Ged: [00:00:00] Welcome back to podcasts, the podcast where Milan and I chat around various topics. We shuffle a deck of cards, a deck of cards just like this, and whichever card pops out the top. That’s what we’re talking about today. So let’s shuffle the deck.
Milan: That Valley or the Valley of Death. And it’s a spa card. So we’re talking about systems, right? So the idea of this card really came by it is a not new concept, you know, we all heard it and there are so many. Somewhat confusing, you know, attributions of it in the first place. Like, you know, everybody heard about it crossing the chest and it’s not coming from that.
But similar, similar thinking and pretty much any framework you pick up around there or any business book you pick around there you will find [00:01:00] some kind of permutation thereof. Where was the first time you heard it?
Ged: So this, this this concept by a slightly different name, the name will come to me in a second. When the, the first coaching organization I worked with probably about 12 years ago, 12 years ago, they had this concept where. They had a sort of, you know, like a business model or mathematical model behind the values of death that that explained when these values of death were gonna occur.
Depending on your size, depending on your management structure, depending on your industry. They use this as a prediction tool. So, you know, if you were at half a million, then the next value of death was gonna be at 1 million. If you were at 1 million, the next value of death was gonna be at two to two and a half, and then four to six, and then 10 to 12. And there is actually maths behind this. And there’s a lot of, there’s a lot of certainty around what you’re gonna encounter in next, next value of death and whether or not you cross it successfully. It’s really down to how [00:02:00] well you deal with those particular challenges at that point in your business journey. Also very, very similar, represented very similarly in scaling up as well. So this is something that I’ve been sort of, you know, teaching and coaching on for probably about 12, 12 years now. Well, well, well before I came across scaling up in Metronomics. So it’s, it’s not new. And it’s has many, many different forms, but.
In, in keeping with something that is, is well known and well used. It’s real. It’s real. You ignore it at your peril.
Milan: Well, and you know, I would say that just because it’s not new doesn’t make make it any less. Valuable or any, any list. True. Right. I think that the angle I approached it from the cart really was, or what it, what it was triggered by was a conversation I had where the client was making some really, pointed decisions to get quickly to the next [00:03:00] But in my. Or my observation, those decisions would take them to that precipice and no further. And if anything, that acting on them actually creates some sunk cost and, and builds in processes in the organization that will actually prevent them from going forward. So. Could already see at that point how much it’s going to cost to undo what they were actually putting in place right now. Just to get in their particular case, like, we need to get to 5 million. I said, no, you don’t need to get to 5 million. You want to get to a hundred. So focus on the things that get there and what gets you to hundred million is the fastest, will not be the same decisions that will get you to 5 million the fastest. Right. You, you might reach 5 million later on the Journey 200, but you know, that’s, you know, like, think about exponential growth, right? If you focus just on that, you might end up on a linear scale. You don’t know unless you [00:04:00] plant for the, for the exponential By plant, I don’t really mean you have to understand every single step on the way to get 200, but I think that whatever you are making is like, hey whatever decisions you’re making, whatever system you’re putting in place. How, scalable, for lack of better word, like how sustainable that is on the path to the final or to, to the ultimate goal that the organization is going to go. And if it’s not, that’s fine. As long as you have that expiration date in mind, you plan for it, and you don’t let it catch you by surprise, excuse me, because. That is where companies die, right? When you run into that wall or you fall into the valley and you don’t have enough energy to climb up on the other side because of all the weight. You you know, just to milk the analogy as far as I can, you know, with [00:05:00] all the baggage you have in your backpack. From before that you need to learn to shed first in order to get, so it’s much smoother if you plan for it and say, yeah, we know that this will take us only this far, so this is where we need to deal with it, not when it’s too late.
Ged: Yeah. Yeah, yeah. And, and this is a really good predictive diagnostic tool as well. I, I’m recalling a conversation I had with the CEO just a couple of weeks ago. And he was describing his business and he’d been, he’d spent no more than. 90 seconds, two minutes describing his business and where they were at. And just on a little bit of data he gave me, I was able to say to him, okay, you are either at 12 million and you are stuck, or you are at 25 million and you’re stuck. Which one of those two is it? And he looked at me and he said. How did you know that? And what he told me was his [00:06:00] industry they were a legal company.
They, he told me how many partners they had. So it’s very easy to just say, okay, in a legal company, most partners of this number of associates or lawyers working for them. So this is their head count. This is how many lawyers you get to a million dollars. You know? So, you know, from that I was able to say, okay, so your challenge is either.
Building pipeline at 12 or it is putting in the next level of systems at 25
Milan: Mm-hmm.
Ged: Which one, which one? And again, he was like, you know, oh yeah, we are, we’re between, we’re just over 12 and we’re stuck. We’re stuck. And know cash is, we’re just hemorrhaging cash. And I said, let me guess. You brought in someone to do some business development. You’re paying them a lot of money. You’re seeing cash flow out the door and you’re suddenly getting very nervous that your runway is, is starting to decline. And he said, yeah, absolutely. Yeah, I can’t, I can’t believe you can. Tell that just from what I’ve told you. So it’s a really, really good diagnostic tool.
If you know the [00:07:00] maths behind it, you can work out very, very quickly where a company is at and what’s gonna get in the way of them getting up to the Nev next level. If they’re at 12, what’s gonna stop ’em getting to 15? ’cause 15 becomes easy again, the maths works, you know, they’ve now got cash coming back into the company rather than just flowing out.
And again, when they get to 20, they’ve gotta get through the 20 to 25 barrier. And once they get to 26, 27. It becomes easy again. So you have this conversation with CEOs and the question they’ve got in their mind is, it used to be easy. Now it’s hard. What’s changed? What’s changed as they’re trying to cross a black hole or a valley of death?
Milan: Look. The difference, between the two of us, right? We’re both Metronomics coaches, we’re both
Ged: Mm-hmm.
Milan: But you know, you are really a model and system guy. Which is
Ged: Yep.
Milan: You know, my education is in system [00:08:00] engineering, but I’m looking at it much more from the psychology point of view of what, what does it mean and how you have to change your thinking model and doing, doing all of those things when you’re looking and say, Hey, this is pretty clear, right?
This is, this is what happens. But if I take apart your story, What I’ve seen is that the business model, you run out of the business model at some point, right? Because it’s easy to start professional services company on the idea of being cheap, right? You and you exhaust. Your network and you exhaust your referral network, what you can to get the first clients.
And it’s great, right? Everybody’s happy and everybody’s fine and you are just freaking cruising. But once you say, I want to grow a little bit more, suddenly your cost of client acquisition can go up. Like, you know what you just said? They just hired somebody to actually start doing bit stuff. So suddenly that’s a lot of non-billable hours and there are very few things that lawyers hate less. Non, [00:09:00] sorry, hate more than non billable hours, right? Because suddenly that means that there has to be to compensate for that, and you start hemorrhaging cash again, very, very predictable scenario. Right? And the issue is that they position themselves in the market in a way that the positioning itself. Doesn’t survive the valley, you can’t climb out it with it, right? Because to get from the 12 to 25, you have to be more expensive so you can pay for the systems that you need at that scale, right on, on that wrench and. It’s much easier if you can figure out this game early. It means that it might take you longer time to get to 12, but then you just cruise through it because your model is already set up at a level that can get you to 25.
In terms of the expectations from the customers.
Ged: Yeah. Yeah.
Milan: That, that’s what becomes really, [00:10:00] really hard to suddenly saying, you know what, oh, we are, we are just raising our rates. You know we are doubling them, let’s say for like the, for like of a better example. Unless you have the rest of your value proposition tied up to that you can justify it, you are in trouble and you might not survive at that level, and therefore you get stuck and off it goes.
Right.
Ged: It’s, it’s a double whammy. You know, you have to put your prices up to, to allow for the additional overhead, the increase in overhead. So the people that used to use you don’t want to use you anymore because suddenly your price has gone up. And you’re now competing for a bigger sector of the market that are probably used to going up against much more established companies that do charge those rates, but have got a track record of charging those rates.
So you lose the clients that got you there and you find getting the new ones even harder. ’cause you are, you are playing it in a new space. You haven’t built up the track record, the experience and the cap [00:11:00] capability. That allows you to compete in that particular arena. So it’s, it’s really hard and unless you recognize where you are on those values of death, you can’t plan.
For what you need to do to get across, now you need to know which, which peak are you coming up to, and what are the challenges you’re gonna come up against? And you, you almost need to think of this like a military campaign, you know, as, as you get to the top of the hill, you’ve gotta have all the tools and all the techniques and all the, all the tactics and strategies that are gonna get you across that value of death as quickly as possible.
Because the longer it takes you to get across. The more cash you are gonna burn. And, you know, burning cash is a lot, is a lot better outcome than in a, than a military con conflict. But you still gotta plan that across that journey across. The quicker you can get across it, the more chance you have of surviving.
And I, I often meet CEOs who say, yeah, we got to 5 million and then we got [00:12:00] to six, and then we got to seven. God, it was just hard. It was hard. It was hard. And they just retreat back again and they fall back to three and a half, 4 million, you know? And then it’s a bit like pregnancy, you know, two years later they forget how painful it was, and then they try again and they,
Milan: Yeah,
Ged: You know, they get, they get to 5 million, they get to 6 million, they get to 7 million and then fall back again.
And it’s exactly the same at the 10 to 12. Now getting from 10 to 15, you’re crossing another valley of death. And if you don’t get across quickly enough, you just slide back again because it’s too hard.
Milan: And then finally enough, what happens is that usually they do exactly the same thing. So let’s hire the. VP of sales after we fired the two before and had and needed a year to recover from the Mishi. And this time I’m sure it’s gonna work, right?
Ged: Yeah.
Milan: You know, and, and, and yeah, I’ve, I’ve seen it so many times myself.
It’s, is said, but look, let’s go back to Michael Porter and strategy, [00:13:00] right? Because when you are building your unique and valuable position. It’s contextual, right? It’s like unique and valuable within what context, within what market and for whom. So that, that example you, you had at, you know, hey am serving the clients who are perfectly happy with a mid-size legal firm and are preparing to pay those rates, but unless if I’m doing that, not ever going to get. With the same clients, with the same approach to the bigger size, because again, then I’m competing with the bigger guys for their customers. They’re already established, all of that good stuff, right? Like, I can feel good about myself by sticking it up to the big guy until I want to become one of them, right?
And then I’m fully unprepared. Well, the solution is, well, who are the customers that I can [00:14:00] serve really well right now? For a prices that are sustainable for my growth and focus on that, you know, finding that unique value proposition. Or I can say, Hey, I will always stale, middle, and this is what I want to do and maybe I will grow through acquisitions, through franchise, or something like that.
Right. That’s fine too. That is a strategy, but I think the understanding of how is. My current model sustainable through the otherwise inevitable debt values is the key question that needs to be asked very, very early. And if answered correctly, that value might never happen. Or not.
Ged: I think it happens. Yep.
Milan: Why I disagree with
Ged: It, it, it happens. The question is how effectively and how quickly can you get through it, you know? And, and my personal view is that, you know, [00:15:00] when you, when you, when you encounter a value of death, the decisions you are making to get through it are normally tactical and not strategic.
Now, they are things that you are doing in the now, in the three month, the six months, the 12 month, not in the longer term. Now, that doesn’t mean you need to ignore. Development of strategy and development of strategic capability. Absolutely. That’s why it’s so dangerous. ’cause you’ve now got a tactical path that you need to keep on going as well as keeping on going on your strategic path.
So companies lose focus now. They focus on getting through the value of death and they realize they haven’t really worked on developing their strategic capability that they need. Not this year, but they need it in place next year and the year after. So it’s, it can be a real distraction. It takes people away from their strategic work.
It’s okay if we disagree.
Milan: No, this is not usual for me to, to not have analogy handy or metaphor handy. [00:16:00] But I do believe that you can, for a lack of better word, pick a path where the valley are shallower Ged: Absolutely. Absolutely.
Milan: They’re not given, and, and that path we call the strategy. Right. That’s the thing that you put, put your put your time into. For example let’s say that again, you know, you set up your pricing right from the beginning. Again, that might make it seemingly harder to
Ged: Okay. Yep.
Milan: But the ones you get are the right ones.
Ged: Yep. So they’re in it for the long haul. Yep.
Milan: Yeah, yeah.
They’re, they’re not disposable just to get you to the valley. They’re, they’re actually there, which means that they are bringing your referrals to the more of the right customers. And again, this might be a slower path to get to whatever that number is, but once you get [00:17:00] there, you are already in a place where you can just keep going.
And that’s that’s. In my humble opinion is the definition of avoiding the value, not necessarily crossing it.
Ged: It is planning to get across it as easy as possible, but this, that’s language now. That’s language. Yeah. Mm.
Milan: Yeah, I don’t know, but again, as you said, it’s okay for us to disagree every now and then and let’s come back to this conversation a little bit later again.
Ged: Well, one thing is for sure if you are at 1 million or two, two and a half, or five or 10 or 20. Struggling to get to the next level, then you are probably just hitting a valley of death and it’s easier and more effective to recognize it and plan to get across so you can get through to that next level.
So if you are feeling it is used that it used to be easy and it is now hard, you’re probably in a value of debt.[00:18:00]
Milan: That was a good wrap.
Ged: Yep. Good ending.
Milan: I think so. I think so. I, I had heard a story that just came to mind Ged: We can interleave it in, I’m sure. Luke can just pop it in.
Milan: Think it’s, I think it’s okay. I think that we have about 15 minutes. I think it’s okay on this one. We can keep going. So do let, let’s do the pre intro,
Ged: Yep. Yep. Mm-hmm. Do you want me to do this? Do the intro and pass it over to you?
Milan: You don’t mind. Yeah.
Ged: Yeah. Yep. Yep.
So we’ve just finished recording a card, Gus episode that will air next week, and we talked about the Valleys of Death, various different names for values of death, black holes, that sort of thing. Milan, what detail did we go into?
Milan: All of them. And you know what, it was funny because we actually disagreed with each
Ged: We did, we did.
Milan: That often. So that’s, that’s always good, [00:19:00] for a little spoiler.. Jet believes that the value of that is inevitable, and it’s just about how you prepare yourself for crossing it. I do believe that with clear understanding of your future and the strategy, how to get there, you can avoid it altogether.
So no more spoilers. Listen to the episode and if you are watching this and the episode hasn’t come out yet, make sure that you subscribe and follow to make sure that you don’t miss it and see you there. Okay. So I am going to take your. And I’m going to forward it to Pamela. So now we can just chat if you want to pause the recording. And she, when she’ll join us, then we’ll set up and.
