Episode 62: Day One of Annual Planning: Analyzing Your Constraints & How to Solve Them

🎙️ Welcome to The Ground Game Podcast! 🎙️ 

In this episode of the Ground Game Podcast, co-hosts Clayton Hepler and Justin Piche dive deep into the intricacies of annual planning for real estate businesses. Join them as they share insights from their upcoming strategic offsite, where they will explore the essential steps to diagnose reality and engineer momentum for the year ahead.

Key Highlights:

• Feedback and Growth: Clayton opens up about personal feedback on communication styles and the importance of adapting to listener needs.
• Community and Connection: Justin shares his recent experiences at the Lights in the Heights Festival, highlighting the significance of community engagement and family.
• Annual Planning Framework: The hosts discuss their structured approach to annual planning, focusing on the EOS (Entrepreneurial Operating System) methodology, including: 
  • Diagnosing reality: Reflecting on past performance and identifying key metrics.
  • Engineering momentum: Setting actionable goals and understanding constraints that hinder growth.
• Deep Dive into Constraints: Learn how to identify and analyze constraints within your business, using real-world examples and a systematic approach to root cause analysis.
• Hypothesis-Driven Solutions: Discover how to formulate testable hypotheses to address constraints and measure outcomes effectively.

Whether you're a seasoned real estate investor or just starting out, this episode offers valuable strategies to enhance your business planning and execution. Tune in to gain insights that can help you navigate the complexities of real estate investing and set your business up for success in the coming year.

Don't forget to subscribe, rate, and review the podcast! Your feedback helps us improve and reach more listeners.

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Transcript

Clayton Hepler (00:13)
Welcome to another episode of the Ground Game Podcast. This is your co-host, Clay Hepler.

Justin Piche (00:20)
That's your other coach, Justin Pichet, and we're here to show you how to win the ground game. Good morning, Clay. It is early, for me at least.

Clayton Hepler (00:27)
Yeah, good morning. Well, you know, it's relatively early. I got some feedback last night. So, you know, I was driving into Pittsburgh, my brother and my sister-in-law. What do you call a, you just call her a fiance. You don't even call her like future sister-in-law.

Justin Piche (00:42)
Fiance? Yeah,

you can call her future sister-in-law. I'd probably say my brother's fiance.

Clayton Hepler (00:49)
Yeah, okay. Well, my future, my brother's fiance and him, they hosted us. It was great. was really fun. Going in there with Hess was fun until the ride home. And my mother, I was like, were almost to the, you know, where we were going, to my brother's apartment. And I was like, can I give you some feedback?

As a cheer, like, of course, you know, always open up feedback. She's like, you talk too fast.

I'm like, okay. And I've actually heard that feedback before, ⁓ from people like in general, like I just talk on, video or on when I'm getting a presentation. Like, ⁓ so I will attempt to talk slower this podcast.

Justin Piche (01:46)
That's interesting. I get similar feedback actually that I speak too quickly. was literally a couple weeks ago, I did this Bible study every Tuesday and I was reading, we didn't have like a lot of time left and we had this huge chunk of passage to get through and somebody was like, somebody want to read the next like 20 verses? I'm a fast reader, I'm like a really fast reader and so I just blasted through it really quickly.

Clayton Hepler (02:14)
Uh-uh.

Justin Piche (02:15)
My friend Greg was like, okay, I feel like you were on 1.8 times speed. You gotta slow that down. All right, all right, feedback accepted. But we don't have much time lapse, so we gotta get through this all. That's funny. All right, cool, well Clay is going to speak more slowly, enunciate more clearly. Listeners will actually be able to maybe bump this episode up to 1.3, 1.5 times to hear Clay in his normal speed.

Clayton Hepler (02:27)
Right.

Right. We'll see even you're slowing down right now. That's a good reminder. It's a good reminder. Dude, what's new with you?

Justin Piche (02:44)
I know, that was conscious.

⁓ man, let's see. ⁓ Taxes coming up on year end. And I do some planning. This weekend was the annual Lights in the Heights Festival in my neighborhood, which is a kind of crazy awesome block off a couple streets, food, bands, music, 40,000 people walking up and down the streets. And so our house was on the route this year. And so we had a really big party.

for our church, which was awesome. was mostly outside. The weather was fantastic. It was like 68 degrees and clear. This is on Saturday evening. And then yesterday, a huge cold front came through for us. I mean, it's almost freezing, which is cold here in Houston. But we had a great time. we had a bit we had. I organized two bands to come play on our front porch, of which I played in. I played the guitar behind me. So PVT 60. But I play the guitar. It was fantastic. It was so much fun.

It was so much fun. It's a lot of work, but it's so much fun. And we got to bless our neighborhood, play real Christmas music, and have a lot of people over, and really had a good time.

Clayton Hepler (03:49)
Dude, that's awesome.

Dude, I was not outside. I feel like I haven't been outside for like 10 days. Yeah, it's five degrees right now. ⁓ And literally five degrees. actually, not like, like metaphorically five degrees. It's like literally five degrees.

Justin Piche (04:05)
I mean, it's a lot colder where you are.

Feels like something lower probably.

Clayton Hepler (04:20)
Yeah, and so this past weekend it was like 15 ish. ⁓ 10 to 15, which dude, it's that type of weather you walk outside, okay? And I remember this weekend, so I took Hess to the mall, because on Saturdays, Saturday mornings, I hang out with Hess like all morning, right? Until like 11, 30, 12, what? And we went to the mall and at one point I parked my car in a parking lot and I had to walk probably, I don't know, like,

300 yards, it was windy and my hands were actually freezing off. I was like, dude, I don't think I'm gonna make it. I think my hands are gonna literally freeze off. like, I'm gonna not have hands. So that was it. But you know, it's families. The reason why we really stay here is, I mean, the summers are incredible, but also like the family, That's everything, as you know. We have a great community here. So.

Dude, so I know you and I were talking about topics for today and it's really timely because tomorrow my COO is actually flying up from Nashville. He's flying up from Nashville, he's gonna be in Pittsburgh for three days. ⁓ Two of the days are our annual strategic offsite and then one of the days is one of our kind of platinum level one-on-one.

clients is actually coming up and we're doing a day immersive with him, which is pretty cool. So he's flying up, we're doing a completely immersive. So what I think would be kind of interesting is I could take you through or kind of high level and I would love to hear yours, but I could take you through what we would do if it was a day immersive, right? So you can understand how do we, because our strategic offsite is a lot of it is the

⁓ what we go through with a client if they want to come up and do a one-on-one. ⁓ So I can do that with you. So, yeah, so we think about, I think about kind of annual planning or in general, is the first and most important layer is EOS.

Justin Piche (06:23)
Let's go. Yeah, I wanna hear it. I wanna hear it. I'm sure the listeners would as well.

Clayton Hepler (06:40)
Right, because we run EOS, I know you run EOS, I'd love to hear kind of how you approach your end of your planning. The next thing is what I learned from Tom Delio. Actually, it's called the physics of progress. So you'll see how it kind of pulls through. And then the last thing is what we call is focus math. Right. So after you go through the EOS disciplines, understand your VTO, understand your rocks, then you go through the physics of progress.

to put together a series of hypotheses around what you actually need to do, then it comes down to math, right? We reverse engineer your company goal, your company KPIs, your department KPIs, and then below that individual KPIs. And that is exactly how you do it. So you start out with the vision, the mission, et cetera, and then you actually literally flow into each of these. So this is kind of a opening up the kimono that

I've never done this amount of deep dive. how do you, how would you want to do this?

Justin Piche (07:46)
Why don't you walk us all through ⁓ like scene setting, maybe a little bit of detail about first stage of that process and then kind of dive into each subsequent step and why whatever needed to happen before happened and then what kind of this next step is leading into.

Clayton Hepler (08:05)
Yeah, so before showing up to an annual offsite like this, you do have have context. ⁓ And the effectiveness, I believe, of an offsite, and this can be super powerful. These could be the highest leverage activities that you have as the founder ⁓ and any of your team members that are involved. Because the...

When you create a goal and you create KPIs, it allows you to be appropriate in the moment. And so if you try to build a company this year that's different than what you did last year, ⁓ you need to set different goals. But you also need to reflect on, hey, how did we do last year? So the first thing that I would go through, so if we're talking about day one, right, I'm gonna literally break it up into

two kind of topics, is number one is diagnose reality. That's day one. Day two is engineer momentum. So where are we? Right? How did we do last year? Where do we do well? Where did we not do well? And then how do we engineer momentum into the new year? So if we want to, we can push this into one day, but ⁓ the day one is nine o'clock.

We're coming in right and imagine you and I are sitting down and I'm going to go over what we call our brand book, which is a lot around who we are. Basically a VTO, but a little bit in more depth. What our operating principles are, what our core values are, what our mission is, what our vision vision is for where we want to go, the type of company that we want to build. then ⁓ all the VTO stuff like

guarantees and three-year goal and 10-year goal and one-year goals and all the things that are involved in a VTO. For those that don't know, a VTO is a vision, organization, yeah. So we identify any sections that need updating at this point, but it's an hour-long deep dive, right? So we're going in, we're understanding.

Justin Piche (10:11)
Vision Traction Organizer.

Clayton Hepler (10:25)
you know, what's my brand like, what's our land man brand, what's our Hepler land holdings brand. And you would do that same thing for you, right? ⁓ and then we go through all of our core values again, and, and that usually takes, or that should take about an hour, an hour and a half. Okay. So after we do that, then we deep dive into, ⁓ what we call the model driven business review, which is an hour and a half of asking every single model in our business.

So I'll give you a model for us. Our acquisition funnel, calls, grossly qualified leads, offers, contracts, average profit per deal, right? In a channel, right? Individual performance models, ⁓ days employed, calls, talk time, offers, contracts, closes. Deal flow profit model. Total deals under contract, total deals closed, total deals closed on the sell side by side, projected profit that's still in the pipeline.

our cash conversion cycle model. How many days under contract to close, how many days by side to sell side, exactly inventory, all that stuff. So there's a series of models in our business that we wanna look at. And so that informs how we actually look at next year. So a lot of people, if they're starting out and you don't have all this context, first of all, try to get as much as you possibly

Justin Piche (11:31)
In inventory to sale, yeah.

Clayton Hepler (11:50)
I forgot to mention, we also have models around, you know, sales conversion in our landman business, social media attention model, ⁓ everything, right? So every, every flow in our business has models within it. And we want to look at those models so that they then prepare how we project out. Right. Because a mistake that I used to make, man, is I would hypothesize numbers and I'm like, I think I'm

I think I'm an intelligent person, but intelligence is not helped when you make up numbers and you don't track your numbers. And so I would use to like at the beginning of year, I would just like.

Justin Piche (12:31)
Yeah.

Clayton Hepler (12:35)
I would make myself five times dumber because I would just say I would repeat the same mistakes. So that's not the mark of a smart person, which is I'm just going to like put in our average call per deal and see what that means. no, you want to look at your numbers if you can't. if you you can't, you can't, industry baselines are better and then take a haircut, man, take it 20 % a haircut. Right. So you're setting yourself up to be ultra conservative.

Right? ⁓ And so then we actually review those, man. We try to figure out what are the economic truths of our model, right? So, where we go through each one, what does it prove, right? What did the model actually prove to us? ⁓ Once you look at these on an annual view, it starts to paint a really good picture. Man, our cash conversion sucks, right? Man, our contract to close rate is bad.

man, we're losing people at this stage. And when you look at a 12 month period, it really gets clear. And so what that does is you see, if we're talking here, we're building context so that later in the day, later on the next day, that when we have a conversation about goals, about constraints, that it's informed with clarity.

And so we're going through model and then after that man, is a EOS thing, people analyzer, GWC, get it, it, capacity, do it. You wanna jump in and kinda talk about that? I mean, I could keep talking, but I know you know a little bit about GWC.

Justin Piche (14:21)
No, this is great. No, I honestly want to keep hearing your process. mean, mine is remarkably similar. I mean, we go over past years, KPIs, and infer from that kind of where we were, like, what did we do? And what were we doing to achieve those KPIs? I mean, that's kind of the first thing. It's like scene setting. You know, see how you did last year. And then we literally just stepped through the year. Mine's boring. I'm really interested to hear yours. I want to keep going.

Clayton Hepler (14:50)
Okay, okay, okay,

I'll keep going. So then.

Justin Piche (14:51)
If anyone's

read EOS and they look at the annual planning, I mean, that's what we do. We don't typically do it on site because we have some overseas leadership team members. And so the Houston team will get together, we'll rent an office or something like that. But rest of the team typically isn't coming in in town.

Clayton Hepler (15:09)
Got it. So then we, after that, we do a people analyzer, which is an EOS thing. So it's get it, want it, capacity to do it. Do they understand the role at a fundamental level? Do they ⁓ want to thrive in the role? Do they want this specific role? And do they have the capacity, the time, the skills, the emotional bandwidth to do it well? And so we do quick people analyzer. I do some prep work before. Our COO actually rated

our team members based on a series of, you know, A to B, you know, D to D, A to F. ⁓ But we don't really have any, fortunately at this point, we kind of all have A players, like B and A players. It's been really nice. So we do that and then we take a little break, okay? We take a little break and then after lunch, we do our constraint analysis. So what I felt lacked,

But what was lacking in EOS was the more distracted my focus is as a business owner and in general, less well I perform. And so we, this is what I learned from Tom Bilyeu.

Which is obviously we all know the goal constraint a lot of people know about constraint thinking I believe because of her mozi has kind of talked about it, but this is a tale as old as time and so We ask ourselves. What's the one constraint that if wouldn't removed would unlock the next level of growth and The constraint we have constraints around the constraint It has to be one sense in sentence. It has to be falsifiable

which means you can prove it wrong and has to be agreed upon by everyone.

Um, so, uh, I'll give you an example. Cash conversion cycle on subdivides is 200 days, which limits capital recycling and deal volume. Um, we don't have enough deal flow to hit our projected model. Deal flow collapses when Clay is not reviewing underwriting founder bottleneck, right? So it's really, it's a, it's a real deep dive analysis. It's not just like, we're not getting enough leads. That's not helpful. Right.

Justin Piche (17:33)
Yeah, so you

you point out it sounds like what you're doing is you're pointing out like a KPI or something that you think is the most important and then you're going and saying like, what is the actual reason?

this particular and maybe it doesn't have to be a KPI, but like what is the actual reason? What is the specific granular kind of lowest level bottleneck root cause bottleneck if you will.

Clayton Hepler (17:55)
Yeah, and sometimes it can be, ⁓ we're looking at our call drop rate, for example. I'll give you a perfect constraint that we've solved earlier this year. Our drop rate, and I've talked about this, it was like 20%. And we reduced it to like, we were like, we're not getting enough leads, we need to hire more callers. And when we actually looked at the numbers, we found

that it was not the callers, we needed more callers, it's we needed to increase our process. So we were solving a problem within what could have been a greater series of problems that we could have chosen. And we chose to figure, to improve the drop rate in terms of like making sure we have a better front end script. And we didn't have to increase the total quantity of callers to

to increase the quantity of leads in our system. And so sometimes it's not as easy as just saying, well, I think I know my constraint, dude, it's deep. Because once you know it, it focuses everything you do. So we do this, we have two, our two entities, Lay in manned, right? Deal engine and the HLH group, which are very complimentary.

but we figure out the constraint, we will figure out what's the one constraint that would operate the next level of growth. And then after that, we then go into root cause analysis. So.

A constraint, imagine you're like, I wanna order, I mean, I wanna have, what's your favorite steak? Are you a steak guy? Do you have steak? Okay, you like steak. Okay, so you go out to dinner and you're like, I want a steak, right? And a steak shows up on a paper plate and it's just a steak. It's not cooked the way you want it to be cooked. That's when I think about a constraint.

Justin Piche (19:51)
I like enjoy steak.

Clayton Hepler (20:09)
I think about we understand and isolate the constraint. People just will be like, all right, I want a steak. And they just give you the paper plate steak that's not cooked to what you want. You have to go deeper to actually understand the root cause of the constraint.

So.

Justin Piche (20:27)
Yeah,

I mean, maybe just a quick aside to add something to this. This is gold, by the way. Thank you so much for going deep into this. When I was in the Navy, we had this process called critiques. And obviously, when you're operating a multi-billion dollar warship where mistakes could lead to people dying ⁓ and have many times.

Clayton Hepler (20:34)
Hahaha

Justin Piche (20:54)
You take issues and mistakes very seriously. Bottlenecks, whatever constraints, whatever you want to call them. ⁓ the critique process is where when something happens, that is something you'd never want to happen again because it's potentially dangerous or fatal or whatever. You go through a process that is so deep and involved to understand the true root cause of it. ⁓ everybody involved, anybody who has knowledge about this thing, you know, you get in a room.

and somebody is leading this, usually it's the ship's engineer or it depends on what department it is, but typically it's the ship's engineer and you are just diving deep, diving deep, diving deep, interviewing people, trying to understand exactly what went wrong, what happened. And then you have to put into place some sort of permanent fix. That might be some equipment change. That might be some procedural or training change that's tracked like nobody's business. I don't know. It could be any number of things.

but it's so vitally important that that happened because if the same issue happens again and somebody gets hurt or killed, ⁓ that would be incredibly sad and terrible and it's just not acceptable. And this is kind of makes me think about that.

Clayton Hepler (22:07)
Like it, like it. So you wanna repeat why until you have a root cause.

Justin Piche (22:13)
That's right. Yeah, you have to be able to not you have to not be able to answer with anything else, essentially.

Clayton Hepler (22:18)
Yes.

What would have to be true?

Justin Piche (22:22)
This is somewhere.

This is somewhere a lot of people fail. Honestly, I mean it is hard to do this. It is really hard to think this this critically about your problem. It's much easier to kind of arrive on a more general easier to manage and do and implement solution and just say, all right, we found it. We're going to do this instead when the root cause maybe a couple of layers deeper. You know.

Clayton Hepler (22:25)
Yes.

It's exceptionally hard.

In addition,

the skill set of doing this is it's a worthy exercise because it teaches you how to think better in real time. And you might be able to leverage ChatGPT to build an outline like this and even potentially find the outcome that you think is the right outcome. But the problem is you don't learn how to actually do this. So you don't know if that's actually true.

Justin Piche (23:21)
I was just thinking of the kind of an example, maybe not, this is a theoretical example of how this questioning might happen. This is not something that we've done. All right, so ⁓ my lead conversion is low. It's just lower than I would ever think it should be. So why is my lead conversion low? Well, maybe I don't have the right process. Okay, I look through my sales process like we're on point.

You know, we've revised it a bunch of times and we've tested it and it's the best practices. Okay, so it's not that maybe it's the quality of, of negotiator or something like that. So I have a, I have a B player or a C player where I need an A player. Okay. So a lot of people would stop there and say, ⁓ that's the root cause I have an, I have a C player where I need an A player. And while that could be a cause and is a cause you've identified, why do you have a C player?

Clayton Hepler (24:14)
right that's right

Justin Piche (24:15)
Okay, well maybe as the CEO, like

I don't have the skills to identify in a player or maybe as the CEO, I don't have time to train my team. Maybe it's not the obviously players that they don't have the right training. It's like, okay, why don't they have the right training? And then you say, well, the CEO doesn't have enough time. Why doesn't the CEO have enough time to train? Is that the CEO's job? You and then you can use keep.

peeling back the layer until you find out exactly what it is. And that could go another four or five steps before you get to what's really causing this and that root cause like let's be real. It's probably causing a whole bunch of other issues in your business too, which is why it's so important to find it.

Hey guys, this is Justin interrupting your podcast. Say thanks for listening. We are talking about day one of annual planning, analyzing your constraints, how to solve them. Clay is going over so much information today. ⁓ It's just incredible. If you guys want to get connected with us, you know where to find us. We're on social media. You can click the links below in the description of this episode. And as usual, we really appreciate downloads.

and subscriptions and comments because we want to address what you guys have to say. Now back to your regularly scheduled programming.

Clayton Hepler (25:34)
And so this is where I believe EOS lacks. And so that's why we go, that's why we're so militant, or I am militant about implementing this because once you actually understand the core only thing that is

Justin Piche (25:38)
Yeah, I agree with that. I agree with that. I was thinking the same thing.

Clayton Hepler (26:00)
constraining your growth as a business, then you can allocate all discretionary resources to solving that. And the reality is, in an immature business, right, like most people's business, I would say my business is even quote unquote immature because there's no set rhythms, right? There are set rhythms, but it's not like entrenched, you only do this job. There are people that wear different hats, right?

And it's hard to have a mature business when you have like 15 people, let's be fair.

Knowing where the five hours a week three hours a week of this person this person that person can put their discretionary effort while not messing up the actual flow of the business is a Is a powerful powerful skill as a CEO Because this is why people talk about when they say like I have shiny object syndrome what they actually mean is What the majority of?

the daily activities of my company are is focused on future things, things that I'm trying to pull forward, new initiatives versus keeping my business running as it should be running. That's what shiny object syndrome essentially is. And what this does is this says, ⁓ of the discretionary effort that could be going towards something else, we choose for it to go towards this. ⁓

You are rewarded as a CEO based on that. But I believe, in the goal it talks about every time you double your business, your constraint changes. And also your organizational structure changes. So like you go from like 200,000 to 400,000, that's a different business. 400 to 800, 800 to 1.6, 1.6 to 3.2. They're completely different businesses. We don't think about it because it's just numbers on a page.

It feels different when it's one point as six to three point two, right? Cause you're like, dude, that's, that's a huge shock for a lot of people, but it's, it's the same thing from 200 to 400 or 400 to 800. Right? So that's a root cause. And then after that, we go into the testable hypothesis engineering. Right? So now the

Justin Piche (28:30)
Yeah, explain more about

that because that's totally not in the US.

Clayton Hepler (28:33)
Yeah, so now that we believe that we have a constraint, so let's actually go through this in real time. Let's imagine we have a constraint that would unlock the next level of growth, okay?

trying to think of a hypothetical one because I know I could I know my constraints so but I want to think of like a hypothetical one. ⁓

Justin Piche (28:57)
Hahaha

Clayton Hepler (29:02)
All right, so imagine we're running a development company and we are...

we are not getting enough quality leads. Right, let's just say I'm gonna be very vague, right? Okay, so the, the, the constraint is we are not getting enough quality leads as defined by leads that we can underwrite and target in, in, in, in develop. Yeah, make an actual offer on write, right, exactly.

Justin Piche (29:33)
Yeah, make an actual offer on to develop.

Clayton Hepler (29:39)
to actually keep our business running. We're gonna go out of business if this happens. Why? Why are we not getting enough leads? Well, we don't have a consistent marketing process, right? In terms of like, don't have leads that are consistently coming in, because we're not doing consistent outbound. Why? ⁓ Well, because ⁓ we don't have clarity on what an actual

an actual good property looks like. Why don't we have clarity on what actual good property looks like? Because we have not dedicated the time to looking into what this looks like because the CEO doesn't have enough time. Why doesn't the CEO have enough time? Because the transactions department has been

underwater for the past three months and transactions are not getting closed on time. Why are transactions not getting closed on time? And this is where the root cause can come, this is where it's the hardest part. Why are transactions not getting closed on time? Could be acquisition managers not setting the right expectations. Could be our transaction coordinator is not sufficient enough at their job.

It could be, and then you just go down this. then so what we do at this level, if it is a person problem, we employ gapology, which at any point, the difference between potential and performance, potential performance, right? So when there is a gap in performance, it's either a knowledge importance or action gap. So if it is a personnel issue, in this case, we'll just assume it's a personnel issue, then you figure out and you say, okay, well, so this person, do they understand what to do?

Yes, they understand what to do. Do they understand why it's important? Well, they do understand why it's important. Are they doing the job? No. Fire them. That's the root cause. The root cause of why we're not getting this and this is because of this reason. Let's just say, for example, that's the reason. So that's how we go all the way down the ladder. It actually comes down, it's nothing to do with the marketing department. It actually is something to do with a completely different department.

Justin Piche (31:59)
Well, it might be, let's be clear. It might be something to do with the marketing department, but that's not the root cause. That could be a contributing factor, but it's not the root cause. So you solve the root cause, your constraint changes slightly, right? And now, you know, if that continues to be a constraint, you've got to figure out the new kind of root cause of why it's constrained. Maybe it's a little bit better, but not as good as you want it to do. And you just keep repeating that over and over again through your business and you will annihilate these gremlins.

Clayton Hepler (32:01)
Right.

Yes. Yes.

Yes. And so then, then we, we, we assume that we understand the root cause, right? So then we have to put together a hypothesis. So what, how do we do that? So we have to say, if we have a specific action by that, or then a measurable outcome will happen by a specific date. So if we replace the transaction coordinator, then our under contract to close date, or then our CEO's time.

in the transactions department will be reduced by 20 % by X date.

Right, and so then he can dedicate his time to the marketing initiatives. This is a hypothesis, what's gonna happen is, it's a prediction. And this is where people, again, fall down because it's not like there's an answer. There's no right answer. That's the problem.

Justin Piche (33:30)
You don't know what it is.

I mean, there probably is a right answer, but you just you don't know if you're going to get the right one. You just got to make your best possible analysis and guess and pursue that and that outcome.

Clayton Hepler (33:44)
Right. So it's not going to feel like you, you, sometimes it'll feel like you land on it. Sometimes you feel like you land on it. Sometimes you, right. Right. And it's actually not, it's like, actually this is wrong, but you don't even know it's wrong. And so this is where people get bamboozled because they do the wrong root cause analysis. They'll do one why, and then they put together a hypothesis based on a surface level why.

Justin Piche (33:48)
It's so hard. Yeah.

Clayton Hepler (34:14)
And they get the results that they could get, but what if they could get 20 to 40 to 50 % better?

And that comes down to here's the constraint, here's the root cause of the constraint, here's my hypothesis to actually solve the constraint. Right? And then we have backup hypothesis, hypothesis. So we also will have our primary and then our backup, right? This kind of feels like, my gosh, like, Clay, this is a lot. Like we'll do three or four hypotheses and then we will do what is called ICE.

Right? So we'll rank order the, the hypotheses, right? Cause it, there's going to be a lot, you'll say a lot and you'll be like, ah, that feels good. That feels it's like, don't trust your gut, dude. That's, this is not the time that trust your gut. want to look at the data and say, what's the impact of this in our organization? What's our confidence that we can execute it? Right? How certain are we that this hypothesis is correct? That's confidence. And then how easy is it to execute within the next 90 days?

So you might have all the reasons why you could solve this root cause and this constraint. And then you rank order them with ICE. And then ⁓ you execute in that rank order. And that's what it is. ⁓ Now thankfully our business is pretty simple. So a lot of the problems that we have, we're not like, we're engaging in novel problems per se, but it's like,

How do you get more leads? You know, you could be a little bit off. It's not like, more like playing with rocket ships here. So, know, nuclear submarines, like you could...

Justin Piche (35:58)
No.

I was actually just,

I was just thinking about Elon Musk while you were talking.

That guy is just incredible at saying like, this is a problem that we can overcome and here's my hypothesis that we can make this rocket engine like a thousand times simpler and delete an incredible number of unnecessary parts to get a higher output per kilogram ratio or whatever. And people being like, no, no, that's impossible. And then it just happens.

because they do it, they try it. He had a hypothesis, they test it and it turned out it was right.

Clayton Hepler (36:38)
Yeah, so then we do outcome predictions, right? So.

It all comes down to what's the current state, what's the predicted state, what's the timeline and how do we measure it? So if we actually go through this constraint, if we solve this constraint through the root cause analysis, through understanding the root cause of the constraint, and then we engage in this hypothesis and we then should predict what the outcome is.

An example would be ⁓ if I post this YouTube video.

I expect there to be a 2000 views which will increase my call. Someone will call based on this and it'll increase my number of leads this week by X which will solve this specific constraint because then we can put money towards hiring this person. Right? There's a lot of different things that you can, how you can attack this. But we then do outcome prediction and

It's so it's KPIB being measured, current state, future state, timeline, how long is it going to take for us to do this measurement method? And it doesn't have to be a 90 day timeline. It doesn't have to be a year long time. It could be a 21 day timeline. You know, that's how people collapse, collapse results. And this goes to show you that even though rocks are important, there is only one limiter of your business at any one time.

Now the limiter could be a five day limiter. We just need to hire this person. Like that's the core problem. We need to hire this person, right? But if you just look at any point, the ultimate version of you would be able to know the constraint, solve it as soon as possible, move on to the next constraint, solve it as soon as possible, move on to the next constraint, solve it as soon as possible, and then you would just move quicker through your business.

So that's day number one.

Justin Piche (38:52)
I love it.

my gosh. I think we need a

whole nother podcast for day number two.

Clayton Hepler (38:59)
Okay, yeah, we can do that. We can do that. ⁓

Justin Piche (39:01)
We're already getting

up there. So day number one, this is a look backwards in a, in a problem solving. What are we going to do differently in the future? What is our one constraint? How are we going to overcome it? ⁓ what are our hypothesis, hypotheses about why this is causing, ⁓ us the, why this is our main constraint. And then this is what we can expect if we are able to execute on this hypothesis.

Clayton Hepler (39:29)
Yes.

Justin Piche (39:29)
And this is for one, the one thing.

Clayton Hepler (39:34)
Yeah.

Justin Piche (39:35)
One question I wanted to ask before we kind of like in the podcast how often I mean obviously this is an annual planning so it's important to understand like really the KPIs they get it wanted capacity to do it evaluating your people ⁓ All of this type of stuff and I imagine next the next day is goal setting of like what do we actually want to achieve? do we want to do this next year? What are our what are the outputs we can expect from the company from the departments from the people so that we can't wait to get into that ⁓ And that's probably where I'll have more

to say because that's really a lot of what we focus on. We do focus on the retroactive but not as deep and so I'm definitely going to be I'm going to read a little bit these next couple days so can get a little bit more out of my own personal ⁓ annual planning this year. But the question I wanted to ask you is because you're identifying one constraint and let's say that constraint can be solved in 21 days. How often what are your what is your process for identifying the next constraint and the next constraint and then do you have ad hoc like

Clayton Hepler (40:25)
Yeah.

Justin Piche (40:33)
What is the next constraint? Let's do this exercise every time you've solved a constraint and you can now it's time to focus on another one. Or do you go do a couple of them? Like this is our first is our second is our third. So you have like a running playbook of these are the constraints we're pursuing. All our resources are towards number one until it's solved. Now we're on to number two. Now we're on to number three. And once you start getting on number three, it's like we didn't have another constraint meeting because we're about to solve number three and we got to make sure we're always solving for the next constraint.

Clayton Hepler (41:00)
That's a great question, which I will answer in the next podcast.

Justin Piche (41:04)
I love it. Leave them hanging. Coming back for more now.

Clayton Hepler (41:07)
Guys,

thank you so much as always for listening to another episode of the Ground Gap podcast. Just that I do this for our own personal enjoyment. And the thing that makes me the happiest is when you rate, review, and subscribe and leave my name down below. So guys, give me a little Christmas gift for those that celebrate. ⁓ Rate, review, subscribe, let us know how you guys are loving this pod. Justin, anything else before we sign out?

Justin Piche (41:33)
No, I think you definitely deserve the comment this time. That was great. Thanks for sharing. Thanks for opening it up. mean, this is a challenging thing even for people who have a lot of experience reviewing their businesses and planning for the next year. And I really appreciate how much thought you've put into ⁓ building something bigger and better and really understanding this on a level that think a few people in this industry understand it. So thank you for sharing. I really appreciate it.

Clayton Hepler (41:36)
Haha

Justin Piche (42:02)
That's all. We'll talk to you guys next week.