For too many years I’ve seen business owners dive into projects without first asking key questions to themselves. Today I’m going to go solo and talk about a planning process I’ve been using for years. I call it the Stage 3 planning process.
When we’re doing Stage 1 planning we just ask what we want to do and start. This almost never works. Stage 2 Planning starts with what, then asks why once and then how you’re going to do it. This is better than Stage 1 Planning, but not as good as you can get. This episode will explain Stage 3 planning and you’ll learn that spending just a little more time will dramatically improve the quality of your decisions and give you an easy to follow roadmap for making better decisions that will save you tons of time and help keep frustration out of your life.
Here are some of the highlights:
- You’ll learn the process of Stage 3 planning.
- How the five why’s become a crucial part of your planning process.
- What a core reason is and why you need to pay attention to it.
- How to stop being tactical and start being strategic in your planning process.
- What a thinking partner is and how they can help with this type of planning.
Narrator: Welcome to The Sustainable Business Radio Show podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. In the Sustainable Business, we focus on what it’s going to take for you to take your successful business and make it economically and personally successful.
Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning and thinking about what it takes to make a successful business sustainable.
Josh: Hi, this is Josh Patrick. Welcome to the Sustainable Business podcast.
Today, we’re going to talk about problem solving strategies. We’re going to be working with what I call the Stage 3 Decision Process. Lots of times, when I started off with Stage 3, people say, “Well, that’s kind of cool but what’s Stage 1 and what’s Stage 2?” So, basically, Stage 1 is the way most of us solve problems. And what it is, is we just say “Okay, what is it we want to do?” and we start down that road. We don’t really have a good sense for how we’re going to do it. We don’t have a good sense for who’s going to help us. Nor do we even have any sense at all about why this might be important or unimportant for us. And it’s the way that most of us have learned to solve problems or what we call, a lot of times, and is seen as a good thing, as ready-fire-aim instead of ready-aim-aim-aim-aim and then fire.
Now, the method I’m going to be talking about has got five steps to it. It’s not all that complicated. I’m not trying to make life difficult for you. I’m trying to save you time in the long run. The best way I know how to do that is to have a great decision-making process. So, Stage 1 is where we started. And Stage 1 is essentially where we just say, “Okay, well what do we want to do? And let’s get started.”
Now, Stage 2 has three parts. Simon Sinek sort of popularized this in Start with Why. What many people do is they say, “Okay, what is it we want to do?” And then we might go, “Why is this important?” We don’t dig down on why it’s important. We just say “why” in a general sense and then we go “Okay, how? What do we do now?” And they start working on that. Now, the issue with that is – we have not gotten to the core reason that we’re doing something. And without the core reason, that first WHAT that we have could be completely wrong.
So, let me get to the Stage 3 Decision Process. Stage 3, I think, is a really excellent and elegant way of deciding what you want to do because it deals with the four things that are really important. Here’s how stage 3 works. We start off with WHAT. What is it that we want to do? And I call that the postulate because generally that first WHAT isn’t even close to what we end up doing.
Now, we go onto WHY. Now, we don’t ask why once. We ask why five times. It’s called the “5 Why’s”. Toyota has used it for years. It actually comes out of W. Edwards Deming’s work on how to do great quality control. And what we get when we get to that WHY five times is we get to what we call the core reason something happens. So, we’re going to get to a core reason and what it is. Then, we get to go back and we re-visit WHAT. And when we re-visit WHAT, we say, “Okay, here’s our WHY, here’s what we started off thinking we wanted to do but is that the best way to get that WHY – the core thing that we want to get accomplished? Is this the best way to do it? In my experience, most of the time, the answer is “no” and we’re going to change what it is that we actually do want to do.
The next question we answer with the Stage 3 system is “Who’s going to help us?” because frankly, anything that we do, we are likely going to need other people to be involved with and it’s a good idea to recognize who those people are and why they might be able help us. Then, finally, we get to the HOW. And too often, people try to get to that HOW too fast and it’s something I don’t want you to be doing. Instead, I want you to get to how when it’s easy. And if we start with WHAT, we dig down on WHY at least five times. We go back and re-visit WHAT. We know who we need to help. The HOW is really easy. So, that’s the basic of what a Stage 3 Decision Process looks like.
Now, I’m going to bet that you might be a little bit confused with how does this work in the real world? So, let’s talk about this for a while. How does this work in the real world? The reason that it works is because it’s a “what and why”. It forces you into being strategic. When you’re just dealing with what and how, what is it I want to do? How do I want to get there? We’re really being tactical. We’re on a tactical level. And, you know, at the end of the day, just getting things solved, we really do have to work in a tactical manner. But before we get tactical, let’s make sure we’re working on the right activity and doing the right thing. Now, that’s a strategic process. It’s not a tactical process. And a lot of times, we think about strategic process as something that goes on forever and ever and ever and ever and ever but we never really get it done. That’s not the purpose here. We’re using the strategic thought process to help us get to the tactical decision making in an effective and efficient manner.
If you have strong WHY’s you’re going to have a good reason for working on the activity. With a strong WHY, you’re going to be much more likely to actually do it than just start and say, “Oh, I think, I need to know it but I really don’t know why I need to do this. I’m just going to do it.” And it’s really about asking yourself the right questions. Are these the questions you should be asking? And are these the questions that are going to get you to an outcome that provides lots of value for you and helps you build something that’s sustainable.
Oh, and you don’t really need to do this all by yourself. You know, it’s one of the things that I do with folks when I work with them. And it’s part of my role of being a thinking partner. When we’re going through a Stage 3 Decision Process, I’m not a coach. I’m not a mentor. I’m not a consultant. What I am is I’m a thinking partner because I’m going to help you dig down on those why’s and make sure that what it is that you want to do is something that’s going to be congruent with that core WHY. It fits in with your personal values and moves you in a direction that’s going to get you to where you want to go.
So, let’s take a problem. Let’s solve it for a while. Let’s say you’re thinking about buying a company that does a $1 million in sales. Your first WHAT is, you’re going to come in and you might say, “I want to buy this company.” Now, if you’re talking to me, I might ask you and say, “Okay. If you buy this company, what’s going to be better in your life? What difference does it make if you have this company?” Guess what I just asked you. I just asked you the first why-question. And then I’m going to ask you again, “Why again?”
Now, if I say, “What’s going to be different for you if you get this $1 million in new sales for your company?” You’re going to say, “Well, it’s going to make my $3 million-company a $4 million-company.”
It sounds like a good thing to me but I’m not sure why that’s an important thing to do. So I might say, “Okay, if you become a $4 million-company, what becomes different for you? What’s going to make your life better? Why do you need to become a $4 million-company?” Well, you might say to me, “I’m going to get better deals from my suppliers.” And I’ll say, “Okay, well, that’s interesting. That’s a reason to do that. Is that the best reason to do it?” And then I’ll say, “Okay, I get you’re going to get better deals from your suppliers but what else will happen?”
You might say to me, at that point, say “Well, it’s going to cost me less to operate my business.” In which case, you say, “Okay, well, I guess that could be true also. So, I guess, it could cost me less to operate my business. But still, I’m not sure why I need to be buying this company.”
And then I go to you again and say, “Okay, I get you’re going to get a better deal from your suppliers and it’s going to cost you less to operate your business. Those are ideas. Do we know if it’s true?” And you might say to yourself, “Well, here’s another reason I want to do this. I end up making more money.” And I say, “Okay, what about making more money is important?” “Well, I’ve got a nice lifestyle but I’m not doing much to fund my retirement. I really don’t have a safety fund available in my business nor do I have money that I’m putting aside to grow the business.
And frankly, you know, unfortunately, I just had a conversation with my bank and my bank told me that I need to put more money into any deal that they help fund. In other words, if I go out and I buy some equipment and it costs me $300,000, they want me to put in about $50,000 to $75,000 before they loan me the rest of the money. And I’ll end up making more money from a $4 million business and a $3 million business because all the overhead is here. I’m not going to have to add any overhead. The only thing I have is my direct cost which is about 50%, which means I’m going to add about $500,000 to my profits which almost doubles the amount of money I’m going to make.
And I say, “Okay. Well, if you do that, what’s the end result?” And the end result will be, “It’s going to make my business more sustainable.” So the real WHAT we’re trying to accomplish isn’t buying a business that’s worth a million dollars more, it’s “I want to make my business more sustainable. I want to be able to fill those four buckets. I want to have a lifestyle for myself. I want to have a safety fund. I want to have money put aside for growth. And I want to have enough money to save for retirement because I know my business is not going to get me to retirement all by itself.”
So, here we are, we’re back at the WHAT again. And the question when we go back to WHAT–now, we started with the WHAT was – “I want to buy a business that grosses $1 million. I’ve got the business identified. I’m ready to go buy it.
So now, we’re back at brainstorming again. We’re back at WHAT. And my question is, “Okay, I get what we want. I know why it’s important because this will help us become sustainable. It’ll provide extra capital for us to do the three things financially that you’re not doing in your business. But, “is there a better way to get there?” that’s the question I want you to answer.
Now, this particular business really didn’t have a real niche. They would sell anything to anybody. And I say, “Well, if you developed a real niche, to sell from, would it be easier to figure out what you’re doing for these folks [inaudible 00:10:36]? What if we had a better system for our sales team to use, because frankly when we look at the sales system that we’re using it’s not a very good one? And every time we sell something, it’s done in a different way with a different promise. That, to me, doesn’t seem like a really good way there.
What’s the least risky method to add $1 million in sales? Because, you know, when I look at acquisitions, I say, “Boy, it sounds like a great idea but all the research I see about acquisitions, they’re not very successful very often. Most of the time, about 80% of the time, according to research by almost anybody you see, including Morgan Stanley and Goldman Sachs, they fail.
So, I hear that we’re going to buy this business. It’s going to add half a million dollars in profits. But frankly, you’re going to pay a million and a half dollars for this business. That seems awfully expensive. It’s going to take you a long time to get that half a million. You’re not going to get any extra cash from this acquisition for three years. And that’s if everything goes perfectly. And how many times has any of your business plans always go perfectly? My bet is not very often. So, might there be a less risky method to add that million dollars in sales; or more importantly, that half a million dollars in profit that’s going to fall to our bottom line?
Now, we talked about two things in the beginning of this section of our conversation. It’s “gee, having a real niche to sell from would allow us to exhibit our expertise to our market area. And if we had a better system for our sales team to use, and our sales team knew who to be calling on, which are the most profitable customers, my bet is we can get to that extra million dollars in sales. But more importantly, the extra half a million dollars in profits, a lot faster and a lot safer than going out and spending a million and a half dollars to buy a business. And frankly, the bank has already told us they’re not going to give us a million and a half. They’ll give us a million and we need to come up with a half a million ourselves. We don’t have the half a million ourselves. I don’t know where we’re going to get it from.
So, the whole point here is “Yeah, it seems like it’ll be easy at first blush to try to buy the business. Maybe you could get the seller to take back paper and subordinate their interest to the bank. That probably is doable. But what if the acquisition doesn’t go so well? What if the culture of the company we’re buying is a real mismatch for our culture and we end up spending two years trying to get the cultures to mesh and they never do. And that million dollars in sales that we thought we were buying actually ends up being $500,000 in sales. And instead of making half a million dollars in this sales, we end up breaking even. It doesn’t add anything to our bottom line. We’ve spent a lot of time and a lot of effort doing something that may not be the easiest and best way to get there.
You know, the whole point when you’re doing an acquisition is to make sure it’s the right acquisition. It’s a really hard thing to do. It is so much easier to grow your business in an organic manner by finding a niche, having a real sales system, writing out not only the demographic traits of your best customers but the psychographic – what type of people are they? Why do we make a lot of money with them? And why is it easy to deal with them? Those are the questions we need to be asking, not how do we go about buying a business? Because frankly, buying a business, when we get into the why and we look at creating a sustainable business, might not be the right answer for us. So, instead, let’s think about other ways that we could do that.
So, here’s the things we want to be doing here. It’s that by using the Stage 3 Decision Process, what have we done? We’ve come up with some conclusions that were really different, that we probably weren’t thinking about before we started this conversation. We were thinking about things like niche development. Well, we hadn’t even thought about niche development. All we thought about was “I want more sales.” We’ve never asked ourselves the question, “What’s the best way to get more sales to create a sustainable business?” When we started asking that question, we started getting different answers.
You know, what I’ve learned over the years is the quality of my results really comes from the quality of the questions I ask. If I’m not asking myself the right question, I’m almost sure to get the wrong result. And the only way I can ask the right question is to get that drill down on the topic of WHY. Why is it important? What’s the core thing we’re trying to accomplish? And is there a more elegant way of getting there than what I first thought which was to buy a business that did a million dollars. Well, if I get a niche developed and I spend two or three months really working on that and working on a referral book or a referral package that we can give folks, while I work on a way to differentiate myself from the rest of the crowd and I start thinking about “What are the unique problems that we solve?” I’m asking a different question which is likely to get a different result.
If I put a disciplined sales process in place, I’m not going to let my sales guys go out there and sell whoever they want to sell. I’m going to make them sell only to A customers. If they bring me a deal that’s not an A customer, I’m going to say, “What’s the matter? Have you exhausted all the A customers?” and I’m going to tell you what the answer is going to be. The answer is likely, “No, I haven’t exhausted all those A customers. I’m still working on trying to find more A customers.” “Well, why don’t you focus there and not bring me B and C customers because we need to build our profitability.” If we don’t build our profitability, there are so many things that we can’t do in the business. That’s what our focus is. We need to make ourselves profitable in order to become sustainable and there are systems that will help us become sustainable.
When I buy a company—and this will come out of this process, I’m looking at “How do I create a half a million dollars in extra profits?” Yeah, buying a company might solve the problem but there’s a better chance it’s not going to solve the problem because it’s a high-risk activity. When you look at the world of acquisitions, you only see 20% of them working. 80% of them fail. That means you are not going to be much different than them. What makes you believe that your acquisition strategy is going to work all that much better?
And the real WHY here is to make our company more sustainable. Internal sales are sustainable. Acquisitions have high risk. They’re more glamorous. People like to do them. It seems like an easy thing to do. I will tell you, I have done a ton of acquisitions my life and I’ve built businesses organically. 100% of the time, I wish I had built the businesses organically because those are the ones that made money. When I did the acquisition route, it took me years to fix the problems that came around there.
So, here we are. We’re looking at the Stage 3 Decision Process. And once again, here’s the Stage 3 Decision Process, the postulate, the idea is the first WHAT. The second step is to drill down on why that WHAT might be important. In this case, we were going to buy a business that’s going to create a million dollars in new sales and a half a million dollars in extra profits for us.
Okay, why do we want to do this? Well, it makes us more aggressive in the marketplace. It makes us better with our vendors. It makes us get better deals on what we’re going to do. But, will it actually work? That’s the question. Is there a better way to get there? By taking a look, “is there a better way?”, we discovered – yeah, there probably is a better way of doing it. And that’s a good thing to do.
So here we are. Let’s review the steps one more time and then we’ll be done with today’s episode. I’m hoping that you folks are going to take some time, think about the role that you’re playing in the company and if you want to learn more about this process, I’m going to invite you to give a call to me and let’s talk about this. I’ll spend 30 minutes with you on the phone. We have a process where we coach people and do this stuff. And I think it might be an interesting thing for you to think about.
So here’s the steps. WHAT – the initial idea of what you want to do. WHY – drill down at least five times to get to your core WHY. Go back and revisit that WHAT so you can revisit your initial idea and brainstorm other alternatives. Step four is what are you going to actually do? What are you going to do and how are you going to do that? That’s the next we’re going to do. And then we’re going to say, “Who needs to be on the team? Who are the people that can help us? Then finally, when we use the Stage 3 Decision Process, we get to HOW. And HOW becomes easy. In Stage 1, we will just say what we’re going to do and then how we’re going to do it. It’s hard, too much trial and error.
Now, I’m a big fan of fail fast, fail cheap. I love doing that but we want to get to the HOW. We want to make it easy. We want to make it accomplishable. We want to go faster. If you spend the hour, 30 minutes, 90 minutes it takes to do this process, before you start, I can promise you that when you get to the HOW, it’s going to go way faster. And frankly, that’s what our goal is – to get to what we need to do, get it done and work on it. But we have to start thinking strategically not tactically.
So there you are. There’s the Stage 3 Decision Process. I hope you had a great time listening to this today. I hope you find this really valuable. I hope you decide to download our e-book which is on relationships and roles in your business. And I hope you decide to set a time to speak with me. This is Josh Patrick here at Ask Josh Patrick and you’re listening to the Sustainable Business podcast. Thanks so much. We’ll see you soon.
Narrator: You’ve been listening to The Sustainable Business Podcast where we ask the question, “What would it take for your business to still be around 100 years from now?” If you like what you’ve heard and want more information, please contact Josh Patrick at 802‑846‑1264 ext 2, or visit us on our website at www.askjoshpatrick.com, or you can send Josh an e-mail at firstname.lastname@example.org.
Thanks for listening. We hope to see you at The Sustainable Business in the near future.