(0:00) That's what this is all about. It's strategic financial leadership. Know the numbers,

(0:05) Know your targets, know how to influence them, put in place the strategies necessary

(0:09) to drive better results, and at the end of the day, increase free cash flow.

(0:14) This podcast business strategy is about the lessons I learned while building

(0:18) Coltivar.com and turning around and growing million and billion dollar companies.

(0:22) My hope is that you use these strategies to grow your business and someday soon

(0:25) partner with us to build a more profitable and iconic company.

(0:29) Please share and enjoy.

(0:32) How do you know if your strategy is working? That's a really good question, right? Well,

(0:36) I like to tie strategy and finance together. If you listen to other episodes on this podcast,

(0:41) you'll know that I'm a big advocate of those two functions and how they drive value in a business.

(0:47) So here's the deal.

(0:52) When it comes to measuring whether or not your strategy is working,

(0:52) it all comes down to free cash flow. Now, free cash flow drives the value of a business.

(0:59) If you take the definition from Warren Buffett, he simply says,

(1:03) value can be defined as intrinsic value, which is the present value of all the future cash flows

(1:08) that a business will generate over its remaining useful life.

(1:12) And that's how stocks and other assets are valued out there—it's based on their free cash flow.

(1:18) Also, free cash flow is great because at the end of the day, it's the amount of cash that you have

(1:23) to pay down your debt, to return to equity providers, or to reinvest in a business.

(1:29) In my career at Coltivar, we build great companies. That's what we're all about.

(1:34) And someone once asked me, what is a great company? And this is where I got sidetracked years ago.

(1:41) I went down this really bad path, which created a lot of confusion.

(1:47) And I think I wasted a lot of time and resources. So I just want to be very clear on what a great company is.

(1:52) A great company is a company that generates stable and healthy cash flow.

(1:58) That's what it's all about. So like I said, years ago, I was reading books and I was kind of buying

(2:04) into popular culture where it's like, yeah, you know, business shouldn't be all about capitalism.

(2:10) You know, like you don't want to be a capitalistic pig out there only focused on profit and money.

(2:16) Instead, you should be investing in culture and this and that, and like all these other soft

(2:22) things. Which—don't get me wrong—I'm not poo-pooing. Those things are great.

(2:26) And they're very important. What I'm saying though, is at the end of the day, it's all about cash flow.

(2:31) Because if a business doesn't produce cash flow in the long term, if you don't have other capital

(2:37) sources, guess what? The business is not going to be around. It's going to go bust.

(2:41) So I was working with a company a while back. Then I stopped working with them because

(2:46) our ethos definitely weren't in alignment because they were so focused on the soft parts

(2:54) of the business.

(2:58) Like I said, I'm not saying those things are bad, but the fundamental

(2:58) economics of your business have to be sound. Otherwise, your business isn't going to be viable.

(3:02) So they were so focused on that.

(3:08) It's like, okay, profit, cash flow. You're like, Steve, all that stuff—it's for the nerds.

(3:13) We're not paying attention to that right now.

(3:18) We're focused over here. And guess what happened to the business? They suffered significant

(3:18) losses—millions of dollars in losses.

(3:24) And guess what? They failed. And when I look back on that experience, I remember the CEO was talking to me one day and he said, Steve,

(3:29) which one is it? People or profit? Because I think he thought I was this capitalistic

(3:34) pig and all I cared about was money, money, money. And I said, that's not fair.

(3:37) You can't ask me that because obviously I love the people in this organization. I love customers,

(3:43) right? I love people. It's all about people, right?

(3:48) But you have to utilize your people—not take advantage of them—but empower them with the

(3:53) knowledge and skills necessary to drive results. And results should ultimately

(3:59) boil down to free cash flow.

(4:04) And if you have free cash flow, guess what? You can give people raises. There are going to be more opportunities for growth and career advancement.

(4:08) You can reinvest in your culture. You can double down on the soft stuff I love.

(4:12) So don't hear me wrong when I say anything about the soft stuff, because those soft parts

(4:17) of the business also contribute to free cash flow.

(4:23) What I am saying, just to be very clear, is that if you ignore the fundamentals of your business and you don't have cash flow, guess what?

(4:28) You will fail just like all the other businesses out there.

(4:33) I mean, what is it, like eight out of ten businesses fail eventually? That's crazy.

(4:38) And probably one of the biggest issues is that people don't pay attention to the numbers and they're not monitoring cash flow.

(4:43) I talk about this all the time.

(4:47) You could have profit, but if you're not monitoring your invested

(4:52) capital in relation to that profit, you can run out of cash flow.

(4:58) So for example, I may break down revenue and say, okay, let's focus on revenue per customer

(5:05) and the number of customers.

(5:10) It makes it much simpler. Either you can go increase the average value per customer or go

(5:16) get more customers.

(5:20) It's like you could do that through upselling, cross-selling, and downselling.

(5:24) Or for existing customers, go get them to purchase more frequently and reduce churn.

(5:35) And this is where strategy comes into play.

(5:46) Some of the most successful executives that I know out there are those that understand their

(6:04) unit economics and, more importantly, how to influence them.

(7:35) It's strategic financial leadership. Being a strategic leader, understanding the financial

(7:40) side—not being a nerd.

(7:45) Instead, I'm saying just know the numbers, know your targets, know how to influence them,

(7:50) put in place the strategies necessary to drive better results.

(7:56) All right. That's what's on my heart.

(8:05) Hope you have a great week. Until next episode, take care of yourself.

(8:10) Cheers.