PodCrash with Matt Ebert
PodCrash with Matt Ebert
Find the Bottleneck: The One Thing Killing Your Growth with Dr. Alan Barnard
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I'm Matt Ebert. I turned one collision repair shop into a multi-billion dollar business called Crash Champions. Now I'm sitting down with people who have also built great things so you can build something of your own.
SPEAKER_01So, Matt, we have another guest that's going to crash our pod. All right. We have Dr. Alan Bernard. Okay. So he's a research scientist and one of the leading voices on the theory of constraint, which is all about identifying the single bottleneck that actually limits performance and fixing that first. That's a big deal. Sounds like marital advice as well, if you ask me. So quick question, Matt. Overall, what's the biggest bottleneck that comes to mind in business?
SPEAKER_02Oh man, people and that thing between our ears, probably the biggest bottleneck ever. People, period.
SPEAKER_01All right. Well, let me get out of your way and let's get this thing started.
SPEAKER_02All right, everyone. This is Podcrash. You're known as a leading authority on something called the theory of constraints. Can you maybe as simply as possible tell us what is the theory of constraints?
SPEAKER_00Sure. So firstly, at uh theory of constraints was developed by Dr. Ellie Goldratt, uh, somebody that became my mentor. Okay. He wrote a book. Many of the audience might be familiar with a book. It's called The Goal. It became one of the 150 most read books of all time. It's a book that uh Elon Musk and Jeff Bezos and Jensen One say that it's one of the most important books that they've ever read. Um, why is it so important? It's kind of written as a business novel, um, but it it really solved a problem that's been around for a very long time. If you think about any complex system, and if you feel responsible to try and analyze and improve and manage that complex system, you know, whether it's a company or your own life, how do you go about doing that? Yeah. And the traditional way was that we would break up these complex systems into parts and that we would analyze and improve and manage each part and hope that that would somehow improve the system. But often not only it didn't improve the system, it actually made the systems worse because of this thing called local optimization, right? We're improving a part at the expense of other parts of the system. So everybody knows that you should follow a systems approach, the holistic approach, you know, whether you're dealing with your own life or with your business or even with a country, right? You should follow a systems approach. But practically nobody knew how to do it. You can't evaluate every single decision on the impact on the system as a whole all the time, right? So how do you do it? And and Goldworth came along and he solved this problem. What he realized was an extremely simple hack is that if you analyze and improve and manage the constraint of the system, you are in fact analyzing, managing, improving the whole system. Interesting. And the best analogy is if you think about a chain analogy, right? Whether you have a chain that's got only three links or it's a chain that's got 30,000 links, how many weakest links are there? Only one, right? And by analyzing and improving and managing that weakest link, you are in fact analyzing, improving and managing the whole system until the weakest link moves. Then you have to go to the next weakest link, right? And that's the essence of theory of constraints. It's a profound hack in how to apply a systems approach to complex systems, whether it's your life or your business.
SPEAKER_02That's a great way to think about things. And it doesn't surprise me at all that Elon Musk and Jeff Bezos are the two that you mentioned that read that book and found it so profound, because that's really how they go about, that's how they built their businesses, right? How they go about everything is doing exactly what you just said.
SPEAKER_00Yeah, absolutely. In fact, there was a there was a really interesting interview with Mark Adrieson some time ago, and he was asked, uh, um, you know, you followed Elon Musk around for a year and a half now. Uh-huh. Uh, what does he do that no other CEO does? And he said that he looks at every single one of his businesses essentially just as a factory, a big manufacturing process. And what he does is every week when he has contact with them, he just asked a very simple question here's the goal that we're trying to achieve. Where's the bottleneck? And for the next week, all that they do is they do a deep dive into solving that bottleneck. And they do that every week. And he says, you know, that's why he gets through 52 cycles a year of removing bottlenecks when most other companies are still in planning and getting consensus and approvals, etc. That's why he's outperforming everybody else because he's his feedback cycle is so fast. And the other thing that's really important is you've probably heard, and most of us have heard, this advice from a guru that says, Matt, you should work on your business, not in your business, right? But there's a downside to that, which is you might miss some critical details which you had when you were working in the business. And one of the most critical details is where the hell is my bottleneck, the next constraint. So Elon Musk and people like Jeff Bezos and Gentlin One and Sam Altman, they all apply theory of constraints because it resolves the conflict between whether to work on your business or in your business. You work on your business to find out where the next constraint is. You work in your business by diving deep into that one thing and focusing your and your team only to that thing. Like if you have a demand constraint, right? It's no use to focus on anything else until you've solved that. If you have a capacity constraint, no use to be working on anything else until you solve that. So that to me is the beauty. It's a very practical theory of how do you constantly improve any system, whether it's a person or business.
SPEAKER_02I love this. Now, I'm curious in in one way, how does it work kind of with or against the thoughts of, for example, when we're looking, we we measure everything in my business. So it's easy to look and uh your your eyes almost gravitate to the worst right away, right? So you can fix it. What I've also found is super helpful though is looking at who's doing well and talking more about that so others can do what's going right. So does that conflict with this in any way? Um because this seems a little bit about concentrating on what's broken rather than emphasizing what's good.
SPEAKER_00That's a great point. Um, we have to leverage our strengths, right? From a business model perspective. But the reality is, is when we do that, it's like, for example, I'm sure you've built your business to leverage your own personal strengths and interests and passions.
SPEAKER_02Or surrounding myself with those that are good at all the rest. Yep.
SPEAKER_00Right. Yeah. Can you see how you immediately went to the second thing? Was you also recognize that you do have real limitations and weaknesses, and that unless you solve those, you will get stuck. So you can't do one or the other. You have to start off by saying, How do I build build a business that leverage everything I have going for me? Right. I might be good looking, I might be super smart, I might have a lot of connections, I might have deep skills in one area. How do I leverage that to build a business? But then the next step is, well, what will limit me from making the impact and income that I really want? Great. I hope that that answers the question. You have to do both, yeah. Yeah, very well.
SPEAKER_02So you read the book and you said, hey, I can I can get down with this. Let me let me do some more work and research around it. Is that exactly how how it came about for you?
SPEAKER_00No, I I I read the book while I was studying industrial engineering back in 1990. Okay. And then, you know, I couldn't wait to start applying it. And my first job was I was head of engineering for the largest cookware company in Africa, so making pots and pans. But it was like the perfect research lab. It it felt like I stepped into the goal, which was all about this character, you know, that he runs a factory and the boss comes down and says, You have three months, else I'm closing down the plant. You're just not profitable enough, you know. And and that was the reality I walked into. This very old, over 100-year manufacturing company that had incredibly strong brands that have been built up over a long time, but they were hemorrhaging, they were just trying to do too much. You know, that's one of the problems with businesses. Over time, you keep on adding products, services, you know, and everything just gets congested and stuck. Um, so step one, which I like to think about, is if you take that chain analogy as well, the constraint depends on what your goal is. Right? You can't define a constraint if you haven't defined what the goal is. So the chain analogy is very useful if the goal is to make the chain stronger, to get more throughput, right? Yes. Then you have to look for the weakest link. But what if you're already meeting the demand? What do you do then? Well, then I should find and focus on trying to do it faster. Right? So I'm I'm first meeting the demand, then I'm trying to ensure I meet it within the tolerance time of the customer. So I have to do it faster. And if my goal is to do it faster, the link I should focus on is not the weakest link, but the longest link in that chain. So that was something I realized when I started working in a factory, is that to make any pot or pan is a couple of minutes, right? Work time. And yet we were quoting eight weeks lead time and then still failing on that. Our due date performance was like 30%. And it's like, how can it be? So the idea is it's not a doing constraint, it's a waiting constraint. It's find out why is the flow waiting, what is it waiting for? But it could be that you're already meeting the demand, you're doing it fast enough, but you're just not doing it good enough, right? Your quality is bad, your reliability is bad. So again, the chain analogy is useful because now what I should look for is not the weakest or the longest link, but the faultiest link, right? Where which link causes most of the quality issues? And then the last one is it could be you're meeting demand, you're doing it fast enough, good enough, but it's just too costly, right? You're not making money, either because your opex is too high or capex. So find the costliest link, which is the heaviest link in that chain. I immediately realize that, and then the the fifth element, which is something that Elon Musk often talks about, he says that most of the mistakes that him self made and most engineers made, is when you give them a problem, they immediately start optimizing the process. What they should do is to find out what should be removed. He calls it undesign. So again, it's thinking about the chain, you know, over a long period of time, many links and linkages are added that has a huge cost of complexity. So it's finding those links and linkages that you can remove. So if the goal is to just make it simpler, then find and remove links that are no longer necessary or linkages. So that to me was a useful analogy of using the chain analogy that says, what's your goal? Do you want to do more, faster, better, cheaper, or simpler? Ideally, start with simpler. Remove all the stuff that shouldn't be there.
SPEAKER_02That's a big deal because I imagine most people mess this up. And I've done this before where you throw people and technology at a problem. So you didn't make it simpler, you probably made it more complicated.
SPEAKER_00Yeah, and and it's interesting with AI, there's a big risk, right? That we end up doing more when we should be using AI to do less, much, much, much better. The thing that we really have a competitive advantage on versus being tempted to offer, you know, to create even more products and more services. And you'll see that from people like Steve Jobs, you know, like when he took over Apple again, what was the first thing he did? He looked at all the products and he cut 70% of them. He said, let's focus on the things that really matter and where we make a lot of money. It's the 80-20 principle. But most entrepreneurs don't do that. As they grow their business, they grow their products and services and costs as fast and maybe even faster than revenues. Over time, the business just becomes completely unmanageable.
SPEAKER_02So you work with a lot of businesses, um, Doctor, right? So is this the work that you do? You go in and help them identify these constraints and then help them structure how to go at fixing them?
SPEAKER_00Yeah, absolutely. And and what's interesting is when you have a complex system that is overloaded, right? What you'll find is that most resources are overloaded. Right. So how the heck do I find out where the constraint is? Is you you'll speak to an entrepreneur and say, you know, where's your constraint? Is it demand or capacity or supply or cash, or you just don't have enough management attention, which is, by the way, typically the ultimate constraint for any business. They go, I don't have enough of anything. They say, okay, in that environment, you're in chaos. What you need to do is reduce your commitments that you've made until you have just one resource which you don't have enough of and you have enough of everything else. That's kind of the counterintuitive thing about fear of constraints, is the goal is to have a goal and make sure you have enough of everything. Yeah. Right? Then you can keep on growing. And as soon as you realize I don't have enough demand, go and create more demand. As soon as you realize now I don't have enough capacity, focus on that. So to go back to my case study, so I read the goal, I couldn't wait to implement it. I had this discovery about expanding the chain analogy to cover multiple goals, not just one. And we ended up doubling the throughput in our factories, Matt. Doubling. This was a hundred-year-old company, right? We got our due rate performance from 30% to 100% all the time, just by applying these simple principles. And after that, soon after that, I was lucky to meet Dr. Ellie Goldrat, who created fear of constraints. He became my mentor, and a couple of years later, we ended up co-founding Goldrat Research Labs. So that's kind of full circle.
SPEAKER_02That's amazing. You know, I see a lot of times people working so hard. I I love this stuff because it it's really results-oriented, right? It's it's what's the goal, what's the result you want, and how how do you get it? And I see so often people confuse hard work with what really matters rather than what really gets results. Do you do you see a lot of that too?
SPEAKER_00Yeah, and I think part of it is you know, this idea of multitasking, right? Is what would be really simple is imagine, Matt, an environment where you come in in the morning and there's only one thing for you to do, right? It's very clear that in order to move the needle, Matt, this is the one thing you need to get done today. Forget about everything else. Imagine what your life could feel like and be like when you have that. Now imagine a more common situation where you come in and you have a hundred things on your to-do list. Yeah. Right. And it's not clear which is the highest priority. So you end up multitasking, you end up trying to do multiple things at the same time. And all that happens is everything takes longer, you get much less done, you make more mistakes, and you're more stressed. So that's the promise that Fury of Constraints brings. It says it's not easy, but it's simple. Find and focus on the one next thing.
SPEAKER_02Yeah, I love it because you can't, you can only concentrate on so many things successfully. It's it's way better to almost be like in Wear Me Out University on the one thing over and over and get that right rather than work on five things at one time. That's what I've learned. Absolutely. Um, I want to talk about your work, if we could, on um decision making, because it's an I mean, you have an app that helps people make decisions, which I didn't know it existed. How did you end up there and what do you see uh about the decision-making process that we we struggle with and what is your goal of helping people there?
SPEAKER_00Yeah, so it it ties very closely in with the idea of fear of constraints. So I mentioned briefly, if you think about where is your constraint, what's the thing that limits you from making the impact and the income that you really want and being able to repeat. And there's a couple of candidates, right? It's think about any resource that you have that you have to allocate and that you can misallocate. Okay, which means you can allocate that resources to things or people that don't help, and you cannot allocate it to things or people that can help. So the top candidates for what is our constraint is our limited attention, right? It's scarcer than time, right? Yeah, it's like the the amount of time that's a really slow we eat in give one. I've self-diagnosed ADD, so I agree. I think most of us, you know, uh in entrepreneurs are like that. It has some pros but also some cons. So attention is one constraint. Yeah, the other one is trust, right? I also have to allocate my trust, which means that it must be a scarce resource, and I can misallocate it. I can trust people and things I shouldn't, and I don't trust things in people I should. And the other one is energy, right? Being able to get the work done. And I realize that making that mistake is a decision mistake. I'm allocating my attention or trust or energy to the wrong thing or the wrong people. And that's how I got involved and interested in decision making. I realized that the most successful people are the ones that do two things really well. They avoid really bad decisions and make really good ones. And secondly, they are able to learn from their bad decisions much, much faster than anybody else. So that's how I got into the science of decision making, is really understanding that when we make bad decisions, when we don't set a good goal, when we focus on the wrong things, you know, when we don't resolve conflict, all of those are avoidable decision mistakes. And that's where the decision-making focus comes in. But then also when we were studying why do we make bad decisions and often repeat them, is from that research, we can develop decision support methods and apps, including the app that you've mentioned called Harmony Decision Maker, but also much more advanced apps like digital twins, where today we can build a digital twin of a full supply chain and see how a decision by a buyer in one part of that supply chain, some weeks or months later, can cause avoidable shortages and surpluses at the retail. And you can try out different ways of making that decision, better ways of managing the inventory, and see how you can perform much better operationally and financially. So those are the two main focus areas of my research lab now is one is understanding why people make and often repeat consequential and avoidable decision mistakes. Okay. Not every mistake is consequential and not every mistake is avoidable. So we focus on just the avoidable consequential mistakes. And secondly, based on that research, how can we develop methods and apps to help people make better, faster decisions when it really, really matters?
SPEAKER_02So why do we get it wrong though? Is it is it a decision-making process issue? I mean, you you commented like you you trust the wrong people sometimes. There, there's an example, but but how does an app help you to not do something like that? How I I'm super curious. Sorry, sorry. Yeah, it's it's really intriguing.
SPEAKER_00So there's we we isolated uh when I did my PhD, this was what my PhD was on. I isolated four reasons why we make consequential and avoidable decision mistakes. Okay. One is to do with our emotion, right? Is that we we don't respond, we react emotionally in the moment. And when we do that, we over and underreact. So imagine having an app, especially one that has AI built into it, right, that can help us pick up these biases and blind spots, like confirmation bias, status quo bias, all of these things that are very emotionally driven. So that's one area where a method and an app, an AI can help is to identify when we're going to be over or underreacting because of our. Emotions. Okay. The second mistake is overwhelm. Right? That's one of the biggest reasons why people get stuck. If they're so overwhelmed, they don't know even where to start. And when they make decisions, when they're overwhelmed, they tend to choose the lowest risk option, which is often to do nothing. That's one of the reasons, by the way. I've got one of my PhD students who's doing a research on trying to figure out if you start off with completely equal conditions between men and women. So imagine you have a class where there's 20 women engineers, 20 men engineers. Why is it that when you look 20 years down the road, you find that at the top of their game, you typically find six to seven men, sometimes eight, compared to two to three women. Why is that? Well, one of them is a very practical reason, childbirth, right? That really delays your professional career. But the other thing that she discovered is that women make many more decisions than men. They worry about everyone, their parents, the children, the friends, uh, how they look and appear. So by the time they get to work, they're already decision fatigued. They're already overwhelmed. Interesting. And as a result, they all tend to avoid risk. So it's not that women in general avoid risk more than men. It's they avoid risk more than men because they are decision fatigued. So when you look for the women that really succeed in life, you've seen that they have outsourced a lot of their decision making. You know, they wear the same clothes, they get somebody else to order for them at the restaurant. Okay. They outsource looking after the parents to somebody that's professional. So that's the second reason we make mistakes as we get overwhelmed. The third one is we don't have good intuition in many areas that we require intuition. So the key there is, you know, if you're new to relationships, don't trust your gut. Okay. Go and speak to somebody that's invested the 10,000 hours to build up the intuition in that. You know, if you're new to a certain industry, you shouldn't trust your gut. You shouldn't go five, four feet to one beside. Worst possible advice go and find somebody that has the intuition. But if you already have built up the intuition, then you should trust your gut. And then the last one is as human beings, we have a real cognitive limitations, right? Computers don't have that. So I can build a complete supply chain digital twin and see the impact of decisions. I can't do that in my head. So those are the four main reasons why we make avoidable and consequential mistakes, is we don't realize to what extent emotions impact our decision making. We get overwhelmed. We use our intuition when we really shouldn't because we haven't developed it. And lastly, we have some real cognitive limitations. We can really benefit from using computers, AI, and digital twins to help us make better, faster decisions.
SPEAKER_02Really interesting. You know, I'm thinking about looking back at things in my life, and I've made a lot of bad decisions, but then worked my butt off to make them the right decision eventually. Would have been better to apply some of this to make the right decision in the first place rather than work so hard to make the decision come out right anyway, I guess.
SPEAKER_00Yeah, and hopefully we learn over time, but it's hard to learn, and that's something I've, you know, uh our mutual friend Jay Abraham, I've talked to Jay a lot about this, is that one of my biggest aha moments was I realized we don't actually learn from experience. Really? You could be in an industry for 20, 30 years and you'll keep on making the same mistake because the solution might be very counterintuitive. Right? So, what do we learn from? I realize we learn from experiments, and I I made that conclusion with a very interesting story. I was asked to do an audit on a project, it was a five billion dollar SAP implementation, okay, five years long, and after six months, they were already behind.
SPEAKER_02It sounds like horse, it sounds like a torturous price thing to do, by the way.
SPEAKER_00I mean, like most SAP projects, right? The difference here was they couldn't be late. Okay. Right? They were gonna go live on in 80 countries all at the same time. They just couldn't be late. So I was asked to do an audit on this and give them an idea about how they can recover. Okay. So I did the audit, I came back to them, I said, Yep, you're gonna be late, uh, but you'll have to radically change the way that you are thinking about allocating your scarcest resources, applying the principles of theory of constraints. It was a simple change, but quite dramatic and counterintuitive. Fast forward five years, the project is delivered a month early, and the head of the project's uh, the COO, take me out for dinner, and we're having dinner, and I say to him, Yuck, I have a question for you. I really admired your courage to actually follow my recommendation. Most people wouldn't because it was right in the middle of things, there was almost no capacity to change. The changes that I was proposing, even though they were simple, were very counterintuitive. So there was going to be a lot of resistance to change, and yet you decided to do it. I'm curious, was there anything that I said that gave you the confidence and courage to go for it? And he said to me, Alan, you said one thing that changed everything. And I'm like, I take out my notebook, like, okay, I don't want to miss this, right? And he said to me, Alan, what you told me and my team is we're gonna do an experiment. We're not gonna make a change, make an improvement, we're gonna do an experiment. If what I think is right works, then we will start seeing an acceleration of the rate at which we are completing tasks. And we should see that from about week number two, that's about the cycle times there. And that's all that we're gonna do. We're just gonna do this experiment. If we see that it's working, we can start rolling it out more and more. And and that changed the way I look at change now. I realize we don't learn from experience, we learn from experiments. And a good experiment is something where the hypothesis that you're testing is very clear. Like if I change the price, people will buy more or less, right? Or if I offer this, they will buy more or less, or if I do this, I'll have more capacity. So I have to be very clear on my assumption, and I need metrics that can give me fast feedback to say, is this helping or harming? So that to me was a mind-blowing aha moment, is to say that's now how I approach everything, including decision making. I think that it's actually quite useful to think about your decisions as experiments to learn from. So the objective is not to fail fast, it's to learn fast, right? Yes. Make a decision, design our experiment. What are we testing? How can I get feedback that it's working or not? Fast, focus on fast feedback, and then do it.
SPEAKER_02You know what I find a lot of times is a concern is not having perfect data or all the information. Um, and you can look, paralysis of analysis is a true thing too. But I find when people come to me, the question that's always in my mind is what aren't you telling me? So usually people have a bias and they want me to lean one way or another in a decision. So I I'm always before I bless this or before I, you know, what is it, what information am I missing? Any thoughts on that? Because it it seems to me like sometimes speed matters, speed of decision matters sometimes. Sometimes you can take your time, but sometimes you need to move fast. So what if the data is imperfect?
SPEAKER_00Uh that's a fantastic question. I I don't know if you've yeah, I don't know if you've read uh Daniel Cardeman's book, he was a Nobel Prize winner in economics. He wrote this book called Thinking Fast and Slow, right? And he basically just said that we have two ways of thinking. We have a fast and automatic way, which he called system one, and we have a slow and more deliberate way, which is system two. Now, we make by far the majority of our decisions in system one, fast and automatic. We use intuition, instincts, etc., to make decisions. Okay. And like I said, there are many decisions that actually benefit from using our intuition if we've developed the intuition. All right. But there are decisions that we will benefit massively from if we slow down and just take a deep breath and go, what is it that I really want here? Right. And the the E plus R equal O formula that Jack Canfield popularized, I think is very useful. He said, you can think about a decision as E plus R equal O, event plus response equal outcome. Okay. So the mistakes that we can make is we we are responding to events that are not important or we can't do anything about. Second mistake is we react emotionally, we don't respond when we really could have benefited from more deliberate thinking. And the third mistake is we don't always think about the outcome. What do we really want before we respond? It's like thinking about your kid does something naughty, right? Yeah. And you warn them about it. Don't play ball in the living room, and then you hear the glass vase breaking on the floor, and you immediately react emotionally, right? And what might happen is you might lose your temper and they might walk away disrespecting you rather than learning the lesson that we shouldn't play with a ball in the house. You could have avoided that if you thought for a moment, what is it that I really want here? So at the right time, slowing down your thinking is really useful. But I'll get back to your question, which is really profound. Is in the real world, we have to make decisions all the time. Some of those decisions are massively important, right? They can be the difference between success or failure, and we will never have all the information that we think we need, and we can never predict accurately what will happen, and yet we have to make decisions. So, how do we do that? And it turns out evolution solved the problem.
SPEAKER_02Really?
SPEAKER_00It allowed us to develop intuition and feelings or emotions, and emotions is an incredibly useful hack. So, for example, if you take one of the most consequential decisions, I've interviewed a lot of people, you know, successful people like you. And I would say nine out of ten, if I ask them what's the most important decision that you've made your whole life, that if you got it wrong would have really set you back, and if you got it right, would have really accelerated you. Interesting, most of them says it's selecting a romantic partner.
SPEAKER_02Yeah, that's a big deal, right? Right?
SPEAKER_00That's a big deal. And you say, well, even though we know a lot to today about the people that we select on social media, we'll never know everything about them. And we never really can predict how they will react, right? Yeah. During times of trouble when we are going through some stuff. Will they be supportive or will they blame us? So, how do we solve that problem? So, nature, I believe, evolved emotions as a very simple hack. Interesting. It's asking us a very simple question. You're facing a very tough decision. How will you feel if you go option A versus option B? And especially if you can think about best case, worst case. Because a good decision is one that has a big upside if it works and a small downside if it doesn't. So part of the strategy is pick an option with a big upside if it works, small downside if it doesn't. Stay the hell away from options that have only a small upside if it works and a big downside if it doesn't. But in the moment, the most important decision criteria is how those two options will make you feel. And from this, I developed this theory about 20 years ago. It was quite controversial at that time. I recommend or I suggested that as soon as we give AI enough of these very complex decisions that requires judgment and subjectivity, it will evolve emotions in order to make those decisions. And when it evolves emotions, it will develop consciousness. It's almost unavoidable because many of the real world decisions that we are making are highly subjective, right? Yeah. And that's where emotions, how something will make you feel, is a really, really useful hack.
SPEAKER_02I love this. Again, it's super helpful. One thing I would say that I've done a lot of in in life is figure it out along the way. Start moving. And that's probably, I bet you entrepreneurs in general do a lot of that. Like they they head a certain direction and figure it out along the way. And I would compare it to some who want to get everything, all the ducks lined up in a row before they even start to move. If I say we're going to the corner and you're trying to line up all the ducks, I'm already at the corner before you even start. So your thoughts on that. Like I I've cost myself a lot, right? I've hurt myself a lot in figuring out along the way, but it also I think is an advantage sometimes.
SPEAKER_00Yeah, no, I I think that's uh entrepreneurs have got a natural advantage over it because of their personality profiling, which is a whole nother discussion, but just very practically. Our number one goal for our mind is to make sure we don't die. Yep, survive.
SPEAKER_02Yep, survive, but not necessarily not necessarily thrive, right? It's what I've heard. Yep.
SPEAKER_00Yeah. Number two goal is to thrive, right? But number one goal is don't die. Now, we developed all the mechanisms to protect us from physically dying. The problem is that for most of us today, the risk of physically dying by some avoidable cause is actually quite low. But those same mechanisms are now trying to protect us from emotionally dying, okay, from being blamed or feeling shame, right? And that can have a real negative impact in decision making. So the safest decision in any situation will always feel like don't change. 70% of all changes fail and make things worse. And that's why we have a status quo bias, right? Changing your products or incentive schemes, 70% of all changes fail. So it's just much safer to resist change. That's why we have a confirmation or status quo bias. Okay. The problem is that we all use emotions to help us to decide when to change and when not, right? Entrepreneurs have an advantage over everybody else. Most people look at the cost or the risk of doing something. Yes. That is their bias because they're trying to avoid dying, not just physically but emotionally, being blamed or shamed, right? Which is a horrible thing. And we've most entrepreneurs have experienced that. That's not nice if you get blamed or shamed, if you get haters. What entrepreneurs have intuitively is they also look at the cost of doing nothing. And if the cost of doing nothing is much, much greater than the cost or risk of doing something, they have a bias towards action. Yes. And that's a very useful bias to have, right? And that's why only about 2 to 5% of people become entrepreneurs. Is that about the percentage of people where their bias is towards action simply because they have intuitively or through lots of you know failures learned that you can't just look at the cost and risk of doing something, you have to look at the cost and risk of not doing something. So the cost of a delay is massive compared to anything else. I'll give you a quick example. Uh, I'm involved in a big uh construction project here in Las Vegas, a new wellness resort that are being built. Okay. And we are essentially helping the team to focus on their longest path, the critical chain on that project, right? Any delay there is going to cause the project to be delayed. So one of the developers is on that critical chain, right? He has to make a decision about the architect on record. And when I asked him how long do you need, he says he can make these decisions pretty quick. He's got a good frame of reference. He needs about five days to evaluate all the candidates and then he'll make a decision. So after two weeks, I let him know, you know, you're on a critical chain, you've already cost the project five days. Yeah. How much longer? He says, I need another week, right? So it ends up taking him three weeks to make the decision. And I'm sitting with him doing a reflection, a debriefing on this, and I say, So tell me what did you gain by spending another two weeks on this decision? And he goes, Oh my God, this guy tried to screw me, you know, I've got 40, 50 years in construction. You know, stuff him. He wanted to swing a quick one on me, you know. I asked him for quote, I made a decision, he's the best guy. I asked him for quote, and he quoted me $300,000. This is BS. This type of thing shouldn't be more than $200,000. So I said, so what happened in the end? He said, I won. I said, how did you win? He said, I got him to get down to $200,000. I said, okay, so let's really check this. Remember when I calculated the cost of a delay of the project, quarter of a billion dollar project over four years? It's about uh $200,000 a day. You cost us 10 days, $2 million to save $100,000. And now you've left somebody that's a key stakeholder on this project feeling that he got screwed, and that he's probably not gonna uh put his best resources on this project because he can't afford to.
SPEAKER_02Yes, right?
SPEAKER_00Uh so that's a it's is when you focus on the cost of doing something, you often get these complex decisions wrong because you should also be looking at the cost of not to doing that, the cost of a delay.
SPEAKER_02Yeah, very helpful, great stuff. Kind of jump into another subject, and this one I'm I'm super excited about because I feel like I spend a lot of my time trying to get people to think to think bigger, you know, to think way more things are possible than than than most people even think. And you have a a framework around goals and stuff called impossible and less. And I I got super excited because it's just another way for me to learn to express what I've been saying a lot of times every day for for years now. How did this come about? Maybe tell us about it, because I think I think our listeners are gonna really benefit from this.
SPEAKER_00Sure. So, you know, when I was growing up, I had this goal of just coming up with one original idea. And then I met my mentor who gave me very interesting advice. He said the best solutions and innovation starts with the right question. So rather than look for answers, original answers, look for original questions that can change everything. Okay. So I've been on this quest to find, you know, the question. And the case study was I was invited to do a theory of constraints lecture for this big mining company. Uh, they booked me for the whole day. I arrived, there's 60 guys in a room, and I noticed the energy levels were just not there, right? Okay. Uh, it looked like the last thing they wanted is a lecture. So I spoke to a mine manager, I said, What's going on? He said, Alan, I'm so sorry, but you know, we probably should have canceled the session, but there's a huge crisis here. But now that you're here, you know, maybe you can help us in some way. Uh I said, What's the crisis? He said, Well, we have to produce 12 million tons for the year. We're in month four, we've only done three million. We're already a million behind. Okay. If we keep on going, we'll end up with nine million, we'll lose a lot of money, we'll pay penalties because we can't supply contractors, we'll have to buy from competitors, and many of the guys here are going to be fired, laid off, right?
SPEAKER_02That'll make for a bad mood for the airs, right?
SPEAKER_00I scrapped my slide, you know, my slide deck, and I said to him, Okay, guys, I understand that you're in a crisis. So I'm just gonna do two things today. And Matt, to be honest, I didn't know what number two was, but it felt like if I didn't say at least two things, it was gonna be inadequate. So what Did was I I knew that when you are in a crisis and you're in chaos, right? There's too many fires. You need as step one to just dramatically simplify things. And the best way to simplify things, as we discussed earlier, is to decide what I can stop doing immediately, because that will immediately release budget and attention, which is our two scarcest resources, right? So I said to him, what I would like you to do as step one is take a flip chart and write any change initiative that is currently demanding your and your team's attention and budget, put it on a flip chart and stick it on the wall. When we got to there were 60 people in the room, right? Representing different departments, etc. Everybody was there. When we got to about 100, I stopped them. I said, okay, so these represent all the major things that you and your team are paying attention to at the moment. That's demanding your attention and budget. Yes. I said, okay, so when I started, we agreed that the goal is to get to 12 million. The constraint is you need to be able to produce enough to get to 12 million. And the problem is you've you've fallen behind. One goal, one constraint, one problem. So I said for any of these changes that you're working on to be a solution, it must solve the problem and allow you to produce more, right? Do we agree? Yes. I said, okay, so go back and go and write down on each of these elements, go and write down how many more tons that initiative will give you.
unknownRight?
SPEAKER_00Because then we can judge. Is this something that we should keep on doing? So I said to them, okay, so for any of these changes to be a solution, it has to help us solve the problem to get more of the constraint. It must help us to produce more tons. Do you agree? Yes. I said, okay, go and write down on each of these plages how many more tons that initiative will give you. And as you can imagine, what happened was only about five out of the hundred would have an effect actually would give them more tons. Yep. Right. So I said, so we're going to stop 95 things. That will give you the time and the attention and the budget. Well, it turns out that there were uh another five things that were required for compliance, right? You know, safety and environmental and all of these things. So that but we managed to get it down from 100 down to 10 things. So that was step one, which is what I would recommend to any of your listeners or viewers, right? When you're in a crisis, step one is always remind yourself what your goal is and identify what you can stop doing, paying attention to investing money in, because it's not helping you directly get more of that goal. Yep. Great advice. So then the question was, what about step two? Right. So I called over, I knew that had something to do with where's the bottleneck. So I called over the manager of the first process in the mining operation. And I said to him, okay, so now we have to figure out what to start doing. We've agreed what to stop doing. Hopefully that gives you the attention and budget that you need. But what what are we going to start doing? And I said to him, Look, you are currently producing about 750,000 tons a month. You not only need to get to a million, you need to get to 1.125 million because you have to catch up. How are you going to do it? And the guy just looked at me and he said to me, It's bloody impossible. And the moment he said that, I realized that when we say something is impossible, it's very seldom that it's physically impossible. It's emotionally impossible. So saying that something is impossible is actually a protection mechanism. Yeah. It saves us, right, from the fear of failure or success. So as he said that, I realized suddenly I have the right question. Because what you need to do is you need to get your mind out of stuckness, which is what happens when you say it's impossible. Because not only you won't try it, you won't even think of trying it. Why would you? Because it's impossible, right? So I asked him this question. I said to him, Mike, it's impossible unless. And I just instantly realized that that question is the thing that we need to get unstuck. Because now what your mind does, if you just pick for yourself the the readers or the the viewers and listeners can do the same. Pick a goal that's really important to you. Ask yourself, is it realistic? If you say yes, then increase the magnitude or reduce the time and keep on doing that until you say, now it's impossible. And then ask yourself, it's impossible unless. And what your mind will do is it immediately will identify those conditions that if you can put it in place will make the impossible possible. And that's basically what happened. Is he he he gave me the condition that in his mind made it impossible? We quickly did the numbers. He said that, you know, I can go in there, but I need money for it, and the accountants won't give me money because there is no money. I said, okay, how can we make it a hell yes decision? What's the worst case benefit that you'll get? And he said, I will flood the next operation with tons, right? It was like best the worst case benefit is $50 million a month. Best case is $100 million. I said, now what's the worst case cost? Because if the worst case benefit still exceeds the worst case cost, that's a hell yes. That's right. We get confused by looking at likely numbers. Likely is not important. What all that matters in decisions like that is is the worst case benefit still greater than the worst case cost? Worst case benefit was around five to ten million. It got approved immediately. So that's where the question came from. And you can apply it in anything, whether it's yourself or your team members saying something is impossible. You go, yes, it's impossible unless, and suddenly the brain is there to help you.
SPEAKER_02I love this. I can see myself asking this question hundreds of times the rest of my life. I I think it's awesome.
SPEAKER_00I got one and I mean we've even applied it to kids, right? Uh just as another example, you can even teach this to your kids. So we worked with kids that were being bullied at school. Okay. And you can imagine there's not many things that are more traumatic, right? than getting bullied, especially being bullied by somebody that's in a position of power. And you ask them what you can do to make it stop, and they say it's impossible. There's nothing they can do. Okay. And then you ask them, it's impossible unless. And will the kids come up with an answer?
SPEAKER_02Incredible innovations, right? Wow. I'm gonna use it. I've got a six and nine-year-old at home. Yeah. So trust me, I'll have plenty of opportunity to ask them that question.
SPEAKER_00And one thing that we learned from that study was that the kids that do the bullying, they often were bullied or abused themselves. Yeah. And what they came up with is a rule that they applied to say do it to them before they do it to you. And that's the real cause of bullying, right? Is people think I must do it to them before they do it to me. And once you have that realization, you can say, well, maybe I can help this person, right, to find a better way.
SPEAKER_02Very, very helpful. That's awesome. Um, the last one I want to make sure I touch on is because it's uh something important to you in the moment. I think you got a new book uh about it, and that's the anti-fragility subject. And so that's making a system that doesn't break down during stress, I guess, but actually gets stronger or benefits from stress. So maybe you could talk us through a little bit about that, and then we'll want to make sure we mention the book too.
SPEAKER_00Sure. Yeah. So the book is uh from from fragile to robust to anti-fragile, the system to build a life, business, and relationship that actually benefits from stress and not harmed by stress. It's based on the work of Nasim Talib. He wrote this amazing book called Anti-Fragile.
SPEAKER_02Okay.
SPEAKER_00And I think it's highly relevant for business owners. Basically, what he said is when you look at past performance, it's not a good indication of what will happen in the future. A much better way of judging.
unknownYeah.
SPEAKER_02Everyone says a way of judging that the best predictor of the future is the exactly.
SPEAKER_00You look at your you know, you do a due diligence and you say, oh, they make profit in the past, they will make profit in the future. But you know what will happen. The constraint might move, yeah, right, and they they're not equipped for that, right? Um, so what he realized is he said it might be more useful not to use past performance as a way to predict future performance, but to use stress response as a way to predict future performance.
SPEAKER_02Interesting.
SPEAKER_00So any system is exposed to stresses, positive and negative, right? The positive stress is we sell more than what we expect, or we we have a better day than what we expected, and negative stress is we sell less, or our cost is greater, or we have a worse day than what we expect, our relationship fails, whatever. If we are exposed to random stresses, we should end up being robust because they should cancel out, right? As long as you have randomness, it should cancel out. The negatives and the positives should cancel out. Most of us actually have more positive stresses than negative stresses, and yet we are fragile. Okay. Why is that? And Taleb answered that question. He said, if you have a system that's harmed more by a negative stress than what it benefits from a positive stress, even if you have more positive stresses, that system will be fragile and it can be taken out. A relationship is a good example of this, right? Why do so many relationships fail? Because all the positive stresses are taken for granted, right? And just one negative stress, one bad decision, can destroy the marriage. So if you're in a system, if your company is going to be harmed more by negative stress than what it benefits on the positive, your system is fragile and it will those net losses will compound over time and you'll fail. I'll give you a simple example of this. Imagine you have a system, and in a good year you make 20% more, in a bad year, you make 20% less. What will happen over time? So you start off with 100, a good year, you get to 120. Yep. A bad year, you do 20% less, which takes you back to 96. Yep. Right? Not to 100, to 96. It's like a little mathematical quirk.
SPEAKER_02And then if the three extent two back-to-back bad years together, it's going to take a whole lot of 20% up. Yeah.
SPEAKER_00That's the same thing. It's like as if you've and there's actually a simple calculation that you can use that your audience can use. It is if you want to know how much more do I need to make on the next transaction just to break even, right? Yeah. So it's one minus the loss, right? So if you if so on the top line, you have the loss. Let's say we lose 5%, and the bottom line, you have one minus the loss, which is 95%. So that tells you you need to make up about 5.2, 5.3% gain on the next transaction just to break even. But what if the loss was 50%? Then it's 50% over one minus 50%, is you'll have to double your gain just to break even, right? And that's why most businesses during COVID ended up dying, because if you lose six months of revenue, you'll have to double your revenue just to get back to where you were. And there was just not enough demand. So what the book is about is to say here's a different way of looking at your business, but also a different way of looking at your life and your relationship. Are you fragile because you get harmed more by negative stress than what you benefit from a positive? Or are you lucky to be robust where it just cancels out? You right when things go wrong, you're a little bit hurt. There's limited pain, but there's also limited gain. Or have you built a system that's anti-fragile? And to build a system that's anti-fragile, you basically need three things. You need to find mechanisms to protect yourself against downside risk.
SPEAKER_02Okay, you said because that was gonna be this was gonna be my question. This is gonna be my exact question is what can you do about it? So, okay, so yeah, downside risk.
SPEAKER_00So let's take Uber as an example, right? So, how is Uber protected against downside risk? So if the market goes down, will they be hurt? Yes, they will be, right? Demand is less than capacity, they will be hurt like most companies, their margins will go down, but they have a mechanism that allows them to cope with negative stress without dying. And the way that they did that is they don't own the cars and they don't have the drivers on their salaries, on their payroll. So they can actually tolerate quite big negative stresses without it causing them bankruptcy. You can imagine if all the drivers were on their payroll and all the cars were on their balance sheet, even a small reduction in demand or an increase in cost of operating expenses or capital can make them go bankrupt, right? Right. So they have a mechanism to protect them against extreme negative stress, but they also have a mechanism to fully capitalize on positive stress. So what happens during periods where demand exceeds capacity is they use search pricing. And that does three things. One is it allows them to make much more margin in a period where they deserve more margin because the demand exceeds capacity. Okay. The second thing is it's a much fairer way of doing prioritization is to use pricing, is to say, Matt, if you are not critical, you don't have to get to the airport in the next 20 minutes. Why don't you wait? Right? But I have to get to the airport, I'm quite happy to pay three times as much. It's the same for a steel plant, right? Is they can use kind of search pricing that says if we're running low on inventories because demand is exceeding capacity, we should charge a premium because customers that have three months of stock shouldn't buy now. And customers that have only three days and will quickly run out, not only they should buy, but they can afford to pay a premium. So those are the what you can do about it is have a mechanism to protect yourself against big downside risk. And secondly, have a mechanism to fully capitalize on on upside. And what my book is about is how do you apply these to your business, to your life, and to your relationships.
SPEAKER_02I'm definitely going to read it. This is great. So appreciate the time so much. Um valuable, valuable uh information that that you shared with us. We have a closing question for this uh that we always ask here at Podcrash. And we're all about championing people. And so I always ask the guests before we go, given the chance, what person would you champion in your life right now and and why?
SPEAKER_00Um I think it's it's people that really want to make an impact in the world, right? You know, on the one side, it's very easy to sort of demonize and villainize many of the of the amazing entrepreneurs that we've got, right? And and sometimes for good reason because many of these guys are kind of on the spectrum and they don't always have the social skills and they sometimes say and do stupid things. But I think on the one side, I feel incredibly blessed to live in an age where we have people like Elon Musk and Jeff Bezos and Jensen Juan and Sam Altman. These guys are incredible geniuses in what they do and happen to be good entrepreneurs. And even though it might not always look good, I really think that they have humanity at the top of their agenda. They really want to do things that actually helps humanity. So I think that's just a shout-out for the top entrepreneurs. You know, as you know, being an entrepreneur is suffering. You know, you take a lot of risk, you work your butt off. There's a small sometimes gap between bankruptcy and billionaire. You know, just do it, getting it right suddenly can change that. Like with the the CEO of Replit recently, three years ago, he was basically bankrupt. Now he's a billionaire because suddenly the gentry AI software went on. So that's one that I want to shout out. I think that, you know, we should stop villainizing these people and say thank you, that there are people that are actually super bright and actually do care about humanity. The other part is there's so many volunteers out there that are doing amazing things, that have the courage to wake up every day, look after the elderly, look after people with disabilities, kids with horrible diseases. So, you know, just remember when you encounter these people to say thank you.
SPEAKER_02Really appreciate that. Thanks again, Dr. Bernard, for spending some time with us this uh afternoon. Um, really, really appreciate it. It's been great.
SPEAKER_00You are so welcome. Thank you so much for the opportunity to share some of these insights.
SPEAKER_02I hope you enjoyed this conversation. If you want more podcast in your life, which of course you do, make sure to like, follow, and subscribe to us on YouTube, Apple Podcasts, Spotify, or wherever you get your podcast. Catch you next time.