

Yeah, absolutely. it also, comes back to that founder passion fit, and how do you get congruence between what that was 20 years ago and what the future is going forward?

The founders usually can’t help themselves. Most of the ones I know have either been the sponsor or the originator of the new idea because they just can’t help themselves. And I know that’s how they got the business going to start with. So when I’m looking for the early team, I’ll often say to the CEO and the founder, are you prepared to leave your business and run the new thing?

Are you prepared to give the keys to your general manager while you go over the horizon? You’re expendable. So you can go over the horizon now and start on the new product and the new service. How do you feel about that? I’ve got a fabulous IT company, down on the central coast of, Australia.

New South Wales. And 20 years. Terrific guys, ex accountant, built an unbelievably sensational business. And he was a service provider with a well established ERP brand, big worldwide brand. Very good at what he did. services based, maybe turned over two, three million dollars a year, made some tiny EBIT.

Life was good. He wakes up one day and goes, I’ve got this product idea. You know, I was thinking about this product that we sell. It’s got four or five areas in it, but they’re never going to develop. I think I should develop those put it together and license them back to them, to the mothership and they can be sold.

That was his idea. About year two, when I met him and it was still bottom bouncing He’d do a couple of days, work on it with the team and then go back to the core business, made all the mistakes that we’ve just been talking about. But finally, I remember standing on the golf course with him and saying, why don’t you give the keys to your CFO, to the core business?

She’s more than capable of running it. And you take yourself and four people and you go up the hallway to that other office and work exclusively on those products until you get one shipped. And just wonder, I mean, what is the risk in that for you? Because she’s going to run the business. She knows all that you’re going to, you can keep an eye on it, but you’ve just need to make yourself expendable.

And he did. And this June he banked 7 million dollars net royalty off those products, 7 million. That’s his clear cash. This is straight from his bottom line of those products, the services business, which she’s running is doing around 3 million. So it’s still a happy ending, but boy,he often says to me, if you hadn’t got me on the golf course.

I think founders are great entrepreneurs and are often the perfect person to CEO for the new thing. And they love it too, because guess what?

They’re pretty tired of the journey they’ve been on, typically.

So let’s say I’m leading an organization. I want to go down the business transformation path because I know that there’s more or I can see a gap and we’re not ready yet for it. How do I get myself and my organization business model transformation ready? What’s going to help me be successful?

The service that the federal government runs, the Open Airs program, is probably the only source of documented material to, get yourself innovation ready. There are many consultants that operate in the innovation space.

Innovation is not a strategy. It can never be a strategy. It’s a process. Any business that is doing the right level of annual planning, if COVID hasn’t changed your view, then maybe it never will. These black swan events can be so profound, that our high level look at the world needs to be continuously groomed and gardened.

The thing about technology and what’s coming with data in particular is, we used to say when we were mucking around with the microprocessor market, Moore’s law was that capacity on chips doubled every 18 months. If you look at the number of applications that are existing in the marketplace today and it’s, you know, it’s logo soup when you look at any category accounting, ERPs doesn’t matter.

So the world is completely riddled with technology. But now the next wave of that is the data that comes off that technology. If you’re a business that’s not thinking about that now, in some way, shape or form, you’ve got them will need to. It may mean you have to completely abandon your business model and change.

I mean, there are businesses in that space when the four white Commodores couldn’t make sales calls because of COVID. There are a lot of businesses that had no digital relationship with their customers at all. And, so that’s, forced a whole generation of businesses to rethink how they work with their customers and with their markets.

And so it’s this assessment around risk is my ignorance of my business model. Because I think I’m so safe in my category that I don’t need to think about it? Or am I seeing the emergence of competitors or players that need to get me thinking about it?

But like any good businessman, if you sniff that problem, then you better get that on the agenda. And whether it’s bringing you in, me in, or someone in to help them make that conversation, get that conversation going internally. You gotta, just have to do it. Because, It’s exponential now, isn’t it?

The speed of this thing is just extraordinary. I mean, even COVID has rattled us all with the pace that we are now linked in this inexorable dance of supply chains and global markets, etc. It’s kind of crazy, isn’t

Well, it is, but I also think it’s actually been the most amazing gift because in some ways it’s slingshotted adoption of technology such as what we’re using now. It’s sling-shotted our appetite for the pivot. And to revisit what our business does, how it does it, what it’s, service model is, what it’s, business model is, whether or not we can survive in a no customer contact environment. It’s raised, how we manage without staff, how we manage without suppliers. It’s really forced us to revisit, what we see as being the scenarios and how we actually address and cater for them.

Whereas before, I think, for the previous 30, 50 years, we’re reasonably comfortable and happy that the world as we knew it was pretty static. And somewhat predictable. I think COVID has given us an innovation gift or a mindset shift and forced us to become far more flexible than we’ve ever been.

I think that’s a hundred percent. I would have said that 80 percent of Australian business, I’ve had a couple of Excel spreadsheets. It was just, you know, with that apathy for being around for 20 years. And, it’s certainly people who didn’t have online, sales ability, e commerce, and I call them the COVID dream.

It’s not quite like the cohort of CEOs that I’m getting who have responded opportunistically and have gone, wow, I can change what I do here. I’ve had a lot of conversations and some of them wacky I might add, but with CEOs that have come out of this period with a new energy and a new way of looking at their business or their business model.

So, I think you’re 100 percent correct. I think you’ve just nailed that. and technology does present, on every level, a fantastic platform to do things so differently, to reinvent differently. Can I tell you a story? This is a business that I’ve really enjoyed working with.

And, the founder was that he’s an interesting chap in his own right to have a business with his dad. They’re in lifting equipment and safety and compliance, so big cranes and that kind of activity. When he got on board, he was slightly geeky and he introduced the company to iPads. They started, making their field service calls with iPads.

They’d be at the Lend Lease Building Society. They’d be looking at the cranes and the slings and the links and all the other bits and pieces that go with it. And they would, you know, they’d be making data notes, on their iPads. It was like 2008, 2009, so it was way ahead of the curve. And he’d lock that up and put in a thing called the vault, which you could get on his website.

If you wanted to, Mr. Lend Lease, you’d be able to come in and have a look at your safety reports. You could go in there and get them. Needless to say, no one ever went anywhere near the way things were.He starts to believe that he sees a space for some of the data that he’s got and thinks that technology like apps and training programs could be useful for not just his team, but his customers teams.

He looks at the bigger clients the tier one enterprise clients and realizes the risk to them is phenomenal. Safety on the worksite and all those other bits and pieces that go with it. So he took all these accumulated knowledge around safety in lifting and banked it into a sort of a three part journey, which

allowed someone to get access to whatever the existing building code in a particular area. It gave him the ability to take photographs of equipment and get assessments online. He also then had an accreditation training program for the safety manager on the building site all out of the app.

And it all looked good for him in terms of his ability to entrench himself for these larger businesses. And he got a few sales away. They were subscribing to his platform. But then we got all of his data. We actually had a look in everything that accumulated to date. It’s the iPad and all the other systems that his business had.

And it’s the first time anyone had tipped the data out on the table and had a look at it, not in its vertical by customer, but in its horizontal. And so suddenly all of this rich insight started to emerge. Example, there was one or two pieces of kit that had a 78 percent failure rate in its own right.

And they then overlaid all of this data from their work sites through to the investment they’ve made in this new training for enterprise. And then they had a look at where they were making money and they weren’t making money with the big guys. They were making money with mid tier construction projects who highly valued their time and materials, who spent more with them, who did more with them.

And he just overnight woke up and went, data, data, data. Let me follow this data because it challenged everything he knew about his business. It’s not to say that his app wasn’t a good idea. He subsequently rebirthed it into a different platform. But he found his sweet spot by these mid tier size businesses.

Sales, he’s grown sales something like, compound annual growth has been something like 70 percent for three years. Because he stopped talking to lend lease. And he talks to the business that he knows will value his services. He’s built a whole new fleet of vehicles taking equipment out.

The moral for me is that, that he started thinking about technology as being a new, wonderful thing that could reinvent business. But in actual fact, what reinvented his business was the data he already had. And I think that’s the goal in where we are, the ability to understand

where value is and where value could be in our business then shape our business accordingly. That’s the goal,

So Rob, how do you help?

Well, coming from the start-up space, I’m sufficiently cynical, which is good to start with because, not all of these ideas are great, not all of these ideas are going to make it. You need to be pragmatic. I’m not there to give commentary. I’m there to hold their hand and I like the notion that, by having them facilitate their Lean Canvas, go talk to their customers, by having them, really interrogate, what they’re doing. But off a checklist, a framework allows them to move through the process, in an ordered fashion.

Hopefully, I’m helping them be successful to make the right choices, the right decisions about their business model and to position themselves for the future accordingly. If I’m there early, and we spend a bit of time together as we’ve done a couple of projects, then it’s embedded due diligence. You’re there for a period of time, you really understand how the business is going to make money out of this.

You’ll understand the market, the potential of the market, what the burning hair is, why people want to buy the product and why people are interested. And so when it does come to that point where we need to raise some capital, ANZ ain’t going to be the place for us.

We may need to bring some third parties in or we may need to bring some venture capital funds or even think of private equity as being someone who could supercharge. Then I think that bit of groundwork that’s done well gives a potential investor a really articulate view of where this business has come from and why it actually can make money,

it’s underlying principles. It’s not hit and hope. We’ve got a roadmap. We’ve demonstrated customers. We know how to get them, which is how much it costs to get them. Here is the addressable market. It could be global, could be huge, but we’ve done enough to make the business investment ready.

I think that’s the ultimate outcome. Investment ready for your own capital. Or third party capital. that’s the critical factor. My guide, Colcrete Cole and Steele is using his retained capital. He hasn’t taken any third party money at all. Just redeployed his business accordingly into that space.

I think that journey was really powerful for him, to get him investment ready in his own business.

Great.So if I’m a CEO looking to start business model transformation in my organization, what #CriticalFewActions™ should I start doing tomorrow if I did nothing else? I would, immediately have conversations with current, past, and potentially new customers. Not about your business, not about the world, about what problems have they got? Where’s, the stone in your shoe every night? What’s causing you grief? As one business owner to another, here’s what’s up my nose.

Whether you run a CEO round table, bring a few in for lunch, do it one on one, get your top three people in the business to go out and have those conversations and just force yourself to do it. Nine times out of ten, whatever you do with your business model is going to have a something to do with digital. It’s completely proven now that digital leadership comes from digital leaders. The business that really embraces adopts and deploys digital, technologies usually wins or wins better down the track. I would immediately have a look at your category from and think about your category is from customer through to backer house and backer house I might add is critical because we’ve just seen Medibank and others have those problems.

You need to understand are we fit for purpose for 2022 at any level of our business? Can we talk to customers? Can they find us? Can they buy service? Can we make the product? What’s our end to end digital system look like? How big, bad, or broken is it? Will we make the first quarter or will we be off the side of the track?

So, that bit of digital due diligence, is kind of critical. They’re the two pillars that I would be, starting my immediate investment in. Then, I would put together a gang and do a bit ofinnovation poker, get the post it notes, sit down and each give me five ideas and put it up on the wall and let’s vote which one we maybe should ever go at.

And the thing that you wanted to learn to do is to learn to think. And I think that’s the problem for businesses that have learned to photocopy. You’re going to have to bring someone in that helps you think. Helps you, how do we do problems?

How do we think differently about opportunities in the market? Things like Lean Canvas. Business model canvas. They’re all great tools. And also, send someone into the start-up ecosystem. Now it’s solid in every state. Get someone to find out who the chief entrepreneur for the state is.

Work out where the start-up center is. Go to a couple of events have a look at what industries are in there and what’s happening in those industries because there’s your next competitor being born. And I think if you can get your feet wet into some of that space, you’ll, you know, I’ve been working with a really interesting business who’ve been looking at laundries.

I know I’ve shared this story with you before, but they’ve completely re imagined laundry and it was started off as a B2B thing, but now it’s got a B2C exceptionally exciting for the kind of the accommodation that will underpin our cities and societies going forward. This is a very interesting, innovative idea.

And, they actually only found it because they started hanging around the start-up space and saw other people doing similar things in that space that gave them an idea for the business that they had then gone and done the work with. So, yeah, I think that’s the other thing too, just get your feet wet in that start-up ecosystem.

Fantastic. Rob, this has been a fantastic conversation. As always, whenever I work with you, I learn heaps. I appreciate your time immensely. Rob, thanks so much.

John, I really enjoyed it. Love chatting with you, mate.

Cheers.

Cheers.

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