[0:10] Hey everyone here we are again I am the ESOP guy and we are on a journey to a nice up. Now some of you might know I live at the beach and I live on the Atlantic Ocean every morning I wake up I get up I have a cup of coffee and I look out at the ocean. Sometimes I don't want to go to work but I have to but anyway that the point of that is I kind of stare out there sometimes. And I imagine I shouldn't do this to myself but I imagine that the waters are teeming with sharks and I rarely see any sharks by the way but I do imagine that sometimes and so swimming in the ocean. Can be sometimes a little bit like just a leap of faith tank in hey nothing's down there and that's going to eat me up. And it made me want to talk today about. What the ocean is like in a competitive environment where we call the red ocean so we're going to talk a little bit about that but after after this as we get started. [1:18] Music. [2:04] All right that's enough it's crazy so I know that you know this movie if you don't I'm sorry to even share it with you it's Jaws the original Jaws movie 1975 which. At that time I think I was 5 years old so absolutely terrible to even watch this movie and then go to the beach because it'll just it'll freak you out. So [2:29] What we're going to talk about today on the journey to an ESOP is this idea of one of the one of the best business books I've ever read in my career it was called Blue Ocean strategy so we're going to we're going to dive into that pardon the pun. And talk about the difference between a blue ocean versus a red ocean and one of the reasons I want to do this now. Is the timing of the year right now which we're kind of moving into the end of the year I personally or professionally I'm going off to retreat. With my partner's tomorrow so I thought it would be great to be thinking about. Business strategy and how important it is to be thinking about you know your future plan and so. [3:11] This podcast as we have put this together really as a resource, to help folks that really are thinking about trying to use in an ESOP Employee Stock ownership plan as part of their business planning and that might even be part of your Blue Ocean strategy by the way but not going to get too deep into that in the intro. If you're a very first time listener then I can tell you right now I'm not I don't do a lot of gruesome movie stuff it's just this is this was just kind of. At the top of my mind so I'm like hey I'll do that but most of the time I'm doing stuff just to help you kind of take take on the challenge of better understanding what an ESOP is, challenge against some of the myths and I'd say misconceptions that are out there relative to Aesop's and know this. That of course it's not for everybody in ESOP is not for every single selling shareholder out there, but it is a very highly popular viable option and what I love about esops is the more people start to get to understand them and this is partly why I love doing the podcast. In the better they will look at their options and the opportunities it doesn't mean that there. [4:25] I'm going to jump in and like you know just go ahead and start this whole process but I think it's, being able to slowly think about what would this look like if you are going to use this in your in your company so that's what this research this what this podcast is all about, if you want to know more about it or look into it further please go to our website at journey to an ESOP.com. [4:48] And you can check out all of that so today if you're wanting to listen more where Li what I'm going to get into is this book called Blue Ocean strategy that I think it was published back in 2004 2005 and. [5:02] It really is I think a good one I think about how it relates to the ESOP world it's very good in the sense that it helps you start thinking about the future um in your strategic planning it helps you to understand like as you have business units or profit centers or areas where your company is is very Niche e or very you know in a sense exclusive and it's hard to compete with you your valuation is going to be much better of course then in a company that has less and less of that so of course kind of thinking about how do you build a stronger value is going to be part of it how do you create a more sustainable, not just forget Aesop's or S just a richer company in the sense of sustainability having more options having more cash flow those are all going to be part of this, what we're going to talk about or if you know the result of doing that. [5:59] And so as we as we go into that I wanted to kind of start off with the idea behind the movie and just use this quickly into in terms of our metaphor, if you haven't seen the movie I just want to say probably don't even want to watch it it's pretty gross, but if you if you haven't seen it and you do want to watch it please please don't go to the beach it's a classic movie and the music score was really great and you heard a little bit of that but this crazy demonic shark. Is a great white and it's coming into this town and and basically people that are going to the beach are getting eaten up and then there's that a cop that's basically going to try to stop the shark and he ends up working with this guy and this this crazy captain of this boat and eventually. You know they're basically going to have to take out the shark right so I won't spoil it if you do want to see the ending of it but the point is is as soon as I saw that and looked at this video clip of some of the old you haven't seen this movie since I was, probably much littler much smaller much younger I'm sorry I haven't seen this video for a long time I saw the Red Waters I thought oh you know red water sources blue ocean perfect example, ESOP guy why are you doing this to your people that listen to you. [7:23] Blue ocean is this stealing and this mindset and the sense of when you're in a blue ocean you are, absolutely doing, you know you're leading the marketplace in your you really don't have a lot of competition and you can you know that because there's not a lot of price sensitivity to what people are asking for your price you know that because there's a demand for what you're doing. Customers are coming to you in the red ocean you kind of know that because you're you're you know you're when you're counting your win-loss ratio and that, your loss ratio is getting higher and you're you're you're dealing with commodity type of pricing where you know everybody is trying to get the lowest lowest margin, you're dealing with very razor-thin low margins and and let me just say this before I jump into too much of hey. Seeing how categorizing a company between blue ocean and red ocean. He now there's companies that compete and I don't want to I don't want to demean or diminish or or say anything less like if you're a command if you are a company that's competing in a marketplace where there's a lot of competition and you're doing well. [8:34] Hey there's nothing wrong with that you know you're making money there's no don't worry about that it's the idea though of. [8:42] This is this is kind of like my business philosophy anyways is is how do I continually improve my company how do I continually look for opportunities even though and like our business you know I'll just say it like as a CPA firm we have, multiple parts of our business that are there very commoditized the audit for instance is commoditized and some of the services that we have that are just kind of, they're going to face more and more automation you're going to see more and more of those types of things happen for us and for businesses that are dealing with that, you know the idea is that the more I can layer in other types of Revenue sources that have less and less commoditization or less unless you know red ocean type of scenarios. The more profitability I'm going to have the easier it is going to be for me to Pivot when the economy turns and let me just tell you right now. The economy eventually will turn and I know that we had such a good run for the last several years, you have to prepare for that and so I'm a big advocate for for strategic planning I'm a big advocate for doing things different you know and changing things up over time not getting stuck in the. Sensei this is always going to be like it is so I'm encouraging you to think about this as in really exposing you to this concept of. [10:06] Blue Ocean strategy to kind of think about your businesses little different and take the time over the next month before the end of the year. If you haven't planned one to try to do some type of off-site retreat and get out there with your leadership group and really kick around some ideas this may be something that you want to use and this may be something that really doesn't appeal to you. [10:29] As we as we think about it I wanted to share with you and now we have the idea between what is a blue ocean where it was a red ocean just some examples of companies that you see the marketplace that you know could be described as more blue ocean versus the red ocean. You know and a good example of this was back when Netflix first came out and they were competing directly with Blockbuster lot of people, younger people don't even know who Blockbuster is but Blockbuster was the dominant player when it came to going to go to the video store we call them videos back then I'm going to rent a movie Netflix came in with something that was just absolutely unique. I was able to stream out the movies and do it at a monthly fee, super convenient and super cheap as it related to going to there and looking at the Blockbuster movies and blah blah blah and the rest is history Blockbuster is gone fluxes remaining. Uber Uber was founded in the 2009 customers looking to get from point A to point B without their own vehicle had to rely primarily on taxis you know and what's cool about living through. A transition like uber is I think everybody remembers this and it's like. [11:44] You know you're literally so used to getting out of the airport go and get in your taxi and going from there and everything just completely changed, when Uber came up with a way to do this so much cheaper and so much more convenient to because it's on your phone you don't have to deal with the guy that's you know hustling you for the taxi and hey this is all going it's just you felt. I don't know I think taxis were. [12:09] Not unsafe but I think an Uber just felt like hey this is a little bit easier a little bit more convenient, another example of Blue Ocean strategy would be Cirque du Soleil even though the Ringling Brothers and Barnum & Bailey owns the circus base it took less than 20 years for Cirque du Soleil to achieve the level of Revenue, it took those guys more than 100 years to reach. So in Circus Olay enter the circus industry it was not an attractive place to build a business why would you ever do this but they had a perspective on a competition based strategy which. Essentially succeeded quickly and dramatically and so. Instead of appealing to Children circus Lee created a new market audience adults and corporate clients who were really willing to pay a premium price for a one-of-a-kind entertainment so these are good examples I think you can probably see a lot of different examples if you start looking at, some successful business models and successful business companies like who's getting the attention of other people and so. [13:10] What I wanted to say is it all starts somewhere right and that somewhere is like having people, kind of do what we're doing right now and just start dreaming a little bit I guess in a sense of saying hey what what does it take to create my own Blue Ocean strategy and that's and that's what we're going to cover today for companies that are thinking about going towards nice out because. I think that that one of the things that you get into with an ESOP company is. Going through the journey to a nice app is creating my marketing my presentation for the trustee and my due diligence list and one of the things about that is as much as much as we want. You know to put together something. That's real and concrete and business planning we also want to put in ideas about how the future is going to look in this and this industry that we're in, and when you connect the reality with the possibilities of innovation in a business plan I think you can really directly add value. [14:15] To the financial forecast and you can add value to how you're actually presenting the numbers and so that's a little bit of a. XU no stretch in the sense of hey I'm coming up with some great new ideas and I'm going to throw all that in a business plan and sell it to a trustee that's not what I'm saying at all I'm saying how do we tweak what we already have, to make it more and more blue ocean as we start thinking about it so so just keep that in the back of your mind as we as we go through the process, and I think again it's for its really this is for any company any business anywhere when you get down to it. [14:50] So the first things are just the idea behind. What it takes to have really Implement a the blue ocean Concepts, the first really is this idea that you need to have the Maya shifting your mindset and this involves expanding your mental Horizons and thinking and shifting your understanding of where opportunity lies and. [15:16] I'd say all that because I hate saying the word Innovation because it's used over used by everybody but I'm saying that because I think you have to prepare yourself to think a little bit out of the box. [15:26] Um just because something is worked for this many years and I'm not saying it shouldn't work on the future doesn't mean you shouldn't try other things and experiment in business with with new Concepts and so, one of the things I like to do to help encourage a broader mindset in my company is to really. Getting more people involved at younger levels in different Generations that help to promote, a different way to think about things and so how do you how do you do that is really up to you and your and your culture but I do think it's important, to connect the planning process in the idea generating process with more than just you know one or two people in your company. How do you how do you create a cultural mindset that thinks about business differently and this is a fundamental. [16:21] Prince of all and it comes to esops because esops are very from a cultural standpoint, are a very inclusive type of culture that says hey we're all in this together. Ultimately when this thing is an ESOP we're all going to win if we all win together we're all going to win together financially as well so you know that's a lot to say about mindset but I think you want to challenge your Norm in that. Secondly would be tools using practical tools I'm going to share a couple of these tools in this podcast session but I will tell you there's a bunch of tools out there and there's a lot of Consulting people. In the blue ocean world that will be more than happy to help you if you want that kind of help, go on Google and just go after like some of these tools and use these to start kind of breaking apart your process that you're going through so that's so that's just in general so the mindset and the tools. And just the process of doing this with people and getting in a sense of like. Anytime you want to try something new I think you're going to want to get people, to embrace the change in stand behind it so I think ultimately having a commitment from your people to say we're not just going to talk about this we're going to actually try to implement some of these things so I think those are going to be important. As you start out the process of if getting into this now. [17:48] So let's describe a blue ocean like a Blue Ocean strategy versus a red Ocean strategy so right Outlaw go backwards a red Ocean strategy versus a blue ocean so compete, a red Ocean strategy is competing in existing Market spaces where a blue ocean is creating an uncontested Market space. [18:07] Can be in love different gradients of that can be bigger or smaller the red ocean it the goal is to beat the competition how we're going to beat the competition the goal of the blue ocean is how are we going to make the competition. How we going to make the competition not even be able to like show up right the the next thing would be in a red ocean is are we going to exploit the existing demand. That's there so. You know this is true with with a lot of you know like home building companies in like we have this much demand coming in with the demands good our home building goes. Goes really good so all the the tide raises all the ships and everything else but in a blue ocean how do we create and capture new demand or, how do we create new. [18:55] So I can go back to the Cirque du Soleil example they created a demand by establishing a new target market which was instead of appealing to the kids. I hate to say this kind of but kids don't have any money right now circus become in a circus but adults and corporate clients have money so they created a new demand among a target market that didn't really think about the circus as a an appealing option for. [19:21] In a red ocean you're going to make the value cost trade-offs oh you ever heard that whole I'm going to like look at the cost benefit and just see what that's going to be. In a blue ocean you're breaking the value cost trade-off in the sense that you're providing something that is beyond the idea of just behind like. What I'm going to have them from a financial decision now, I'm saying that like I think almost every business in when they do anything when they spend money on something or a customer spends money there's always a cost benefit you know and sometimes it's but it's I think the key is this is sometimes it's not purely a, situation it is there other aspects that affect the way people make decisions in their buying. [20:09] So [20:11] Keeping my so kind of wanted to go through that just to compare what it looks like when we look at the one of the first tools I wanted to point out to you. Is what you'll find is called the eliminate reduce raise and create grid. I would say this is something this is a tool that I've specifically used in my own planning and what it does is it starts off with the category of. And it asks the question which factors that the industry has long competed on that should be eliminated and so you can start thinking for example. I think the first thing I think of like with Southwest Airlines in this question is, one of the things Southwest Airlines did if you remember way way way back in when they first started is they eliminated the idea. [21:04] Behind a seat. And it's like wow that's that's kind of crazy because everybody's going to just have chaos if they don't have a seat assignment and they created more of a, of a bus type of, approach where whoever gets there first gets the seat kind of deal I shared with you when one podcast how much anxiety sometimes that causes me because I got to click on and get the a Zone but at the very end of all that it is, you know it was a very shrewd move and nobody else did it and so definitely blue ocean when you think about this. So that's the eliminate category and so what do you can do with this is we're going to go through each one of these but what you can do this with is just kind of brainstorm under that what factors could you, in the current competition that that nobody else is thinking about or just get out of the box and just do it. And one of the things I will challenge you to do is throw crazy ideas down there it doesn't mean you have to do it it just is, crazy ideas sometimes can be like no seat assignments can be wow do you know what that just might work so think about that way. [22:16] All right in the ERC grid again the next thing would be what are we going to raise so it's eliminate then raise raises which factor should be raised well above the industry standard. [22:29] So what does that mean so right now in the event that if you think about Cirque du Soleil what did they raise they raise the ticket prices. They raised the the quality of the actual event I mean by having really cool acts in and you know high level Talent. World I guess world class Talent when you think about it they raised those stand industry standards and then eventually they were able to raise you know or concurrently they were able to raise the ticket prices and make really good money. [23:06] Which things would you reduce which factors should be reduced well below the industry standard so not in this case not eliminate but we want to dial back on something in the way that we're approaching different things. So reducing could be things like if you look at the ER, RC thing we're thinking about the result reducing type of things that we'd be looking at which factor should be reduced well below the industry standard would be things like paperwork you know and one of the one of the, things that I love the most honestly in the last couple of years is how the DocuSign company came out, in reduced the amount of time it takes for us to get document signed you know going into. A client meeting and saying hey we've got this engagement letter or we've got this document to sign in order to to get this set to go it's like so easy so rude that was such a valuable way. [24:02] DocuSign to create what I believe is a very strong blue ocean type of strategy. [24:09] Now creating itself like creating something that hasn't been done or exist, one of the best examples of that as we mentioned before is the Uber company and how Uber created a, a way to buy Mobility Services which you know the terminology is like hey man I need a ride so people like to say Mobility Services but, they created a way on your phone to connect technology-wise to to drivers and so offering that created the really the. The value of what they brought to and created a demand for something that didn't exist in the and. Current economy so, all of these types of things will help you and again I come back to go through those types of er RC thought processes with your leadership group, and then make list which factors should be created that are, there are Industries not offering what can we do you know raised above the industry standard what can we eliminate that really shouldn't even be there like the, the seats and then what could we reduce and so these just get things moving I think in terms of creating the ideas that will then use be used to. Provide a holistic Blue Ocean strategy which may be all of those combined in unison together working together to help your company accomplish it. [25:33] Now what's going to come up with one of the things that comes up with building a good strategy for a company as they move through this process, whether it's blue ocean or any any strategic plan is going to be the issues of strategic execution which is. I like great ideas and I don't know how they're going to get done because of certain issues we try a lot of things and nothing ever happens and, when it point out that I think every company has certain hurdles to deal with and I'm really looking at I'm just borrowing a lot of this stuff from the blue ocean people, that really provide all this so this is just exposing you to the idea that how do I how do they then prepare to execute my strategy and, so they they have offered kind of some tools and this is another tool it's for hurdles to strategy execution and in this they talk about. [26:26] The specific hurdle so the first would be the cognitive hurdle waking employees up to the need for a strategic shift. Red oceans may not be passed to Future profitability growth but they may have served the organization well historically so why change why rock the boat so the cognitive hurdle, let me say this it could exist you know in organizations that have very dominant leadership group maybe one or two dominant leadership groups that can be a more of a hurdle because we don't want to do anything that we haven't done before and so you know and I'm going to say if you know there's two things I want to say about that. [27:07] First off I do believe that it's good for an organization to change and grow and continue to improve but I also have a deep respect for people, that have helped build and founded companies in sometimes people that are young and I was young once and I remember thinking this a lot when I was younger. That these guys don't know what they're doing you know and I'm I'm sorry to say that I appreciate my founding partners and all that. To be honest with you I kept thinking myself I know I could do this better than them and then when I got in that seat to actually make these decisions. Um as the managing partner at, you know I could tell you I didn't see some of the things that I needed to see during that during that time where I thought I knew everything so let me just throw out the cognitive hurdle is really important and I would challenge everybody to think past, the status quo but I also want to just say you know take a step back if you're younger and you're not getting things done, or you don't see your organization leadership kind of embracing change like they should take a step back and realize that there's a lot to learn and experience really does matter and, I believe respect for people that have done you know built something, is really important in the process for you know culture and it may not need to happen immediately overnight so. [28:27] Second resource the second hurdle would be the resource hurdle so assuming there's. You know what you're wanting to do in your in your Blue Ocean strategy you're going to have to identify resources that you may not have that could be talented. That could be Capital that could be the time even I mean because we're so busy nowadays like we're doing that now one of the things. [28:55] Developing the resources that you need to think about. Is you are going to have to choose to give up something to get something else so I would say it like this and hopefully it makes some sense is a writer who writes a novel has to choose, which direction they're going to go they can't they can't throw everything down it's just going to be overwhelming and, you know nobody's going to read it but they're going to have to make good decisions and I think business planning is the same way you have to decide. If I'm going to do this then I'm giving up something else perhaps so the the really well well-run companies. We'll have a process to decide what resources get allocated to what and so it may not be it may not be good timing you know because everything is going so well within a certain sector, so it shouldn't stop you from trying to work through that that issue if it's a very good Blue Ocean strategy idea. Then I think you have to challenge the organization with the resources it's going to need to back that idea. [30:00] The motivational hurdle the motivational hurdle is just essentially your motivation of your staff and this is. Interesting because it ties very well to Aesop's right, how do I tie do I connect my people with the concept and we could do a whole podcast on this and I probably will on this concept of ownership thinking. How do I motivate people in my organization where they may not really see the big picture they don't really you know it's just a job to them. I know going up you know talking through with younger people and you know maybe they're not as connected to the mission of the business or maybe there's. Something is not striking a chord in there. Thinking but one thing that we have to do is we have to motivate the key players and so motivational hurdles obviously I could just tell you right now I think esops are really great Avenues to help motivate people. Ultimately it doesn't matter if you're an ESOP if your leadership group lacks the skill set to motivate their people. [31:08] And that is to me when I look at all the list of leadership development skills that's going to be one on the very top. It's going to be like look you need to develop in yourself or within your group. That is the ability to motivate key people and Staffing organization and so leadership have really important element of that of that hurdle, but you can't get things done and less people are on the. [31:36] The same page with you and and care and are compelled to help to do the to help you know go through all of the block and tackling it takes to get things done. [31:46] From an execution standpoint. [31:48] So then finally would be the political hurdle so opposition from the people that are in power in the organization so as one manager put it in organization you get shot down before you stand up so. Um now one of the things I really like smaller businesses partly because of this issue because they don't have as many political battles that have to be fought, the larger the businesses go and organize and get more organized the more political they become because the departmental you know parts and facets of a company start to develop and evolve in a different things, and then there's this, overwhelming kind of brought bureaucratic mold that sets into a company and and so that can really be an impediment and in a in this case a hurdle so somebody sometimes has to kind of clean house and say you know what. [32:39] We are not going to you know we're not going to have an organization with that so you might sometimes have to just really address those those types of things early on in the process. And I wanted to finish with the execution side because I think it's so important to not just come up with the great ideas but it's also important to figure out how to really Implement them, there's nothing more frustrating in an organization where somebody keeps coming up with great ideas. They pitch all those ideas and then nothing happens and then people get just disenchanted with the whole notion of doing something different in the company so. So there's a lot to talk about with this and certainly not the expert I wanted to take the time today to expose you to this philosophy this thought process this business planning idea in this really just ultimately to hopefully, inspire you guys to think about your strategic planning coming into 2022 and what you might do right now to get ready for that. [33:36] So with all that I wanted to kind of say this. [33:57] Music. [34:06] Isn't it a great score anyway stay out of the red ocean I mean I was kind of too much dramatic pause there but stay out of the red ocean go in the blue ocean as much as you possibly can, keep going on your ESOP if you're if you're moving forward with somebody I'm going to encourage you just to keep moving. I think 20 22 is going to be an exciting year for Employee Stock ownership plans and, appreciate you guys listening and if you like what you hear please subscribe to the podcast also check out our YouTube channel because we're doing more and more YouTube interviews and sometimes it's just nice to see people in person. So with that how I'll see you guys on our next step on this journey to an ESOP.
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