Leveraging Thought Leadership Live featuring Nicolas Darveau-Garneau

And welcome, welcome, welcome. This is Peter Winick. I'm the founder and CEO at Thought Leadership Leverage, and you're joining us on this LinkedIn Live version of our podcast, which is Leveraging Thought Leadership. And today my guest is Nick Darvaux-Garneau, who is now a published author. His book just came out, and his book is called Be a Sequoia, Not a Bonsai: The 7 Growth Secrets of the World's Most Successful Companies. He's been a technology entrepreneur and investor. He was the chief evangelist at Google, where he got to be in the room where it happens over 1,000 times, having conversations that basically led to sort of the book. So welcome aboard, Nick. How are you today?

Hey, Peter. Thank you so much for having me. I'm thrilled to be here. Yeah.

So let's start with the why here, right? You're a busy guy. You've been a busy guy for many, many years and an accomplished one at that. What was the— why did you decide to write a book?

Because I screwed up so badly when I was an entrepreneur that— no, listen, I started 4 companies. Some did well, some did not so well. And always luck involved. But I got to meet, you know, over 1,000 of the best companies in the world when I was at Google. And they were doing, you know, some of them were doing extraordinary things I wish I'd known when I was an entrepreneur. And some of these things are just so critical, so important, so different that if I'd known them, I would have done so much better. So after leaving Google, I took a couple of years to reflect and like, I got to share this with the world because anybody who follows these principles, their company will be unrecognizable. And so it's just kind of my gift to entrepreneurs, to executives, to nonprofits as well. This applies to nonprofits. hoping that more companies can do what the best companies in the world do.

Yeah. So you've got, you know, a title that would only exist in Silicon Valley or a church, right? So Chief Evangelist, right? And I'm assuming you didn't do weddings and funerals, right?

No, it was— I was really fortunate. Google is an amazing place. I was fortunate to have this role. We had executives from all over the world flying to Mountain View, and these were Google's top partners. So these were really sophisticated companies. And they would come into Mountain View with the Partnerplex, a building dedicated for our top partners.

Right.

Come in and spend a day with, with, with us, right? And so I would go in for an hour, talk strategy with the CEO and senior executives. Other members of my team would come in, talk about brand advertising, AI, digital transformation. And then other Googlers would come in and talk about other stuff. So these executives would get a pretty extraordinary day to rethink and reflect. And so Hopefully we had some impact on them. But for me, they had a lot of impact on me. Like a lot of the things they were doing that I learned were as impactful to me that what I shared with them. So I just learned a ton from these extraordinary companies. Right.

So then you take that learning and it's one thing we've all heard amazing stories of companies like Apple and Amazon, right? We've heard those stories, right? So the beauty of this book, when I read it, was like, Oh, that makes sense. And you tell stories that are applicable to a tiny little sort of one-man shop gym, as well as brands that we'd all recognize. But because it's principle-based and not charisma-based or, you know, lightning struck here once or whatever, anyone could really take from it and do with it. So how did you, how did these principles come to be?

Yeah, the bar to be included in the book was something that would have a huge impact. that anybody can do, right, if they think differently, and is actually inexpensive and relatively easy to try, right? So there's really no excuse for— so if you read this—

Stay there for a minute because the inexpensive and easy to try sort of democratizes it, right? Because a lot of times the little guy looks at the big guy and says, oh wow, but well, but I can't sponsor a Super Bowl ad, I don't have that budget, or I can't do this or I can't do that. But talk about sort of this speed to testing and speed to failure to get the learnings that you need to iterate and do better. Because that was a key thing that stuck out for me.

Yeah, the last principle of the book is get better at getting better. Basically, build an improvement system that improves your company and also try new things, test new things. And so meeting these 1,000 companies, I would really split them into 2 groups. Some executives who are super open-minded, would try anything. So in the book, there's a story of a company coming in, and my colleague Neil Hoyne, who's an amazing evangelist at Google, was talking to them about an idea. And then 2 of the people he was talking to kind of zoned out and opened up their laptop and were just doing something else. And after an hour, Neil was like, hey, you all want to try this idea? And these 2 guys were like, hey, it's already been tested. We were doing this while you were talking. So that's kind of the extreme of what some of the top, top companies in the world do. Then there's other companies where you just have this idea. It's really relatively easy to try. And just intellectually, they're just— they're not budging. They just don't want to. And there's so many examples in the book of, you know, companies, retailers not wanting to change, you know, despite the fact that the consumer was changing a lot. So the principle here, the 7th principle, is if you can test faster than your competitors, and try new things more quickly, you're going to do a lot better. And the example I use is an internet company that I can't disclose, but I've worked with the last couple of years. And the CEO wasn't really happy with the number of tests they were doing a year. So they just revamped everything, right? They built a centralized testing team, they give them all the right tools, they figured out what they could and couldn't test, didn't have to ask permission. And the team started doing tests. And after every test, They would note like if the test had been successful or not. But also, they look at why was this test hard to do? Well, they got stuck in legal for a while, or we needed to build an ad and it took too long. And after a while, they started seeing patterns of why testing was slow. And they would break these down one by one, right? Let's hire an attorney part-time on this team so we can get approval faster. They started moving so fast that eventually they ran out of ideas. And so the company opened up a Google Spreadsheet. That any employee can go into and put up an idea for a test, right? And the CEO on a monthly basis would give out a prize to the top 3 testing ideas. And the cool thing about this was that the prizes were given before the ideas were tested, right?

Right. Outcome-based, right?

Not right. It's like, if the idea worked, would it be really dramatic improvement in how our customers are doing? would it dramatically improve our finances? Yes or no? And if it's yes, if it's a big idea, then it won the prize. And then if it failed during testing, that was okay.

Right. And I think that speaks to sort of culture and personality where, yeah, you have to have the systems and processes in place. If it's getting jammed up in legal, let's throw a lawyer in there. That's kind of an obvious fix. But the culture that says we are a testing culture, because most cultures claim to do that, but actually reward outcomes, which in some cases mean that we're only going to test things, wink wink, that we think are going to have the good outcome. And the stuff that seems crazy or far out there or different, they don't even make it to the testing, which means we could be missing tons of opportunities from a cultural standpoint.

Yeah, I mean, the book is a lot about culture, not how to change a culture because that's really hard to do, but some simple things you can do to really improve. So I'll give you an example. For most industries, 20% of customers drive 80% of profitability.

Yep.

And we all know that. That's not a big insight. But the insight is that, you know, using the latest AI technologies, you can now acquire these customers, right? So you can actually kind of cherry-pick who you acquire. And if you do this really, really well, you're going to completely change your business. Well, and it's not that hard to do. Like, the technique is actually all in the book step by step. How do you forecast the profitability of a new customer that you've never seen before? How do you like I'll send that data back to Facebook and Google. Like, the techniques aren't that hard. The hard part is most companies are not comfortable making decisions based on a forecast.

Yeah.

Like, Peter's going to come in and we think in the next 5 years he'll be worth $5,000, and Nick is going to be worth only $1,000. We don't know this for a fact. It's only a forecast. It's like dashboards with like forecasts, you know, of profitability. Very, very few. So fewer than 1% of companies I've ever worked with acquired the best customers in their industry. So I'll give you an example. And one company is called Surex, S-U-R-E-X, out of Canada. They were acquiring customers, right? They're a car insurance broker online. They're acquiring customers to send to car insurance companies and they get paid whenever they send a customer to a car insurance company. Well, eventually the car insurance companies are like, look, this is great, but we're not making that much money anymore. There's too many car accidents and so on and so forth. So this relatively small company did something pretty extraordinary, which is they were able to forecast ahead of time the quality of each customer from 1 to 10, right? So 1 is like this customer is likely to have a car crash and very likely to leave us or not pay us, versus 10 is like this customer is extraordinary, we're going to be really profitable. So you forecast this in advance, you send this data back to the advertising platforms, And next thing you know, this company reduced the number of customers rated from 1 to 2 by 90%.

Wow.

Increased the number of customers rated 9 to 10 by 60%, and their profits quadrupled really quickly. And so, but that required— it wasn't technically difficult to do, but that required the entire management team to move away from their current dashboards. We want more leads at a low cost per lead. Well, that's not exactly what you want is you want really good leads at a reasonable cost per good lead. Right. And so the cultural part of changing your mindset, changing your dashboard, changing what you measure is the hard part there. And it requires senior executives who are really open-minded.

Yeah, I love that. I want to, I want to talk for a minute about sort of the bonsai to sequoia piece of this. Right. Because the book is about being a sequoia. They're tall, they're strong, they grow. Versus a bonsai. And then you think about that and say, well, but bonsais are beautiful, right? Like, they require a lot of nurturing, and like, I like bonsais. So tell me where the analogy came up from. Yeah, how you can tell if you're a bonsai or a company.

Yeah, so, uh, you know, not only are sequoias the largest living organisms on Earth, right, in the tallest trees, um, they actually grow faster as they get older because they get more light from, from the rest of the forest canopy. And that's really amazing, right? And they live to be about 3,000 years. And so amazing trees, but they're not perfect, right? Their trunks split up sometimes, their branches grow kind of weird.

Yeah.

Sequoias are, you know, and but the bonsai is beautiful and it gets pruned all the time by humans to be beautiful. It never reaches any, you know, past 15 feet. That's the tallest bonsai in the world. And they die, you know, within a 10th of the time of a sequoia. So the analogy here is You cannot shrink to greatness.

Right.

And most companies, if you analyze them, and again, I was there over 1,000 times and I would ask them, like, let's take an example. Like, marketing is usually a canary in a coal mine when it comes to bonsais versus sequoias. But it's true. And if it's true in marketing, it's true almost in every department. So if you're asking somebody, look, like, let's take an example of a charity. It's a really simple example because they're investing cash in marketing to get cash in donations. Very, very simple example. So if you're asking a charity, like, what are you trying to accomplish? And they say, look, for every dollar I invest in paid marketing, I want $4 of donations.

Sure.

And maybe they're doing pretty well, right? They're investing $5 million, they're getting $20 million of donations. Like, things are great. It looks good. I mean, they're printing money, but their core KPI is a return on investment, right? 1 to 4. And that's kind of bonsai thinking. Sequoia thinking is, I want to max out my donations minus how much money I'm investing.

Right.

I mean, if I raise $50 million and I spend $20 million, I got $30 million left. I want that difference to be maximized, which is obvious, right? But marketers don't think this way. They think about returns. And so we switched these KPIs for a number of charities And, you know, one example is St. Jude's, the largest children's hospital in the world, which is an extraordinary nonprofit. They raise over $1 billion a year from small donors. When I first met them years ago, and they were kind of in this mindset of, you know, being efficient and having this high return. Well, they switched to this kind of maximum donations after marketing investment. and their donations went up by 46%, right? I mean, lots and lots of money. And since then, you know, they've been now raising $2.5 billion. So very, very few companies—

Because the concept there is, yeah, nobody's gonna get fired. The CMO is gonna say, hey CFO, you give me a dollar, I give you back 4, leave me alone. Like, life's good, right? Like, I'm doing the right thing. Um, but to grow faster as you get older, to me, that's sort of Wow, right? Because we talk about startups and hockey stick growth and exponential growth and blah, blah, blah. And I think if I were to go out and ask 10 people about, okay, tell me who the fastest growing companies out there, they're probably going to be telling me about Nvidia and all the hot buzzy stocks today. There aren't that many older companies, however we define that, 20 years, 40 years, whatever, that are growing at a rate that is faster. 'Cause now it's a law of big numbers and you're like, wow, that's a whole different, it's a whole different mindset, right?

It is, right? And so the shifting the mindset to kind of maximum net profitable growth, right? Like I just described for a charity is, by the way, if you actually look at how marketing is invested and fewer than 10% of marketers do this, right? And it's obvious that you should do this in marketing. And then if you look at every division, if you look at the product development team, right? What are you doing? Well, we're building software What's your KPI? Well, the number of features we ship. Like, yeah, that really matter, right? Or customer service, like, you know, what's the average handle time? So if it turns out, like, when I was talking to a CEO, like, she would say, like, I'm trying to delight my customers, I'm trying to improve my economics, blah, blah, blah. But then I would talk to the more junior folks, and nobody was working on this stuff. Like, it's just like, you know, they're not trying to optimize profits. They're not really trying to, you know, Improve the customer experience for the right customers. An example there, by the way, is, you know, if 20% of customers drive 80% of the profits of an industry and you're building a website, for example, or an app, almost 100% of all of these app or website builds are tested using one metric and one metric only, which is conversion rate, right? What percentage of customers who come in through this website do what I want them to do, buy something or, you know, leave their phone number? And that's the standard in the industry. That standard is wrong, right? Because, you know, if I'm an e-commerce company, I can increase my conversion rate as much as I want by lowering my price, giving you free shipping for life.

Right.

So it's not— no, what you really want to do is you want to build a customer experience that is driving a massive improvement in profitability of your most profitable customers, right? And nobody measures this way except the most sophisticated companies in the world. And it's not that hard. It's just, it's not what we're used to doing. So if you rethink it and you start building, you know, your website, you know, to really drive profitability from the most profitable customers, your website will be completely different than if you build it to improve conversion rate for the average customer.

So, so let's, let's do a little, uh, the doctor is in, Linus, the doctor is in from the Peanuts, right? So I'm I'm a CEO, right? And I just read the book. And I said, one of my takeaways was, geez, I'm a bonsai, right? Like, how do I get to be a sequoia? So I call you up or email you or whatever it is. And I said, Nick, come on down to headquarters. And I think I'm a bonsai. I know I'm a bonsai. And bonsais are good. It's been good to us. It's not like things are terrible. We're not poison ivy, right? You know?

Yeah.

Spend a couple hours with me and take me on the journey to what it would be like to become a Sequoia. What would those few hours, or where do you start? How would that, what would that look like?

Yeah, by the way, I'm doing that in my own consulting firm right now. I only do 5 of these a year for companies. I do 5 of these a year for nonprofits for free, by the way. So I think it's so important. And by the way, St. Jude's is so good at raising funds that they have built classes around how to do this. So what an amazing organization. So yeah, I think, you know, Imagine spending a couple of hours with me, with the CEO, the CMO, the CFO, and then some of the operating executives as well. And the first question that we could ask—

Well, wait, hold on there. So you just said that like that happens all the time, right? So let's just reflect on that. This is the trifecta we need in the room or this isn't gonna work. The CMO, 'cause it's marketing, the CEO, 'cause it's the ultimate decision maker, and the CFO who's typically known by the CMO as the king of no.

Right.

So we want them all together because they all need to have a click in their thinking, right?

Yeah, they're all together. And some of the business folks as well, ideally. And when I was at Google, they would just come to us. So that was easy. Now, hopefully people will want to do this more and more. But yeah, the first question I would ask is, what percentage of your customers drive 80% of your profits?

Yep.

Only about 20% of companies know that. Right. So we would figure that out. So you first, you discover like, oh my goodness, like 15% of our customers drive 80% of our profits. Okay. Second question, who are these people? What did they eat for breakfast?

What do we know about them? What do we know about them?

And then, do we have a dedicated strategy to acquire more people like that? Yes or no? Let's build one. So that's not that hard, right? Okay. Now, do we have a dedicated strategy to improve the profitability of our existing customers? Right. And then I would go through like the metrics, like all the metrics, right? What are the metrics in marketing? What are the metrics in customer service? What are the metrics in product development? Dot, dot, dot. And then just kind of, I call this a profit audit, right? And to just really make sure to align all of this into a strategy that would focus on one thing and one thing only.

Mm-hmm.

Improving customer lifetime value profitability, right? Acquiring more profitable customers, And improving the customer lifetime value of existing customers. And all of that—

Stay here a minute because there's so much wisdom here. So you boil it down to one metric. And I think oftentimes marketing folks, probably thanks to Google 20-something years ago, learned to be metric masters, right? Because now there are all these metrics we can hold them to. What's our average cost per click? What's our conversion time? What's our customer app? All that stuff. And you're saying, yeah, that's all fine, but we want long-term profitable customers.

That's right. Yeah, that's the, you know, if I had to summarize, you know, how I think executives should think based on what I saw is, you know, your number one goal should be to improve customer lifetime value profitability while delighting customers, not on the back of customers, right? Not unethically. But you're doing 2 things at the same time, right? You're improving the customer experience and you're being more profitable. And so the idea is to really understand the value of each individual customer the day you acquire them, and then to see how that value shifts over time, right? If you do this in a very clever way and you do this at a cost that makes sense, your profitability is going to grow continuously over time, as opposed to focusing only on financial or operating metrics, right? You know, whatever sales today, What's our inventory turnover, blah, blah, blah. These are all important things. But like, if you don't follow Peter and you don't know how Peter is doing as a customer, and the next thing you know, one of your competitors takes Peter away and Peter was a top 1% customer, like, you actually don't see this in your operating metrics, right? You're only going to feel it over time. But you have to be able to understand, hey, my top 1% customers are getting poached right now. Who's doing it? Yeah. And what should I do about it? Yep.

So again, if we play that game out, wait, I used to be rewarded for cost-effective customer acquisition, right? Now, nowhere in that sentence did it say high-quality customers, etc. So if you wanted me to acquire customers and you gave me a budget, I'm going to do that and I'll do it a little bit better this year than I did last year. Now, once we realize that 80% of these customers aren't as profitable, or like you said, the drivers that are going to get into accidents and all that stuff, like, okay, you're rewarding me to find those people. So I'm gonna continue to find those people, right? And that impacts profitability, bottom line, et cetera. Once you're really connecting marketing to profitability, now the conversation isn't just the maximization or the extracting of the most value from a budget, it's creating value. So if you look at, you know, hey, you're a well-funded startup and your valuation is, you know, 30x EBITDA, And if I could add to EBITDA, holy cow, right? Like this really becomes a game changer in terms of valuations, in terms of how you go public or how you have an exit and all those other sort of things.

Yeah, that's right. And then, you know, a couple of points on what you said. One is, you know, marketing budget. The top companies in the world don't have a marketing budget, right? They spend or they invest as much as is required to maximize the profits of the marketing investment you're making that day. And by the way, like most born on the web companies kind of think this way. Most more traditional companies don't think this way and their budgeting process isn't flexible enough to do this. So that's point one. And point two is, you know, we're talking a lot about marketing and this is kind of the obvious place to do this, but improving customer lifetime value while delighting customers can be done in every department, right? And so your web development team, your product development team, so everybody should basically, This idea of the customer lifetime value in the middle, we always put customer in the middle, right, in every graph, right? But for most companies, that's just, you know, a nice graph. For the best companies in the world, it's not a graph, it's not a framework. They know the customer value of each customer. They know it on a daily basis. They know how it's changing every day. They know what impacts that. They know how to improve it. And they're working to test new ideas all the time. They're just at it every day. How can I make Peter happier and more valuable as a customer? Whereas most other companies, you know, trying to move things, trying to move products and move the financial metrics, but don't know how Peter is doing.

Exactly. So I want to spend the last couple minutes that we have talking about sort of your journey now as a thought leader. So you said you're doing this 5-5-5 thing where you could spend time with people and help them crack that through. We just went through sort of the accelerated 2-minute version of that. But what are the things you want to be— I'll ask 2 versions of the question. What are the things you want to be doing as a thought leader? And how are you going to know the impact that you've had? Because number of books sold is lovely, but it's not really a metric. How are you going to know this is mission accomplished or you're on your way to getting there?

Yeah, I think, look, I think the book is going to help a lot of people not only build better companies and employ more people, which I think is really important in the age of AI, but also deliver better customer experiences. So it's really a net positive for everybody. So I really, really feel good about this kind of capitalism where, you know, the customer is better off and the company is better off and the employees are better off. And so I'm, you know, as a chief, as the ex-chief evangelist, I'm trying to preach the gospel. And so for me, just spreading the word as far as possible, doing these 5 consulting gigs a year is fine, right? It pays the bills. And it has impact, but I'd like thousands of companies to do this. So I want to make this more accessible. I want to build more tools to make it easier. I want to create some digital assets and classes. So stay tuned. This is all in the works. But for me, it's not about, you know, doing more consulting or selling more books. It's about creating better companies that are more sustainable and more, you know, in the age of AI, employ even more people.

Yep. So I want to get a little meta on you on that, right? So most, if I think about the work that I do, most thought leaders are inherently bonsais. They're very deliberate. They're very methodical. Everything just has to be just so, the research, et cetera. And again, not a bad thing. Bonsais are beautiful and there's a place for them and they look beautiful on the windowsills. It sounds like you're actually a thought leader, that your aspiration is to be a sequoia, not necessarily you, but that the intellectual property of the thought leadership grows and sustains. Is that a fair statement?

Yeah. I mean, I think, look, again, these ideas don't come from me. They come from others I had the chance to meet. And I was able to package them, you know, hopefully in a useful way. But these ideas need to be known and need to be heard and need to be executed. And so, yeah, I'm really passionate about it. I would like— and again, like you mentioned, smaller companies, like the book ends with the example of a friend of mine who owns a gym, right?

Yep.

And he used to be a personal trainer making $30,000 in San Jose, California, which is Not a cheap place to live. And now he's running a $1.2 million gym, one gym, and he's planning to launch a whole bunch of other gyms. And his average customer lifetime value for a gym member is 28 times higher than the average gym.

Wow.

And the book explains what he's doing and it's just so clever. For example, he's targeting 55-year-olds and above, right? Because those customers tend to not churn. He's just rethought the entire thing from a customer lifetime value. I don't think he was thinking this way, by the way. I don't think he was like, I need to maximize customer lifetime value. But in effect, he's done that. And so it's a good example of a small business following these principles and really taking off really quickly.

Yeah. And I think it's also a great example of because it's so principle-based that it is applicable to anyone. The other thing I'll say is, as we land here, there's a lot of math in the book. And I mean that in a good way because oftentimes what I find that there's a gap between Okay, I get the principles, I get the ideas, I get this. What do I do when I put this book down to help my business, to drive my business? Because I'm not a Jim and I'm not a St. Jude's, I'm kind of something else, like whatever. But you bring it down to some of the mathematical formulas to say, well, try this and do this number and try this and do that. And you're like, okay, I'm not a big math fan, but it sort of helps bring the story to life in a way that is as objective as one can be. It's not about and opinions. Like, here's, here's what your math says about you. If you're happy with that number, keep doing what you're doing, right? If we'd like to improve that, let's keep going. So I thought that was—

Yeah, I find too many business books give you principles and then don't tell you what to do. So the book has got— here's a principle. Every chapter is like this. Here's the principle. Here's why you're not doing it right now. And most of this is cultural, intellectual blockage, right? Here's how to get over that. And here's a 5-step process to go from where you are to doing what the best companies in the world do, step by step, right? How do you forecast the profitability of a brand new customer you've never seen before? Here's exactly how to do it, because this is a very kind of well-kept secret. Most companies don't know how to do that, right? And then if you can forecast the value of each customer 5 years from now, how do you change your dashboard so that people actually accept them and use them? You know, because people are going to be nervous about making decisions based on forecasts that are imprecise. But it kind of goes through not just the principle, but the detailed implementation strategy on how to get there.

Love it. Well, this has been fantastic. I thank you for your time and for sharing this, this work with the world. Great, great stuff, Nick. Thank you.

Thanks, Peter, for having me.