Setting vs Accepting Culture

Greetings Operators!

Sorry for the delay here! I am working on updating my backend and site, and had to switch domains which created a mail delivery problem this past Sunday.

Today I am diving into the importance of setting culture, specifically if you are new to a job or business. The first 90 days are crucial. However, no matter how long you’ve been somewhere, stepping up and setting the expectations is how leaders, executives and business owners succeed!

I am also adding Macro Watch - sharing insights from the many sources and indicators I follow to manage my business, investments, inventories, hiring, and sales!

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MACRO WATCH
Employee Health

We are seeing continued pressure show up for the consumer, which to me, is my employees.

They are experiencing great pressure as higher prices continue to damage their finances. While “inflation” may be slowing… that is the growth of prices… for employees across the country, the elevated prices have been and continue to hurt, whether they get worse or not.

This has translated into many stats showing this pressure, including the one below: credit card delinquencies.

This has translated to optimistic business leaders and pessimistic employees.

So what does this mean for business owners? Employees are pinched, they are hurting. They aren’t as optimistic as you may be, and they are tired. A few things:

1. Work on small ways to make life better. Get lunch, do a park day grill-out and invite the families, end early on a hot day.

2. Figure out, as aggressively as you focus on new customers, how to get your team more pay. Work the numbers backwards. Remove employees who are adding a lot of cost, but not a lot of contribution - this is hurting everyone else. Us AI, NoCode, and Systems to get more without more effort from your team.

3. Be sympathetic to where your team is at. Talk to them and listen. Don’t solve their problem, just listen and reiterate that you understand.

4. Use this as a time to hire. There are people whose employers aren’t doing this, its time to look for and stack up on great talent.

Every part of the business cycle affords massive opportunities to prepared business owners.

• Recessions allow a slowdown to rebuild process and strength operations, to grab marketshare, to find people who can help at a later time, and assets available at better prices

• Expansions allow a company to profit from its increased customer base, its stronger operations, and to maximize its assets. It allows a business to build a cash buffer which it can then deploy in the next recession to repeat the process.

For this reason, its important to monitor a few key aspects so you know when to hire and when to cut poor performers, when to lean out inventory, when to invest and when to stockpile.

AI IN BUSINESS
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THIS WEEK
A Few Things You May Have Missed

The source of margins over the long run, and some hard hitting realities about turnarounds.

AMA
How do you de-risk a key person or previous owner of their knowledge when they don’t want to share?

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MAIN ISSUE
You're A Culture Setter, Not An Acceptor

If you want to build a world-class company that runs like a well-oiled machine, you have to set culture proactively. You are the culture setter, not a passive acceptor.

Your goal can't be trying to build rules and policies around the weakest links on your team. When you set the bar at the lowest common denominator, you sacrifice your highest potential. The more you optimize for the least capable, the least driven employees, the more you strangle your ability to truly excel.

This may sound harsh, but it's the reality I've seen play out over decades of operating businesses. You cannot afford to have an "inclusive" culture that accepts mediocrity if you want sustainable growth.

The Consequences of Weak Culture

Maybe you've been there - you start making exceptions and accommodations for a few underperformers, figuring no harm. But then over time, the low-bar becomes the norm. You end up with:

• Employees just coasting, perfecting the minimum viable effort

• Constant complaints and pushback when you try to level-up expectations

• A inability to attract or keep top talent as they see the low standards

• Mid-range performers deflating to the path of least resistance

• A brand identity of mediocrity that's impossible to shake

Pretty soon, a culture of apathetic underachievement has infected your entire organization. You'll find yourself just HOPING people will occasionally go the extra mile.

I've seen it destroy countless companies from the inside out. It's a pandemic that only strong antibodies can prevent from the start.

Setting a Clear, Niche Culture

Here's what purposefully setting a strong culture looks like:

First, your culture needs to be niche and specific. It won't be for everyone - and that's the point. Get crystal clear on your standards and expectations, write them down in detail, and broadcast them loudly.

Be prepared for some critics and some people to leave. That's perfect - it's them self-selecting out because they don't fit. The trade-off is you'll start attracting more and more top-tier talent energized by your culture.

At my firm, our culture is built on:

1. Relentless problem-solving instead of excuse-making

2. Proactively identifying and resolving issues before they're fired

3. Working smarter and more efficiently, not harder and dumber

This recruits a certain type of motivated, solutions-oriented employee with brilliant pattern recognition and workflow enhancement skills. It repels those looking to just work their set hours and check boxes.

What does your niche culture prioritize? Get specific and shout it from the rooftops.

Outputs Over Optics

Next, the culture you set must prioritize excellence based on outputs, not inputs like hours worked. This was the fatal flaw of previous generations - they set crazy expectations around face time and overtime, not actual performance.

Your standards need to be based on metrics that truly drive profitable growth:

• Customer service and retention metrics

• Production efficiency ratios

• Quality and re-work percentages

• Cash flow and profitability ratios

• Continuous improvement and innovation

Hours are inessential - it's what people achieve that matters. Ditch this antiquated obsession with input and judge people solely on their output. Those who can't reach your bar of excellence will quickly become obvious.

At our manufacturing plants, we don't care if team leaders are the first ones in and last to leave. We care about:

1. On-time delivery percentages

2. Minimal re-work and re-makes

3. Machinery uptime and output volumes

If they hit those marks through a 4-hour work day, more power to them. Measure outcomes, not theater.

The Self-Selection Effect

From there, you allow self-selection to run its course by enforcing your culture aggressively. Don't hesitate to part ways with those who can't or won't raise their output through:

• Lack of skills (and refusing additional training)

• Lack of effort

• Unwillingness to ask questions and solve problems

• Having an overinflated ego

This self-selection is one of the biggest benefits of setting culture purposefully. You force people to sink or swim according to your raised bar. Those who can't cut it will self-remove through either their choice or your enforcement.

Sounds tough? It should be. You're building a finely-tuned machine for accelerated growth, not running an unfocused operation.

But here's the payoff: Top performers who fit your culture will be hardwired to flock to your company once your reputation for high standards spreads. You'll have to turn people away.

The more clearly and consistently you reinforce your culture through action, the stronger that culture becomes. You start building a powerful team that actively enhances and lives that culture.

At the plants where I'm most hands-on, team members get bonuses when they improve their cell, beat a goal, or make the plant better. We prioritize this not just to check a box, but because improving efficiency and reducing waste is baked into our cultural identity.

Aligning How You Hire and Fire

Once your cultural standards are locked, you tailor your HR approaches around that filter:

Hiring? Ensure you have a custom multi-step hiring process focused on assessing cultural fit as the top criteria. Technical skills can be taught, but lacking the drive and problem-solving mindset means they'll never stick.

Firing? Don't hesitate to cut someone loose who actively defies or subverts your culture. They'll only spread negativity and complacency if they stay. Have a consistent rubric so it's an impartial, culture-based decision.

Promotions and growth opportunities become based on cultural embodiment too. The path for getting ahead is by living your company's core identity.

Shaping Your Company's Identity

No more coddling the least capable. You set the tuning from Day 1, and you set it high. Then you reinforce the tune through:

• What you prioritize in processes and policies

• How you structure compensation and advancement

• The people you bring aboard

• The examples you set as a leader

Your company's culture is the master script directing all those decisions. When your team understands the script and sees you following it dogmatically, they will too. Toxic cultural deviations get stamped out before they fester.

If you want to accelerate your growth and build a world-class operation, you need to become a culture setter obsessed with purposeful reinforcement. It's never too early to start.

CONCEPT CORNER
Spend Analysis Basics

Spend analysis is a practice that should be done monthly or quarterly, to analyze where you are spending your money.

For companies that never do it, there is usually a 5-20% cost savings (thats margin direct to the bottom line) available. Doing it repeatedly ensures you don’t have bloat creep up, and margins can stay higher.

Spend Analysis starts with proper setup of your vendors and items. Although there is a shortcut way you can do this if your data is bad, it is not nearly as effective. Get your data set up right.

You want all vendors to have a “category” or “commodity” associated with them. More detailed setups will include geography, associated branch, and other meta data for further breakdowns.

Next, you need your items bought, whether you control stock (track quantities) or not, tagged in your system with category, or commodity. Also make sure there is a default GL account associated, or a way to connect an item to a previously used GL account.

We can now answer questions like:

• What is our true spend across divisions, plants, locations, or departments?

• Where are the opportunities for consolidation?

• Where can we use data to work with current vendors?

• Where are we able to reach existing incentives like rebates?

• Where are we compared out our contracts?

You can now slice that data multiple ways in order to look for opportunities.

A good starting place is the following look at spend which give various looks at vendors, categories, and time:

And then graph that data in useful ways to help ‘see’ aspects of our spend look for opportunities.

While there are many things to look for, I’ll give you a few:

• What categories comprise the most spend? Have we looked into specifying this relationship?

• Where can we consolidate?

• Where are prices or spend outside of the market or expected spend?

Another may be less about the items, and more about the vendor opportunities?

Perhaps there are some areas like Consumables that are too fragmented and can be consolidated with better pricing? Or maybe Metal needs to be market checked and verified since it’s heavily consolidated.

Doing a spend analysis once a month is a powerful way to keep tabs on costs, prevent bloat, and keep eyes open for improvement opportunties, or building better relationships with higher quality vendors.