What is the best way to handle the three possible scenarios (base case, bear case, and bull case) when allocating assets in a company's and an individual's portfolio?
The best strategy is to have three different plans and be flexible enough to switch between them. This can be done by setting thresholds and allocating assets in a way that can handle as many different plans as possible.
How does Simon Severino help his clients find and fix their businesses' blind spots?
Simon Severino helps clients find blind spots by making it a weekly habit to look at key performance indicators on a dashboard and taking action when a pattern appears, like an increase in costs of acquisition. He also says that it's important to look at the big picture and figure out how different problems are connected.
How does Simon Severino use the scientific method to make decisions about investments? How can people who don't like numbers still use this method to make decisions?
Simon Severino uses the scientific method by coming up with hypotheses, gathering data, and testing and proving the hypotheses with numbers. He says that people who aren't good with numbers can still use this method if they work with someone who is, or if they use software or other tools to help them collect and understand data.
How does Simon Severino manage his business finances and what steps does he take to ensure that he is aware of the financial status of his business?
Simon Severino manages his business finances by automating the process of receiving reports from his bank and creating specific dashboards that provide a clear picture of the profits, revenues, costs, and cash flows of his business. He also takes the step of getting this information every 30 days, instead of just once a year, to ensure that he is aware of the financial status of his business.
Marcus Cauchi: Hello, and welcome back once again to the Inquisitor Podcast with me, Marcus Cauchi. Today my guest is again, Simon Severino. You may remember, Simon, for having done some amazing stuff with strategic alliances. Well over at Strategy Sprints, they've been doing some more interesting stuff and he's written another book called Strategy Sprints, 12 Ways to Accelerate Growth for an Agile Business.
So I could hardly not invite him back because he added so much value the last time. So we're gonna look at some really interesting stuff. What do you do when everything is turning to parts outside. How do you deal with inflation? You're dealing with inflation, increasing interest rates. If you've got debt, you're probably gonna be facing some really interesting issues.
You've got a messy noisy, uh, and rough unfamiliar waters to face when your supply chain you can't depend on. Who knows, the Cold War suddenly came back, resurrected from the [00:01:00] dead and gone hot. We need to, we're gonna take a look at things like velocity, resilience and agility. How do you manage costs in this environment?
So, Simon, welcome.
Simon Severino: Happy to be here. Last time I was here, we had such a great resonance and such an amazing conversations. I'm super pumped to be here again.
Marcus Cauchi: Well, I, I'm delighted because, uh, you inspired me to go off in a couple of interesting directions, which has really been able to help me move my thinking forward, so I'm extremely grateful.
What the hell do you do facing all of that?
Marcus Cauchi: So Simon, what the hell do you do? You've got the great resignation, the great retirement. You've got 40% of salespeople I heard, uh, are looking at putting some form of side gig together, which must make them a flight risk at some point, 72% of people in technology are causing to talent LMS are looking to leave the, their jobs in IT in 2022. We've got supply chain discontinuity. We have [00:02:00] inflation at 24 and a half percent in construction, 12 and a half percent in hospitality. What the hell do you do facing all of that? Cuz that was just the beginning of Q1.
Simon Severino: It's a perfect storm and you know, we are prepared for that as, as strategy sprinters, we always look for base case scenario, bull scenario, bear scenario, we are kind of used to always having a bear scenario. Now these bear scenarios are so much more bearish than than everything I ever had on my map the last 42 years. But the way to approach them, I am happy that I have my daily habit, weekly habit, monthly habit to have very small loops to have a very clear radar of what's going on and to.
Resilient and agile. And I think we have to talk about these two things a lot, resilience and agility because it's exactly for [00:03:00] these times that you need a good operating system that lets you navigate all types of waters, all types of weathers, and that that has the few things that you can really control very tight in your control.
And it, it is just three things that you can control. So, I'm happy to, to really, uh, go deep and share how, how we prepare for, for recession for the worst, how to create scenarios and how to be ready for that.
Marcus Cauchi: Honestly, that would be my idea of heaven, cuz I'm an old imagine and a pessimist. And looking at all the indicators.
You know, I, I, this is my fourth or fifth, uh, actually, I think it's my fifth recession. And what, what's really, really interesting is just how important taking care of the fundamentals is. Doing the basics well, consistently. Mm-hmm, is really critical. And I, I remember reading [00:04:00] Paul Schultz's fabulous book around resilience and he, his, uh, model core control, ownership, reach and endurance.
And for me that was a, a real anchor when I hit hard times, which in fairness was self-inflicted as most of them are. So I'd love to go into, uh, some detail about how do we deal with, uh, the onset of recession.
What do we need to be prepared for and what can we prepare for more realistically?
Marcus Cauchi: First of all, what do we need to be prepared for and what can we prepare for more realistically?
Simon Severino: Yeah. I always have three scenarios. I have my base case, my bear case, my bull case. With both my company treasury and my cash flows and my investments. And, but also with my personal portfolio, I think we, we can go to both, what, what can you do as a CEO of a small business in both cases right now. Okay.
And so my current, and so, and that's, and that's the general advice, have always three [00:05:00] scenarios at least. And what's the best strategy? The best strategy is the one that can contribute to navigate as many as possible of those three. And that's the one you want to have and you want to be adaptable enough.
To change between those, that means that you define a threshold. Um, for example, CPI can be a threshold when you say, okay, CPI above 9%. Then we move from base case to bearish case, for example. And so my current base case is we have stagnation, no global war and every session in around six to eight months.
That's my base case. And so for this base case, I am prepared for both portfolios, company and, and private to be 20% real estate, 35% stocks, 35% crypto assets [00:06:00] as low cash as possible. So in this base case, we are at 3% cash in the bearish. Which is a lower probability case. Bearish case, right? Supply chains even worse possible buttons, uh, that get pushed in politics, severe global unrest. In this case, I want to have a higher real estate allocation and, um, a higher cash allocation and all gold, all bitcoin rest, no stocks. In the bullish case, which is also lower probability, but it's still growth hypergrowth like the last years.
And it's a lower probability, but it might happen because the system is also designed to be pumped until it breaks. And so it might be still two years of pumping. We don't, we don't know. So there is a low probability for hypergrowth, still hypergrowth. [00:07:00] And then in hypergrowth, I wanna be long roll stocks.
Google, Amazon, Tesla, on video, Shopify. And um, I wanna belong. All five top layer one digital assets, Bitcoin, Ethereum, Luna, Solana, Avalanche, Fantel, and even some speculative place. And then lower real estate. I don't need any gold in a hypergrowth scenario, and the safest thing there that I wanna hold is Bitcoin.
The rest can be speculative.
Marcus Cauchi: Safest thing there is Bitcoin. Yeah. So for many people that would be a surprise because all we ever hear about is the volatility. And if you've had any dealings at all with the crypto boiler rooms, they give you the heebie jeebies and give you enough reason not to, uh, get involved.
So there must be a lot of people out there who are saying, saying not a chance. So what would you say to [00:08:00] them? Because it, uh, I, I agree that crypto, there is no choice. And crypto will definitely be the way of the future cuz managing cash just is clunky, insane, massive security risk, probably a vector of disease and god knows what else.
And it's pretty expensive and banks don't by doing it.
Simon Severino: I have a 10 steps due diligence checklist and, and it's simple. What is a hard asset? What is a weak asset? The hard asset is something that is in high demand. And, um, in limited supply, right? So if you look at this, there are only two things that are hard assets.
Of all the things that I've listed out, it's not gold because there is no limited supply in gold. Nobody knows the current, uh, amount of gold in circulation. Nobody knows the amount of cash in circulation, and everybody knows it's been printed as if there were unlimited, because it is unlimited by design.
And so [00:09:00] there are only two things that are really limited of those things. It's real estate in a premium location. So real estate in Miami Beach, real estate in Manhattan, in some parts of Paris. That's where you, it's limited and in high demand and then there is Bitcoin, 21 million pieces. Full stop.
Marcus Cauchi: Yeah. Interesting.
So what are we doing to build financial velocity?
Marcus Cauchi: Okay, so tell me then let's talk about, um, building velocity. So that's building, uh, financial resilience. So what are we doing to build financial velocity?
Simon Severino: Velocity in physics is you have both speed and direction because you can be quick, but running in the wrong direction. That's actually the worst thing you can do.
You're running a marathon, you are the fastest, but you're running towards the wrong direction. That's, that's the worst case,
Marcus Cauchi: Depending [00:10:00] on the wrong sand test.
Simon Severino: Yes. So you wanna have first the, the right direction. And making sure that you are moving gradually towards that and then increase the. And that means just checking.
We have a monthly check of our velocity. We say, are we running in the right direction, at the right pace? What are competitors doing? What else can our clients do? It's a quick check. It's half an hour, but it's important to do it because then the rest will be weekly sprints and they are all about fast learning, fast execution, and and measuring the progress.
And the intensity of the progress. So it's important that you ask for yourself, are we running in the right direction? And sometimes it's painful to ask that, and it's usually our blind spot, but it's important, especially in this funky times. Sometimes it's even better to stop operations until you have clarity.
and rather than going further [00:11:00] in in the wrong direction.
How you help your clients see the blind spot when the evidence presented to them is clear, but the results are anything but what they wanted?
Marcus Cauchi: So on that note then, I was speaking to a client this morning and there is an issue that they have a blind spot with, which they don't see. And I'm really curious how you help your clients see the blind spot when the evidence presented to them is clear, but the results are anything but what they wanted.
Um, but they won't they won't see past that attribution error.
Simon Severino: So we talked about the monthly habit checking velocity. Now we go to the weekly habit. The weekly habit is what tells me quickly the weak signals that something is going on. Then I have to look at. So weekly habit is we have a dashboard of the three main numbers in the three main areas, three marketing numbers, three sales numbers, three operations numbers.
We pick those numbers based on which numbers will tell us 80% of the story that we need to [00:12:00] know, and we need to know are we running in the right direction of the right pace. So we picked those three marketers. Number three sales, number three, ops numbers. Now, as an example, last year in, uh, in November.
Our own dashboards, we, we use the same tools that we implement with our clients and so on, on a Friday that dashboard gives me an increase in costs of acquisition. And the CAC cost of client acquisition.
Marcus Cauchi: Yep.
Simon Severino: Of 1.7% higher than the week below, uh, before. And so I say, Hey Michelle, let's check the four weeks moving average, the last four weeks moving average, and the four weeks moving average before. Click, click Simon.
Yes. This is a pattern. And then, okay. Operation stopped. We, we schedule a 90 minute session where we go deep into, into those acquisition analytics and we, and we find out that there was a change in the [00:13:00] algorithm that would be communicated later publicly, but we already had seen the impact and so that gave us time of, well, first it opened my eyes, right?
To something that is out of my control will increase the costs. If I saw that three months later, I would've wasted time and wasted money.
Marcus Cauchi: Well that was 3% by the time you get to three months later, isn't it?
Simon Severino: Yes. And that is remarkable for a small business, depending on your margins. I want to see these things early because I want to decide early.
This is blind spots, so when you see the 3%, it was a blind spot. When you see it at 1.7%, you can still handle it. You can decide, okay, we swallow it. Or you can say, well, stop. No, no, no, no, no. All paid ads on hold, increase by that amount. Time and attention we have joint venture partnerships in the affiliate partnerships.
We talked last [00:14:00] time. Yeah, we increased the number, the the intensity of affiliate partnerships. To be ready if that whole thing collapses and it collapsed. We have stopped or paid ads because that whole system collapsed from one day to the other for everybody. But we were prepared. We had the second system slowly, we had a couple months to slowly build up the second system, and then we just switched it.
More joint ventures, less pay debts.
Marcus Cauchi: Very interesting. Okay. What I'm hearing is an observation I've seen as well, which is we need to spend more time slowing down, stepping back, we need to go past micro view where our nose is stuck to the grindstone. We need to go above the macro level to the meta level. We need to start looking across our organization at the intersectional moments where there are two or [00:15:00] three or four causes coming together that then start to coalesce and they become, become an intertwined, really difficult, gnarly symptoms down stream.
The scientific method
Marcus Cauchi: And that's where I see an inordinate, I mean a horrific amount of time and money trying to fix the symptoms instead of looking upstream and asking the right questions, which by the sounds of things, you have tools to help not only ask the right questions, but also uncover the hidden leading indicators.
Is that correct?
Simon Severino: We try to apply the scientific method. What is the scientific method? You know nothing and you explore everything. So how do you explore? By writing down your assumption. We call it the hypothesis. Every spread has an hypothesis. Yep. And so you write down an assumption. I think. This is dependent on that.
And if we do this, this comes out, you write it down in [00:16:00] a as measurable as possible. That's the scientific method. Now you have an assumption, a thesis. With this thesis you run and you collect as many measurements as possible as quickly as possible because you wanna invalidate the thesis. So for example, my current thesis is we will have an um, a food shortage.
For the next 12 months. It's a structural, global problem. Yep. And 12 months food shortage global. So that's a thesis in my portfolio. It's a subset of my portfolio, is I am buying fertilizers and I am buying, um, you know, farmland. Whatever I can get around farmland, I, I buy. And now also I get why Bill Gates was doing it all the time.
He's so, so much smarter than we think . And so , I was buying fertilizers companies, right? So stocks of fertilizer producers worldwide. Cause the thesis is we will have [00:17:00] this shortage. Now I invalidate the thesis every day. I look at those five fertilizer companies that I picked, and I look if it's, if it's correct.
Is it building up? Is it greater building up, or is my thesis invalidated? Maybe the water shortage will be higher than the food shortage. Maybe I should go to the chip shortage instead. You have your thesis, you write it down, and you go every day for invalidation. If you cannot invalidate it, it's correct.
That's now a theory. If you cannot invalidate it, it's a theory. It's a thing. This is how science evolves and I want to have the same. In my business, I know that we know nothing. We have only these three habits in control. Everything else is not in control. This is with discipline.
Marcus Cauchi: This is Project Moneyball.
Simon Severino: What? What is it?
Marcus Cauchi: Project Moneyball. In baseball, there's a chap who's brilliant. He looked at the statistics and he decided to bake picks [00:18:00] of players. Who had certain batting averages and throwing averages and catching averages and whatever, and he didn't go for the top performers, so they ended up picking teams that were really cheap and just tranced everybody.
Simon Severino: Yeah, it's a disciplined way. It's numeric. You see they are undervalued by the others, but I see it and I, I will, I will have the discipline not to listen what others say about these players. I just let the numbers. Tell me what's really going on. And yes, that is every c e o and every investor has to do a disciplined exploration of the facts.
And the facts are the numbers that you get in your, you know, in your channels, in your addressable market, in your, uh, network.
Marcus Cauchi: Okay? But being perfectly blunt about it. A lot of people who end up in senior leadership positions are not necessarily terribly imaginative, or they are not [00:19:00] terribly numeric. And if they are numeric, they're probably not very imaginative.
And if they're imaginative, they're probably not very numeric. So how does one get to grips if you are, I, I'm on the enumerate, uh, and quite creative end, so let's tackle that one first. So let, let's be entirely selfish. Fuck it. It's my show.
Simon Severino: Now we talk.
Marcus Cauchi: Now we're talking. Okay. So how, how does someone who really doesn't feel comfortable with the numbers but really understands their value,
Simon Severino: Um, I'm one of these guys I can fully disclose and I agree.
By the way, we are either, you know, the story guys or the spreadsheet guys. I'm a story guy like you. And so I would get it completely wrong every single cash flow report would be completely wrong. I don't see the discrepancies. I, I, I quite don't care. That's why I have created a system of things to help me and now this system is exactly what we share with our clients.[00:20:00]
Cause they are either graded marketing and sales, or they're great at products. They're usually never great at both.
When did you realize that you needed to go out and find people who were broken in the same way you were so that you could get paid for fixing you both?
Marcus Cauchi: I'm really interested at the origin of this. So when, when did you realize that you needed to go out and find people who were broken in the same way you were so that you could get paid for fixing you both?
Simon Severino: That's what a consultant does, right? Is they give me problems and, uh, let's, let's find solutions. And what problems do people bring you? The problems where they feel that you are, you are onto it, that you can really go deep because. That's what you are about. That's what you are, you are here to do. And so they usually bring you your problems.
Cause that's, that's what you emanate, that people can see what, what you can do and what you can't. And they come with exactly that. Like in love relationships. They, they know exactly what you need and, um, ex and exactly what you can't.
Marcus Cauchi: There's obviously a market for being a grumpy old man.
Simon Severino: Oh, don't say [00:21:00] that.
Don't say that. There's a market for everything. And the, and so for example, I realized that I just don't care about money. Because I was always good at sales, and so there was always enough here. I, I just didn't have to. And at one point a colleague of mine tells me, Simon, you are such an elegant man. You ne you are so polite and say, why am I polite?
Yeah. I owe you 90,000 bucks since 14 months and you'll never pressured me. I said, I didn't even realize. So send them over whenever you want. I just didn't care. And so when I realized that, I said, wait a moment, wait a moment, wait a moment. Now I have too many people on my team. Now I need a discipline system.
Cause as long as you're a solopreneur, you might get away with this. But when you run a business, it's a complete different ball game. So I said, okay, first thing, my bank, uh, sends me everything every day. So I wake up in the morning and I know the, the bank. [00:22:00] Private, corporate, all, so it's an automation because I don't think about it.
I let the systems remind me. Second, these reports, these dashboards I created. These dashboards for exactly that. They have a very specific structure and I get that every 30 days. First the profits, gross profit, operating profit, uh, net profit. And then I get the revenues and then cost, costs of sales, costs of marketing, costs of operations, and then fixed costs, variable costs, and then the cash flows.
So that's what I get every 30 days, not the P and L once a year, every 30 days I get this information in a very simple way, in a way that even a story guy can, can get what's going on. So yes, uh, it's really important that you know which camp you are and you create the other side. If you are great with numbers, but you are boring as hell because you think in spreadsheets, hey, you are not going to go anywhere.
Uh, you [00:23:00] will not attract talent. Everybody else will will get those, those people, and you will not attract clients also, because who wants to work with a boring team.
Marcus Cauchi: Well, again, I suppose it depends. I suspect bond disposal, , you probably don't want them horsing around.
How are you gonna deal with inflation and supply chain discontinuity and all of this stuff that's going on at a management level?
Marcus Cauchi: So tell me this then. How are you gonna deal with inflation and supply chain, uh, discontinuity and all of this stuff that's going on at a management level?
I'm really curious what you're doing, uh, to prepare managers for what's to come.
Simon Severino: Yeah, so prepare for you are not getting the materials that you need, because if even Tesla doesn't get them Shanghai shut downs in whole April Now. So, and they are the most strategic and they get exactly this dashboard every week.
And they prepare for that. They usually start building the materials that they might not get in six months. They usually start right now building for [00:24:00] themselves. Yeah. And so if they don't get it, you, you will probably also, uh, don't get it. Uh, so. First thing, go over your supply chain, and that's a business model issue.
Go over your business model, look at the vulnerabilities, create three scenarios and prepare seriously for them. So, shorter contracts with suppliers as as, as much as you can turn fixed costs into variable costs. And what do I mean by that? Very specifically supplier contracts, not by time or not by, you know, your usual blah, blah, blah contracts.
Make them for results. So if this material happens, this is what I pay. If this material doesn't reach that, that exact geo location, we don't get paid. Simple. So increase the skin in the game for both sides supplier, and you have both the same risk instead of you have always a hundred percent of a risk and they can even not build your house and you still have to pay them.
Don't do that. Okay? [00:25:00] Those times are over 50 50 skin in the game. Great book, by the way, by Nassim Nicholas Taleb about skin in the game. It's called Skin in the Game, which is exactly about creating this symmetry instead of asymmetry. You entrepreneur have 50% risk everybody else, your clients, your suppliers, et cetera, have also 50% risk.
Marcus Cauchi: Well, I, I think it's really important that as we start to move into this really tumultuous time in western economies, because I, I think China is obviously going through an ascending to the, their numbers were out yesterday. They were up 13% in exports and, uh, 6% on or 8% on imports. So in spite of everything that's gone on, they're still growing in double digits.
So one of the really important things here is to create an environment where buyers and sellers and partners all feel safe. And in order to do that, it's really critical that [00:26:00] from the buyer's perspective, that vendors are focusing on risk reversal, what Simon was talking about in terms of bearing some of the risk and mitigating some of theirs because they are worried, they're, you know, you have to understand they're going into this incredibly terrifying backdrop and there's a lot of uncertainty, volatility. No one knows what's really going on, so they need to know that partners have their back. And the changes that they need to make have to be deeply transformational because the change, if you're just tinkering at the edges, all you're probably going to be doing is destabilizing an already imperfect system, and then you put it out of kilter.
So again, another really strong reason why you should be working in short sprint is that you need to be testing stuff in parallel. And you need to be testing without committing so much that it could be suicidal. Is that a fair summary? [00:27:00]
Simon Severino: Yes. All costs turn them into variable costs. So less throughput, less costs, more throughput, more costs.
This is resilience. So many people talk about resilience. For me, it's simple. If you have zero sales coming in, you have zero costs. If you have a ton of sales coming in, you have more costs. In percentage that is resilience when you run a business. Okay, nothing else. This is resilience.
Marcus Cauchi: That's that control as well.
Simon Severino: It's resilience. It's resilience means that your, your costs and your profits, they breathe like an organism. Like when you run, you'll need more oxygen, and when you are calm, you need less oxygen. So why should your cost always be the same in a month where you are in sh, in lockdown, like right now, Tesla in Shanghai, and in another month where you're crushing it and you're doing more than Ford, BMW, and [00:28:00] everybody else cumulated together in market cap. You should have very different costs in those months.
And it's easy to do. It sounds complicated, but it's easy to do. For us for example, it was not having people on payroll anymore and not having fancy offices that nobody needs anyways. And so these are the times where it's absolutely okay to take all decisions in direction of being lean, being resilient, being agile, because these are the companies who will be around in three years and it's simpler than you think.
So for example, instead of traditional, Pay for time or long payrolls. You can do much more collaborative, much more adult to adult kind of contracts. Everybody will be in multiple projects, so it's fine. Networks is not enough, don't have networks or pools of people because there is not enough commitment, not enough quality control, not enough purpose, shared purpose.
And [00:29:00] so that's, that's an, that's, that's to lose. You want to have something like McDonald's, like Strategy Sprints, uh, franchise contracts where both sides have skin in the game. But both sides pay to play. And of course, uh, the ones who win more get more. But you, everybody has keen in the game. So I have reason for every certified Strategy Sprints coach in the world.
I want them to do better. I want them to win economically, and they want the common brand to win. So it's for everybody. It's a win. If the other wins.
Marcus Cauchi: Again, this is so aligned with the my experience now. Most organizations, most companies have been built out of industrial AIDS models where you compete, which means you carry a very sharp knife or you coexist, which means your elbows are incredibly sharp, and you will take any advantage that you possibly [00:30:00] can over people you're meant to be coexisting with.
Then you may move to collaboration, but often it's at arm's length, so you can't have our good stuff. We don't want you to get a little too big for your boots. You know, I remember one tech company won't pay commission if the partner professional services implement, but they will pay commission if they're in-house team does.
So they put the partners in direct competition with the in-house team, which is a ludicrous state of affairs. Now, what we should be doing, and what Simon is describing here, is taking advantage of the very systems that put humanity to the top of the food chain, which are cooperation. So you cooperate genuinely because actually most of us are hardwired through years and years of evolution to derive enormous satisfaction from helping other people.
That's one of the weird things about our primates species. [00:31:00] Now then what we do is we co-develop products and services. Now, what's really interesting, I'm seeing many organizations now come together where you have partners working with customers and even competitors to have many eyes on the problem. And this is a really strong argument for having very diverse teams because if you have many eyes on the problem, they tend to look upstream at the causes and come up with much more elegant solutions.
Are not only fit for purpose, but sustainable because they're not trying to force the symptom to work and they work in tandem with one another. They choreograph, um, their communication, their marketing, their selling. They co-sell co-market and they promote one another. So there's an awful lot of social proof, but also they expand their, uh, their reach.
So [00:32:00] this is really, really interesting because I'm seeing more and more of these high challenge, high support environments forming spontaneously. And particularly I'm excited because I saw one of my friends, Zach, uh, his 15 year old daughter is part of a team of, I think 21 14 to 17 year olds that have spontaneously formed a project team to build a video game.
And they're using modern project management tools. They're using things like raci, different tactics like that and systems, and they've all come together working in pods at holding one another to account spontaneously without any adult intervention or even any adult input. Now, that gives me a lot of hope.
Simon Severino: It's human nature, as you say. You, I, I saw my kids when they were just babies. They were very, very cooperative. And I was like, where does that come from? So it seems, it's just nature, right? They're very [00:33:00] cooperative by nature. And so as a C E O of of companies, it's really important to think about the business model in a way that it has skin in the game and it has win, win, win incentives and not win, win, lose or lose, win win or whatever other type of incentives.
And that means breaking out of, as you, as you call them the industrial age, uh, models. Where there is a boss and then there are in Infantalized access of people. No, no, no. It's a very more adult to adult contracts. Adult to adult communication, which is much more creative and really takes seriously that everybody is, is amazing and everybody, everybody's here to win and to crush it and uh, we are here to enable that.
Marcus Cauchi: I've been accused of being a bit head in the clouds on this, but I don't believe I am. I think I'm being perfectly realistic. I don't see [00:34:00] why it's unreasonable to expect to turn up to work and be treated fairly with respect, not exploited managers seeking to help people who report to them and deriving enormous satisfaction from that because they've been recruited for that quality.
As well as being in an environment where you are working with coworkers who share your purpose and have high standards and hold each other to account and are driven to come to work because they love it. I mean, I don't see why that is an unreasonable expectation. Yeah. If it's actually it's economically, financially, so much more productive.
Simon Severino: It is, and we need less managers. We work is more around work than it is around anything else. It was a lot around power around organization. Uh, now [00:35:00] work is around work. Work, uh, is needed. Work gets done, people organize around it, and they also stop when the project is done, when the work is done, they also disssolve.
That temporary work and, uh, and cluster in different clusters around what's needed now. So it'll be much more temporary, much more around than now and around what's really needed and really who can bring their superpowers together to solve this problem at hand to, to get this work done.
Marcus Cauchi: So this is gonna be really interesting cuz the concept I had is exactly along those lines, which, uh, I, I lifted from the Pirates of the Caribbean because what they did was got very drunk in Nassau and one of them must have said, you know, we should invade Panama.
And so they all got onto their ships and 200 of them clustered together in one week and left with the equivalent modern day of 30 billion dollars. Now that wasn't a bad week's work. It even [00:36:00] beats sources Black Monday, ba uh, air bash. However, my point being here, they then dissipated and it took the British and Spanish 15 years to capture them and, you know, to get rid of them.
Now, what's really interesting about this is spontaneously human beings come together. The pirates were a really interesting bunch. They were very democratic. They were set, uh, tariffs for injuries. So you got, you know, one piece of eight for an eye. And yeah, half of one for a hand if it was left more for a right and so on, and they voted for the, the captains and they could be voted off if they didn't feel that they were fair.
Throughout history, we've got examples of these fantastic groups of people being able to, uh, do amazing things against incredible odds. By cooperating, by having common purpose, maybe even a common enemy, but coming together. So I'm really curious what, uh, outta the 12 sprints, [00:37:00] which are the ones that are designed specifically to drive cooperation.
Baked in group dynamics of high pressure teams
Simon Severino: Every single one.
So we'll picture, you have 90 days. It's baked in, it's baked in. So you have the 90 days, which is the planning cycle. In this 90 days, you pick your three goals and the three numbers that will tell you that you're moving towards them. Those three numbers will be measured every seven days. Now, every time you come together, let's say you are 15 people and you are looking at three numbers, what happens in terms of collaboration here?
Now the marketing department is looking at the sales numbers and is working with the sales team in understanding them, understanding what's working well, what's not working well, and how can I work better to serve you closing the deal. I'm the marketing department. Okay. We are together looking at these numbers and you know exactly what's usually going on between those departments.
[00:38:00] This is my, this is your, I don't care. And, and what happens now when you look at these three numbers together, automatically there is collaboration. There is, oh, hey, wait a moment, sales, your conversion rate is going down. Did I produce the wrong material or did I put it in the wrong channels? Give me this feedback.
And that's a such an important loop. Then sales and operations, same loop, right? Hey guys, you, you are promising them the sky and I cannot deliver that. Can we find common ground? And that's just the simplicity of these three numbers every seven days and having the team look at the same numbers. And nobody says the word cooperation.
We are just looking at numbers and we are deciding what's the next sprint focus for the next seven days, but it's baked in automatically. And I was very intentionally in designing these things. I have studied psychology, [00:39:00] deep psychology, group psychology, uh, and, and, and many, many, adjacent fields, game theory, et cetera, to build the tools the way that I build them.
Because they had to work in so many different high pressure environments, so they had to be very sound. And now they work because baked in, there is the game theory, there is the psychology, there are all these things, group dynamics of high pressure teams and it's baked in so that you have to collaborate in order to achieve your sub goals.
And they're not even very important because the overall three goals are important.
Marcus Cauchi: So that's fantastic because I can feel how, uh, I'll see how that, uh, will build velocity. It'll drive the momentum, and there's, uh, cohesion there or alignment there. My question is, what are you doing at the same time? To look at the compensation schemes cuz [00:40:00] history tells me that compensation schemes often drive massively wrong unintended behaviors and consequences.
Um, so talk to me about those, their systems that you've got.
Simon Severino: Very important. And so, uh, you know, the, the teacher of my teacher was Peter Draka and Peter Draka always said, never, never relate goals and activities to compensation. If you do that, you corrupt everything. You corrupt the metrics, you corrupt the goals, and you have everybody against everybody.
And this is unfortunately what 90% of the companies are still doing because they didn't listen. And so incentives, you wanna have your core values in there and um, you wanna create. As much of a psychological safety for everybody and you want to also create as much adult to adult communication [00:41:00] and as, and the least amount of parent infant communication.
You don't want that. And that happens in the incentive
Marcus Cauchi: Parent to parent that can go
Simon Severino: Or parent to parent. Yeah, exactly. Yeah. All the good stuff. And so the payment structure is really important and you have to calibrate and recalibrate it and think, think a lot about it because there, there, and, and it is different in different sectors, in different maturity levels of the company, but you wanna find the sweet spot that makes adults to adults, that makes skin in the game 50%, 50% on each side of the incentive structure. Cause risk is for, for everybody. So make it 50 50. And increase the support that you are giving and go for maximum, maximum payments, slightly uncomfortable. [00:42:00] Go further than be being comfortable. Pay more than you can pay and make sure that there is a feedback loop that ensures that you can pay.
So, and that's the part that must be profit related. So if they contribute more to profits, they get more because you can, because you can, because there is more excess, um, money here. And then it should be distributed to the ones that that made it possible.
Marcus Cauchi: I, I think we should get you, me and Eric Steves together cuz we were chatting about this on podcast.
In fact, it was the one I released today. Um, and um, we were thinking is there a way that if we were to use blockchain to tie or associate contribution to the customer's journey and the achievement of their outcome, their renewal, hitting the, uh, the objectives that they intended, getting consumption targets, uh, adoption rates, whatever, [00:43:00] uh, you're measuring time to value.
And when those objectives are hit, then that triggers payments or bonuses and recognition to all the people who contributed. And it's irrefutable. Because their contribution is tied directly to the ledger.
Simon Severino: Well, the blockchain is a database, so of course you can, you can even do it in, in a spreadsheet. The charm of the blockchain is that it's immutable, so it's not, nobody can
Marcus Cauchi: And that was, that was my point cuz then you can't have sales whining about, well we didn't get paid enough. Or marketing gets paid something and sales is saying, well that's unfair cuz we normally get the lion's share. Yeah. Well now it's down to contribution.
Simon Severino: I think is more record. Yes. Yes, absolutely. And, um, that's exactly the game you wanna play.
Make it as fair as possible and make it along the company's purpose and the, and who you are here to serve and all the contributions and make those contribu. And that's why [00:44:00] we came up with the weekly meeting in this form, because before that, some roles never had a contribution in terms. I don't know.
I'm just checking that this list is, is right. What is my contribution to the big strategic outcomes. And so that's why we created these inputs and output numbers in, in all the three fields, because if it's important to check that list, then it must contribute to, for example, having the positive cash flow that will support all three departments.
If it's not important, then let's stop doing that.
Does every job description have a window to the customer?
Marcus Cauchi: So does every job description have a window to the customer?
Simon Severino: Every task even has a contribution to what you are achieving in these 90 days and specifically in this sprint. Otherwise, there is no reason to do it.
What kind of damage does that have at a cultural level, at a customer level, at a trust level?
Marcus Cauchi: Okay. Interesting. Okay, so if you are never correlating goals [00:45:00] with incentives, when you see that organizations have done that, what kind of damage does that have at a cultural level, at a customer level, at a trust level?
Simon Severino: The two damages are, one is that you have a negative competition, a win-lose situation between the planning, uh, sessions. So I will now try to divert the goal settings in the direction of my department's incentives. And this is where you start corrupting the whole planning system.
And when you corrupt that, then you, now you have corrupted also the whole culture. Nobody feels safes anymore and nobody believes in anything that is on any paper. So now it's about a cover yourself game. And this is where everything is corrupted. That's a toxic environment. And unfortunately, it's, it's, it's many of the environment that we are, that we are seeing [00:46:00] right now, but it's also how they feel.
Right? And that's why people, Are saying, no, I'm not coming back. No. No way.
How can they be that lacking in awareness?
Marcus Cauchi: What's really baffled me is the strength of feeling of so many people that they're trying to force people back to work after two years without any real appreciation. How can they be that lacking in awareness?
Simon Severino: Oh, they're not lacking in awareness, the deeper truth.
They don't have the tools yet to address them. So the deeper truth is that the psychological contract of the industrial age does not, um, have relevance anymore in this age. The psychological contract between an individual and an organization must be very different. If it, it, it is to hold, it is if it is to be true.
And so it must be now around your contribution, our [00:47:00] purpose, who we are here to serve, what your superpowers are, and how you can bring them in here. It must take into consideration, autonomy, purpose, impact, which are the three big amplifier. And uh, without that, nobody wants to work anymore If these things are not there, meaning individual cannot say, I want to do more of this, less of this. This is what, this is what's right for me. This is what I am good at. If, if you take that away, now you are in the industrial age, uh, contract, and that's when people say, I'm not going back to that kind of thing.
Marcus Cauchi: It's really interesting the number of people and what, what's also interesting is people my age early to mid fifties are now saying, you know, I'm probably gonna retire early.
How do you systematize multiple generations?
Marcus Cauchi: And that's gonna be really interesting because there's a knowledge drain that will go, that would historically have been passing that down. Now, In all honesty, I'm pretty sure the sooner we, you know, my [00:48:00] generation gets kicked out, the better. Um, but there are a, you know, there, there is value, uh, nonetheless, and we've now got four, even five generations I've heard of in one organization.
That's a minefield. How do you systematize that?
Simon Severino: I have a good news also. You can retire very early. So first you can literally. Achieve financial freedom much earlier than you think because there is so much that you can do in, in having a simple life. Like for example, I have a very simple life and the pandemic was super helpful, of course.
Marcus Cauchi: Mm-hmm.
Simon Severino: Because, you know, no restaurants, no flights, et cetera. And, uh, I don't miss them. So it simplified my life so much. That I am a hundred percent financial free. I, I, I am retired de facto from having to work with people that I don't, uh, wanna work with. So, I retired from that. [00:49:00] I retire from organizations that I, that don't feel right to me, like industrial versus modern.
No set of values. Mm-hmm. , and I'm retired from, from, from working itself. So I don't work anymore. People who know me and you know me, say, yeah, but you are all the time. You're doing something, Simon. Yes. It's not work. That's what I would, that's I would love, that's what I love to do. Meeting Marcos, having deep conversations.
That's what I love to do. Of course, I do this five times a day. I love it.
Marcus Cauchi: It's fantastic.
Simon Severino: Uh, I did it when I had Covid because I feel better when I have deep conversations than if I just watch Netflix.
Marcus Cauchi: Yeah.
Simon Severino: That's what I do because it's, it's, it's what I, it's what I'm here to do, but it's not work. And now these things, they seem so far away.
They are not. Accumulate more strong assets than weak assets. Weak assets are cash. Strong assets are everything that is in [00:50:00] demand and, but limited supply. Never sell the strong assets and borrow against them. That's on the investment side, on the costs and saving side, simplify your life, reduce the ongoing costs to, to a, a minimum that you feel always free to say yes or no to other people requesting, uh, work because with that higher degree of freedom you will be more relaxed. You will say yes to the right things. You will say no to the right things, and in the end you will make more money for everybody involved because you do it from a place of freedom, of abundance, of intentional wanting. And as you said, we are built that way. We want to cooperate, we want to be in great teams.
We want to build together great staff, help each other.
Marcus Cauchi: Couldn't agree more.
How do you hit or exceed your company quota or budget when you can't fill most of the roles that you're trying to fill on your team?
Marcus Cauchi: Okay, so I'm gonna ask [00:51:00] you the big hairy ass question on everybody's mind that I'm speaking to at the moment, which is, how do you hit or exceed your company quota or budget when you can't fill most of the roles that you're trying to fill on your team?
So I'm interested in getting your advice on this.
Simon Severino: Oh yeah. It ties back to what we discussed all the time. So all, all these pieces, you put them together and that's the answer. But let me, let me be more precise. So for example, how can I still have sales if I have zero sales people? Let's say they left me, everybody left me, and um, how can I still have sales?
Well, I have stills joined Venture Partners. We remember our last conversation, 50 50 joint venture partners with your email size that weekly promotes to you. Then you have one big partner. Remember one platform where it is win, win, win, win, and one per year, let alone see sometimes enough actually to be [00:52:00] resilient in sales.
Then on top of that, you can have the smaller thing, but it's an important thing. Client referrals do not rely completely on that. Of course, that would be unre not responsible, but it's still working. There is still your fans and you just need 1000 fans. It's not so much if you help one person every day, it's pretty quick.
It's quicker than you think, right? Three, To have 1000. It's three years, so you can do that. And so that's another piece of the resilience. And then you don't have to have people on your team, which is not that smart anyways, create more of a franchise situation where they're great at what they do, but they want also freedom.
And maybe one third of the week they do sales for you. Now, it's, it's much more resilient because you can have many more, and this is something that in, in systems thinking, we call this requisite redundancy. So you wanna have, for [00:53:00] each role, a little bit more people than you need for that role because something might happen that, you know, that crushes that part.
And then you need resilience. For example, they have covid and so you don't wanna have key people risk, you wanna have slightly more, that's what we call requisite redundancy. Slightly more than needed. And that's exactly the buffer that you will have right now if, if you have designed according.
Marcus Cauchi: We're coming to the top of the hour now.
What books would you recommend on systems design?
Marcus Cauchi: Uh, tell me this, what books would you recommend on systems design?
Simon Severino: Yeah, I have them here on my list because I, I literally read them and reread them. Colleague of mine, Patrick Hoverstadt, great systemic thinker, brought multiple books. This is his latest one, the Grammar of Systems. This is a very good introductory book in concepts like requisite redundancy, uh, and and many other important systemic concepts.
Marcus Cauchi: And how do you spell Patrick's [00:54:00] surname?
Simon Severino: Patrick Hoverstadt. Hoverstadt, H O V E R S T A D T.
Marcus Cauchi: Thank you.
Simon Severino: Patrick Hoverstadt, The Grammar of Systems.
Marcus Cauchi: Excellent. Okay. And what about stuff around game theory, nudge, nudges, and all of that?
Simon Severino: What, what would you, so I, I have three more books on my, on my shelf right now. Always at arms length. One, this is about positioning when I think about positioning. I go always back to Rory Sutherland.
Marcus Cauchi: Brilliant.
Simon Severino: Alchemy. Brilliant. And it's really about positioning in terms of, hey, what's the magic that we do via business? And um, it's a really good book. Full of, and it is also very well written. He's, he's so fun.
Marcus Cauchi: He's brilliant. Yeah. The operation is fantastic.
Simon Severino: Yes, yes. [00:55:00] On the product level. When I think about, Hey, which product to launch or to pivot, or should I even build this product? Then I always go to Sprint, solve big problems in five days, which is how you fast forward before you build the product. You just build a prototype in a couple days.
You can do this in three days and just test it to see if the market would take it. And then only later you decide if you really build it. But you can test it without having build it. Like Elon Musk tests everything before he builds it. He wants to see is there a 50 50 skin in the game on the other side?
Then I will build it, otherwise I don't build it. And this is the method, nitty gritty with checklists, how you build it. The last thing that is open. Now you know how to do product, how to do positioning, and uh, how to think in systems. The only thing is, alright, okay, but how do I run my business with velocity and with resilience, and [00:56:00] that's the operating manual for how to run a system.
Strategy Sprints, 12 chapters about the 12 parts of your business and exactly how to build them and how to make them work together in a collaborative, resilient way.
How can people get a hold of you?
Marcus Cauchi: Excellent. Simon, how can people get a hold of you?
Simon Severino: I hang email@example.com and if you like YouTube, I have a YouTube channel called Simon Severino.
This is where I hang out.
What was your best mistake last year?
Marcus Cauchi: And finally, what was your best mistake last year?
Simon Severino: How long do we have? So I, I make mistakes, multiple mistakes per day. Multiple mistakes per week. Yeah. And if there is a week. Oh, this week I made so many mistakes. If there is a week where I don't have mistakes, then I tell my team, Hey, push me.
We are not exploring. We are not exploring. You want to fail, of course, in a controlled de-risked [00:57:00] way, in a controlled environment, and that's the sprint environment. You wanna run many multiple experiments all the time to test in invalidating hypothesis validating hypothesis. Yeah, all the time I fail, and from that I learn.
What was your favorite one? Your best lesson?
Marcus Cauchi: What was your favorite one? Your best lesson?
Simon Severino: Favorite one? Best lesson. Probably not having bought Bitcoin when it was a 10 bucks, which is the most stupid thing I ever did in my life. And I learned from that. I learned from that, and I'm on it.
Marcus Cauchi: Okay, but that, and that, that could now make you, uh, one of those suckers for the, the next shiny object.
So just be careful on that one. Although given your attention to detail insistence, I suspect, uh, you'd have someone who'd drag you back from the edge before you did anything stupid or too stupid.
Simon Severino: We measure everything all the time. All the time.
Marcus Cauchi: Simon Severino. Thank you.
Simon Severino: [00:58:00] Thank you. It was fun.
Marcus Cauchi: So this is Marcus Cauchi signing off.
For God's sake, share this episode with someone it was dripping with value. Tag them and tell them that they have to listen to it, force feed it to them. If you've enjoyed it, like, tag, subscribe, all the usual guff. And if you wanna get hold of me, firstname.lastname@example.org. In the meantime, stay safe and happy selling.