STRATEGY: Transforming Business with Systems Thinking w/ David Newell.

0:00And now, Taking Care of Business, your hosts, Craig Moen and Shai Gilad. Welcome to Business Owners Radio episode 243. Our guest today is David Newell, president and founder of Evolve Leadership Consulting. Dave and his organization are on a mission to align the misaligned, connecting leaders with systems that foster outstanding work and personal fulfillment. Sound interesting? Let's get started. Good morning, Dave. Dave, welcome to Business Owners Radio. Thanks so much for having me. Yeah, we're excited to speak with you today and really curious about your firm, Evolve Leadership Consulting and the work that you do.

0:44Tell us a little bit about your story. What led to the founding of this firm? Several factors led to the founding of this firm. And it's a little bit of a wandering journey, but I'll spare kind of the long form. I started out in higher education and I was building leadership development programs. I was combining community engagement work and doing some community organizing work. And what I really learned and realized is there's a lot of systems thinking and alignment that takes place in that work. And I had the good fortune of getting connected to a couple of different consultants in the Minneapolis area.

1:22And they were looking for some additional facilitators. And with my experience in higher education, I thought, hey, why not? I'll give it a shot. And that was about 2012. And so I started doing some training and development, leadership development work in corporations and companies on the side. And within about 15 minutes of doing that, just absolutely fell in love with it. I started to realize that there was a lot of impact that could be made in bringing alignment and systems thinking into the small business space. And so in 2014, which was just honestly 10 years ago, we just celebrated 10 years, started Evolve Leadership Consulting and have never really looked back.

2:01And we really focus on what we refer to as aligning the misaligned. And misaligned doesn't necessarily mean tragic, but misaligned means we don't have systems of people moving in the same direction. And so my background in community organizing and leadership development has really translated well into the business space and focusing on kind of the alignment of operating systems and behaviors. And so I have really enjoyed this journey, have met amazing people along the way, have experienced many challenges and joys as we all do. And I'm grateful for all the people I've met along the way. Well, first of all, congratulations on your 10 year anniversary, that's a pretty significant milestone.

2:42Yeah, thank you. It was actually a little bit of a, you know, I think I actually got reminded, this is how unaware of it I was, actually, I got reminded, I think, on LinkedIn, that it had been 10 years. And I was like, oh, we should probably actually celebrate that. Yeah, we should get a pizza or something. Yeah, exactly. It was a little head down as this at the start of the year. And then now we're head up. Yeah, we should actually celebrate this. It is a big deal. It feels special. And we're really, 10 years is kind of marking a major transition in our own company as we really lean into scaling at this point in time.

3:14Yeah, let's talk about that a little bit. I'm curious about this transition you have because you started in higher ed and that's where you learned about systems thinking and then had this opportunity where you kind of saw some gaps. But then you actually became a business owner yourself. You started a firm. And so I'm thinking that you had to design, sort of use these things in practice on yourself as well as when you were coaching others. What came out of that experience for you and how did that change how you think of it from a business owner's perspective? Yeah, you know, what actually I think kind of propelled me out of higher education eventually is I've always been a learner.

3:51I've always appreciated kind of a tool collector, right? I really like methods and process. And I think in higher ed, I was able to learn a whole bunch a theory, but I always wanted to apply it more. It was kind of research and theory based. And then as I went out into working with companies, I realized it was much more tactical and execution based. And I always thought, man, there's a bridge space here. There's a space between these two things where you can really elevate the knowledge and expertise of folks who are in the trenches doing the work. And so when I started my own business, it really was just kind of a side gig.

4:30It really was something I was just doing because I was interested in it, because I enjoyed the challenge of it. And ultimately just kind of kept gaining traction and it kept building and it kept moving forward, eventually left higher education altogether and went in kind of full on. And I always just thought I was going to be the one person, you know, kind of doing some consulting work and coaching work on my own. But I've been fortunate and blessed to have the company kind of continue to grow. And just in the last essentially year and a half have really committed to, all right, we're onto something here.

5:03Now, what would it look like if I put these tools and systems and methodologies that I've been using almost as one off pieces and built an operating system. So in the last year, we've really been working to design what we call kind of the five facets of business, which is a systems approach to a lot of the business challenges that most people face. And in that, in our own journey, you know, we'd be hypocrites if we weren't also using our own system. And so we've had kind of internal trials and errors and things we've done well and things we've missed, things we're not good at, etc. And so we've definitely been applying the system to our own world.

5:42And we've seen gains. And we've really kind of committed to the scaling of our own business using this practice, as we've been applying it in others. And so as with anybody, there's wins and losses. but I will say I was kind of on the personal side of it. I personally resisted the scaling for a long time because I knew it was going to take a lot of effort and a lot of time. And so I had to go through my own personal journey in accepting, all right, this is something that we could do and get bigger and it needs to grow beyond me. And so what changed for you? What changed is, as a coach and as a consultant of other companies, I make sure that I'm being coached as well.

6:23And there were just a lot of people in my world saying, look, you're onto something here. You know, you really need to be leaning into this and pushing into it and just see what happens. And they were encouraging me because like I was saying, as the traction in the organization kind of continued to grow, we've seen some opportunity to take this to a bigger audience and move it forward. And simultaneously, I was, you know, June of 2021, I took on so much stuff that I honestly almost had a personal nervous breakdown, because there was so much stuff happening, and I was responsible for all of it.

6:54And so I really started to commit to, I need to take this beyond myself, and really experience what that's like. And also, you know, as you're coaching other businesses in their own practice, it's helpful if you've been through it yourself. And so, you know, I know what it's like to work 80 hour weeks and feel like you're not doing enough. I know what it's like to overcomplicate your business and the need to simplify it. I know what it's like to have huge wins and significant troughs. And so I've been on that journey myself at this point in time. And I would say, you know, I don't feel lonely anymore.

7:28I've got people around me. I've got a team. I've got really smart people who are doing really good work. And it's actually more freeing, really, to be able to do that with a group of people who you trust. David, thank you for sharing that with us. It really was a walk down another business owner's path and sharing what a number of our business owners are going through in various stages. So many times we're sort of in the role of firefighters, everything happening in such chaos all the time. And rarely do we get the opportunity to really focus on strategy implementations. In your workings over the last decade, what do you see as being the largest drags on business these days?

8:08I really appreciate that question. And it's hard to narrow it down to one thing. I think what I would say is most businesses are hitting what I would refer to as a complexity threshold, which is when you start to see an overpouring of symptoms, which could be internal communication breakdowns. It could be frustrated employees. It could be even the debate of do employees come back to the office or, you know, remote working environment? How are we sharing information? People being frustrated about how much they're getting paid and how much they're being asked to do, missed targets, misaligned goals, you name it.

8:50And what I've been seeing over the last probably even three, four years, maybe more so is just a deluge of dealing with symptoms. There's so much stuff coming at business owners. There's so many problems, there's so many challenges, and they're tackling them all kind of at what they can see. So what we often like to think about is, you know, symptoms are the things that you can see, these are the outputs, right? So disgruntled employees, internal communication breakdowns, misaligned strategy, those are all outputs, those are things that you can see. And so what we like to do is think about it as taking a systems, not a symptoms approach.

9:27And we really start thinking about, well, what are the inputs that are leading to the outputs? And there's often a few things to think about there. Number one is what are the behaviors that are leading to those outputs? So what are the actions or what are the beliefs that we have that are making us believe that to be true as an approach? And so we try to break down what we call the big dog operator mentality. And the big dog operator mentality is believing that we can fly around and solve every problem and that it really depends on us to be able to do that. And a lot of small businesses in their first million, two million, they really survive and really thrive on the big dog operator mentality, getting people to fly around and do that.

10:09And what they often see then is they get stuck at two million or they get stuck at three million and they can't figure out how to get to four or five because they can't scale their own individual ability to solve problems or they will go nuts. Essentially, it's just too much to take on. And so we start then to take a systems approach and we start to look at, well, what are the structures that we have in place that are making those behaviors possible? And so it's often we've overcomplicated our core business. We're not clear on strategy. We're just we're just hustling, trying to get things done.

10:44We've hired people for particular things, but we haven't thought about how we might hire those people to actually be repeatable and scalable. in thinking about their position and roles and responsibilities and so on. And so really what we do is we take a deep dive into the business and we start to analyze, well, what are the inputs that are leading to these outputs that are not helping us move forward? And so it's through that assessment process, it's through that kind of behavioral assessment, but it's also through the structural assessment where we get to the point of often it's three to four things.

11:14If we can just move these three to four things, we can start to see how we simplify and scale this business in a way that allows us to have more time, more freedom, and more success. That's a great undertaking. It takes so much time and pulling in the philosophies into actual implementation is that big war that we're all up against continuously. One of the things you and your company have done is developed a framework, a specific framework that really focuses on, in this case, five things, and you call it the five facets of business. Can you do a high-level overview of that? Absolutely. So when we talked about systems, we're really looking at five systems that show up in any business.

12:01There's culture, strategy, operations, story, and finance. And story is, think about that as sales and marketing. So those five aspects all have an interrelatedness. And what we find is through our assessments, we've had hundreds of people take our five facets assessment. What we see is that most organizations are good at two or three of those categories. And what happens then is the other two or three drag the rest of the business down because it is a system. And a lot of folks will deal with, well, you know, we don't have enough leads coming in, our sales are down. And so they'll hire a marketing firm or they'll hire sales training or they'll develop a sales process and they start to fix one problem.

12:42But because they're fixing that one problem, it starts to create problems down the line because they haven't thought about how, well, if we fix this sales problem, it's going to influence our operational challenges or it might affect our finances. So what we try to do is take a kind of full system approach and look at all five of those things at the same time to essentially say, how do they fit together? And if we tweak our operations, then how might we need to modify our sales process or how might we need to modify our team structure in order to be able to address that challenge? And how is that going to affect us culturally?

13:18So we really do look at culture, strategy, operation, story, and finance comprehensively and look at what's the relationship between the five. And if we can elevate one or we can elevate two, we elevate the whole system. So that generally speaking, kind of how the five facets operates, but it really does start with the answer to the question, where are we? And do you find that in your experience that there's a particular area that businesses usually are struggling with the most out of the five areas you've identified? That's a really great question. There are, in what we've seen, I think most businesses might not admit this readily, but there tends to be four things.

14:00Number one is just how complex their core business can get and they lose sight of what the core business is. And what I mean by core business is the answer to the question, well, what do you do? right? What do you do for clients? And then that can range in any number of things. But what happens is that story gets really convoluted and really messy. And what they've realized is over the course of two to three or five years of running their business or 10 years of running their business, they've lost sight of the simple answer to that question. And it's gotten kind of messy and they're losing traction and being able to serve their clients.

14:33So it's often just clarity of what they actually do, or they realize that they're really customized and there's opportunity to streamline their core business to scale. And so core business clarity is one. Number two is what we refer to as core roles and clear ownership. So we often see that organizations suffer from bottlenecks, employee bottlenecks. And this goes back to that big dog operator mentality. They might have one person who works in a department who's very good at what they do, but they're actually limiting the growth of that department because it's so dependent on them. or we see where three or four people have decision-making authority over one thing.

15:15And so there's either indecision or too many decisions and you create conflict. And so we really try to separate who owns what and what is that person's core function and how do we actually make sure that they're spending their focus on that particular role. So that's two. So one was core business, two was bottlenecks and employee what we call core roles. number three is clients not being super targeted in their target market and so we do a really simple exercise with clients we call it red yellow green it's not very complicated it's pretty straightforward but it's very clarifying so what we ask is if you've had clients for three four five ten twenty years whatever number you've had let's actually look at who you would consider green clients, yellow clients, and red clients.

16:04Green being great to work with. Our product was a great fit for what they were looking for. And we had a good working relationship. We have a good mentality. They align with who we are as a company. Yellow is, hey, we're kind of hitting on maybe two or three of those things. Red is, it was a really terrible experience. And that exercise alone just helps you to say like, well, what are the clients that we like to work with? And is our messaging actually approaching green clients? And are we really only shooting for green clients? And so I think what happens is when you're a small business, you'll often take on whatever's in front of you, because you're looking for that revenue, or you're looking for the opportunity to work with more clients, or you're examining a product.

16:42And then you kind of get into this pattern where you'll just take whatever comes your way. But when you can step back and say, let's actually really be targeting only the green clients. And you actually start to see more attraction of the types of clients that you want to work with. You see your operations get better because you're dealing with less customized things or less small companies when working with big companies works better for you, whatever it might be. You start to see your sales and marketing attract the type of clients that make it easier for you to operate your business. And then the last one, so target market was number three.

17:20The fourth major challenge that we see is what we kind to consider getting stuck in behavioral patterns that perpetuate the problem. So really, it is leadership behavior. So there's this really interesting concept called dynamic equilibrium. And this concept is that we are all actively fighting to stay the same. So dynamic means change, equilibrium essentially means stay the same. And so if you think about that, we continue to do activities that don't necessarily lead to the results that we're looking for. And we continue to try that and we continue to behave in a particular way, hoping that that change will take place.

17:59Well, what we're asking is utilizing the Pareto principle, what are the 20 % of activities that create 80 % of the results? And how do we eliminate the bottom 80 and maximize the top 20? So we look at it from a behavioral perspective, we identify, well, what are the patterns that we're seeing from a behavioral perspective? And how do we transition those to maximize our output but in the way that we're looking for. And so it's really the combination of those four things that we see across pretty much every organization that brings us in. And again, just to quickly recap, number one is core business.

18:32Number two is kind of ownership bottlenecks. Number three is real clear on the target market. And number four is kind of patterned behaviors. I can't help but think how interrelated all of those things are, right? They really don't feel mutually exclusive. When you start out, as you said, it's very typical for businesses to start often with an opportunity and maybe one customer. And then you're just trying to acquire as many customers as you can to pay the bills before you run out of money. So it's sort of like you start in this famine mentality and then you start hoarding customers. You'll just take whatever kind you can get.

19:12And then it's like you wake up a few years later and the cabinet's full of these customers you don't necessarily really want and you know they're holding you back from other things and so you've sort of lost sight of what it is you really did in the first place and of course over customization because you've had to try to make all of them happy and then you kind of wonder why things aren't really changing you know and it's just interesting to me how this is such a natural thing but you've helped identify and give us language around how to think of these different phases. Yeah, I mean, I think you just said it really well.

19:45And, you know, one analogy we use that I think is helpful, I think so much in business, we talk about where we're going. I mean, I just went through probably our general craziest time of the year, which is December, January, because we're supporting a lot of organizations and strategic planning and goal setting. And, you know, where are we going in 2024, essentially. And what we often encounter is businesses are really good at looking forward. Where do we want to go? What are the goals that we have? What are we building? Here's our vision for the future, et cetera, et cetera. What I find that businesses aren't very good at is saying, where are we currently?

20:20Like, what are we actually dealing with? What are the current challenges and problems? And so the analogy or the story we like to use is if you're going to the hills and you're going to go hiking and you look at the trail map, what's the first thing you look for? You look for the red dot that says you are here, right? Because if you don't know where you are, you can't get to where you're going. And so the assessment that we have, we really encourage our clients and potential clients to take that assessment regularly, right? Just actually get really clear about where you are. Every one of the exercises that we have really honestly starts with a, and let's diagnose where we currently are.

20:58We ask the question, what's the current situation? And we ask that in almost every meeting we're in every time, which is let's just get really clear about what we're actually dealing with. And all the information that comes forward is just a data point. Right. So we've had clients list, you know, 40 things, 50 things on one list around one problem, because we're just asking the question, what's the current situation? and the more they dissect the more they discern they start to see a trend or they start to see a story emerge and as they see that story emerge it's like okay now we're getting to something we can actually address and deal with to create the movement that we're looking for but when we often ask like we're not bad at answering the question what's the problem we can say oh well you know tim's a jerk and he's not selling very well it's like well that's a symptom that's an output that's the thing we can see and then we are well we got to do a performance improvement plan for tim Maybe we need to start looking for new hiring, you know, et cetera, et cetera.

21:55It's like, well, that's not actually the core problem. That's just Tim, right, in that particular situation. But what are the conditions that are allowing Tim to behave that way? Let's look at the full situation. So I can give you a really kind of clean example of that. We worked with a manufacturing company here in North Carolina, and they brought me in because they had 13 of 34 employees on what we refer to as an issues list, which is they could have been fired. It's like, well, probably not a third of your workforce are mean people, right? I generally don't believe that's true. But they brought us in to do coaching and some culture work.

22:33And what we realized is we interviewed all 34 employees because I was thinking, okay, this is a systems problem, right? This isn't a people problem. It's a systems problem. And what we realized is they had seven different departments and the seven different departments didn't know what each other did. And so everybody who changed a process or changed an element of their individual process was affecting the other six departments. And so it created what they refer to as a grab and blame culture, where they would grab the credit for successes and blame the other departments for any failures. And so instead of, you know, doing coaching with employees, we formed what we called a coalition.

23:11And that coalition then brought together the seven different departments to document processes together. And as they were documenting those processes together, they were learning about how things flowed throughout the organization. they cut two weeks off their production time in a month and they had one person on the issues list by the end of that month. So taking the systems approach instead of the symptoms approach created massive movement for that organization very quickly because we actually took the time to figure out, well, where are we? Dave, you know, it's amazing when you tell that story and you can just think about what a tremendous outcome that they had just by being able to go through and understand fundamentally where this challenge was coming from.

23:57Like you said, a third of the workforce doesn't just show up at this bad way, right? That's coming from somewhere. What was it like for that company? And why do you think it was so hard for them to maybe identify this on their own? Yeah, it's a great question. I think because we get so wrapped up in what's right in front of us, we all have an urgency bias, right? So we can see, hey, this isn't working, person's really frustrating, our sales team isn't closing the deals, etc. And so we just start attacking the problem without taking the time to discern the system challenge that we're actually experiencing.

24:31And so because we're just attacking the problem head on, we're attacking outputs, but you can't change the output if you don't change the input. And so it really is a matter of just slowing down and taking your time to fully discern your way through a problem and through a challenge. So we've got really two methodologies that we do to do that. Number one is we have our free five facets assessment. It's available on our website. If you go to fivefacets.biz, it is at the top of the page. That is a free resource. You can take that at any time. you get an automatic output of your results so you can see where you are in any one of those categories.

25:12And it starts to point to, well, actually, you know, culture is really a problem that we have, but culture is a problem because our operations are terrible, right? And so you start to see the relationship between the different facets through that assessment. And you can take that as many times as you want. It's a free resource. You could do it monthly, et cetera, and you get your automatic results. And that's something that we could talk through with you. The second process that we do is more invested. This is when we engage a client. It's a process we use called causal mapping. And causal mapping really looks at causation.