The KISS Principle: A Simple Model For Adding Value

A free video tutorial from Warren Coughlin
Business Coach helping you build a Business That Matters
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The KISS Principle: A Simple Model For Adding Value

Lecture description

At the end of this lecture, you'll have a super clear understanding of a simple strategy model that shows you how you can increase long term value and what your options are when selecting an area of focus

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02:21:58 of on-demand video • Updated August 2019

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Welcome back. This video too in the high performance strategic planning course. Here we're going to learn a little bit about what strategy actually means and we're going to use the guiding principle of Keep It Simple or the KISS principle. See if strategy isn't executed it's really easy to blame the people and in fact that's what a lot of leaders do but really it's likely the strategy itself is the problem to be executed strategy must be understood. Therefore it is critical to keep it simple. Now too many strategic plans go off the rails because they're just far too complicated. So let's just start at a really basic level what is strategy. Now there are lots of definitions and the word is used at different levels of complexity from what is the fundamental business model you have down to what's the strategy to just find good people. Now for the purposes of this course we assume you have a business model and that you're operating. So for us the strategy is nothing more than the answer to the following question How do I deploy my scarce resources of Time Team and money to achieve a particular objective. That's it. That's what strategy means. Now the model of how to answer that question is also fairly simple. We're trying to decide how your business will use its resources to create capture and sustain enduring financial value. Remember I said at the beginning that business is about you know your personal success which comprises both personal value and financial value. For the purposes of doing this in a business contacts we're focusing on the financial value. Now sometimes you'll hear people talk about this as valuation and we'll talk more about that in a second. There are only three buckets of activity that will produce this value. Now you're going to overcomplicate it but again this is this is a very simple model that allows you to focus your thinking now. So what we're trying to do is create value or valuation. Now here's how we get to valuation. So you start with the first bucket which is get them to pay. Then there's another bucket which is to control our costs. Now there's a gap between those two things. The strategies you use to deploy that you deploy to get them to pay and the strategies or tactics you deploy to control your costs should create this gap of yearly value and then you have to think OK so what is the likelihood that that value will continue or grow into the future. That's called risk right. So what you're trying to do is determine what is the likelihood that that yearly value will continue or grow into the future. So that yearly value divided by risk is what creates your valuation right. So let me take a detour for folks who are accountants or business evaluators or acquisition folks or that kind of thing. They will tell you that this isn't the complete story as there are what they will call balance sheet items that also affect valuation. That's true but that becomes about what's known as financial strategy for this course we're focused on operational strategy in other words how do we maximize value through how we run the operations of the business. Now if this sounds like MBA gobbledygook to you Don't worry about it. I'm just wanting to avoid the folks who want to write in and tell me that I missed this financial strategy piece. It's just not relevant to this discussion. Now in each of these buckets there are only a few levers to pull. So under the get him to pay bucket there's only three there's get more people paying there's get people paying more often. That means get your customers to come back and buy from you more frequently or get people paying more money each time they do pay. That's sort of the universe of marketing all the different strategies and tactics that you hear about under marketing to try to get more business. They fall into one or more of those three categories and that's it that's the universe of get them to pay under controlling our costs. There's two primary levers there's variable cost and there's overhead. Now each of these also have two ways of approaching them. Now sometimes people will think of costs as just what you pay out but it's a little bit more than that. So there's two two levers under each of these. So the first is that that pay out the purchases that you make the things you actually write checks for. And then there are your people or processes. If you're people are high quality they're going to be more efficient which means you need less people which means your costs will be lower or if your processes are really efficient again you'll be able to run things through quickly and more effectively without incurring redundancy waste or other kinds of costs. So those are the entirety of the levers that you can pull to influence those two buckets. Now under risk there's sort of two levers but really there's only one because there's what's called controllable risk and then there's uncontrollable risk if major financial institutions create financial instruments that get abused and then wind up collapsing the global economy. Well you can't really control that can you. So that's uncontrollable risk. But there are uncontrollable risks like having too much of your business with one client or having all your intellectual property in one employee's head. Those are kinds of risks that are control level. So this is the universe of levers available in all businesses. Every single business. This is it. But here's the literally multimillion dollar secret. You can not pull them all at the same time. Let me say that again you cannot pull all these levers at the same time. One of the reasons that so many entrepreneurs get into trouble working too many hours and not making big changes is that they are trying to pull all these levers at the same time. And it just doesn't work. The goal of strategic planning is to choose your focus within a given timeframe. So here's a bit of thought work coming out of this video. What was your strategy this past year without committing what do you think it should be this year. So just looking at this say OK which bucket did I play in last year and which were the levers I was really trying to pull. Now if you can't focus on it and you're saying well I was trying to pull a whole bunch of them at the same time and your year wasn't exactly the way you wanted it to be you may have a clue as to what happened. All right now looking at it now you're going to go through a whole strategic planning process. But sometimes as funders get the juices stirring a little bit. So without committing without making any really hard hard decisions just looking at this knowing where your business is right now where do you think you're going to focus on it this coming term. Right. As you go through the strategic planning process what do you think your strategic focus will be. You don't have to commit yet when you go through the sort of analytical work we're gonna do later in the course it may confirm your impression or it may take you in a different different direction altogether. But for fun just see what you think right now. All right I'll talk to you the next video.