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Welcome to the Tech World Human Skills Podcast with me Ben Pearce. Every episode we talk through different aspects of how to really thrive in the tech world and if the podcast isn't enough for you and you want weekly micro learning delivered straight to your inbox, sign up for the Tech World Human Skills Weekly. Head over to www.TechWorldHumanSkills.com to sign up.
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Skills Podcast. We have another fascinating episode for you today. So thanks so much for joining us. We're talking about value engineering. Well, what the heck is value engineering? Well, stay tuned and you'll learn all about it. Now, our guest today has worked in technical presales for many years. He's the co-host of the Wandering Tech podcast and is now the director of presales at Lofware. So please welcome to the show Paul Harris. Paul, it is fabulous to have you with us. Thanks, Ben. Fantastic to be here. So it's great to get to speak to you and really looking forward to get into the conversation today. Yeah. Well, before we get into it, let's just get you to introduce yourself a little bit so that everybody that doesn't know you yet can get to know a little bit about you. So could you introduce yourself? Yeah, absolutely. So I was born and raised. No, we're not going to go into that. Yeah, thanks, Ben. I mean, you covered it nicely at the start, which is my... I say the lion's share of my career has been in and around technical presales. Prior to that, came up through the very normal route of doing four years, doing what our US colleagues call a liberal arts degree or degrees, then spent time in technical support because that's just what you do when you graduate post-financial crisis and can't get a job anywhere else. But honestly, it gave me a good start. And it sort of put me through that through customer success, a little bit of time in consulting and project management. Very, very quickly worked out that I do not want to do that. So I went into enterprise sales, which is kind of project management, but top up for the day, and really landed in what, again, I do still consider to be the best job in the world, which is presales, solutions consulting, call it what you like. In the last sort of few years, you touched on it. Obviously, I'm now working as a director here at Loftware, which is a vendor in the supply chain space, I would say. The way I tend to describe what we do is we make sure that stuff gets to be where it is on time. There is obviously a lot more complexity to that. And we're going to get into some of those areas around the value engineering today. Not to that complexity, but just so kind of everyone understands kind of that background I'm coming from.
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I have also spent some time actually start of this year in a value engineering role myself.
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And that was really about actually standing up that discipline within the Amira region in Loftware.
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I've been exposed to it probably three, four years ago, and I sort of went, oh, this is kind of interesting. And I've obviously going to be in being in a different positions. I think anyone who's in this role knows the beauty of it is you never quite know what's going to come next.
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And I've always said, I don't like to make five year plans. I don't even like to make two year plans because I think anyone who looks at my LinkedIn will see I've kind of been in management back to what I see. In value engineering back into pre-sales and now getting to to run the pre-sales team here at Loftware, which is a real privilege to do. And yeah, it's really, really, really interesting. And I think has given me a lot of time to get into some really interesting areas, particularly when we're talking about what it means in terms of enterprise sales. So looking forward to getting into a bit more of that today with you as well. Well, you know, I said in my intro right at the beginning, like what the heck is value engineering?
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I remember I started to hear about it. I don't think it was this sort of term. I don't think it was that term. But let's say probably 10 years ago, I remember first starting to you know, where there was real hard work, it felt like, and graft and detail going into sort of some some technical sales motion. So we look at something really technical and really hardcore maths behind it. And that is where I think I sort of got exposed to it. But maybe from your perspective, could you define value engineering in simple terms? Sure. The way I try and condense it down is that you're a management consultant as a software vendor.
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Okay. I'm picking that a little bit more. You go, okay, great. What is a management consultant?
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Apart from someone in the suit. It's really about going into an organization and understanding what are the problems that they're facing.
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And what a consultant will do is they'll come in, they will understand how your business operates, look at all the key areas, and then they'll make some recommendations about how you solve those. Doing it in the context of value engineering as a software vendor, the difference to it is that you're still doing that kind of consulting piece up top. But you're then coming in with a view to clearly sell your software solution, because you're saying we've identified that you Mr. Customer have these challenges in your business.
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Those relate to these specific areas. And this is how our software helps you to address those.
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Okay. So I'm sort of trying to translate that into the sort of things I understand. So the example I had in my mind where I think this was value engineering was back when I was helping sell Azure. And this is many years ago now. And there was two angles that often we'd use to talk to people about. One of them was a cloth cost. But the other one that I found a bit more interesting, if I'm honest, was about carbon footprint. Right. And so what we do is we do this work where we would go in and we'd inventory everybody's infrastructure, you know, and look at exactly what servers they've got exactly how their data center was set up exactly how it was powered all all of this customer, all the cooling and work out its energy use based on the energy use of those specific bits of hardware. And then go right to run it, you're using this and your carbon footprint is this. And if you were to now do that in an Azure data center in Dublin, in Amsterdam, in the UK or whatever, this would be your carbon footprint and based on the detail of what we've got. And so therefore your carbon footprint and your costs, because they're often very complete. So it was that detailed maths, that really detailed analysis. It was that detailed maths, that really detailed analysis that, am I right? That's what the sort of thing that you're talking about is value engineering. There is a bit to it, yes. So there's absolutely a maths or a math to it.
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I would say that that isn't the only component and I really came into it through this exercise of trying to understand the business.
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So there's been a lot of conversation. I've certainly been a part of this evolution, right? The great evolution of presales, the great debate about what we should even be called. This thing of moving from a technical resource to moving really into consultants. And a lot of organizations now actually have solutions consulting is what they term, what has been traditionally called presales.
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And I think that's really key because we're not coming in just trying to do tactical things. Go, here is this thing that we do nicely. It's understanding, okay, what does your business actually do? How does your business actually make money?
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Where are the pain points in that business? Like what is stopping you making money?
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And what are your kind of long-term strategic goals? Like are you a startup who is looking to IPO?
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Are you a public company who is looking for organic growth? Are you PE backed and again looking for an exit? What are those areas of trying to address? And interestingly enough sustainability is obviously a really big one of those.
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But there's also needs to be a fiscal financial reason behind doing that. Now we can without wanting to kind of deviate too far into those areas.
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I would say it's that big sort of overarching thing of understanding how your customers actually operate. And what I would say as well is quite a lot of people and a lot of vendors have ROI, or return investment calculators. And I think we've all pre-sellers, sellers alike have all been kind of guilty of just putting up a lovely pretty table that goes, "Here's the ROI of our solution."
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What that doesn't take into account though is the other mechanics of the financing the business. And that's the maths side of it, right? Understanding what are those other things that influence the return on the investment of a software solution. Because that doesn't live in isolation.
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So this value engineering is understanding the detail of your product, your solution, but also understanding in detail the business of your customer right down to its financial accounting, right down to its business model and kind of matching the two. Is that right? Yeah, I would say so. So the business thing is the most important piece. And if you are wanting to convince an executive, a C-level person to make an investment, you need to show why it matters financially. Now I always use this as a reference and for those of you who aren't fans of The Simpsons, I apologise. But in The Simpsons movie there's a great scene where, I know you can find it on YouTube, where it's Arnie and he's been given five different options of how to solve a problem. And he goes, "I picked number three." And the advisor says, "Well, do you not want to read?" He said, "No, I was elected to lead, not to read. Number three."
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It's funny, but it's also very, very effective of actually as you go up the chain in any business, and you'll know this as well from your, there is less and less and less time spent evaluating your decision.
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And you are in software, you're not, you're competing with your competitors, but you're also competing with any other project that's happening in that organisation.
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And at some point there's going to be your champion. He's going to go up to their steering committee, to their board, to their C-suite person who holds the budget and say, "Here's why you should make this investment in my project."
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But there's going to be two or three other people also saying, "Now, hang on a minute, I want you to invest that money in my project." There's only one pot, and they can't fund all of these projects every year. So there's actually a bigger internal competition for your project than it can be even when you're competing externally with competitors. And that's why that business piece becomes really important. But as you said, it is also critical that you understand what your solution, what your product does, but how that relates to those financial pieces.
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Saying this means you become 25% more efficient. Okay, but why does that matter?
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Efficiency is great, but how does that move the needle on my income statement? How does that mean I'm either making more money or I'm saving money? And ultimately, that's what it comes down to. So value engineering is bridging the gap between the technology and the financial and the business parts of the organisation and taking that technical solution and putting that into a terms where it's going to stand up as its own business project rather than just an investment in some technology or something like that. It's going to stand up as its own business project.
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Right. And I guess to put it in a term, it's the kind of thing that whenever you're making any big purchase decision, generally in life, if you're thinking about, let's say buying, I don't know, a new car, you're going to look at the MPG. You're going to look at going, I might buy a more expensive car, I might buy a hybrid car. It's going to cost me more money initially.
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But if I look at how long, if I'm going to own that car for three or five years, actually, there's a bit of a kind of a hockey stick effect if I end up saving more money over the long term because the price of petrol is going up.
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The price of electricity does go up, but actually, it fits in my lifestyle. So that's also the way I'm looking at it. If you think about any big purchase that you make, you're not just going, yeah, I'm going to look at one option and that's it. You look at multiple options and you evaluate why does that one make sense and how is that one generally going to save you more money than anything else?
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So, and I'm imagining if you're working with a relatively complex product yourself that isn't just some off the shelf that's easy to go. Actually, this is quite a tough sort of position to be in this value engineering because you need to understand the nuance of the product in order of how's the product going to work and be deployed and what features do we need, don't we need? So you need to understand the good level of detail there, but also you need to understand the good level of detail of the business, of the finance. So you need to have a foot in both camps, is that right? You need to have a foot in both camps. I would say you need to understand what it does rather than how does it work. Okay. I say that crucially because if I ever think about loftware, we have quite a diverse set of products.
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I could, with a reasonable degree of quality, pitch you right now on why each of those matters and why they matter to businesses and why our customers invest in them. There's two of them I couldn't log into. And if I could, I wouldn't know where to start.
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Now you might think, hang on, he's pretty self-directed if he's saying that. And it's like, yeah, on the one hand, I'm not doing demos every day, but also because I understand what it does and why it matters, not the how do the screws fit together.
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It's thinking about that outcome. So you do need, you need to understand absolutely what your product actually does. Because if you don't have that, then you kind of hide into nothing because you also then run the risk of over promising and getting down the wrong track.
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But I would want to emphasize it's not about that really deep technical understanding of it. It is the business acumen, the financial acumen that matters far, far, far more in the context of our engineering, I think. And they complement each other. And it's not said there isn't a need for the technical piece. A hundred percent. You need that for that audience. But if you're really coming at this from a value engineering, you go, business problem first, then how our solution addresses that. What is the benefit, the upside of that investment?
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And then coming to you, right now, I'm getting into the specific things, let's say things that the product means I can do.
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And anyone who I've ever spoken to about the sort of feature function versus solution selling, it's the same sort of principle.
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You're not going in and saying, oh, this car is really great because it has a hybrid engine.
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OK, OK, what does that mean?
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This car is a hybrid engine, which means that it utilizes electric technology to optimize your fuel usage, therefore making you have a better and PG and mean that you spend less money on fuel. OK, you said the same thing, but you've tied it to the outcome. And that, I think, is where when you start to get into that world, that's also a value engineering is coming from because you're really focusing on those outcomes. And then all the business and the finance stuff comes off the end of that.
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OK, well, I reckon maybe we could get we could suck your brain for some of the great things that you know and make an assumption. The assumption is that the people listening to the show are in the tech world and have got some subject matter expertise. That's maybe the background they come from. And maybe and you mentioned these terms, they've got less financial acumen and business acumen. But they can be quite scary things maybe like when you hear all business acumen. So maybe what we could do is a quick cheat guide, a quick one on one. What are some of the key things that you need to understand to start to be able to think about, right, well, how does this technology land well with a business acumen lens on it or a financial acumen lens on it? Sure. So what would be some of the key concepts we could dig into that it would be good for people to understand?
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Yeah, so and I think, again, it sounds scary, but it probably probably isn't. But so we the three things you'll probably hear about the most and we'll get into these terms, but just to level set is revenue. OK, money that's coming into the business.
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Cost money, the business spends.
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And then capital, which is assets. So things the business owns.
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And for a public company.
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You can go to a number of different websites and sources for this and you can look at their.
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These are the income statement, which is money that's coming in their balance sheet, how much money they have and then cash flow, which is taking a look at once you've taken off things like tax. And that's less, let's say, less important in this context. It's still a useful thing to understand.
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But fundamentally, revenue money comes in. Cost money goes out on what you're left with is your profit or loss.
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If I was to this wasn't me. It's a friend of mine at school.
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He had a roaring trade selling Haribo sweets out the back of his backpack.
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Because his dad had a Costco card. So he could go. He could buy he could hold his. So he could go. He could buy bulk sweets on the cheap.
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Bring them in and then sell them at break time and lunchtime to his peers. Right. And he at the time he was making a lot of money for like a 13 year old and it was really good. But he was looking at the money that he had to spend. The revenue is the money we were paying him and these cost was how much money he was spending. But if we want to kind of get into it more, what we'll do. I don't always an allergy and we need to know as you have a bakery because I don't want to get in too far into specifics. As you said, everyone's coming from a technical background.
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And I'll be honest, you'd probably be surprised. You probably understand more about this stuff than you think when you start to actually connect the dots with what you today and what you have to understand already by your customers business. So what I do then to make this understandable for everybody. And so we can sort of track this through is give you an allergy of a bakery. We're not talking about gales. So we're not going to get into fancy coffees and all those different types of milk.
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Thinking about bread, cakes, pastries. So the kind of things that a village bakery might sell.
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They're going to have revenue. That's me going and buying a loaf of bread in the morning. Then buying cakes for kids and they're going to have costs. They're going to have to buy ingredients.
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They're going to have overheads of the lease or the rent on the shop. Electricity costs, maintenance costs.
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And they're going to have capital, which is ingredients that they have. So they're not kind of buying in fresh ingredients every single day.
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They'll probably also own some of the equipment that they have in the shop. So those are kind of the cool things. I think if we take those as our starting point and it will kind of break us down to where we need to get to.
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I think as well a lot of people really are looking at this and kind of going, hang on a minute. We were talking about business cases and financial acumen and software solutions. Now we're talking about a bakery. Whoa, whoa, whoa, hang on a minute. The reality is the way that a bakery makes money is exactly the same way that say Lego makes money.
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What they do.
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They have raw materials, raw ingredients. They have a manufacturing process and they sell it for profit.
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So in essence, once you understand really profit and loss or P&L,
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you're already a long way down the track of where you need to be.
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If you're a solutions consultant, sales engineer, listening to this and thinking this is way too much. If you understand that concept, you're already a good amount of the way there.
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It's not about as well understanding the nuances of being able to go through. I mentioned some documents earlier, go into an income statement, understanding every single line, right over in the US, really everything like a 10 K or everything on companies house. It's really about being able to go in and look at those key things. What are the key things? And if we think about our bakery, what do we care about most? So we care about our revenue, how much money we're taking in every day. We care about how much money we're spending.
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And we care about what that leaves us with, which is called operating profit. And that is sometimes also called EBIT. Earnings before income tax, tax, income taxation and amortization. So you put everything in appreciation, put everything to the side, right? I got that completely wrong. Get everything to the side because we know that when a business makes money, it isn't just profit and then you don't pay a tax on it. It's other things that happen to it. That is sort of after the fact, right? That is any any CFO will tell you EBITDA is a really, really key thing. And you'll probably hear it quite a lot as well. If you work certainly in private equity.
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Because that's really the number that matters. And that's how much money have we made as a business after all of our costs have gone out.
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So we then think about if we come think about our bakery, right? So how do we make money? And I think this is where we need to start. So if I was coming to you and saying, I'm going to give you a new way to sell your products online,
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you can branch out into e-commerce. You've had super successful bakery.
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You've evaluated your options and you've gone, I don't really want to open a bigger store. A bigger store means more staff. It means more overheads. It means moving costs. It's a very, very costly investment. And also crucially, you don't have the capital or cash to make that investment right now. So you don't really have the money to spend on that. You don't want to go and get a bank loan, right? You're kind of thinking, you know what? Yeah, we're doing really well. I've built up a good social media presence. I've got lots of photos on TikTok and people keep going. How could I buy these? These cakes look amazing.
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So you're now evaluating.
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Okay, how can I sell these online?
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And I come to you and I'm saying, hey, don't let me know what, I've got a great solution for you. It's going to be so helpful.
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But what I want to do before we show you how it works, I want to understand how is this going to impact your bottom line? And is this going to fit with your growth strategy?
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Is this actually what you want to be doing?
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So the things that I would come in and think about is go, okay, so let's understand.
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And I really want to have an understanding of how your business makes money today. I think a really key part of engaging in these kind of conversations with an existing customer or a potential customer is you have to show a level of understanding of how their business operates.
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If I'm perfectly honest, I would expect most people listening who are working in various industries, you probably already understand how your customers work more or less. You understand what their business is.
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You're not going to know the nuances, right? But you understand at a high level what their business is because you kind of have to.
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And even if you're selling to one small team, you'll still have a context of what the business does.
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So I say, okay, I understand you're a bakery and that's how you're kind of primarily making money. Okay, can you take me through what are you looking to do over the next five years and how are we looking to grow the business?
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And you might say, well, we've been in business for 10 years. We've been really successful up until this point. We're now looking for our next level of growth. In five years, we want to have a really successful e-commerce business. I'd actually like to not be spending as much time sort of behind the counter in the kitchen. I kind of want to go from do some other things, spend some more time with the family.
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And we'd like to be looking at, you know, sort of 5% to 10% year-on-year growth moving on. But between now and then, we want to grow by 50%. Okay, so we understand where you are, big picture what you're trying to do.
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And then go, right, so let's talk then a bit more about what are the problems that you're trying to address today.
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And you would say, right, okay, well, I tried to use TikTok Shop, but it was a nightmare because we set up a shop online and we suddenly got loads of orders coming through and we couldn't fulfill them, they couldn't track them, we couldn't see they were going, then we got a really bad reputation. Actually, we didn't get anything out of the door and we brought the stuff in, but we then mismanaged it.
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That's the problem that you've got as clear a problem. So you need to find a way. You want to go to e-commerce, but you haven't got a solution for yourself then.
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Can we understand just a bit more what are the main things you want to address?
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What are the things that you're concerned about?
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And you would say, well, the biggest thing is going to be probably demand. How much, you know, how many orders are we going to get? How are we going to fulfill those?
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You go, okay, so I'm going to demand, why is that important?
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And you say, well, we want to make sure that we're buying the right amount of ingredients,
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that we're not having ingredients, you know, sat in the store that are expiring, because we're not using them. And we also want to make sure that we're fulfilling our orders on time so that we have happy customers who come back and buy more from us, because we want this to be a sustainable growing revenue stream.
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I say, right, okay, so that's good. That's given me a good level of information about where you're trying to grow in the business.
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Then we start to think about, okay, so what can we, how do I help you? How does my software help you? And I can say, well, actually what I've got, and I'm really in my head, Ben, I'm thinking about Shopify. If anyone's ever kind of come across that, it's a good thing. It's a, you know, a freestanding e-commerce platform that allows you to sort of have that front store. Right. And it does kind of the interactive piece with your own customer for you.
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It doesn't solve all of your ordering for your ingredients. It doesn't bake the cake for you. You have to do that yourself.
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But what it does do is it helps you to solve that problem of demand, let's say demand management, making sure that you can track your orders, because you told me that was a real pain point.
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And I know that's important to you because you want to make sure you're fulfilling the demand.
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You want to make sure that you've properly stocked, but not overstocked.
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And you also want to have repeat customers. So you want to grow your revenue consistency consistently.
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Still with me? When we get good. Okay.
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So let's think about, so let's break it out. So think about how, how, how are we going to help you? Let's think about those three areas, the revenue, the cost of capital.
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How are we going to help you grow your revenue? Well, we're going to help you build a new revenue stream, a new way to bring business, bring money into the business. Excuse me.
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Anyone who's ever listened to five minutes of a podcast talking about how to become a millionaire online will have heard about multiple revenue streams. And maybe a little bit of sense to that, because the idea with that is you're not solely relying on one way of making money. And Baker again, may already have multiple revenue streams. They may all have the actual bakery they own. There might be a catering side of the business. You might do, you know, cakes to order. So things like wedding cakes, special events.
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You probably already, quite a lot of businesses will have multiple revenue streams and that can be a diverse customer base.
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That can be a diverse way of actually going to market. You might do some business to business. You might do some business to consumer. You're already going to have those and you're now looking to add one to grow that revenue.
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So that's what we do. So we give you this really way of growing your revenue. You're going to bring more money into the business.
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You know, great. I'm really worried, though, about the fact that this actually is going to mean I've got to go hire a bunch more people to do this for me. That's going to put my costs up. It's going to completely wipe out any new revenue that I might make. Oh, well, also, I don't know how consistent it's going to be in terms of ordering. So I need to make sure that I've got the right amount of ingredients on hand and not expiring because I need to make sure that I'm managing my inventory is the is a place for my assets properly. And I go, OK, great. So what you can do in our platform is you could actually set a limit on the products that you can sell per day or per week. So, you know, you'll know you'll have the recipes. You'll know how many how much of each ingredient, how much flour, how many eggs, how much sugar. You need to bake. I know 100 donuts, let's say.
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You're also going to know how many boxes need to buy.
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You're going to know how much it costs you to ship them. So those are things that you can define. And what we can do is help you put a cap on those costs and ensure that they don't escalate.
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So as you start to grow this revenue stream, we're actually going to help you address those costs. We're going to help you have a really clear picture of how much of each thing you need to buy.
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And by the way, that means you're not tying up loads and loads of your working capital, which is the money that you that's money that is invested into things you have not yet sold. So the flour in the store, right? The eggs on the shelf that you're not having loads of that tied up in stuff you also can't sell because it's all well and good. Having a massive bakery full of lovely loads of bread. Fat, a lot of good if you can't sell it. So you have to manage because you invested money in it, but it's not yet made you any money either.
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Okay.
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This is how we're starting to think. Okay, right now I'm just in that and you go so right. So what you're telling me if I wrote if you play back to what I've told you, I'm going to allow you to my primary thing I'm doing is helping you grow your revenue sustainably.
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And then also giving you control over how you manage your costs. So you're not growing all costs.
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If we look at companies, some of the let's say some of the highest valued startups right right now.
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Their costs are massively out doing their revenue, which is not sustainable where we're growing. You want to make sure that your revenue goes up. Your costs will go up as well, but that one does not exceed the other.
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So I'm doing that. You're going to have that. You're going to have a really clear way of setting it. It means that you have clear management of the demand on your business, of the demands on your staff. And you can really start to look at how much money you could potentially make with this. You're going, this is great, right? I know my I've got predictable revenue. I've got predictable costs and I got a predictable operating profit. And that's a revenue minus cost gives you a pretty profit.
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You are thinking, okay, this is really hopefully everyone's keeping up. This is really quite painfully logical. You just, it's maths, right? It's just numbers. It's not, it's not emotional.
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It doesn't have a, and this is some of the beauty of it, I think,
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particularly for me coming from that sort of pre-sales background, right? I really,
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would you get, you get quite emotional conversations or I don't like the way that works or can it do this, can it do that?
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Value engineering doesn't have that because you're just dealing with numbers and numbers don't have emotion in quite the same way. So sort of two, two challenges that sort of spring to my mind as we're talking about that. Yeah. As we're thinking about this.
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And I'll say them out loud and then maybe we can get into them. The first bit is that the person that you're selling to has no idea about this stuff that you're talking about, right? Because they are an IT administrator, a director of IT or they run the network team or they run the identity team. So actually they haven't got that insight. So that's the first thing. And the second thing, what you described was really quite simple with the, with the bakery, right? Where you've just got revenue costs operating profit. But the reality is once you start getting into an actual business, it starts to get very complicated very quickly. And there's lots of other terms and there's lots of nuance of the business model. So those are the two challenges. I get the simplicity of what you're saying, but what about when you're dealing with people that don't know the answers or B when it gets complex quick? Okay. So I actually addressed B first because B is easy. All of the things I'm talking about, income, operating profit, cost of revenue, that is exactly how it will be on the, what's called the income statement. For any business. So it's $30 billion revenue business.
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Three lines that you have to care about. There's other nuance in the, you're completely correct, right? You get into things like interest on assets, interest paid on debt.
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We don't care about any of that stuff for this exercise. That revenue, the cost, operating profit, you can see that that is, that is a single, loads of single lines on document.
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Similarly, when we go to our balance sheet and we start to look at our inventory. So what is the value of all the things that we own?
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That's a line in, in that sheet.
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So all of these things are actually laid out. You kind of can get lost in the detail and I hear you, but actually diving into these things.
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It's very easy and companies have to report this as well. They have to show this. They, if any public company has to, if you get into a private company, it's perhaps a little trickier. But you can go in ahead of time and have a view on these things at the highest level of how, how, how it makes money. And also, yeah, they're going to have multiple revenue streams. But if you understand, if you're selling to software companies, a lot of us are selling software to software companies. We know how they make money. You will have an idea primarily how they make money.
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And if you don't, you could probably find on their website because they'll tell you, if you want to find out how does the business make money, you go to the website and go, what we offer, what we do, what are our services? That's where they make money.
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Telling you right there. So it's kind of, it's, it becomes a thing. You can, I can see how it can get quite complex or it can seem quite complex, but actually that revenue, that cost,
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lots of, lots of things that roll into that piece.
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But that's your, your, as your example, server running costs are a part of that.
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People costs are a part of that. So there's going to be lots of other things. But if you understand what specific cost does your solution address, you then go, okay, well, we can move this. And we're not talking about humongous changes. I gave 50%. It's a very outlandish example, right? But it's, these aren't changes, which we're talking about. It's, it's moving a very small amount, a very small amount of a very big number.
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Well, very small amount of a humongous number is a very big number.
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So it's the kind of the things of economies of scale almost when you get into this. And what about when you're talking to those sponsors that perhaps don't know much about this sort of stuff themselves, because that's not their role within the organisation, but, and, but they still have some purchasing power or some influence over purchasing power. Absolutely. Yeah, absolutely. So I think that's where you then need to, you need to know, okay, my solution solves this effect of this financial. Am I impacting revenue?
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Am I impacting costs? What am I impacting in my customer's business? Because you can have, you can start to craft an idea of that. You'll know, actually, basically, the primary thing that does, it's going to grow the revenue.
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You know, that's what it's going to be. But if I'm coming to you and saying, you're saying, well, it's great, but how? I say, well, because I'm going to allow you to sell things online, giving you that revenue stream, and you're not having to go and hire more people to do that.
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Speaking to an IT person, they're going to have a problem that they want to solve. And it might be, I want to consolidate five systems onto one. I've got five disparate solutions, or I've got something that is legacy that I want to replace.
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In a hardware example, it might be, I've just got old hardware that I need to bring in, and we need to look at how we optimize that. Okay, so we know what you want to do. We understand there's a solution piece to it. What is the thing? And you can start to pick on, if, again, if you're an IT director saying, I've got five different pieces of virtual conferencing software, I want one.
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Okay, why is that a problem that you've got five? And they will say, well, for a start, I'm paying five different vendors. Okay, it's probably not very cost efficient to do that for start.
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Also, I have to have three people constantly maintaining these five different solutions. Oh, right, okay, now you're talking about staffing cost.
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So you can start to think about what are the questions that you would ask an IT person and link their problems to that financial piece. And when you go in front of them, it's about saying, not blinding them with information, but saying, what is it that you need to do to go and get this project through? Back to my example earlier about five things, picking one. You say, okay, great, what I want to do is help you build that business case internally, help you understand, help you to be able to walk into your bosses or bosses' bosses' office and say, I want to do this. Here's how it's going to help me, and here's why it's going to matter to the organization. And you can actually coach them on that and help them with that. And all of a sudden, you're not asking them super detailed financial questions.
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You're helping them join the dots, which comes back to what I said at the top about it being management consulting, because you're the person that starts to join those dots together on their behalf and then play it back.
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Fascinating.
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Well, Paul, I've just glanced at the clock, and I think we're pretty much out of time. So maybe we could wrap up. Could you, you know, what would be your key takeaways from this episode? Absolutely. So I would say the first thing is, this is not as hard as it might sound.
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The second thing is, if you understand how a bakery makes money, you understand how any business makes money. And if you spend any real time solving problems for your customers, you're going to have a view on how your software has an impact to it.
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Spend some time. YouTube is a great resource. The internet is a great resource. Go through some of these freight, go through some of these areas, understand what income statements are, understand what balance sheets are. You don't have to be a guru on finance and reading them and doing calculations. And I didn't get into some of the other kind of areas.
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I guess a few things to leave people with to go and look up is one is net present value. Very simply, if I gave you five pounds today, that is worth more than me saying I'm going to give you five pounds in December next year, right?
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Or in two years time because inflation is one component. Five pounds in two years time isn't as well because you can't take that and you can't go and buy something with it. Right. So it's really about looking at. Well, I mentioned ROI earlier. The problem with ROI is it just looks at everything in isolation. Net present value NPV is looking at it over time. So no reflecting that the time value of money. So looking to that. Two of the things to consider when you're looking at that as well that are relevant to this is what's the discount rate.
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You don't need to do this maths, but this is literally the percentage by which any business discounts the return on their investments.
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Every year you're taking, I mean, between seven and 12%, depending on what the business does is pretty normal. So $100 to £100 today. That'll be 93 pounds in a year's time. That will then be 96 the year after. Right. So you could 86 even the year after you start to see how that reflects it. And that then ties to one final thing, which is important, which is called the internal rate of return, which is about the threshold. You know, that investment above which the company has to say we have to get above a certain threshold to warrant this investment being worthwhile. So NPV discount rate IRR. Read up on those. Don't you don't need to dive super deep onto them, but just having a grasp of what they are is going to set you off and set you up well.
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And I think the last thing is.
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Next time you go into a conversation with a customer.
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Think about why does my solution matter?
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How does it help?
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What are the problems I'm solving?
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And if I say you can do this amazing thing, but you can't then go, which means that impact on their business, maybe you're not showing the right thing.
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Brilliant. Well, on that bombshell, as they used to say on Top Gear, I think we'll wrap it up there. Now, if people have really liked what you've been talking about, how can people get in touch with you? You find out more about this kind of stuff.
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LinkedIn is the best way of doing it. I would say I'm Paul House on LinkedIn. You find one there and I can share that. I'm dropping the show notes. You touched it at the top as well. I do have a podcast, the Wandering Tech podcast available wherever you get them. It's been on something of a hiatus. There's about 20 some episodes in there, so feel free to dig back into that archive. I'm always open to a virtual coffee with anyone that wants to dive into stuff more. Hopefully you can tell. I have a real passion for this. I have a real passion for this profession as well.
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I suppose the note to leave on for me is this is how we level up the next era of this profession. When we start to think impact on business, impact on revenue, we're into a very different game from what we've been playing before.
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Thank you so much, Paul. It's been an absolute pleasure to hear all about the bakery and how it applies to us in the tech world. Thank you so much for taking the time to come and talk to us.
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Don't go yet. Remember to subscribe to the podcast and rate the show. It really helps us grow and book new great guests. And remember, if the podcast isn't enough for you and you want weekly micro learning delivered straight to your inbox, sign up to the TechWorld Human Skills Weekly. Head over to www.techworldhumanskills.com to sign up.
