Being Average Used To Be Enough | Alex MH Smith, Basic Arts | E373

Average businesses are now starting to fail.

The vast majority of companies will be average or close to average. That's okay.

That's totally fine on one condition. Will average allow you to survive? And historically, the answer to this has always been categorically yes.

There's nothing strategic about strategic planning. It's just resource allocation.

You can create a very successful business without having a strategic bone in your body.

Is there not, though, a survivor bias there?

Strategy is actually a luxury good in the business world. People are now going to They have to wake up pretty sharpish to this no longer being a luxury. This is just the cost of entry.

When somebody rings you and says, Alex, what's the answer?

I always really objected to the notion of the purpose of business being to solve customer problems because this is not remotely true. It sort of sounds true, but it isn't. Would you like to have 10 new leads every week?

You think I'm a poor person with no fucking leads? I'm busy.

Explain to me again how it's important that the solution fits the customer's problem. It was never about quote unquote fixing the problem. It was always about— Hello, I'm Alex M.H. Smith. M.H., not because I'm pretentious, but because it's impossible to Google Alex Smith. And I'm a strategy expert, I suppose people would say. But really what I'm focused on is helping people figure out how they can win In what is the most competitive, oversaturated, overserved market in all of human history. We're at a time right now, I estimate, where the fundamental issue that businesses are facing, although most of them haven't woken up to it, is that customers don't need their shtick. In fact, most customers' main problem is there are too many people vying for their attention. There are too many options. There are too many quote unquote solutions. to their quote unquote problems. And this is an extremely difficult environment to operate in. And the sooner that businesses wake up to this environment, then they can start to wake up to the solutions by which you can navigate it. But unfortunately, most companies are running a sort of 2015 playbook that doesn't really work at all now. And yeah, this is what I try and talk about and help people with.

And I suspect that the 2015 playbook they were running, they weren't running in 2015, they were running the 2005 playbook in 2015.

There is There's a bit of that for sure, for sure.

And where— how come you ended up doing this for a living? What did you ever have a different proper job?

Yes, I did. I worked in a small marketing agency, not even remotely relevant to what I'm doing now. It was actually an experiential marketing agency. You know, we were doing product sampling and the like. And while I was there, I kind of came up with what I thought was this completely original theory Of— because obviously this was the lens I was looking at it through. I was looking at it through the lens of advertising, and I was really interested in these companies, of which there are some— you don't hear about this so often now, but back in the day you'd hear about it a bit— companies who had a no advertising policy that did no paid media whatsoever. Lush, Monster, Tesla— these were some of the ones. And I was just really taken by these companies, and I developed this whole body of theory that I thought was completely original. which was essentially about how you can run a company in a way where it doesn't have to do any advertising. And I called it Make Interesting Companies, Not Interesting Advertising. And little did I know at the time, because I had no knowledge of or interest in this space, that what I'd essentially done is I'd kind of reverse engineered classic sort of Porter-esque business strategy. And then I wanted to go and create a company to help build these sort of non-advertising businesses, sort of like an agency model. But little by little, I started to cotton on to the fact that I had just put new language to a very, very old set of principles. And when I finally realized this, I was very upset because obviously I was like, oh, it turns out I'm not this singular genius after all, and there is nothing new under the sun. But it actually was kind of good.

I'm sure your wife was very sympathetic when you shared that with her.

Oh, I don't think I even bothered. I was like, you know why? No one's interested I did this least of all her. But what was cool about it is that, like, well, the fact that I was not familiar with textbook business strategy sort of started to explain why actually almost nobody is familiar with textbook business strategy. Like, you take your average CEO and they're not familiar with textbook business strategy, as you well know. And not only are they not very interested, they don't even have to be interested because it's not like you need to do that kind of elite-level thinking in order to run a successful business, or at least you haven't. Had to so far. And what I'd accidentally done is I'd come up with a new set of language around this that made these topics much more accessible and maybe engaging to a group of people who had never really resonated with the more kind of HBR-style academic way of talking about it. So that brought a new tranche of people into the world of strategy, including me, because I myself was not someone interested in the world of strategy. And then I kind of built my reputation, I suppose, primarily off the back of that and my book, which was called No Bullshit Strategy, which sort of does what it says on the tin, in essence saying if you want to do strategy but you're not interested in kind of going and getting an MBA, if you actually have to implement this on a day-to-day basis and you're not interested in the sort of academic rigor of it, you just want to do it. That's what I was offering. And then obviously over time things have evolved and more recently, like I still had to butt up against the simple fact that most CEOs, they just aren't interested in strategy. Because I had to just recognize that strategy is actually a luxury good in the business world. There are plenty of completely unstrategic, by which I mean very reactive, very just sort of throw shit against the wall type businesses who can become billion-dollar businesses. You can create a very successful business without having a strategic bone in your body just by basically Not being stupid and just taking action and trying shit and all that stuff that actually really fundamentally moves the needle.

Is there not though a survivor bias there, right? Because for that billion-dollar company that gets there with no strategy, it seems to me that what they ended up with is they accidentally had a strategy. They just didn't sit down and describe it and write it down so that there was a mental model of the marketplace or how people behaved or what we were against our competitors, or maybe we just got really fucking lucky. And there's a point at which like you look back and you go, oh look, they're a billion-dollar company. But there's 100 other companies that had similar no strategy, but in evolutionary terms, just died along the way.

It is so funny that you say this because maybe like a dozen times people have thrown survivor bias at me the opposite way. And this shows how much people don't understand survivor bias. You're the first person to ever throw it at me in the correct way. Because if I explain some sort of strategy precept and I use some sort of like, you know, super successful, sexy company, That did it. What people will say to me is like, well, Alex, well, this is just survivor bias because, okay, this company did some really kind of cool move, but that's just survivor bias because they're like some amazing company. And what about all the companies who did that same move and didn't survive? And I'm like, no, you don't understand survivor bias because the real survivor bias is the one that you said where let's say you've got 100 companies who are throwing shit against the wall and one of them becomes successful. Over here, then you've got maybe 5 companies who are doing things, quote unquote, right strategically, and one of them becomes successful. You're telling me that's the survivor bias one. But statistically, that's 1 of 5, because almost nobody's actually doing things in a smart way. The real survivor bias is all these other companies that have been drawn from a much, much, much larger pool. So statistically, they are the outliers, the billion-dollar, like, reactive company is the outlier. But because for every one strategic company, there are 500 reactive companies, net-net, we get more unstrategic successful companies than we get successful strategic companies. But most people, when they see that, they basically think to themselves, well, yeah, fine, you know, you can talk about your apples or whatever until the cows come home, but Apple are the outlier. I just want to be like these other more mediocre successful companies. But the paradox of it is, That if you want to maximize your chances of being successful, then just fucking do it in a vaguely intelligent way. But yeah, but you could, you could see how people, they tie themselves in knots with this. And I've had many people say to me words to the effect of like, I'm not trying to be Apple. I'm just trying to run a, you know, $15 million turnover cardboard box company. And they think that this excuses them from this discipline. But this is a complete misunderstanding of how the probabilities work. You know what I mean?

Yeah, no, totally, totally. I, you know, I think it depends how we define strategy, but I often say to clients, look, you're doing strategic planning and that's just planning. There's nothing strategic about strategic planning. It's just resource allocation. Like, what do we think our assets are gonna be? What's our revenue gonna be? Let's put some budget numbers together and come up with a profit. And then I say, strategy is that we want somebody in the future who we don't know who they are to do a thing that we might not have decided what we want them to do, But at some point, we want them to do a thing. We create value, they give us money, we— it falls through to the bottom line. And the CFO says, so we're just going to make it up? And I go, yeah, we're just going to make it up. And then the CFO head explodes, and he just wants to go back to his Excel spreadsheet. Then you can create some frameworks, like you've created a load of frameworks where people can then do a thought experiment and go have some clarity on what they're trying to do and why, and do some experiments and see if they work. And it's just having some rigor as opposed to not thinking about it at all.

Right. So we got, so it's, it sort of is a bit of a nonsense to say this company has no strategy. It's like, you know, getting out of bed every day might be your strategy, right? So, and I think that this is why most businesses, they think, well, we've got a plan, let's say, therefore we have a strategy. And actually they're not wrong because their plan, rightly or wrongly, is something that they're trying to do in order to achieve whatever their goals are. So what can you say? What can you say? Like that is sort of dictionary definition strategy. The thing that most businesses lack, we have to define it in a way where businesses can see that they actually have a lack. And that's where you get into a more productive conversation, I suppose. So I mean, there are many different ways that you can do that. One way that you can do it, of course, is you can say that like, well, what we're trying to achieve here is some kind of serious form of competitive advantage or leverage. Now immediately, a decent number of businesses will wake up and they'll be like, Yeah, actually, you know, now that we mention it, we don't really have any strong competitive advantage here. Wouldn't it be good if we had that? Even then, you're still going to get a huge bunch of businesses who say we have a competitive advantage because we are better than all of the other companies in our market. Something completely insipid, but they believe that they have a competitive advantage and therefore they have it. So you have to start getting into these definitional games.

Do you believe that the long-term measurement Of a successful strategy is that your net profit before tax is higher than your competitors'.

Yes.

Okay.

That is the only final definition of success that I've found that is plausible.

Yeah. So, so we agree on that. And so if you go, that's what we're trying to achieve, then things that would help you think about what you might do to change that, we could say is strategy.

Definitely, definitely. But the problem is, I mean, there's nothing wrong with what you're saying at all. The only practical issue with it is that you are creating a definition which allows people to mislabel everything they do as being strategic, which is exactly what I'm sure you've seen them do before, and which is exactly what they will do. The big poison in this whole soup is basically companies letting themselves off the hook and patting themselves on the back for stuff that they do not deserve to be patted on the back for. And it's very, very hard to create a kind of definition which encourages a business to hold itself to a sufficiently high standard. Now, of course, if you're sort of working with them on a day-to-day basis, you don't have to do that because you can cajole them to whatever standard you want them to. But if they're just out there by themselves, the main problem that they're going to have is that they are going to hold themselves to an incredibly low standard. And worst of all, they won't even realize that they are doing it. Like the thing about the profit versus your competitors right now, it's very logical. Like, if you're going to have If you're gonna have higher profit than the industry average margins of whatever industry you're in, cuz of course some industries are naturally more profitable than others. Like if let's say the average is 20% and you've got 40%, I don't know, just like picking numbers out of thin air. There has to be something radically differentiated about a business that earns 40% when everyone else is earning 20%, right? Yeah. This is just common sense. So there has to be some insane move to make that happen. But I don't think that the average person who you throw that gauntlet down to will appreciate that there is a difference in kind between the 20% profit business and the 40% profit business. I think that broadly speaking, most people will default to, without thinking about it too deeply, wow, that 40% business must be doing things really well, right? And if we do things really well, we'll be that. Which of course, like, you only need to think about it for like 20 seconds to see that that's nonsense. But people won't even think about these things for 20 seconds. Like, 20 seconds would be an insane depth of thought for someone to apply to these topics, in my experience.

Yes. And if you want to be average, people can be average. Everyone, you know, there's the vast majority of companies will be average or close to average. That's okay. And do you know what I used to think? I don't understand why most employees are lazy. But actually, it's just human evolution. For millions and millions of years, it's about survival, not, not high performance. And so it takes an unreasonable CEO and it takes at least 30% of unreasonable people to create a business which thinks about things for more than 20 seconds.

Oh my God, the way that you've said this is so good. So let me just take this baton and one-up you here. And this is the— not one-up you, but like, yes, and you, whatever the term is. How did you put it? You said that, like, well, most things are going to be average and most businesses are quite happy with being average. And this is of course why nobody is interested— historically, nobody's interested in strategy because it's an outlier action. And if we are all reverting to average, then that's what we'll do. That's totally fine. That's totally fine on one condition. And that one condition, which you said yourself just there, is will average allow you to survive? And historically, the answer to this has always been categorically yes. In the last 100 years, at any given time, The average business is a profitable business. It's not Apple, obviously, or whatever. It is absolutely fine. And everybody can come to work each day and they can earn their money and the directors can get a decent little payout and have a nice lifestyle. The average business survives. And this is where things are now becoming different. And this is where people need to fucking wake up because what is happening now, and this is historically completely unprecedented, Can be very, very simply summed up as average businesses are now starting to fail. They're starting to struggle and they're starting to fail. And because we're actually seeing a contraction of market opportunity. And so like the threshold of success is rising all the time and it is going over the necks of these average businesses. But these average businesses, they don't realize this is happening and they don't really understand why it's happening. They can feel it happening. We see it every single day. You probably see it with some of your clients. You certainly see it. I'm sure that people listening to this, they can feel what it manifests as things getting harder. And maybe then we blame it on the economy. I mean, all these things contribute to the soup, but we're in this situation now where average businesses are starting to fail. This is completely new. And so this is where then you just talked about that again. I forget how you phrased it, but like the 30, the unreasonable people. Mm-hmm. who push beyond average. Well, now it is the unreasonable people are the only reasonable people because they're the only ones who are going to be keeping their head above water with everything that is happening. And so all of these luxury considerations, like spending 20 seconds thinking about strategy, people are now going to have to wake up pretty sharpish to this no longer being a luxury. This is just the cost of entry. And I don't see that most people have cottoned on to this, but what I have seen signs of Are people realizing that they need to look for an answer, which is big progress in my book.

And what— when somebody rings you and says, Alex, what's the answer? How do they start thinking about fixing the future for themselves? When we were chatting before we were recording, we were talking about this concept of the old playbook being, I fix holes in roofs. If you're looking for a hole in a roof, this concept that it was easy to define the problem your customer is looking for. And you said, oh no, there are 4 types of businesses and 3 of them aren't really covered by the old playbook.

Well, actually, I mean, this is semantics, but actually that's actually, I wouldn't put that in the old playbook. That's actually quite a new phenomenon that's been driven by sort of online business advice. But I'll contextualize that in what we're saying. So the answer, the answer very simply is that like the average business of the past that is now starting to struggle is essentially just like the business that doesn't have any competitive leverage. It doesn't have any competitive advantage, i.e., it doesn't have strategy the way that we're defining it. It simply like tries to fight directly with its competitors and take a piece of market share, which is a game that works perfectly well provided that there is enough business to go around. And that's the thing that's changing, right? There's not enough business to go around because we're getting oversaturated in all, in all these markets. And that's why these businesses sink. And so all you need to do quote unquote, is you need to actually find a way of owning some unique form of value in your market that puts you in a defensible position and which gives you that true competitive advantage. And, you know, you can read any of the old strategy textbooks about this. And in a sense, this is nothing new. The only new thing is that now this is no longer a luxury, this is starting to become a necessity. Now, as people go out there, and then they look for like, you know, they feel things aren't working, and they look for these What's the answer? They'll look online, they'll watch YouTube videos, go on Instagram, whatever. And I've seen this. There's a certain flavor of business advice that has become incredibly dominant. It's become dominant because the algorithm decides what's dominant based on what's popular. And it sounds very seductive, and it's actually really damaging people. I think it's really damaging businesses. I think so. What I would sort of sum— you said it a second ago. I summarize this as the hole in the roof approach to business. And this is kind of like, as people are flapping and floundering out there, this is the answer that they're finding, which is actually a really bad answer for most businesses. But it's the first thing that you'll find if you go looking for an answer. And this is essentially this idea. It's also sort of in the universe of positioning and niching where people say, right, you need to identify your ICP and you need to figure out exactly what problem you solve. And then when you obviously go out there and you tell them, hey, like I solve X type of problems for people just like you, then people will be like, oh, that's me. And they'll buy from you. And it sounds so seductive and sweet and clean and pure. And for a certain type of business, it actually is how things work. But it's a very, very narrow subset of businesses who actually work like that. But the problem is, is that the algorithm doesn't know that. It's such an elegant sounding solution. That it produces viral content that then your average CEO or whatever sees and thinks this is the answer and this video's got 5 million views, so it must be the answer. The whole thing is that they're just being duped by. And so the model by which you can really understand how stupid this is, I want you to imagine the classic 2 by 2 matrix where we have, like, if we think about businesses in terms of these axes, firstly you've got B2B businesses and B2C businesses, right? So that's one axis. And then more importantly, you've got discretionary and non-discretionary purchases. So a discretionary purchase is something that you do not have to buy. You could just not buy anything. Like, very obvious thing, like any sort of fashion brand is obviously a discretionary purchase. A box of cereal is a discretionary purchase. These are all optional purchases that you don't have to have. Non-discretionary is like, I've got a toothache, I have to go to the dentist. I don't want to spend this money, but I have got— there's a gun to my head. I've got to spend this money. My shower is leaking. I have to spend this money. So then we can see that we've got B2B discretionary, non-discretionary. You and I are perfect examples of B2B discretionary. We're B2B, but like nobody needs to hire us. It just is not essential, right? So we are actually in a similar box to like Ralph Lauren or Land Rover or something like this, right? It's a luxury purchase and it's always gonna be that way. Whereas a B2B non-discretionary, would be something like, you know, we need to become GDPR compliant and we need to install this software or whatever, that kind of thing. And then obviously in the B2C sense is, like I say, stuff like plumbers and people who fix literally the hole in your roof, etc., etc., etc. Now the point here is that almost all of the advice that you see online assumes that the person watching it has got a non-discretionary business. I mean, I'm a big fan of Alex Hormozi. But when you look at all of Alex Hormozi's sort of case studies that he uses, almost all of them are like roofing companies and like pool cleaning companies and all these type of businesses which are actually in the non-discretionary bucket. I have a pool, someone has to clean it. Like, it can't just not be cleaned. And this is where this whole like, I fix this exact problem that you have that you're looking for mindset works because Non-discretionary businesses have got a very discrete problem that they solve. Like, all of their customers are looking for the same thing. All of their customers need to get their pool cleaned, right? There isn't like a variety of entry points.

And you can, and you can do outbound, inbound, digital marketing, you know, SEO. There are a series of tactics that you can do to make yourself more visible, or you can buy lists of people who have pools and email them or send them letters. All those levers you can pull.

Now, the problem is that then people like you and me who are in the discretionary bucket without even realizing it, we think, that sounds awesome. That's so simple. That's like a license to print money. I'll do that too. Now, the first problem that we run into is ironically that we have a lot of trouble identifying what the customer problem is. So many businesses out there, they think, right, I love the sound of this. I'm going to go figure this out. And they think, okay, what is the problem that I solve? And then of course, they realize that there isn't a clear answer to this, or maybe it's incredibly broad and varied. The reasons that people come to you, and then you start trying to like falsely reduce it. So it's like, okay, the truth is my last ten clients all came to me saying different things on that initial call, but that's not very helpful because I can't create some clear ICP-driven offer from that. So I'm just going to pretend that they all said blank, and then already you're starting to artificially limit how your business actually works. But you've seen the playbook and you think, shit, this is the way business works. This is how I win. This is what I need to do. And you start tying yourselves into these ridiculous knots. The way that I try to snap people out of this spell is I always just say like, who is the ICP of Ralph Lauren? And instantly you realize that the question is a stupid question. And then you start to think, actually, maybe there's more to business than this linear A plus B equals C thinking that works so well on the algos.

For Ralph Lauren, you mean you can't define it in a clean way that it's Demographic data, right? Because if I just pick a slightly different brand, if I pick Tesla, my contention is the people who buy Teslas are buying smugness, and therefore, that there is a proportion of people in the world who want to feel smugger than their neighbors. And so they buy a Tesla, maybe not so much now, but certainly historically, right? And if I take that same lens and I apply it to Ralph Lauren, there are people for whom Ralph Lauren is a luxury good. I wouldn't be seen dead in Ralph Lauren. It's the antithesis of me, right? I am a Land Rover driver. I like to be able to take them to bits with a screwdriver, right? And it's slow, and it's uncomfortable, and it's noisy. I like that. They're benefits to me, right? And so Ralph Lauren is not— I'm definitely not in their ICP. It's not about the fact that it's the stitching or where it comes from. It's just, it's not a brand that appeals. And so then you're into brand rather than demographics.

You're driving at the answer here. So a simple way of thinking about it, what you're kind of saying here And this is again where people get messed up, is that like to use the Tesla and the Ralph Lauren example, whatever, or indeed the Land Rover example, like what's happening here is that the brand is generating the ICP rather than the ICP being something that existed before the brand did its thing.

If you take the Defender as a thing, right, you had people like me that liked the old Defender. And then Jaguar Land Rover go, you know what, there's just not enough of them. We're only selling 12,000 of those a year. That just makes no economic sense. So we're going to build a car that doesn't appeal to our existing customers, probably appeals to a different group of customers who might want to spend money because we're in the business of making money. And so you're right. Or if you take an example where it's gone the other way, Rapha, the cycling brand.

Yes.

So bought by private equity, you take it that it was exclusive, then they took it mass market because they thought that that would be how they made more money. And in taking the brand mass market, the people for whom it used to appeal were no longer interested. It's like if a Patek Philippe was £2.50, you would no longer— there would no longer be any point in wanting to own a Patek Philippe because nobody would know how wealthy you are because you wore a Patek Philippe. This episode is in partnership with CEOFriend. Cash flow kills more good businesses than bad strategy does. I've watched founders walk into a cash flow crisis 3 weeks out And not see it coming. Revenue's growing, but invoice timing, payment terms, and payroll had opened a gap nobody'd modelled because modelling it wasn't anybody's job. Your accountant sees it after the fact. CEOFriend's CFO Advisor sees it before. Upload your P&L and your forecast, and it runs the scenarios and tells you where the gap is while you can still close it. First month's free with my code. Link's in the description. Go and model your worst quarter before it happens. Right. So there's, you know,

it is, it is just more complicated than people think. I mean, if we, if we go back to the matrix thing, and I haven't thought about this deeply enough to be 100% convinced of what I'm going to tell you here, but it's true enough at least to get, to get the juices flowing. So B2C non-discretionary plumbers, the purchase driver there is going to be trust and accessibility. I have to believe that they can do it like they're not a cowboy. And it will be basically the first option that I come to, the first option that I see that I think doesn't sound like bullshit. And that's why it's very important for those type of businesses to be, for example, in that case, local to you and to have good Google reviews. You Google plumber and boom, that one's got like 100 5-star reviews. I'm done, right? I've done my search. I'm finished. I'm there. So you've got trust.

And I'm probably time poor and therefore I might even be prepared to pay a premium for the guy who's got 105 reviews, right? Because the hole in the roof doesn't fix itself.

Exactly. I don't think that it's very price sensitive, that particular part of the quadrant. Then you've got the B2B non-discretionary. And I think that this is where— this is the only quadrant where the concept of fit really matters. Most businesses out there are so obsessed because of the advice they get with establishing fit. Like, I am precisely niched to precisely what my customers need. Now, if you're selling some particular Shopify plugin that applies to companies that sell shoes and the whole thing is like a jigsaw puzzle fitting perfectly into the widget that you need, then the world of fit is very important. But I only really think it's in B2B non-discretionary where fit and specialism, being specialized, is really super important.

I think as you were talking about that, I was thinking about the opposite end of that spectrum, which is Every B2B discretionary purchase ends up as a commodity, you know, broadband, hosting, electricity, right? And because they're undifferentiated, the only thing they can compete on is price to try and capture market share. And so it still works to be differentiated because, you know, I'm going to buy AI for lawyers. So I'm going to go and I'm going to look at Harvey or Legora, and it's a premium purchase because I don't want to just use generic ChatGPT in my law firm or whatever. Do you know what I mean? Because lawyers think they're special. When I used to run a CRM consultancy business and we'd sit sit down with clients and they'd say, Dom, you don't understand, our industry is completely unique. And they'd say, and within our industry, our business is unique. We can't implement your generic process out of the box. And we'd go, no, you're probably right, laughing inside as we charge them a fortune to do the thing, which in fact was exactly the same as every other fucking business we'd ever worked with. And so, you know, that's the— I think that's where the power of niching is. But it's that— it's those— that's the B2B non-discretionary thing.

B2B non-discretionary is the area where niching is just like really, really effective. Too bad that it's only one quarter of the quadrant. Then obviously like B2C discretionary is— that's very straightforward. That is like almost always this is about the person buying an identity or buying the sort of person who they want to become. Whether we're doing this with a type of food or with fashion or with our car or whatever, oftentimes this fits into my life as I see my life. I think that even applies with budget products as well. It still applies, but just in a different way because it's reflective of your personal priorities. The hard one, and I think I'll tell you the best that I've come up with. I think it's right, but you can challenge it. The most subtle one is B2B discretionary. And what I think it comes down to, and I think I need to get the language better on this, is that B2B discretionary, is essentially about belief in leadership, by which I mean, it means that the client believes in the leadership power of the service provider to take them to a higher level. So if we think about you, for example, would be a very, very clear example of that. The client has to begin by basically thinking that Dominic Monkhouse is a sort of aspirational character. who is ahead of us in some domain and can lead us forwards into that domain. If we flip over to something like back in the days of those sexy advertising agencies like Saatchi& Saatchi and BBH, why were they successful? Because again, the clients had a belief that these people could lead them. The businesses, if you get your non-discretionary purchase, there's no leadership involved there. I want you to come in and install your stupid widget and then fuck off. But I don't admire the service provider here, right? not leading me. They're doing a service. They're fixing the hole in the roof. Whereas with the discretionary ones, leadership is absolutely integral. So if you are a B2B discretionary purchase, you have to be doing things that make clients want to essentially submit themselves to your leadership. So you have to have an incredibly high level of authority over them, or you need to have achieved something. Amazing that they really, really want to achieve. So this is very, very easy. For example, if you were in the world of coaching, let's say if you were someone who had built a company and then sold that company for $500 million, it will be very easy for you to get clients off the back of that because essentially the implied thing is I sold a company for $500 million and I'll show you how to sell the company for $5 million. And then the client thinks, All right, shit, whatever they tell us to do, I'm gonna follow them. So that would be a very clean example of the principle. And if you don't have that kind of like prebuilt authority, then you are going to have to generate that authority through other means. I don't have that prebuilt authority, so I have to try and generate authority essentially with doing stuff like what we're doing here now. Yeah. Because I can't tell people that I've sold a company for 100 million quid.

Yeah, or you talk about the brands that you've worked with. and the success they've had on the back of following your advice and the book that you've done. And, and you have a YouTube channel. I'm thinking about clients and the challenges that they have who are in this space. And I think that's why, because it's always nice to have a framework that helps you understand why things happen and why they don't. And so that leads me to think all of the clients I work with who are in the B2B discretionary space need to have some personal brand. Their leadership needs to be transparent. The way they lead needs to be transparent. And a great example is Hazel Pulley at Excel Balsia, Matt, which was a multi-academy trust in Birmingham I did some work with. They can't pay their teachers any more money, right? They can't fire them all and replace them. They have to take the field with the same team. And they got really clear about what they were doing in the schools that they had in inner-city Birmingham. And they went from 3 schools to 7 schools in 3 years. And they said, we want to be world famous for innovation in education. And I said, how does that make you feel? And they went, that scares us shitless. Like, there's 3— we're 3 primary schools in inner-city Birmingham. Who the fuck cares whether we're world famous? But because they said that and they did They ended up going from 30 CVs for teachers who could only get a job in inner-city Birmingham, and that was their last choice, to 300 CVs the next time they put a job out, which is, do you work in a school where people don't value the fact that you are an innovative teacher? You should come and play with people who think like you. And they went from 10x their CVs, and then 3 years later, they had 7 schools because they were able to tell that story to the Department of Education. Hazel was the sort of the figurehead of that business. And so the way in which you describe it gives me a shorthand way for telling that story much more succinctly, which is what I love frameworks for.

That is such a good example of what we're talking about. I completely agree. And again, without thinking about it too deeply, it's very hard really to imagine playing a discretionary game without the without the power of fame behind you. Either fame or such an incredible aspirational achievement that you've achieved that it kind of— and even that in and of itself is a form of fame. And what I just despair for is you just see like all of these discretionary businesses going out there and trying to run the non-discretionary playbook. And so then what you'll see is you'll see an advertising agency and they'll say something like, we're an advertising agency. that helps like edutech companies grow their sales or something like this. And they think to themselves, well, look, I've identified an ICP and I know that they all want to grow their sales, so I'm doing that. And then they wonder why nobody fucking wants to work with them. Because every single day now I receive 15 or 20 junk bits of email that basically run this game on me. Mm-hmm. They know who I am, or the AI knows who I am. They know what I want, and they say basically, Alex, you are a consultant. Would you like to have ten new leads every week? Now the answer to that question is like, well, of course I would like to have ten new leads a week, but I'm not gonna fucking pay any attention to you to do it. Like you're not. I'm not gonna. I'm not gonna use you to do it because that type of service I'm only ever gonna buy from someone in whose leadership I believe in, and that's not some stupid randomer. who's just emailed me cold using, using some AI automation.

I look at that and I go, where would I have time to talk to 10 people a week? You think I'm a poor person with no fucking leads? I'm busy, right? I'm not scrabbling around for customers. That's not me. That's not this. This is not the chat. This is not the challenge I have. It's the fact that I spend all my fucking time deleting this bullshit out of my inbox, right? Occasionally I, uh, people will be slightly more dynamic and they'll say, here's a video, I've recorded a video how our process works. Would you like me to send you the video? And I always say yes, because I'm intrigued to see—

Oh, you do?

Yeah, yeah. And like, when there's a cold call, I always take every cold call. Like, and because they then start, I go, hang on a second. You haven't asked me if I'm busy. I'm busy. Are you busy? I'm busy. Is now not a good time? It is not a good time. Is there a better time? There is never a better time. Goodbye. Right? They're just because these are people with no craft. Right? That's what I hate about it is there's no craft. To it, right? They're shit. They don't even know they're shit, right? They're sending you shitty emails and they don't even know their emails are shit. Like, if they spent 2 minutes, 2 minutes themselves on fucking Google, they'd realize that the whole thing is a fucking waste of time. There is so little value in that because the email is shit. So there's a whole thing about if you're in a service business that your sales and marketing process has to be— there's a level of I mean, it's the, uh, the guy from Eleven Madison Park wrote a great book about how they went from the 50th best restaurant in the world to number 1. I have tried to do this on a number of occasions. The Marxist capitalist is Big Yellow Shed, Web Mart up in Bicester, right? And, you know, I went to interview him for the podcast years ago, and his PA rang me and she said, could you tell me your hot beverage of choice? And I said, well, tea, white, no sugar. She said, brilliant. Are you still coming at 2 o'clock? I said, yes. She said, if you just park your car, it'll have your name on the car parking space. And if you just follow the, the red carpet to the front door. I'll meet you at 2 o'clock. And so I turned up and there they actually had a red carpet in the car park and my name. And I parked and I went down the red carpet, rang the doorbell, and she made me a cup of tea. I'm not a customer. I haven't got to the, do I want them to do my print? But already their service level is thoughtful. And there's some— somebody's thought about excellence or perception or perceived excellence. And so, you know, the fact that the CEO's whole thing is about Marxist capitalism, he says, without capitalism, there's nothing to redistribute. Hence the Marxist capitalist. And his whole shtick is around, you know, he's got his employees, certainly when I spoke to him on the podcast, the annual bonus for his employees were a year's salary, right? Like they'd capped the number of employees, he had the employees working like, working like owners, rather than like employees. And it fits the— it fits your narrative around your differentiation isn't in the product. It's in the how do I feel it?

Well, yeah, I mean, you have to, I mean, obviously, Now more than ever, you've gotta build that credibility. I mean, you obviously made your point about, you know, being the, you know, you're not wanting 10 leads a week or whatever, but like, I would venture that there is some particular problem that Dominic Monkhouse has right now that he would genuinely like being solved. But if somebody emailed you right now and, and said, you are Dominic Monkhouse, you have exactly this problem, and I have exactly the solution to that problem. So everything, it all fits together. I venture that you would still not entertain that email. I'm not talking about obviously the non-discretionary problems, but like a discretionary one, because it completely misses the way that the purchase drivers work in that type of field whereby there has to be that perception of credibility and excellence and that belief in leadership and our ability now, particularly with AI, To just say the exact thing that we think that person wants to hear. And eventually we throw that dart at the dartboard often enough, we're going to hit the bullseye, but we're not going to respond to that because it was never about quote unquote fixing the problem. It was always about the belief in the provider.

Yes.

I'm sure you must have gone down this road yourself. There are certain, you know, companies or programs or influencers or whatever Where you really like them, but what they're selling isn't really 100% fitted to what you need, but you sort of think, well, you know, it's kind of fitted enough and maybe I'll buy it anyway. So you will actually buy things that you don't need because of the authority of the seller, right?

Yes. Let me give you a great example, right? James Smith, UK-born, lives in Sydney. He's a sort of gym business influencer, if you like.

Yes, I know the fella.

NewTonic is his energy drink. I know that I'm a slow metabolizer of caffeine. I drink lots of coffee, but not after 11 AM. And NewTonic's got caffeine in it, so I can't drink it. But for months, I'm going, not interested in NewTonic. And then eventually I went, what is this NewTonic thing? Right? Because it's just there all the time, right? And it's a successful business, right? So it's not, I'm interested in NewTonic. It's amazing that they've launched this product and they've been able to build a brand and compete with, outcompete even, Certain people. And so, I was, you know, I went and looked at— I went to the point, if there was a non-caffeinated version, I probably would've bought it, right? So, you're right, your resistance erodes over time.

This is the perfect example. And so then, explain to me again how it's important that the solution fits the customer's problem.

No.

It isn't.

People will make it fit because we're not rational humans, right? It's that classic post hoc rationalization. Here's an emotional thing. I make an emotional decision, and then I prove to myself later that it was rational. Otherwise, I hate myself.

Exactly. Totally. Exactly.

When did you have the realization that the model that you had before, or the model that people were using, just didn't work anymore?

I always hated the model that people were using before. I mean, obviously, this is only a subset. This is a kind of marketing subset of the wider business pie, but I always really objected to I always really objected to the notion of the purpose of business being to solve customer problems, because this is not remotely true. It sort of sounds true, but it isn't. The purpose of business is to generate new value, and often new value can be generated without solving any problems. Going back to the Land Rover or whatever example, which was always just like self-evidently true to me. But I just saw that this notion of solving problems was just sort of swallowing the entire business discourse. And I always had slight difficulty kind of articulating why this was so wrong.

I've just had a thought around the sort of fame discretionary thing and return on investment. Because, you know, when Apple accu-hired Steve Jobs back by buying NeXT, you know, they were doing exactly that, right? They were bringing back somebody who was famous, you know, cost them half a billion dollars to accu-hire Steve Jobs in. And then you look at where their revenues went as a company over the next period of time. And it's like, we need somebody, We need a figurehead in the business that we don't have, right? Okay, who's the guy we could do that? I remember a marketing agency were trying to pitch me on their services, and they were using the Think Different campaign from Apple as an example of great marketing. And I said, well, actually, it was the only thing they could do, because at the time, their products were shit. And so they had to appeal to people for whom having an Apple and being different was the value, right? It wasn't that the Macintosh was better than the PC. It was awful. But if I didn't want to be a PC guy, it was really my only option. And so an advertising campaign that turned that anti-hero for you into— you became the hero in your own story, and buying the wrong thing was actually the right thing to do. That was the only thing that they could possibly do because at that point, it wasn't very good.

We have just lost the ability, the education, the curiosity, the patience to engage in such rich layers of thinking. Like that. The other day, someone recommended to me some paper that was written by Jeremy Billmore, if you know who that is—an old-school ad man—and this paper was called Posh Spice and Purcell. So that that tells you that gives you the sort of like the era that it was in, and it was like in reference to Posh Spice's statement that she wanted to be as famous as Purcell, which is very interesting statement because she didn't say I want to be as famous as Madonna or whatever. She said she wanted to be as famous as Purcell. And without going into like all the sort of like what this was about, if you can track down this paper, it was so erudite and learned and thoughtful and true and got into all of these subtleties and was able to do it while fucking quoting Herodotus or whatever, but also being quite funny and everything else, right? Because obviously this was like, this guy was a sort of like an old, you know how people were back in the day, and particularly in the advertising industry, sort of polymath type of person. And all I could think in it was like how fundamentally because of the algorithm and because of what actually wins now in terms of sort of content and ergo what wins in terms of education, that like there's nobody out there who could write this paper now. And then we think about like the art of brand building and we think about like these, you know, Apples and Nikes and all the sexy brands. And we think about how like there are very, very few like brands that have really been created in the past 5, 10 years in the same way. All of the awesome brands are legacy brands, right? Legacy brands are the brands, everything, you know, from Ferrari through to Adidas through to Coca-Cola, whatever. And there was this quote I heard a couple of days ago that was some composer back in the 1800s. And he said, the quote was along the lines of, and it's a very prescient quote, obviously. He said something like, the way that things are going, like gradually speaking, human beings are going to turn into into machines. Human beings are going to think like machines, and the only antidote to this is to learn how to sing. And it made me think of this Jeremy Billmore paper, which was an example of singing in business, whereas all of this, like, ICP plus problem, blah, blah, blah, is an example of machine thinking, because we are gradually being trained to think in a linear, machine-like fashion, which is not actually true to reality, but which is extremely seductive to us. And so we are losing the ability to actually build good businesses. And I even thought, I wonder if you thought of a business like a song. And I would say that, you know, your Ralph Lauren and Land Rovers and whatever else, I do think it's reasonable to actually understand those businesses as being songs. How is a song different from a sentence? I don't have an answer to this question, but, you know, even just with that, with that Think Different example, like the nonlinearity. And the subtlety to what they did with that brand at that time. I don't think that we have this in us anymore. I don't think that we would— we have the tools and thought processes necessary to arrive at that answer to that question.

Well, I think it comes back to the point you were making earlier about leadership though, you see, because you have to believe, right? You have to believe that you are right and that it's not about the algorithm and it's not about average. You've got to have some conviction, maybe some insight, maybe that's gut feel. I think one interesting case study on strategy is the fact that Musk actually wrote his strategy down and published it before he did Tesla. And then kept— you can go back and go, oh, look, he actually said he was going to do the thing. He did the thing. It panned out the way he said it was going to pan out. Magic. Most people don't have that level of thought and the ability to then publish it and then go back. But he's a man who thinks he's right. Might not appeal to everybody. When I read the biography, Isaacson's biography,

Great book.

I didn't finish the book going, I want to be Elon Musk. I'm like, I'm glad I'm not. He seems like a tortured soul. You can't deny that he has created a personal brand that makes his companies— I mean, it's actually a great example of the Tesla, to my point about, I think Tesla owners historically were buying smugness. There's something there about the Elon Musk brand. There's a mission. There's something there that attracted people when, in fact, certainly at the beginning, they weren't particularly well-built cars. Right? It overcomes your rational desire to buy a car because my problem is I need a car. If you were buying a car, you wouldn't have bought the Tesla. You must have been buying something else and then rationalizing it. So anyway.

Well, I mean, this is why in the field of strategy, I put a very big emphasis on this idea of charisma, of having a charismatic strategy. There's something fundamentally different about a strategy that seems to make sense where like, well, because of A plus B, we'll get kind of like C. Versus something that when you say, hey, this is what we're gonna do as a company, people say, fucking hell, that's cool, right? Yes. I think the words, that's cool, are perhaps the most underrated words in the entire business lexicon because it sounds like a superficial thing to say, but it isn't superficial. That's cool basically is a signal of some kind of magnetic, surprising magic. Which is extremely likely to work, even if the analysis isn't great, because it will almost become a self-fulfilling prophecy. People will just be taken with the idea. Your team will be taken with the idea. The industry will be taken with the idea. Maybe the customers will be taken with the idea. If you're not doing something cool, then I think that you're in an extremely vulnerable position. So although it sounds quite facetious, I would kind of encourage businesses to Like, don't think that your plans are adequate until somebody would describe them that way.

I think that's a perfect place to leave this morning's conversation.

Nice.

That's it. If you can't describe your strategy as cool, go back to the beginning. Start again. Fab. Alex, it's been an absolute pleasure chatting to you today.

As always. Thanks a lot, mate.