The 5 Business Drivers Explained Simply with Kevin Cope

Business is often more complex than it needs to be.

In this episode, Kevin Cope breaks down a simple framework that helps you understand how any business actually works.

The five business drivers.
Cash. Profit. Assets. Growth. People.

These are the core elements every company is managing, whether people realize it or not.

Most employees hear financial updates, strategy discussions, or earnings calls and struggle to connect the dots. This framework changes that.

In this conversation, Kevin explains:

• Why business often feels confusing and hard to follow
• The gap between how leaders think and how most employees understand the business
• Where the five business drivers came from
• How each driver connects to real decisions inside a company
• Why this framework helps you see the bigger picture

This is the model at the center of everything Acumen Learning teaches.

Once you understand it, you start to think differently, ask better questions, and make better decisions.

If you’ve ever felt like you’re missing the big picture, this episode will help you see it clearly.

To learn more visit: acumenlearning.com or check out our books Seeing The Big Picture & Business Acumen for Sales Success

Timestamps:
02:05 Genesis of the 5 business drivers 
12:39 Cash
20:40 Profit
25:30 Assets
31:08 Growth
35:10 People 
38:40 The 5 drivers in action

Transcript

SPEAKER_01 0:06

Today we're going to be digging into the model at the heart of Acumen Learning, which is the five business drivers and exploring the story behind the best-selling book, Seeing the Big Picture. And I'm excited today because I'm joined by Kevin Cope, who's the author of that book, Seeing the Big Picture, and also the founder of Acumen Learning. Now, this book has been used by leaders in nearly every major industry, from healthcare to tech to manufacturing to financial services and just about every other industry out there. So for those who are listening or watching, if you've ever wondered how the best leaders make decisions or what separates strategic thinkers from just task managers, this framework is where it all begins. So with that, Kevin, I wanted to ask you kind of a broad question. But for people who've never heard of the five business drivers, how do you explain what they are to someone?

SPEAKER_00 1:03

Yeah, uh thanks, Stephen. It's good to be uh with you here. Um, you know, so first of all, as you look at businesses today, for example, if you look at startups and what percent of startups actually survive, it's higher than most people think. It's about 50% in over four or four or five years. And then quite a few of them um go out of business after that. So your odds of making a business successful, a business startup successful, are against you. Um and uh yet people still, you know, give it a shot, um, you know, still want to kind of follow that dream. But it gives you the sense, uh, it's one indication of the sense of how um challenging business can be. And what's interesting is you read books and you listen to leaders, um, oftentimes it doesn't become less complex. I think sometimes business leaders are unconsciously competent, meaning they don't know what they know. And so they assume everybody knows what they know. You know, when they do all hands meetings, uh, you know, large organizations do all-hands meetings and talk about the results. Most of it's going over people's heads. And so, you know, I've been on this quest to kind of create a model that gets to the essence of how executives think about the business, what they focus on, how they base their strategy. Uh and something that could be used in an easy framework that would be really accessible for uh everybody. Uh, you know, you wouldn't need uh some uh complex mathematical model. You could just look at this model and it would give you an overview of how a business leader thinks. We call the book See in the Big Picture because we want to give people an overview of how leaders think. Um it's also the same model that analysts use to analyze companies, uh, which shareholders use to pay attention to organizations. And so that's sort of the genesis of the model, trying to take what can be complex and make it more accessible to everybody.

SPEAKER_01 2:53

So you were seeing this problem kind of over and over again inside companies where people might be sitting in a all-hands meeting or listening to an earnings call or something with senior leadership, and people are sitting in the room and it's basically going over their head. And so you wanted to come up with a simple framework model to basically say, hey, this is a way that you can kind of think through that. Is that is that roughly correct?

SPEAKER_00 3:20

Yeah, I think that gets to the essence of it. And by the way, um, you know, we sit with thousands, tens of thousands of individuals each year from large organizations. So this is something that we get validated every day, where the gap between what a person should know about their business and what they do know is pretty big. A lot of folks sitting there, they're hearing what executives are talking about when they refer to the financials, the measures, the strategy, the goals of the organization. And for them, a good part of it just goes over their head, they're not connecting.

SPEAKER_01 3:50

Got it. So uh let's talk a little bit about the five business drivers, which are cash, profit, assets, growth, and people. I'm curious, how did that framework start to take shape? Where did you, I guess, get the idea for those five, why those five? Yeah, is is my question.

SPEAKER_00 4:08

I was in search of a model because again, I was trying to figure out a way to take the complexity out of uh business. So I started looking at all these websites, trying to get a sense of what they focused on when they were measuring the results of an organization. And uh so I went to you know quite a few. Um I also would read newsletters, magazines, just trying to get to what do people focus on, what do leaders talk about? And what I came to is something that um is kind of simple but not simplistic. And that is when they talk about results for an organization, it centers around the three financial statements the statement of cash flows, that's why we have the cash driver, the profit and loss statement, that's why you have the profit driver, and then um the balance sheet, which lists assets, liabilities, and then net assets. And therefore, that's the asset driver. So the first three drivers, cash, profit, and assets, simply reflect the three financial statements that all organizations uh pay attention to. That's how they measure their performance. That's what Wall Street um gets. That's how uh shareholders make decisions around which stock to buy, et cetera. And so I it was sort of a, you know, I don't know if a stroke and insight or brilliance, but it just kind of came clear to me, well, of course, cash profit assets. Now, growth came in because another key measure that um analysts and probably the number one thing shareholders look at is the ability of a company to grow. Usually CEOs talk about this idea we need to grow profitably and sustainably. So growth is everywhere because that's what really drives share price. So therefore, growth had to be part of that business model. So now you have cash, profit assets, and growth. Now, uh many of these websites and these analysts and companies don't talk near enough about people, meaning employees and customers. Um, you'll find some, especially healthcare companies, they'll talk about uh the uh the patient they serve. So, in essence, you know, they're a customer and other organizations may spend a little time on that. But I really felt like for the four drivers on the outside to be effective, cash, profit, assets, and growth, it happens because in uh employees in an organization are actually anticipating customers' needs. If that relationship is strong, if that's smooth, if that's happening, if customers are finding value uh in what a company offers, uh that's going to drive cash, profit, assets, and growth. So the people driver is right in the middle. Uh in sort of making the point that that's where the important relationship happens. Uh, the business relationship of a company providing goods and services to a customer, the customer is satisfied or even delighted. And if that relationship is going well, then your financial results will follow. So that's sort of the genesis of the model.

SPEAKER_01 6:46

I want to hear your opinion on this, Kevin. Um I I have likened the five business drivers, um, going back to my grandfather's work with the seven habits of highly effective people, in the same way that he basically built a principle-based framework or model. But again, that's that's more when it comes to personal or individual effectiveness and kind of the habits one through seven and the maturity continue continuum from dependence to independence to interdependence. Um I kind of see, and this is just the way I see it, is that the five business drivers is a similar type of framework in that it's a principle-based framework, but instead of being for personal effectiveness, it's for basically any type of business. So I don't know. I don't know if that's correct or not, but that's how that's how I that's how I remember it.

SPEAKER_00 7:38

Yeah, no, I can see a comparison there. I uh and I worked for your grandfather for a decade and was part of that organization, taught the seven habits, and then you know, led a part of the organization towards the end of my time there. And yeah, it created a framework, a really uh great framework that not only gave you a process to work through to go from individual to organizational effectiveness or in individual then interpersonal effectiveness that could then build the organizational effectiveness, it gave you a sense of the relationship between the habits. And I think that's what this model does as well. When you think of cash, profit, assets, growth, and people, these aren't just individual islands in and of themselves. They actually interplay and are very interdependent with each other. So, for example, if a company is focused on growth, well, that's gonna take cash in order to invest in that growth. In the short term, that will shrink profit. It's gonna take more assets. And so you make a decision as a leader to have those trade-offs. We want to emphasize growth and you recognize the impact it will have on the other drivers. And at some point in time, you may realize, well, we're out of balance. And so we need to slow growth in order to build up our profit margins again and and uh improve our cash reserves. So uh, like the seven habits model, you can see the interdependence between the habits. This also is a very interdependent and very synergistic model.

SPEAKER_01 8:54

That's how I that's how I remember it and look at it. So another question, where did where did the book seeing the big picture, when when did that enter the picture? Because it sounds like, again, you've been teaching this for over 20 years now. Where did the idea for the book come? At what point did it come? Were were customers asking for a book, or was it more like, hey, let's let's codify this and put it out there? I'm just just just curious, and I'm sure people are curious about that as well.

SPEAKER_00 9:24

Yeah. So started the company in 2002. We're now 23 years uh along. And you know, originally obviously we didn't have the book. We trained for uh quite a few years before we actually had a book. And early on, the model was a little bit different. And so it took me, you know, a couple of years, several years to sort of wrestle with the model to get it to where it is today. And um, over time, I think there were several reasons, or um, you know, several reasons to want to uh write a book. You know, the first um, you know, that comes to mind were those that were probably more business oriented. One is when participants left a session, of course, you know, when we teach folks, they're either virtual or in person, and they've got participant materials. And the idea was a book would greatly enhance the content from the course. So they're listening and interacting in a course, and once they leave, what do they do next? Well, I really felt like a book could be additive to that process, something they could go back and read. In some cases, it would be a review of what they learned in the training. And in other cases, it would be um their ability to go deeper into a subject we didn't get to as deeply in the course. So, one is we thought it would be really good for the participant to really enhance their learning journey, if you will. Another reason um is it it represents a great marketing tool. Uh, so uh we were able to use the book, and when people want to know more about us, we can hand them a book. And uh it really is a great brochure. Um, a little more expensive than the average brochure, but it makes for a great brochure. So instead of trying to tell people about it, you can give them an overview and said, well, read this and see if it resonates. And uh, you know, quite often and almost always it does resonate. So it really helps us from a marketing standpoint. And then um, I think from a uh, you know, a third standpoint, it brings credibility to an organization. Um the book, you know, fortunately, was a Wall Street Journal number one uh bestseller and a New York Times bestseller. And so um with that, it suggests that there must be something to the book. If that many people have had interest in the book, have purchased the book, well, there must be some substance to it. And then, you know, but those are some business reasons as to why to do it. Uh, there's a personal one as well. There, there's something about seeing your work, you know, your thinking, your creation sort of um codified in a book, something that, you know, it's for posterity's sake. And so um I admit there's a little bit of ego in that um and some satisfaction in knowing that, you know, hey, I, you know, here's a book um that uh that I wrote. And it certainly I had help with the book, so I kind of hate to say that I wrote, but uh, you know, that uh I wrote with the help of uh other good uh editors and uh and the team at Acumen Learning as well.

SPEAKER_01 12:01

That's just interesting. I I love hearing about kind of the genesis of not only the five business drivers, but the book as well. So so with that, I kind of wanted to move on to let's let's get down into the specifics of the five business drivers. So I thought we could go through each driver and maybe just spend a few minutes um where we go through let's let's define it, explain how it's measured, maybe you know, any benchmarks that are out there, why it matters, and then any real examples of you know how someone could influence it. So let's start let's start with cash and I'll I'll let you uh take the reins on on leading through this part.

SPEAKER_00 12:39

Yeah. Well, so first let's talk about um why cash is important. You've heard the term, you know, cash is king, cash is the company's oxygen supply. I love what Al Sugart said. He said cash is more important than your mother. Um and uh Al was a bright guy. He was bold. Yeah, very bold. He was the founder of Seagate Technologies, very successful in the technology space. Uh now I think Al loves his mom, but he was making the point that if you don't get cash right in business, nothing else matters. Um so that's why uh cash is king. And so when we talk about cash, there's two ways that companies measure, two primary ways. There, there are several ways, but two primary ways I'll talk about one is the amount of cash that you have at a point in time. How much cash do you have on hand? And so that looks at at a point in time, you know, how much do you have in your accounts, you know, savings, checking, CDs, you know, fairly liquid assets. So that's the amount of cash a company has on hand. Um, now, another way that companies think about cash is cash from operations or cash flow. That's the amount of cash that comes in over a period of time, say a year, less the amount of cash that is spent, actual cash spent in that same year period of time. And hopefully you have positive cash flow. Now, most people they're pretty familiar with cash and they understand cash on hand, but this idea of cash flow is something that tends to be uh newer for a lot of folks. They may hear about it at a company meeting or they may read about it, but a little less clear. But cash flow is a more important business principle uh than cash on hand is. Uh, if a company has positive cash flow, then they can be uh around forever. You know, if they're generating, they're bringing in more cash than they're spending. And so uh that's why cash flow tends to get a lot of attention from leaders and from uh analysts and shareholders. Now, um you might equate those two principles, you know, from a personal standpoint. You know, if you look at your checking account and look at how much you have at a point in time, maybe at the end of the year or maybe the end of the month, that tells you, you know, how much you have currently. Uh looking at cash flow, that'll equate to so how much do I take in for my work? You know, I've got a you know, a wage that I make, a salary, uh, less how much to actually spend in that same month. That would give you a sense of what your cash flow is. It's like your checking account. How much did I start with? How much did I bring in for my salary? And then throughout the month, how much did I spend what's left over at the end of the month? And you hope there's more in there than uh not. Hopefully you still have money in that checking account. You haven't overdrawn yourself. So that's the idea of cash flow. Um, as you look at uh companies, some examples of that. Um, you know, this is a little dated, but I it's still kind of near and dear to my heart, Stephen. Uh I grew up uh when Sears Catalog was a big thing. And so when it came time for me to be able to select a gift, I have vivid memories of sitting down on the floor in front of the fireplace, thumbing through the Sears catalog, and I would, you know, dream about, oh, wouldn't that be cool? A go-kart. Oh, I'd love to have that, you know, a tool set. I would mark all of these things, and I'd finally have to narrow it down to one. I'd go to my mom and I'd say, Mom, this is what I want. Uh, she would call the 800 number on the back of the catalog, give them a credit card. They would then ship it to our house or the post office. If you think about it, that was virtual shopping, and that was in the 40s and 50s. Sears Holding Company was once the largest retailer in the world. At one point in time, they were 1% of the United States' gross national product. Um, they were a behemoth. Um they were very innovative, uh, but then they lost their way. And so um, the reason they're kind of near and dear to my heart, they were around so long, so icon, so iconic. But towards the end, um, you know, they merged with uh uh Kmart uh and it became Sears holding. They had a CEO who was focused on financial engineering, wasn't a retailer, stopped investing in the business and was looking at primarily at primarily how to get money out of the business. So without that investment, the stores got tired, they didn't merchandise well, uh, the stores weren't updated, um, and uh they started losing money. And as they lost money, they started selling um some of their primary brands like uh diehard battery, craftsman tools, uh, Kenmore appliances. That generated some cash infusion, but they were still bleeding cash. They had negative cash flow. So they finally burned through all of the cash that they had, nobody'd lend them money, and that's you know, when they went bankrupt. So that's more of an extreme example, a 125-year-old company going out of business, once the largest retailer in the world. So it's kind of a good lesson to remember that no matter how big you are, no matter how successful you are, no matter how long you've been in business, you can't ignore cash. Cash is king. Um, you know, on the flip side of that um is uh Apple. You know, they're traditionally sitting on$150 to$200 billion in cash. More than they need. Matter of fact, they were sued a number of years ago by uh Carl Icon and Greenlight Capital. And the lawsuit basically said, look, you're mismanaging the company. You're sitting on all that cash, it's not generating a return. So either invest it back in the business for more growth. And if you still have access, then give it back to us as shareholders in the form of dividends and buying back stock. So at that point, Apple started paying dividends and buying back stock. But when you look at their ability to generate a lot of cash, they have strong cash from operations, therefore they have a lot of cash on hand. Boy, they've got the ability to invest for the long term. Uh, they're able to be nimble, they're able to move on a dime. And so that uh large cash position that they've been able to hold and continue to generate more cash uh allows them to um invest in their future growth and opportunities. Right now, you know, they're they're feeling a bit of a pinch and some question whether they're uh you know, where they should be position-wise on AI. So they're gonna need to continue to use uh their cash reserves uh to you know invest to figure out how to address uh you know that important topic.

SPEAKER_01 18:25

How would that be to get get sued for having too much cash on hand?

SPEAKER_00 18:29

I know. I it's a good problem to have. I mean, wouldn't you love to be challenged on having too much cash and how to figure that out? Yeah.

SPEAKER_01 18:35

That's awesome.

SPEAKER_00 18:36

So here's what individuals can do to impact it. You know, there's about five things that the average individual or many individuals and organizations can, you know, impact when they're trying to improve cash and cash flow. One is sell more. Um, it sounds uh, you know, pretty basic. Um, and the second one's like undo it, uh, reduce expenses. So when you think about it, when you listen to executives talk, uh a lot of their strategy comes down to fundamentally how do we raise sales and how do we do it more efficiently, and how do we do it with less cost? So those are the first two things that everybody can think about. Um, the next one is uh pay as slow as you can. So uh, you know, if you're working with suppliers and you're negotiating terms, you got to negotiate the terms as long as you can. And instead of paying, you know, when uh the supplier delivers the product that you need, try and stretch it to 30, maybe even 60 days. And try and get that as long as you can because if you can keep that money, you can continue to put it to work. At minimum, you can put it in the bank and it's you know earning you know some interest on that. Um now, you don't want to damage the relationship. So suppliers are important, and you want to make sure you're a good partner. So I say pay as slow as you can while remembering the importance of the partnership. And also you don't want to incur late fees. So that's number three is pay slow. Uh, number four is collect fast. So when money is owed to you, owed to your organization, you want to collect it as fast as you can. So anything you can do to deliver the product, the service on time, the quality uh meets what the customer expected, they're more likely to pay you. You need to get an invoice out that's accurate, that's timely. And so if all that's in place, the customer is likely to pay you sooner. Uh and then fifth, uh, I would say uh anything you can do to reduce inventory, especially if you're a company that sits on a lot of inventory, like a retailer, a manufacturer. Um, because inventory can tie up a lot of cash. And if it's sitting there on the shelf, you know, it's not generating a return. So that would be the fifth thing. Anything you can do to reduce inventory without missing sales.

SPEAKER_01 20:33

Love it. Great overview. All right, let's go to the second driver now, profit.

unknown 20:37

Yeah.

SPEAKER_01 20:38

Where do you start with profit?

SPEAKER_00 20:39

Yeah, so sometimes profit is called the bottom line because when you look at a profit and loss statement, it sits at the bottom. And it can also be called net income, net earnings, um, and so a lot of you know different terms for uh profit. And when you think of it, um there are many ways that companies measure profit. If you look at their PL, oftentimes there's at least four profit measures. You have sales at the top, when you take out cost of goods sold, you get to gross profit. That's the first profit measure. Um then you take out operating expenses and you get to operating profit. Sometimes that's called EBIT, earnings before interest and tax. Um, and then a third profit measure uh would be net profit or net income after all expenses plus interest and taxes are taken out, taken out. So that's the third profit measure. And then fourth, any publicly traded company would also talk about earnings or profit per share. That's your profit divided by the number of shares, and that gives you profit per share. So any company is trying to improve their profits, trying to increase those profits. And again, there's two fundamental ways you can improve profits. You can either sell more or you can reduce expenses. You know, some combination of that. And maybe, you know, growing revenues could be uh also a combination of raising price or changing product mix, you know, et cetera. But fundamentally, it's sell more and uh, you know, reduce expenses in order to improve profit. Um, now if you're Trying to improve earnings per share, there's an additional lever you can pull. On earnings per share, you can sell more, spend less. That will drive the numerator of profit, but you can also buy back your own stock. And if you reduce the number of shares that are divided into profit, that will increase earnings per share. So that's why companies buy back their own stock, as they're trying to improve earnings per share, which will improve stock price. So I just talked about sort of some of the primary measures with profit, gross, operating profit, net profit, earnings per share. There are some others like EBIT or EBITDA, profit before tax that companies might look at as well. So those are the measures to improve it, sell more, spend less. Some examples of organizations around this. You know, one is Walmart. When you look at the average net profit margin for the S P 500, it's around 10 to 12%. You know, for every$100 in sales, they're generating about$10 to$12 after all expenses, including interest and taxes. Now, Walmart is about 3%. But Walmart did about$680 billion in sales last year. So you took 3% of that, and you're talking about a lot of profit. But their model works well. Even though it's a thin margin company, the model actually works quite well for them because they continue to grow. So their share price has done, you know, fairly well over history. Um now you look at that as opposed to a visa. Visa has over a 50% net profit margin. I mean um 50%. Every$100 in sales after tax, they're generating over$50 in profit. And so they're an extreme example. Uh they're not as big as a Walmart, uh, but they're still very profitable. And so those are kind of the two extremes of uh the profit margins you'll find in organizations. Now, when you find companies that tend to be more profitable, uh, you know, you look at Microsoft or Facebook or Apple, um, Nvidia, uh, those companies tend to have higher profit margins because they're selling something unique. Therefore, they can charge more. When you look at companies like Walmart, Kroger, Costco, um, you know, any Home Depot, any big box retailer, their margins tend to be thinner because they're competing on price as they're selling commodities. You know, if you're selling a gallon of milk, for example, you can get a gallon of milk in a number of places. You can get it in a, you know, a convenience store, a 7-Eleven, a gas station. You can get it in a Kroger, a Smith's, um, you can get it in a Costco and a Walmart. And so, because uh milk is a commodity, people are competing on price in order to be able to sell that. So that kind of distinguishes high margin and low margin companies. Um and uh, you know, again, uh as you look at your position, I really encourage every employee in an organization to be really clear on how their company makes money, including what are your company's profit margins. Be really aware of those and what you're doing in order to support uh improving um, you know, your profits as an organization, creating that line of sight, adding value to your business.

SPEAKER_01 25:05

By the way, if you like what we've been talking about, you'll love our book, Business Acumen for Sell Success. It's the ultimate guide to more strategic deals and starting to think like a business partner. It's gonna change the way you sell. So we've done cash, profit, now the third one, assets. This is one I strive. This is the one I struggle with, I'm gonna be honest. So I'm excited to hear the explanation.

SPEAKER_00 25:31

So an asset is anything you own or control that has value. So if you look at that personally, you know, that would be your car, your house, maybe you have got some stocks, bonds, maybe you have some gold, some jewelry, uh, you've got clothes, you've got furniture. Those are all assets. Anything you own or control that has value. For companies, um, you know, similar things. So you've got cash in the bank. Um, they'll have also investments. Sometimes they're holding um stock. Uh occasionally you'll find uh large publicly traded companies that will have a stock fund. They also have inventory, they've got buildings, they've got property, plant, and equipment. Uh, and so uh the goal for companies is not to amass as many assets as they can get. The goal is to get the right amount of assets need to run the to run the business, to keep the business healthy and efficient. Uh, let me give you some examples on that. Uh we talked about cash. So if a company has a lot of cash, they're financially strong. They've got plenty of cash. The downside is they're not getting much of return. So companies try to balance asset strength, which means your ability to uh overcome any future economic downturn with asset utilization, your ability to get the best return on your assets. So cash, too much, you're strong, but not getting a good return. Too little cash, you're not strong enough. Maybe you won't withstand the next economic downturn, but you know, um, you're getting a better return because you've invested the cash in in areas that will help grow the business. So you're trying to balance the right of cash to balance asset strength and asset utilization. Uh inventory, another example. If you've got too much inventory, more than you need, well, the good news is you can meet any customer opportunity that comes in. You know, you've got inventory always there, ready to sell. You don't have a stock out. The downside is if you've got too much inventory, well, you've got to store it, it ties up cash, could become obsolete. Um, and uh, and so you're trying to get the right amount of uh inventory on hand. Last example would be buildings. Uh, if you've got plenty of building space, well, you can be efficient in how people work because they've got plenty of workspace. Uh, your manufacturing processes can be more efficient because you've got plenty of uh building space. But if you've got vacant building space more than you need, well, um, then you're not getting a good return on that investment. You've got empty building space, not get generating a return. So you're trying to again balance asset strength and utilization. Some companies would, you know, some measures they might look at would be the return they get on their assets, you know, ROA, the return on assets for the average, you know, uh, I think it's around 7 or 8% for the S P 500. And so um that's a way to measure it. You could also look at inventory turnover as a way to measure how effectively you're using your inventory. Um, an asset strength measure uh might be your equity ratio. Equity is a percent of total assets, your debt to equity ratio, to get a sense of do you have enough equity in case there's a downturn, uh, you know, a down cycle, and therefore you might need to sell assets or borrow money to get through that cycle. So those are some ways that you might measure assets. Now, what could an individual do to improve assets? Well, one, if you don't need it, don't order it. Now, I know a lot of companies, they give you a budget, and you think, well, if I don't use it, I'm gonna lose it next year. But um, you know, really, if you're buying assets simply just to use up budget, then it's an asset that's probably sitting there, it's not being well utilized, it's not going to generate a rough return for the company. So one is if you don't need it, don't order it. The other is really measure the output of your assets. For example, if you've got a manufacturing process, you know, how many widgets are you generating per shift uh from those assets? Um uh I heard uh once an individual say that which you measure tends to get managed, and that which you manage tends to improve. So measure the output of your assets. If you're measuring the output, it'll get managed, and then you'll probably improve uh your efficiency with those assets. Um an example of you know, uh, assets is Netflix. You know, so in the early 2000s, their business model was they would send you a DVD in the mail, you'd watch the DVD, and then you'd mail it back to Netflix, and then you could order another uh DVD. Again, it'd be sent to you in the mail, you'd watch it, then you'd send it back. Think of how um capital intensive that would be. So, first of all, you know, you've got to have uh shipping warehouse where you are getting these uh, you know, uh disks out on time all over the country. Can't have many airish with that. There's also the cost of shipping. There's also the cost of inventory. You're having to hold on to all of these DVDs. Well, around 2007, 8009, they moved to this streaming model. And they went from a low capital intensive business. You know, they don't have inventory anymore. Um, you know, they're not happy to ship it. Um, and so they've got low capital intensity and they've got high margins with that model. So uh Netflix really had a brilliant shift on their use of assets from you know tangible assets shipping to customers to streaming it online, therefore not having to hold on and having to invest in you know inventory and the expense of shipping that back and forth.

SPEAKER_01 30:32

And now we all watch Netflix every day, including if any of you have have young girls. I just watched K-pop Demon Hunters last night, which is fantastic. So shout out. Hey, I I I was a little skeptical going into that uh show, but I actually enjoyed watching with my two girls. So K Kpop Demonters K-pop, K-pop demon hunters. Okay, it's it sounds ridiculous, but the music's fantastic. So anyway, okay, so we've gone through cash, profit, and assets, which line up with the three financial statements. Now, driver number four is growth.

SPEAKER_00 31:07

Yeah. So when you you when you think about growth, um, growth is reflected on all the financial statements. So there isn't a separate statement for growth, as when you look at a profit loss, you're looking for revenues to grow, you're looking for profits to grow. When you look at the balance sheet, you might be looking for um your equity position to grow. Uh, when you're looking at the statement of cash flows, you want you want to see your cash from operations growing. So basically, growth is the idea that your core measures in organization are growing over time. And why is that important? Well, if you're not growing, you're dying, especially if you're in a competitive industry. You know, if you think, well, um, you know, for example, if you're in technology and you decide, you know, we're gonna not focus less on innovation. Well, you might do well for a year, but as soon as your customers are innovating and creating things that you don't have, well, you're gonna lose your customer base pretty fast. So if you're not growing, you're dying. Um, also, shareholders, investors expect growth because if you're growing uh profits and sales sustainably, that drives share price. So shareholders expect growth. And then also growth tends to attract uh the best and brightest employees. People want to work in an organization where um there's upward mobility, you know, you've got an opportunity for bonuses uh for maybe a variety of different roles in an organization. So uh good employees, talented people are attracted to companies that are growing. Um, you know, Nvidia uh is an amazing example right now. If you look at 2004, they were at about 60 billion in sales, uh little over 60 billion in sales. Uh in 2005, this is a$60 billion company. They more than doubled the company,$230 billion in sales in one year. That is um amazing growth. It's uh unbelievable growth. Um they have really created a product, you know, um computing technology, a chip that allows uh and enables AI. They hit the sweet spot, they hit the inflection of the AI, and they've got the chip that allows um AI uh, you know, to um uh to be effective, to actually run. And so here's a company that went from 71 on the Fortune 500 list to 31 uh in a year's period of time. And so um growth, boy, their stock price has gone nuts. Shareholders are loving that growth. Um they're getting all kinds of press. Um, they're getting uh uh a lot of people uh that want to work there. They post a job opening. There are they're getting, I would imagine, hundreds of uh resumes for a job opening at NVIDIA right now. So it's attracting really top-talented individuals in the organization. People inside the company are uh earning bonuses, getting pay raises. So growth for Nvidia right now is creating a uh kind of a wonderful um web of success for shareholders, for employees, for executives of the company, for consumers. Um, and so it's quite an amazing story around growth. What can you do to help the company grow? Figure out a way to either grow sales or reduce expenses to help grow profit. Um, I heard a CEO once make this statement look, there's only two roles in our company. You're either selling or you're supporting the sales process. And if you don't know which one you are, we don't need you. And so any person in the organization, the CEO, would say no matter where you sit, you're part of the sales process or part of satisfying and meeting our customer needs. So if you think maybe you're sitting in an IT and HR and you're not about sales, you better rethink that. Uh, because uh many CEOs would expect you to be seeing yourself as part of that process, part of that sales process.

SPEAKER_01 34:40

It's great. Um yeah, in NVIDIA, I saw a stat on Nvidia that it was something like 78% of all employees are multimillionaires now within the organization. Yeah. Yeah, yeah.

SPEAKER_00 34:52

Pretty awesome. That's a great story, isn't it?

SPEAKER_01 34:55

It's amazing. It's incredible. So let's go over the fifth driver, which is people, which again is the center of the model. We'll we'll put up a graphic so people can see it if you're watching this. Um, so why why people as the fifth driver and center of the model?

SPEAKER_00 35:10

Yeah. You know, as I mentioned at the beginning, when you look at um uh the financials, and when you look at companies that are being analyzed after they report their earnings, uh you you see a lot about cash profit assets and growth. You don't see much. Often you don't see much about uh people. You'll hear some about customers, maybe a little bit about employees, but it tends to be in passing, and you know, it's kind of a throw out, you know, line. Uh but when you think about it, employees meeting the needs of customers, delight, delighting customers, anticipating their needs. That's what drives cash profit assets and growth. And so um you have to, great executives who are long-term thinkers have a real emphasis on the employees in their organization. Uh, executives that have very short-term focus, you know, maybe three months, because uh, you know, the average stock is only held about five months in the United States. A lot of day trading going out there, a lot of flipping, you know, stock flipping going on out there. Um and so sometimes CEOs get caught up in this um, you know, short-term mentality of we got to hit next quarterly results. When you think about improving a culture, um, uh enhancing the culture of an organization, that takes several years to do. Um but companies and individuals and leaders who are thinking long-term will pay the price because they recognize if you get culture right, boy, that drives the others quite well. Matter of fact, culture may be one of the um few remaining competitive advantages in businesses. Because people can copy your products, you know, oftentimes. They can even copy your processes. What's really hard is to copy a culture. And that's often what will set companies apart from others is the culture they have within an organization and a culture that is a performance culture, one that's a culture of building and improving employees, recognizing the whole employee, not just them as a worker, but they've got a whole life. And so, how do you support an employee to be effective not only in work, but also uh in their in their private life as well? And as companies do that well, and boy, there's some great companies that uh, you know, really emphasize employees. Some of the tech companies do that, you know, they provide uh good benefits services. Um, I think uh Costco is a great example that comes to mind for me. Costco has been paying full wages and benefits for decades. It's been their model from the beginning. A lot of the other big box retailers didn't start paying living wages until they got shamed into it by um, you know, the population. About 10 years ago, uh many big box retailers were paying a minimum wage. They were even paying, uh they were only giving people enough hours so they'd be part-time employees, not full-time employees, so they didn't have to pay benefits. Well, um, I think that the public at large uh finally uh got fed up with that and uh really pushed the big box retailers to start paying living wages and decent benefits to employees. Costco had been doing that uh since their inception. So really admire Costco that recognized the importance of treating the employee well, um, and knowing that that would have an impact on the business results, cash profit, assets, and growth.

SPEAKER_01 38:12

Yeah, no, that's that's it's a great overview, Kevin. So uh what maybe a couple other questions I want to ask before we end, Kevin. So our next the next episode that we're gonna be going over in the podcast, we're gonna have Ben Cook on to basically talk a little bit more about, okay, let's let's talk about examples and how you're applying the five drivers in your day-to-day work. But I did want to ask you just one or two questions around this. So the five drivers kind of in action. When in your experience over the last 20 plus years doing this, when people are exposed to this framework for the first time, yeah, what's the biggest mindset shift that that you have seen that they that they have? What have you seen over the years for someone that's just exposed to five drivers that hasn't before?

SPEAKER_00 38:59

Yeah. Uh there's a couple that come to mind um that you you get quite often. Um and it's really fun to see the light bulbs go off on this. One is people feel like they're finally in the know. Um, so when you go through and describe things like earnings per share and gross profit margin and you know, EBITDA, they finally you kind of see them go, oh, I finally get what that means. And so they feel like they've been, and and and by the way, there's some people that are VP leveling organizations, some of the best known companies in the world that have a pretty big gap on their business acumen. They're uh functionally brilliant, um, but they they don't necessarily see the big picture of how their company makes money. And so finally, they sort of get this idea that, man, I'm in the know. Uh now when you know uh so-and-so is speaking about our results, I can connect. I know what they're talking about. And uh I know what uh, you know, um, why that's important to the organization. So that's one uh fun one that's really uh fun to see, where people finally feel like, okay, I now know what our executives talk about. And the second one is sort of akin to that. That is, people um have a sense of connection between their role and what the company's trying to accomplish. So they can see their line of sight. Hey, our company's trying to grow profitably, um, and here's what I can do uh, you know, in my role to help support that. Um, you know, we're trying to reduce our inventories, and and they can see how, boy, in my role, because a lot of what we do in our sessions is really help people see how they connect, the actions they can take to improve company results. And that creates engagement, Stephen. You know, your dad talked, your grandfather and your dad talks a lot about engagement. And uh your grandfather used to talk about um the importance of not only get getting people's backs, but you also get their hearts and minds. You know, you get them engaged in the work. I love the idea that people work hard for a paycheck, harder for a person, and hardest for a purpose. And so when people can really connect to here's where the company is headed, I know how how I can add value, how I can fit in, how I make a difference in the business, that creates engagement uh for them. That's good for the business. It's also good for them. Uh they feel more part of things. Uh they're more likely to stay, you know, in the role. Um, and so that's the other kind of you know, light bulb that goes on. People, you know, finally see that connection of how they make a difference in the organization.

SPEAKER_01 41:14

That's great. Um uh one more question around this before we kind of wrap up is in your experience when when companies bring in this type of training, let's call it business acumen training, um, what kind of separates companies that make business acumen training stick versus those who don't? You know, you're 20 plus years doing this. What have you what have you kind of seen as being, hey, this is what you need to do as a company to have this stick with your employees and actually make a difference?

SPEAKER_00 41:47

Yeah. Uh a couple of things on that. One, when you get management and um support uh for training, it makes a big difference. So for example, those companies where an employee comes back from a class, they've been to a building business acumen session, and a manager sits down and says, Well, tell me what you learned. Um, tell me what you're gonna do to apply this, you know, um, now that you've spent time going through this. And that expectation that a participant has that, boy, my manager is gonna expect to have a conversation and to find out what I learned and what I'm gonna do differently, um, really uh sort of puts them in a different place, uh, puts them in a whole different paradigm. And so they'll go with the idea of this is relevant to my job and they'll pay attention differently, they'll capture differently, they'll think through uh more thoroughly what are my actions, um, how am I gonna um actually put this content into action? So that's one. I another is that um there's an expectation that there's sort of a lifelong or that uh business acumen is a process, it's a learning process, learning journey, not just an event. And so uh organizations, and and we we help companies do this, we've got a portal that has a lot of follow-in activity. But companies that have an expectation that their participants will go through some kind of training and their they'll have a specific process for continuing that education post-session is also really important to help it really um stick uh for uh individuals. Uh and when it sticks with the individuals when they're practicing exercising good business acumen, obviously that's good for the organization as well.

SPEAKER_01 43:17

That's great. Love it. Um, Kevin, this has been great. Um, again, for those listening, a great overview of the five business drivers. Maybe to wrap up. One more question around the five business drivers. So this framework has now been around for over 15 to 20 years. Obviously, it's been in many publicly traded companies, 34 of the Fortune 50. Um is this framework, is it still relevant today? I mean, I know that AI is on the you know the top of mind, everyone's thinking about it. And so, you know, there may be an attitude of like, well, AI can can solve this for me or do this for me. And so I'm wondering how you answer that. Question Like, is this five drivers framework is it still relevant today? Is it less relevant? Is it more relevant than when you first created it? Would love your just opinion on that.

SPEAKER_00 44:11

Yeah, great question. Well, as you remember, the five drivers is based on the three financial statements. And I don't see the three financial statements going away. Um, companies that still are required to report to the Securities and Exchange Commission every quarter, their profit and loss statement, their balance sheet, and their statement of cash flows. Even privately held companies that don't have owners still use those statements to calculate their taxes to also figure out how to improve their results. So if anything, with AI, it's going to help enhance business acumen in this model. Um so you might use AI to say, hey, um, you know, help me analyze our most recent financial results from the standpoint of um, you know, that how did they perform on the financial statement? So it can give you an overview or a review of that. So the model itself won't go away. And I think if anything, AI will help a user uh better use that model to analyze their company's results or another company they might be interested in uh in investing in.

SPEAKER_01 45:05

So it's almost like, in a way uh having success with AI today, I believe a lot of it is is based on knowing the right prompts to ask the AI. And in a way, this gives you the knowledge to be able to know what questions to actually ask and work with AI. That's kind of how I'm I'm interpreting it.

SPEAKER_00 45:24

Yeah, I think that's right.

SPEAKER_01 45:26

So, Kevin, anything else you hope listeners take away from this conversation today?

SPEAKER_00 45:30

Yeah, I would hope that um, you know, um as a listener, you'd be motivated to uh enhance your own business acumen. Uh, you know, we're all over the board as far as our business acumen is concerned. And you may be somewhere in the middle or on the high end or on the low end, but wherever you are, become more committed in building your business acumen. If you're not doing this already, I would spend a few minutes in uh each day in business news so that you're more current in what's going on in your industry, with your organization, um, in the overall economy and in the overall world economy. There's so much happening today outside your company that affects your company that people with good business acumen are are aware of that. And you need to be aware of that so you know how to respond. And so uh, if I'd encourage anything, would be if you don't have a regime, you know, or a kind of a daily practice around studying business, um, spend 10, 15 minutes a day just tracking the business news. Find um the business organization or the outlet that works for you, whether it's online, you know, or if it's in print, but find the one that works for you and then spend some time each day just getting current on business. Learn what's uh trending right now, learn what companies are struggling with. Uh, you'll hear about the measures that are most important to those businesses, and it'll give you great insight and kind of good rounding around what's going on in the overall business world.

SPEAKER_01 46:48

And I have another suggestion is uh you should subscribe to this podcast as well, because we talk all things business acumen. So, Kevin, thanks for watching. I support that. Yes, I agree. Kevin, thanks again for walking us through the five business drivers. Um, for those listening, if you're wondering what it looks like to actually apply this type of thinking day to day, don't miss our next episode. I'll be joined by Ben Cook, who is Acumen Learning's president, to talk about how he uses the five drivers to guide strategy, elevate sales conversations, and help teams connect their roles to real business outcomes. Thanks everyone for listening. Appreciate your time.

SPEAKER_00 47:25

Yeah, thank you, Steven.