Transcript: 02 - Sustainable Business Models — with Alec Miller
Jeanette:

Joining us today is Alec Miller. Alec's life goal is to give artists the means and platform to create what they are most passionate about without middle management while being compensated well for their efforts. He is currently doing this by running a creative collective, serving the tech and gaming industries and producing short films. He also describes himself as the principled pirate. Discussing this in light of sustainable business models, Alec we could kick off with the word sustainability: When we mention sustainability, we're always talking about changing the world, and this is rather a big challenge, and my question is this; are we really embarking on changing the world when we mention sustainability?

Alec:

Yeah, I think so. I think that it's a pretty big way of changing the way you look at life, at the world and that, for me, the people in it. I think the way that works though is, you can change the world by simply changing a few people's lives. I think in some ways being an example, so that's the way I approach it, it seems really daunting if you think; oh my gosh, we're never going to get everybody on board we're never going to get the whole world that's billions of people that all have to suddenly change their mind, but that's not really how things work as it's not like you have to get everyone to change all at once. Oftentimes what you can do is you can kind of create a positive reaction, right? A positive 'virus' as it were, and it could spread from person to person and this way you see it happening all the time with any sort of large social movement that's been successful is, it's been a few people pushing hard getting, putting good ideas out there better ideas and the ideas that are currently there and those ideas spread based on their merit and based on the viability of which the people that adopt those ideas see the results. So that's kind of how I take the daunting task of changing the world for any good movement and break it down to something that is less obtuse and less daunting and challenging.

Jeanette:

We're talking about sustainable businesses, and of course, businesses come in different sizes, and some entrepreneurs might think the bigger, the better. Let's make more profit; the thought is that the more people we've got on board, possibly the more profitable we are; but is that really successful? In your opinion, is it really a successful business model, the bigger, the better?

Alec:

Yeah, that's my whole goal to challenge that mindset, that mantra. I think as humans, we tend to fall into this trap all the time, and it happens on an individual basis, it happens on a societal basis, and it happens all the time in businesses which is; we never set a clear goal or clear cap for ourselves or what ideal is what enough is and therefore we can just continually consume forever. The problem with that is, it's not sustainable, and it's not ideal. Essentially what you're doing is, that's what cancer does, right? It just keeps spreading and spreading and spreading. We don't want to create cancer within us. This is what happens if you continually take in anything too much it's bad for you, right? Too much of a good thing is, in fact, a bad thing, it's poison. The joke about poison is; everything's poisonous is just dosage. So even something like water you can become over hydrated, right? You can have too much salt; you can have too much of anything, and so I think when we don't put these caps on us, and we are a creature that's kind of more similar to the virus in some ways where we can continually always spread, we have to put limitations on ourselves. So when it comes to business is what you see happening, the storey is as old as time like everybody knows this storey. Which are you have this great business and a really great concept that takes off and everybody who's in love with it and then it gets to this really awesome middle size where they are innovating constantly, they're doing great things, the ownership is still within the company and then usually what happens is that company goes public and then once the company goes public there's a switch that happens that suddenly everybody kind of starts to hate that company. It suddenly becomes this villain, and it has the same ideals often, it has the same goals, it has the same services, but what makes it kind of go from being a company everyone loves and is cheering for to being a company that now is creating issues with their audience, is oftentimes because they are aiming at infinite growth.

So when you're aiming at infinite growth, there's a few things you have to do in order to keep growing. So let's say you hit your market share, right? You hit the top of your market, you're someone like a Coke or Pepsi or something in the US, and you pretty much are at every store you could possibly be at. Everyone knows your name; you can't do any more marketing to get more people. You have to find a way to keep growing without being able to increase your market size. So that means you either have to keep raising your price and keep making that go up. Which can happen with inflation; we understand that, but if you really want to see growth, you want to see this like 2X growth every year that people want to see. You got to start finding ways to cut corners. So that means cutting employees' salaries, that means replacing employees with automation, that's also going to mean maybe, cutting back on jobs in customer service or quality control. You start diluting your product that's the only way to continue to grow if you hit, you're in your market base.

What I like to see, my favourite companies are in fact smaller businesses that are like local pubs. These are places that can run for hundred years, for a hundred and fifty years, way longer than most corporations ever runs. Most corporations only run about, I think, five to eight years, maybe twelve years if they're good. Most family-owned smaller businesses, a larger percentage of them that make it at all, there's plenty that doesn't make it at all but the ones that make it usually run longer around twenty years. I don't have that data cite, but you can look it up in something around there.

So what I would like to see is that. I like to see these places I can serve the community; they know what that community needs and then continue to do that over and over again. If you measure the input or you measure the profitability or any other metric you'd like to measure, you can start to find that those are actually just as profitable but over a larger amount of time and much more slowly, and I think that we see this just in life anytime you want to fast change it has a high cost, and I believe in slow, steady change. I think it's one of these again, the stories that's been with us forever and that we keep kind of ignoring.

Luis:

So, in your opinion, what are the smallest businesses doing that corporations are not?

Alec:

Yeah, so one of the biggest ones is you're thinking about the future. So a large company, it's really hard to think about. I mean, outside of profits, usually have an exit plan. So when someone develops a tech company, you have what's called an exit plan. Your exit plan is how am I going to leave this thing and make my money, right? Oftentimes it looks like selling to a larger company, and that company that's larger is often already public. The other option is to go public, and so either of those allows you to kind of cash out on what you done. When you when you're running a small business, your concerns are less internally focused or less about how do I click monetisation switches, as to be how do I have this thing be profitable from day one because I'm using it to live my life, right? This is what you'd call lifestyle company, and a lot of people kind of look down on lifestyle companies, especially in Silicon Valley, especially with these big tech companies that want to change the world, right? So you should have this big lofty goal. Maybe your goal should be to provide for your neighbourhood, to provide for your family and leave something for your kids. If that's your goal, well, what you're going to leave your kids is the company which means it needs to still be around when your kids are going to be there. If it's for your community, it's the same thing. I'm not looking to exit my community and suddenly leave them.

Hey, I'm using you as a way to retire, it's instead I'm looking to use this company to build up my community, I need to leave it here in the hands of someone else, so the systems have to be good enough I have made this clear enough, I have to have it working on a regular basis, on a small enough basis that can be managed by a few people. So then I can leave it in the community in the hands of someone else. There are a few companies locally that are this way that I really love, and they're very profitable. There are millions and millions of dollars of companies that have multiple stores, but they've stayed mostly local, and they've been able to do to keep it private. That's been, for me, one of the biggest things just watching that continually happen.

Jeanette:

That's amazing; not many people possibly think that. It's actually contrary to the popular belief that remaining a small company is generally much better, and I think what when we're talking about growing a company, this is not only about its financials but also the human resources that need to go hand in hand. The larger a company gets, it would need to maintain productivity which is good enough. To be able to keep to increase the profit, you need to reduce the expenses, possibly jeopardising quality. Do you ever think that the smaller companies could outperform the larger ones in the long run?

Alec:

I think they already do. I think it depends on what you're measuring, that's been one of our biggest problems which is, numbers are very easy to measure and so we really like judging ourselves by numbers. We judge ourselves by the amount of followers we have; we judge ourselves by the amount of money we're making. We judge ourselves by anything that we can measure, the amount of hours that we work etc. It's like McDonald's; it's like a billion-dollar burger served, right? Yet why is that the metric we're using? If you look at most small businesses, these lifestyle companies like again that some people look down on, they might be way more successful in other metrics. Like the amount of vacation time given, why don't me measure ourselves on that? The amount of time spent with family, amount of picnics in the park. There's plenty of metrics you could measure ourselves on that are far more valuable to people than money. Money is just a means for some of these other metrics ends.
So let's say you have a company that's more sustainability-focused, right? It's like a number of community housing projects finished; why isn't that your main goal instead of just fought up probability.

The other thing is, I think a lot of these large companies their profitability is usually in quantity, right? So usually, it's low margins but high amounts versus a lot of these smaller businesses they exist with smaller amounts of sales but higher margins. So they're making more money per sale. So you could also look at that as a metric. How much money am I making per product, and so there's many things that I'd much rather see, right? A lot of these companies have been around for a long time. Even if they're bigger companies, there are going to be a lot of luxury products that exist in the same sort of way. It's going to be things that we can go; oh yeah, that's that wine company that's been around for years. They might be pretty big, selling millions of barrels a year, but usually, they're still family-owned. I'm a big fan of whiskey, for instance, and that's how that is; tequila is the same way. You have people handing it down from grandfather to son, to grandson, so on and so forth. What I love about these companies is that they have this heart and this soul and this character that these large corporations don't, their kind of soulless.

They can't treat anybody; they can't treat any product with any sort of care because there just isn't the time. I love business; it's not like unless somebody is sitting here, I don't like the fact that I have Amazon and I can get anything in a day. That's not what I'm saying, but I think the focus has been long on that, and because the goal is usually to exit, people have been so willing to hand their companies over to these large corporations, and they haven't thought what would happen if I kept running this for another five years, or I handed it to my kid instead, or I hand it to my mentee, or I maybe have someone that's an understudy of mine that I can give the company to them.

I think that'll be a much better way to change our focus, and we'd see a lot more companies that we actually fall in love with. If I asked anybody right now what's a company that you love, I can almost guarantee or service you love. I guarantee it's not going to be a government service, and it's not going to be a large corporation. It's going to be somebody that can take the time to reward you to know who you are to know your name. You're going to be like, there's this restaurant right down the street. I go there every Thursday they recognise me when I walk in. That's what Starbucks was able to recreate on a scale for their first, like, probably five years. I think after that, it kind of went downhill. They used to have what they called star skills, and these star skills were pretty much; when a customer walks in and if he comes in more than twice, you should know their face, their name, and their drink. That's how they trained their staff.

There are still places that do this, but you get too big, you can't continue to have that same quality. They were really big on that for a long time; they let that slip, they expanded too fast. They had to close two-thirds of their stores because they expanded way too quickly. They couldn't train people fast enough to give them those star skills. So now they have to cut back, readjust, and it's something that I think hits a lot of companies. We get so in love with seeing these numbers go up and seeing that ROI that we get distracted very easily, and it's because it's so easy. It's very easy to measure based on numbers. How many stores do I have open? How many employees do I have? How much money are we bringing in? As opposed to how happy are all of my employees? What's the quality of life I'm creating? How happy are my customers? Then what's hilarious is, when people go to measure that, they measure it also as a metric. It's like here, take this questionnaire and answer these sixteen questions for me. The people that are going to take the time to answer the questionnaire, they're people that are either such big fans of yours already, or they have nothing better to do. I really question the validity of those things, and yeah, we just get stuck on these number again.

Jeanette:

It's amazing that you touched on some points that are really important to us. Sometimes when someone calls cooperation or company, or you're trying to get a service, something's wrong with a product or a service that you’ve bought, you get an answering machine, and you have to press one and two and press a hundred and a half an hour later you probably still on the phone and not knowing what to do and more frustrated than when you started off with. So this is really the people part of the company, and what these companies are missing. When people stop being people and become numbers, then that is when things start not quite going in the direction of the sustainability path. We need to get to know people and addressing the soft versus the hard metrics. I mean, this is such an interesting and inspired conversation.

Alec:

Right.

Luis:

You mentioned something very important. You not only need to know the names of the people that are working with you. You much ensure that they feel part of the company; when you know the names, you know what is happening with them at home, and you try to help them in any way. If you share your goals with the team, they even engage and participate with you in this long path and they want to see you succeed. The other thing which happens when you have a big corporation is that the employees do not know the management. They feel that they are just a number, and they know that they need to be paid at the end of the month. That's very sad

Alec:

That's exactly correct. I don't see a solution for these big companies other than to get smaller, to stay smaller or break up into smaller companies. I wish more companies would voluntarily break into smaller companies. I think they would see a lot of benefits from doing that, even if they all keep the cash flow going the same place if they could split the company up. Google's kind of done this in a decent way. It's not as small as it should be; in my opinion, I think it needs to be even smaller, but they went from being this one giant company to then splitting up into alphabet, to then sub-splitting everything else up smaller from there.

You've got to be able to look someone in the eye when you do business with them. You never know if someone's trying to take advantage of me or they are exploiting the system, or are they simply customers that hard on their luck this month or they found something that's valuable to them. You don't know that unless you can talk to them in person. That's the beauty I think of smaller being better.

Luis:

Yes, I agree. Thank you very much, Alec. At this point, I don't know if you can give us some takeaways for the general public, business owners.

Alec:

There's one thing I want to leave with. There's an idea I want to start propagating, so this is my little mind virus I want to put out there, and I hope people start using this term. Feel free to use this on the podcast in the future; you don't have to credit me for it. There's a thing I want to call invisible ROI, which is the invisible return on investment. These are oftentimes the greatest return on investments; this would be investing in people, this would be in your own personal life travel is a fantastic example.

I cannot tell you the amount of return I've gotten by travelling when I was younger by going to different places and experiencing things I would have never experienced. It's opened my eyes to so many things, giving so many new ideas; probably one reason why I run my own business today is just seeing the different ways that people operate and realise there's more than one way to do things. So that's a big investment though, that's a few thousand dollars to go someplace and to stay someplace.
There's no immediate return, you don't get that back right away, and you don't know what that money is or what it went to, but then somehow, all of your life gets better. It simply is too hard to track if we could track what we would, I'm sure there are people trying, but there's a bunch of things that are still invisible ROI. There are still these things that you can't see the return on investment, but it's absolutely there.

So this is what I try to challenge people to do. You could force your employee to work the full eight hours, nine hours or whatever it is they're obligated to do or at the end of the day, if you really have nothing to do, you could let them go home. Now that's an investment, right? You might be losing those man-hours, but you're probably gaining that back two or three-fold the next day when they come in happy and cheerful and remember that. If it's their birthday, rather than having the office buy them a cake and forcing them to sit through a cringy song, give them a day off or half-day with their family. Again that's a little bit of an investment, but the next day you're going to see the returns on that in again ten-fold, twenty-fold when a competitor comes around, and they go; hey, I want to hire you for ten thousand dollars more and take you away from this company, and they go you know what? I really love it here; I don't really want to go. I've watched employees do this with places they love; they just say no, I refuse to leave because this is my family.

So that invisible ROI is something that I think people need to start thinking about and looking for. Whereas there's something that I'm not seeing that I recognise consistently in my own life and other people's lives. I've seen this turn to be very beneficial, but there are no real metrics to attach to it, there are no numbers to track, and therefore I avoid it. So start looking for those opportunities; I think you're going to find that that's one of the number one steps for sustainability is places we do not realise because we can't track them, and they can't grow infinitely and so o because of that we tend to avoid them, but I think they have some of the most value.

Luis:

Thank you so much for that.

Alec:

Thank you for having me on. I really enjoyed it. I really appreciate being able to spread some of these ideas that I really want to see take root.

Jeanette:

This was Alec Miller and you are listening to the human agenda. Thank you so much for joining us in this episode.

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