In this episode Josh talks with Luke Sheppard from Sheppard & Company. They discuss Luke's new book called Driving Great Results and the importance of systems for Blue-Collar businesses.
Luke Sheppard is the author of the new book Driving Great Results: Master The Tools You Need to Run A Great Business, which provides entrepreneurs and managers with nineteen practical and proven tools to build, launch, and manage a successful business. He is the Principal of Sheppard & Company, a firm he founded on the premise of helping others to apply the proven business principles he's honed over his 20-year career. Luke has spent most of his career with John Deere, a heavy equipment manufacturer, in engineering, operations, general management, and executive leadership roles.
Luke's unique ability to focus on what's really important by filtering out the noise, solving problems, and driving better results in less time with practical tools and solutions is what differentiates him from the average consultant.
In today's episode you will learn about:
Tips for making high-quality decisions
How to build and lead resilient teams
How to communicate effectively
Factors that pull you away from consistent execution
Narrator: Welcome to Cracking the Cash Flow Code where you'll learn what it takes to create enough cash to fill the four buckets of profit. You'll learn what it takes to have enough cash for a great lifestyle, have enough cash for when emergency strikes, fully fund a growth program, and fund your retirement program. When you do this, you will have a sale‑ready company that will allow you to keep or sell your business. This allows you to do what you want with your business, when you want, in the way you want.
In Cracking the Cash Flow Code, we focus on the four areas of business that let you take your successful business and make it economically and personally sustainable. 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 and allow you to be free of cash flow worries.
Josh Patrick: Hi. How are you today? This is Josh Patrick. And you're at Cracking the Cash Flow Code. And today, my guest today is Luke Sheppard. And Luke is the author of a new book called Driving Great Results. And we're going to be talking about what's in the book. And we're going to probably morph into a whole bunch of other things because I kind of see Luke is this Renaissance guy with business owners in the fact that he can probably talk intelligently about almost anything that might happen in a private business. So, instead of me just yammering on and on and on, let's bring Luke on.
Hey, Luke. How are you today?
Luke: I'm doing well, Josh. Thanks. Yourself?
Josh: I'm doing well. Thank you for asking.
So, let's start with systems because that's one of the four areas that I think create an economically and personally sustainable business. Why should a blue‑collar privately‑held business pay attention to systems? I know it’s a stupid question, but we'll start there.
Luke: Great question. You know, I'm a systems engineer so I believe in in systems being executed and being created to produce very defined results. And throughout my career, either as an engineer or as a business owner, now at this point, but also as an executive with a heavy equipment company, I've looked for ways to have clearly defined processes and systems in place that ensure that, when you put the input into the system, you get a very defined output, a very defined result. And so, I think that for any business owner, having a clear methodology as to how you run your business and what your processes are for your business is of vital importance.
Josh: So, what I'm hearing you say that, if you systematize your business, there's more consistency to it?
Luke: Absolutely. Absolutely. And, you know, I certainly advocate that with my clients as well. But what I would say and what I've discovered throughout my career is that there are many approaches to systematizing business, many approaches to ensuring that the process of a business is very, again, well defined. But going one step further, what I've found, in many cases, is that the fundamentals that go into those systems, so how decisions are being made, how managers are communicating, how they're leading and guiding their people and also how they're executing - some of those fundamental elements that go into the system to ensure systematic success are often lacking, let's say, in many businesses.
Josh: So, could you give us an example of what you mean by, you know, fundamental systematization?
Luke: Of course. You know, one example, when I look at my experience in the dealership world with heavy equipment, is the process to respond to customer needs. So, the time in which a call comes in or a request comes in from a given customer, what that information looks like, how it is then reviewed by the receiving party, and then how that information is responded to. So very, very clearly defined process to respond to what customers are asking for, whether it be, you know, sending a technician to the field to repair their machine, to deliver a part in the field, to order a part from the facility from the factory, but some way of ensuring that, when a customer calls, their priorities are our job one.
What I found with many of my clients, in the heavy equipment space, is that that systematic approach to addressing a customer's need, which seems how they run their business, that very basic approach with a systematic, you know, clearly‑defined milestones and gates is often missing. And that's where I find when that's put into practice and customers are aware of how their information is being dealt with and dealers are then aware of how the information is being used to address the customer's need, you know, both parties win in the end.
Josh: So, how would someone go about creating a system for, say, answering to a customer's request? I mean, what would be the process for that?
Luke: I think one of the first things to understand is “What does the customer actually want?” And, you know, the terminology of customer need, customer response time, customer request is a very colloquial and ubiquitous term in any business. But what does it actually mean? And I think getting to the root of what the customer need actually is is the first step. Until you truly understand what your customers want, it's difficult to put a system around that.
And then, begin to look at “Who are the parties involved? What are the people that are involved in the input? What's the impact to your business?” So of course, the higher the impact, the more priority is then assigned to that request or to that input. And what's the complexity? So, the PIC (people, impact, complexity). Those three elements really define any system. And the higher the people count, the higher the impact, the higher the complexity, the more robust the system needs to be. And, obviously, vice‑versa, for systems that are of lower impact when it comes to people‑impact‑complexity.
Josh: Okay. So, people‑impact‑complexity. I'm not really clear what that means. And I'm going to bet my blue‑collar listeners have no idea what that means. So, can we kind of go in there a little bit and explain that?
Luke: Yes. Absolutely. Thank you for asking the question.
In my career, so with 20 years with John Deere. I've been an engineer, a manager, and an executive. I've traveled around the world and met with clients and customers in different industries. And, as I mentioned before, applying my systems - education systems approach to deconstructing problems, what I found is that most decisions, most communication forms, most systems have elements of people. Of course, you know, people are part of the system. They have an impact to your business. So, it could be a significant impact where it drives, you know, a great result for your business. You know, you could double your profitability or a small impact. And it's either more or less complex.
And I found that this function of people‑impact‑complexity exists in almost every realm of business. And when you deconstruct your problems down from that standpoint, with those three elements, it's amazing that you can begin to then reconstruct a solution based on how complicated a problem is, the impact to your business, and the number of folks involved. If it's just you, as a business owner, a simple problem, not very complex, it doesn't require a lot of input in that case but, obviously, the opposite is true as well.
Josh: So, if I'm using your model, what would be a people thing that I would be thinking about to design a system? Let’s stay with our heavy equipment dealer and customer request.
Luke: You know, I think a really good example of a challenge right now that a lot of folks are facing is recruiting, hiring new people, onboarding new people. And more specifically, one of the things that I'm noticing across a variety of industries is the referral programs that companies use to get new folks in the door from their current employees. And so, defining a system of referrals, to get the best quality candidates into your front door is a great piece of low hanging fruit, if you will, to improve your recruiting process.
So, a system for referrals will be an example where, in the case of a referral system, you have a lot of people involved. You have your employees involved. You have your HR department involved. You have yourself as the business owner perhaps as well. You're referring candidates that are coming into the front door. The impact to your business in getting the right folks, as we all know, of course, is critical. The better the quality of the candidate, the higher the impact, of course, in your business. And the complexity of a good referral program is, I would say, relatively moderate.
You want to make sure that what you're offering to your current employees as an incentive to provide you with a referral matches their risk. Of course, they're taking a risk in giving you the referral. So, we want that risk‑reward factor to be commensurate with each other.
So, then, we have a high people impact. We have a, you know, a relatively moderate impact to your business given the quality of candidates coming in. And from a complexity standpoint, again, it's moderately complex as well. So that would tell me that when you're designing a system for your referral program, to improve your recruiting process, you want to spend some time, and do it right, and make it a robust process and a robust system to ensure that the folks you're getting are the folks that you actually need for your business.
Josh: So, in my world, what I would like to be seeing people do is, whenever they get to complexity, that their main goal is to see “How can we reduce that?” because, in my experience, the more complex a system is, the less likely it is to be used. Do you have any thoughts about that?
Luke: Absolutely. So, I think back to my engineering days, and one of the things we used to say when we're looking at complicated designs is the final step in any kind of design, whether you're looking at a car, a bridge, you know, any kind of a mechanical structure, the final step is to simplify. And I think to get to that simplification step, that final stage, that comes after the complicated nature of the system is analyzed.
I fully agree with you that simpler is better but sometimes getting to that complicated state is where you need to go to understand all the intricacies and all the inputs into the system. But I would certainly enunciate and agree with your final point that it’s that simplification, the taking away of-- you know, the pulling away of elements that is so critical to making sure that the system is sustainable and easy to use because, if it isn't easy to use, it's not going to be used in the end.
Josh: My experience a lot is a complex system often triggers to me that the system we're trying to design is too big.
You know, I noticed that you're a Lean expert. And for the audience that listens to this podcast, I think Lean is a big mistake. It's way too complex and way too complicated. I think, in most cases, a thing called the theory of constraints which was really illustrated well in the book, The Goal, or Agile which is Scrum, which is Sutherland’s thing, is much more applicable to a smaller privately held business because they're way simpler. So, the tool I think that you decide to use in designing your systems is a really important decision to make. Does that make sense to you?
Luke: It does. It does, absolutely. And one of the things that I advocate on my book is going back to the simplest form of a system, the simplest form of an input. You know, in some cases, systems aren't required to do a specific job. And with my clients, what we take a look at are the things for which process, documentation, Lean methodology’s continuous improvement on certain systems formats are required. And there are certain critical parts of the business for which those elements, again, are mandatory.
But there are also things that, you know, systems aren't required - the complexity isn't needed to ensure that the end result is what they're looking for. And we try to have that balance between, you know, to your exact point, using the simplest tool possible to generate the system that's required versus simply having the skill set to make good decisions that communicate well and manager your people properly.
Josh: Yeah. My other thing that I've learned over the years is that if I'm working with someone and they start using really, really complicated language, this is especially true with consultants. You know, it sounds good. They're using all their industry jargon that's for their industry which means I, as the consumer of the product, have no idea what they're talking about often. The more jargon, the more complexity, the more hard to understand stuff is, it often means a person that's trying to help me doesn't really understand what they're talking about themselves. Do you ever run across that sort of syndrome?
Luke: That's a great point as well. And, again, my philosophy is to rely on the fundamentals. And I kind of want to come back to that in in my book, and in my teachings, and certainly in my communication with my clients. I believe that the most basic elements of running a business, as I'm doing myself and as I've done before in the past, is to make good decisions in a way that is both informed but also using gut instinct because, of course, because communicating clearly, effectively, basically, managing your people quite well, and then executing consistently. And those are the things, really, that I espouse, and I focus on. So, certainly, I think that it's easy to have nomenclature and, you know, different kinds of colloquial terms that that represent business and running a business but the basics-- or what I believe the fundamentals are so critical.
Josh: You know, back in the early ‘80s, in my food service and vending company, we adopted Deming’s 14 points as part of our operating principles which is a precursor of Lean and all the other process improvement stuff out there. And the first thing you did when you adopted Deming’s 14 points was you started measuring stuff that you wanted to improve. Where does measurement fit in with designing systems?
Luke: That's a really good question. I had a client recently who was implementing the OKR method - the objective key results method of running their business. And certainly, measuring parts of their business is really important. I think measuring parts of your business and certainly measuring where you are helps to know where you want to go. But, again, I keep coming back to the fundamentals and what I've observed has been that there seems to be this shift or this jump to measure things to adopt leadership practices and strategies to kind of jump to the emotional intelligence side of the business but, more often than not, there still are fundamental things that small business owners, at least I've observed, are missing which is why I've mentioned the making decisions, the communicating, and the managing people.
So, I think measuring is really important. I think measuring [inaudible 00:13:24] into setting SMART goals, defined goals, that then can be assigned to the team. I think it's important to be able to measure for continuous improvement. So, if you're looking at where you want to go with your business, knowing where you're coming from, obviously, is the starting point. But at the same time, before even getting the measuring point, there are often these fundamental skills that I see being so critical and so impactful to running any business.
Josh: So, what might some of those fundamental skills be? And you've probably already said that but I'm thick.
Luke: Josh, I've struggled with that question for most of my career. And I'll give you an example of where I met with a logger in Finland about 15 years ago. And he was trying to figure out where to invest his money in his business. And he was doing quite well. The forestry industry Finland was doing great. You know, he had $50,000 or $70,000 to invest either in a new machine or to buy a larger woodlot. And so, he's faced with this very difficult decision.
And I began to see those kinds of scenarios pop up wherever my travels took me with, with whoever I met as well. So, the fundamental things that I think are in need of fine tuning to run a great business are four things. Making good decisions - using your gut where it makes sense, but also using data, of course, where it makes sense, and using robust tools to make good decisions. Number two is communicating effectively. Knowing your message, to whom you want to send your message, and what tools you use whether it's, you know, social media, or texting, or calling. Number three is how you manage your people and getting into the behavioral science of managing people, designing teams for both collaboration and conflictual collaboration and using behavioral methods for that. I think it's really important to create and drive robust teams.
And four is executing consistently. And with an execution, I define that as being little bits of Lean, so not the entirety of Lean, but things like continuous improvement, getting the voice of your team into your business, five S’s - so, having a clean, organized workspace. And then, really, identifying how to make change stick because, of course, all small business owners, you know, we all realize that, if you want to drive your business forward with improvements, you're making a lot of change continuously. And how to make those changes stick becomes so vital to the long‑term success of your business. So, those four things I see as being the fundamentals of running any business.
Josh: So, you just used the term conflicting collaboration, correct?
Luke: Yes. Yes.
Josh: So, I think I know what you mean by that. And I think it's a really important thing, but could you tell us what it actually means, instead of me trying to make it up in my head?
Luke: Well, when I've served-- you know, leading teams myself is collaboration is the thing that's easy to do when you have personalities that gel well together. But it's amazing what happens when you have moderately conflictual personalities. So, you know, if I'm an extrovert and you're an introvert, or you're an extrovert and I'm an introvert, vice‑versa, or we have different elements of our behavioral style that cause a little bit of sparks to fly. It's those sparks, in many cases, that can produce some really incredible results.
And I recall a situation where I was working on an engineering team. And we had a marketing element to the team as well. We had manufacturing. We had product support. We had all different kinds of personalities on these teams. And I was leading that team overall. And to be able to watch the folks interact with each other. And to see those that collaborated very strongly, where there might be an element of groupthink or continuous kind of thought process versus those that conflicted, the really interesting sparks and the really innovative solutions came from those folks that, let's say, kind of bumped heads on occasion and challenged each other back and forth openly but, at the same time, were respectful. So, I think, that's kind of a neat element to have in your business, you know, is that conflictual collaboration.
Josh: Well, you just hit on something which I think is really important is that conflicting collaboration is that, if you have respect for the others who have a different style than you and a different way of viewing the world than you, you're going to have a really strong company. Where companies, I think, become dysfunctional is when the people with the conflicting styles throw spears at each other instead. And if you're in an organization where you're throwing spears at others because they don't think about things the way you do, you're going to have a really, really hard time getting your business to do anything that's useful.
I went through that metamorphosis in my own company where, you know, we would throw sticks at those who did things differently. Then, finally, we realized that, “Hey, we really need everybody's input, even from their different styles. So, how can we switch it up to showing respect to throwing rocks?” And that's a big challenge for, especially a lot smaller companies, because the owners never really get a chance to think about that.
Luke: Most definitely. You know, and what I see with a lot of smaller companies is you hire who you can get. And so, you know, this idea of designing your company and hiring the right person for the role, I think, is a very esoteric idea. It's an ideal scenario where you can build your team with the exact right folks for the roles that you have open but in many cases you hire who you have.
And I think as any manager or a small business owner, who's running a business, needs to understand is that, when you're when you're creating this company and when you're encouraging the team to work well together, you as the manager need to have the skills to be able to identify areas of conflict and collaboration, encourage those to be used in a constructive way. When conflict occurs, to your point, Josh, about throwing the spears, that's where the manager or the owner needs to come in and shut that down right away. Not acceptable. Not going to work, but let's use that energy in a positive way to drive our business forward.
And I have situations where, you know, I have conflicted with other folks and I've seen my teammates and team members do the same thing. And we've been able to take that energy in a respectful way and come up with things and doing ways of things that the competition had no ideas about. So, you know, I think throwing the spear is a natural human tendency of some cases but that energy can be used for better purposes, certainly.
Josh: Yeah. So, we have time for one more really quick thing to talk about which could be a whole 30 minutes all by itself, but I do this all the time, so. And that's the concept of sunk cost fallacy.
Now, for those who are listening who have no idea what I just meant, there's a school of thought called behavioral economics. And in there, when someone says sunk cost fallacy, what they're saying is, the more effort you put into a project, the less likely you are to stop doing it.
So, Luke, could you give us a few brief short comments about where sunk cost fallacy gets in the way of designing great systems?
Luke: Absolutely. The sunk cost fallacy is a tough topic. And it's tough because you pour your blood, your sweat, your tears into an endeavor. You expect an outcome and the outcome doesn't materialize. So, then, what do you do? And human tendency is to keep investing more time, more effort, more energy into the same endeavor, and getting the same result.
So, when designing, I think, a really robust system, to drive your business, to run your business, one of the things that I encourage my clients to include are milestones along the way to review the results. You know, coming back to your point of measuring the business performance. Here's where measurement becomes so critical. If the end result is what you expect, based on what you're putting into it - your time, your energy, your efforts, your money, great, keep doing what you're doing. But if it's not, stop and ask yourself, “Can I invest my time, my money, my energy elsewhere in a better endeavor that's going to produce a better result?”
And I'll be the first to acknowledge that it's very difficult to walk away from something and say that my time can be used elsewhere in a better fashion. But I think including those gates or those milestones, maybe it's three months, maybe it's six months but when you ask yourself, “Is what to expect what I'm generating?” And if it's not, maybe it's time to look at something different.
Josh: You know, one of my mantras I like-- and, actually, it's a mantra I use all time is fail fast, fail cheap which means small experiments - if they work, keep ‘em. If they don't, get rid of ‘em. And that's true, basically, in any part of your business. And, for that matter, you could do that for your life.
Hey, Luke, unfortunately, we are out of time. And I'm going to bet some people are going to want to find you or your book. So, how would they go about doing that for folks who are not watching our YouTube broadcast?
Luke: They can visit my website, drivinggreatresults.com. And there are links there to my Facebook page, my LinkedIn page. You know, email me if you have questions about any topics from today's discussion. And, certainly, my book information is there as well.
And I've got two things I'd like you to do. I know I'm only supposed to have one but, I'm greedy, I'm going to ask for two. First is please go to wherever you're listening to this podcast and leave an honest rating and review. That means if you love us, you tell us you love us. If you hate us, you tell us you hate us. And I hope you don't hate us. It's really important to help people find the podcast. And the more reviews we get, the better Apple, and Google, and all the other search engines out there love us.
The second thing is, several years ago, a friend of mine who was in the estate planning world came up with this thing called the Periodic Table of Estate Planning Elements. And I thought that was so clever, I said, “Gee, I think I'm going to borrow this.” So, I came up with a thing I call The Periodic Table of Business Planning Elements. It has 53 strategies and tactics that you can use to make your business more economically and personally sustainable. It's really easy to go get it, you just go to www.stage2planning.com/periodic. That’s www.stage2planning.com/periodic. It’s the number two, not spelled out. And, you know, you’ll just get a little form. You give us your first name and your email address and we'll email it to you right away.
So, this is Josh Patrick. We're with Luke Sheppard. We're at Cracking the Cash Flow Code. Thanks a lot for stopping by. I hope to see you back here really soon.
Narrator: You've been listening to Cracking the Cash Flow Code where we ask the question, “What would it take for your business to still be around a hundred years from now?”
If you've liked what you've heard and want more information, please contact Josh Patrick at 802-846-1264 extension 102, or visit us on our website at www.sustainablebusiness.co, or you can send Josh an email at firstname.lastname@example.org.
Thanks for listening and we hope to see you at Cracking the Cash Flow Code in the near future.