Jason Mlicki (00:08.428)
So Jeff, think there’s something in the water.

Jeff McKay (00:12.08)
There’s definitely something in the water.

Jason Mlicki (00:14.508)
I mean, I guess it’s March in Chicago and the water is going to turn green here pretty soon, right?

Jeff McKay (00:19.603)
yes, yes it is. Have you ever seen that?

Jason Mlicki (00:22.966)
I’ve never seen it in person. I’ve never been in person.

Jeff McKay (00:26.308)
Man, it’s amazing what they do. Yeah, Green River.

Jason Mlicki (00:31.022)
That’s pretty cool. I actually would like to see that. never, I’ve never been there. You should do a live show from the, from the, from the St. Patrick’s day parade. That would be something for it. It might be a slobbering mess by the end. All right. Wait a second. There’s something in the water. What do I mean by that? When I say there’s something in the water, you and I actually have been collaborating on a client on a where to play problem. So we were helping a client navigate a

difficult decision around expanding beyond their core, guess, you know, looking at, as you always talk about, the performance envelope. And since we started doing that a couple months ago, I feel like that’s been popping up left and right for me. I’m talking to other consultants or advisors or other firms that are struggling with the same thing for different reasons. they’re kind of finding maybe their core is under attack and they’re sort of looking at adjacencies.

or something’s changed in the broader world that’s put their core at risk and now they’re looking at other opportunities. Obviously AI is a common suspect, you know, that what we’ve been doing as a firm is under some level of threat or substitute from AI. I think that’s one reason many firms are exploring this, but there’s certainly other ones. I mean, you threw a bunch out there before we started.

talking here today that I think are worth noting. So I do think there’s a broader story going on here, but that’s, you know, we’ll get into that later. So anyway, that’s what we want to talk about today. I want to talk about navigating the where to play paradox is what we came up with for the working title for this. So is that a pollutant? You got to ask the EPA.

Jeff McKay (02:21.456)
So is that a pollutant?

Are you polluting in the water?

Jeff McKay (02:31.418)
You know, I, something in the water. I think it’s a positive thing in the water. It’s something it’s actually what we’ll be talking about today may be catalyzed by negative market pressures in many of our examples. but I would argue even a healthy firm in a healthy industry.

should be talking about the things we’re gonna be talking about today.

because you want to be ahead of any negative market impact. So you should be asking these questions even if you’re not feeling market pressure.

Jason Mlicki (03:20.866)
Well, to your point, this is a little bit off topic, but you’ve been saying this forever. You’ve been saying forever that you have to be paying attention to the core and have to be paying attention to the performance envelope. And I’ll weave in some of Dave Putney’s thinking who’s been on the show. He always talks about future focus, right? It’s like having a future focus mindset about what are the risks that are coming to frack you? What are the things that you’re not even thinking about that could completely change all the dynamics about your business?

And what’s a scenario where that could happen? And you kind of threw one out three or four years ago when ChatGPT showed up and you said, hey, if you’ve got an inbound model that you’re using to attract clients, that’s dead right now and you better pivot. And most firms that I’m aware of did not take heed and they didn’t plan for a scenario where inbound dries up. And we’ve certainly had more than our fair share of calls recently about firms.

that are suffering through this right now, that are like, yeah, our inbound model isn’t really working anymore, and we’re trying to figure out how we change. Now, that’s not, don’t think, a where to play problem. That’s a different problem. That’s a how to win problem. But it’s a similar kind of thing, where there’s this thing that can change the dynamics, and you’re not prepared for it when it happens. So yeah, I like that you brought that up. So.

Let’s go backwards a little bit. why are firms seeing where to play problems? You threw a bunch out before we got on the call. One is AI. AI is definitely changing the core for some firms. The one that we’re collaborating on was a regulatory issue. So there was a regulatory change that made the core essentially become less viable. What are some other ones that pop up?

Jeff McKay (05:10.806)
if you are channel partner, channel partner relationships change regularly. A lot of VC backed companies, you know, pivot on a dime and now they want partners, now they don’t. And it can throw a business into a…

Jason Mlicki (05:15.213)
Yeah.

Jeff McKay (05:36.91)
you know, chaos pretty easily.

Jeff McKay (05:47.207)
You want me to keep going? huh. Give me more. Give me more. You know, it’s, funny because I bet our listeners are going, yeah, I’ve, I’ve seen this. I’ve seen that, you know, you know, maybe, you know, major partner who is driving a lot of the business left in a smaller firm. you know, major acquisition,

Jason Mlicki (05:49.792)
No, that’s okay. That’s why he, that was actually really funny.

Jeff McKay (06:14.182)
you know, all of a sudden you’re part of something else. There’s so many different reasons.

Jason Mlicki (06:21.582)
One thing that you and I have talked about over the years is this idea of like kind of the evolution of the way a problem is solved or the evolution idea. We did this all with Matt Dixon, right? Just last call. And it was all about how driving to the heart of a commercial insight and then scaling that commercial insight. But the other end of that is eventually that commercial insight that was derived gets commoditized and now everybody’s doing it. And all of sudden your core is sort of commoditized. So

Jeff McKay (06:29.978)
Mm-hmm.

Jason Mlicki (06:50.638)
Matt’s team is still in the acceleration phase of this, where they’ve had this amazing insight about how business development is done most successfully. And they’re building a training business on the backs of that that’s growing like crazy. But there’s going to come a point when they get critical mass, and a bunch of other firms are going to go, yeah, look at this great insight. We can execute that training as well. And it’s probably already happening. And that’s the.

beauty and peril of the American economy. I always talk about fracking in this regard, in that you remember, I don’t remember the timestamps on this, but it was like 2009, 2010, something like that. America doesn’t have enough oil, we’re a net importer, everybody’s freaking out, oil shocks, price shocks, then somebody discovers fracking and within four years, we’ve basically commoditized fracking. It only took us four years to make it so.

commonplace that we’re a net exporter of oil and we’ve commoditized the entire business of racking and people are pulling out because there’s no money to be made anymore. So that’s how quick this stuff can happen in this country, which is pretty cool and terrifying at the same time. um, okay. Well, let’s, let’s shift gears a little bit. I think it’s there’s, there’s definitely, I do think there’s something in the water. I do think there are a fair amount of firms that are wrestling with this.

Jeff McKay (08:00.313)
Yeah.

Jason Mlicki (08:12.578)
this where to play a little bit more than they have in the past or more recently. And there’s a number of reasons why. And I think we want to get to how to think about this, because if you’re thinking about adjacencies, you know, and you’ve said some stuff about this over the years, one of the things I’ve heard firms say to me a lot is they’ll say, well, we work in X and X is by far the hardest place to work in this in this area of work we do. So we’re going to go to Y it’s way easier. And

Jeff McKay (08:41.136)
Ha ha ha ha ha!

Jason Mlicki (08:42.304)
You know, and Y being like, we’re, we’re healthcare consultants and healthcare is so difficult to navigate. We’re to get a retail. It’s a piece of cake and retail buyers will see that right away. Well, of course they don’t, they never see that. They instantly say, well, you don’t know anything about my business. Why would I, why would I work with you? and so there’s this notion that our capabilities transfer easily and hence it’s going to be a piece of cake.

And that’s never the case. And also, think that that view of, and this showed up in our pre-discussions, is that view that we can make an adjacency decision based solely on capability is not correct and probably dangerous if that’s the only way you make the call. So I want to dig into that a little bit more. What should we be thinking about? When we think about

Jeff McKay (09:29.094)
Mm-hmm. Mm-hmm.

Jason Mlicki (09:36.608)
adjacencies, exploring adjacencies. What do you think we should be, you know?

on our minds.

Jeff McKay (09:47.195)
Well, I think there’s four areas that firms need to look at when they’re making these decisions. Maybe there’s a few others, but I think, you know, there’s four core things firms need to consider when they’re looking at expanding their performance envelope. The first one is obvious. It’s the opportunity.

You want to pursue profitable growth and a sizable amount of it. So you want to be entering markets that allow you to take your share of a rising tide or that you can take share from, you know, a lesser competitor. But if there’s not a growth opportunity there, what’s the point? So I think that’s

That’s number one. Number two, with opportunity comes risk. And I don’t think most firms think through, comprehensively what the risks are. they think, Hey, the growth opportunities there, we have the capabilities. We should be able to pursue it.

But I think there’s a lot of different risks that firms need to look at. Technological risk, regulatory risk, reputation risk. Depending on the industry, the risk profile changes. But firms really need to explore risk. The third one you’ve already alluded to is capabilities.

Do you have the capabilities to actually successfully pursue that growth opportunity? And if you, if you do great, do you have enough of them? And if you don’t, how are you going to acquire or build them? I think firms also think, a little too shallowly shallowly. Is that a word?

Jeff McKay (12:05.168)
Can you turn shallow into an adverb? Shallow. Just put L-Y on it.

Jason Mlicki (12:05.454)
Yeah.

think you can turn anything into an adverb. Actually, all of Silicon Valley was named that way. Grammarly.

Jeff McKay (12:20.038)
gosh. I just watched an episode of the sitcom series Silicon Valley this last week. my gosh. It is so good. And it’s it’s kind of I don’t know. It’s it’s a satire of Silicon Valley. And it is it is so funny the way they make fun of Silicon Valley.

Jason Mlicki (12:30.412)
I’ve never seen that, is it good?

Jason Mlicki (12:49.824)
One of the, by the way, where we have to, but one of the writers on that show, he actually worked for HubSpot for a while. And then he wrote a kind of like tell all book making fun of HubSpot. He was kind of one of the, yeah. Yeah. Yeah. Yeah. Yeah.

Jeff McKay (12:49.926)
Jeff McKay (12:53.765)
Yeah.

Jeff McKay (13:01.816)
yeah, yeah, yeah. I didn’t know he wrote on Silicon Valley. maybe that’s why. Because you could see HubSpot in this. Because all they talk about is this generic platform that is supposed to consolidate file size. So it increases speed and whatever.

Jason Mlicki (13:13.175)
Yeah, yeah.

Jeff McKay (13:31.396)
It’s always the platform, the platform, the platform. could just, you could just put HubSpot in there as the name for Pied Piper is the company in it. But anyway, we’ve gone, yeah, we’ve gone off the, we’ve gone off the rail.

Jason Mlicki (13:38.03)
Yes.

Jason Mlicki (13:44.576)
Inbound, inbound, inbound.

Yes, we’ve gone off the rails.

Jeff McKay (13:53.211)
What was I talking about capabilities? Yeah. so you, have it, how are you going to acquire the capabilities? if you don’t have them and you have to think broadly about capabilities because, normally, firms only think in terms of delivery capabilities. They don’t think about sales and marketing.

Jason Mlicki (13:53.292)
You were talking about risk and you went to capabilities.

Jeff McKay (14:22.318)
in innovation capabilities, everybody says, we’re going to move, here’s our adjacency. We’re going to move up market. Instead of going after VPs, we’re going to go after the C level. And they don’t have any capability to carry on a C level conversation with a firm whatsoever. So when you think of capabilities, you have to think broadly about what those are.

Then the fourth one is brand relevance. So just call it brand. Does your brand have the permission to play in the space you want to go after? If it’s an adjacency, you would think it would have some equity on which to build. But the way firms think about adjacencies, it may not. It may not.

Jason Mlicki (15:19.8)
Yeah.

Jeff McKay (15:22.904)
It’s important to understand where your brand is, where the brand needs to be to go after that adjacency, and what it’s going to take to get there.

Jason Mlicki (15:35.576)
Do you want to throw up the, pause for a sec, timestamp 15. Do you want to throw Michelle’s investment appetite in there as well?

Jeff McKay (15:43.865)
You go ahead and throw it in.

Jason Mlicki (15:46.926)
Yeah, I wrote a short article about this that actually I used to describe the work we were doing together. And one of our one of my clients and friends, Michelle wrote back and said, well, actually, what about I would include investment appetite in there as well. And actually thought that was an interesting one only because I do think back to your point about firms maybe underestimating the importance of brand relevancy. think they also underestimate the

the cost of investment to make the entry. If we don’t have brand relevance, what’s it going to take to get brand relevance? If we don’t have the capabilities we need, what’s it going to take to get the capabilities we need? And I also have a hypothesis as we’re talking about this is,

I wonder if firms, when they think about adjacencies, they overweight the decision in a couple of really big ways. You know, like if I said, you know, okay, here are these five dimensions you should think about as it relates to making a decision about where to play. And they say, well, all I really care about is opportunity and capabilities. We have the capabilities, we can go anywhere we want. And if there’s growth there, we’ll chase it. And so it’s like, if they had a dollar, they would, they would, they would sever that dollar into 70 cents.

capabilities and 30 cents growth or something like that. And the brand relevance piece and the investment appetite piece and the risk piece will get near zero. Even though those might actually be more important. Those are probably, it’s kind of like, I don’t know, good analogies right now is we’re building data centers like faster than we can build them in this country, faster than we can get them approved. And everybody wants a piece of that action.

Have you really thought through the what it’s going to take to win there and be successful and the investment’s going to take if you’re not there now? Probably a lot bigger than most firms realize.

Jason Mlicki (17:49.356)
Maybe I’m being too blasé, don’t know, am I?

Jeff McKay (17:52.719)
No, I don’t think so. In my experience, firms allocate that dollar just like you said. They don’t think about the investment that it’s going to take. They just think they start making some phone calls and the business will start coming in. And it’s not realistic. I mean,

Will some business come in? Yes, but that isn’t scalable. Maybe is a more accurate way of looking at it. And oftentimes, depending on the size of the firm, these decisions can be made not firm-wide, but line of business-wide. And that creates another dynamic because

If you have an umbrella brand, let’s say, for example, you’re an environmental firm, engineering firm, and you have a line of business that wants to move outside of that environmental umbrella and get into, you know, kind of hardcore oil and gas or something like that. That’s going to create a tension with

with the core brand. And it’s going to create some cognitive dissonance in the market for sure, but definitely within the firm.

And most firms don’t, I don’t think that they don’t, they don’t see the hole. Now, if you’re a smaller firm, it’s a little easier to, manage the, the brand relevance. But once you reach a certain size, you can have lines of business, you know, that are really stretching a brand beyond its stretchability. Stretchability? There’s another word.

Jason Mlicki (20:02.232)
See? See? There you go. Yeah, there’s another one. So these can all just be, these are all great Silicon Valley startup names. I want to throw something at you real quick and just kind of get your take on it. I also wonder if there’s a bit of a cultural limitation or governor on a lot of firms. And that is, this is one of my favorite quotes I’ve had from a…

Jeff McKay (20:05.026)
Elasticity, beyond its elasticity.

Jeff McKay (20:11.963)
Yeah.

Jason Mlicki (20:31.96)
for him ever. He said to me, Jason, we can do anything we want as long as it’s profitable from day one.

Jeff McKay (20:40.324)
Ha ha ha ha!

Jason Mlicki (20:40.704)
And so I think that’s another limitation here for a lot of firms is that the expectation is that we’ve got the core. The core is super profitable and throws off, you know, 30 cents on every dollar or 40 cents on every dollar, whatever it is, it’s some super profitable thing. And the expectation is we’re going to walk into the adjacency and the adjacency is going to throw off the same type of cashflow like instantly. Like it’s just, you know, we’ll be able to, to, you know, land new work in a new space that we don’t have much experience in if any.

And it’s going to be as profitable right away as everything we’ve already done. And I’m not saying all firms do that or that people don’t really think through what, but I just have heard that more than once. It’s not like that was the only time I ever heard someone say something like that.

Jeff McKay (21:27.722)
Yeah. It’s more cognitive dissonance, right? Whether that’s, you know, that falls under the investment appetite or the brand, which, you know, I equate brand and culture, you know, to a large degree as well. You know, what’s that say about innovation and risk tolerance and rewarding?

you know, experimentation, if, the culture doesn’t support it, whether it’s from an investment perspective or just a pure, you know, people perspective, it’s not going to be successful either because those, those cultures, I, I, I like what you said there. and this gets back to, you know, my model and

And the concept of Simpatico, if you’re entering into a certain market, if you’re going to be successful in driving brand preference, you’re going to have to sync up culturally in, in some way with the majority of, you know, your market, know, whatever your market focuses and your ideal, your ideal client. kind of alluded to that, you know, when you gave the healthcare example, you know, to retail.

Very different mindsets, very different mindsets. And having a deep understanding of those industries is really critical.

Jason Mlicki (23:08.994)
Yeah, and you can’t show up as an outsider either. have to shoot, I you can’t show up and say, you know, we see these problems and you need the solutions like these. And you have to come in and say, well, we’re part of this industry and we feel the pain you’re feeling in these areas. And here’s a different way of thinking about this.

I think there’s one, so I’m trying to figure out how to navigate us forward here, but it seems like what we’ve kind of honed in on is that if you’re making these where to play decisions, you’re thinking about the core and the performance envelope as you’ve always talked about them. And you’re thinking about, are there other places we should be playing and going for various reasons, whether it’s to find new growth or it’s to…

We’re finding our core is commoditized, we’re under threat. There’s four or five things you should think about. You should think about the opportunity in that adjacency, the risk, how extendable your brand is, how much appetite you have for investment, and then whether you have the capabilities necessary to be successful there, which

I can argue as a little bit more about it’s let I’ve come to the conclusion, whether you have the capabilities or not is not something that should drive your decision to go or not. It’s just whether or not you what it’s going to cost to go there. Because if you want to go someplace where you don’t have the capabilities necessary, then you’re to to buy or build in that that investment number is going to go higher.

Is there something else here? You know, so this is all very rational and it makes a ton of sense, but it feels like there’s, you know, there’s something at the heart of the firm that needs to be part of this decision. It’s the, you know, I’ll just use the phrase core competency for lack of a better, but it’s, I’ve kind of called it the special sauce. Like, what makes us special and would make us successful here in ways that others wouldn’t be.

Jason Mlicki (25:23.468)
It’s kind of like we’re going to go into this new adjacency and, and we have something special to offer this market that nobody else is offering them right now. And it seems to me that that’s got to be part of this in some way, or form. can’t just be a rational discussion about opportunities and risks and brand and all this stuff without having sight of. There’s something uniquely special about our firm that has to. And to your point, it’s kind of like part of that simpatico piece too. Like if.

what’s special about us isn’t valued here, then that’s not a good space for us, regardless of all the rational analysis around it.

Jeff McKay (26:02.468)
Yeah, I would call that maybe a better term is core identity. Let’s let’s look at McKinsey. McKinsey, when I say that term, there is a brand impression that our listeners have for that that firm, and they attribute certain characteristics to that brand.

Jason Mlicki (26:07.938)
Mm-hmm.

Jeff McKay (26:33.592)
McKinsey could do a lot of different things because they have wicked smart people there. They have lots of money. They have global reach. They have an incredible client base. They have a lot of assets going for them.

Would they choose to move into the adjacency of accounting?

They could, they could easily do that. And they could easily be over, I don’t know what the timeframe would be, but could they be a big five firm with the McKinsey Umbrella brand? From a business perspective, they could do that. They could go out and acquire three or four mid-market firms.

Integrate it. That’s a core competency of theirs and hang out their shingle as a big five accounting firm.

Does that make sense?

Jason Mlicki (27:45.422)
You’re asking me to answer that question? No, I don’t think it does. I think this is going to sound crazy, but most of the accounting firms that I’ve interacted with don’t want to be in accounting right now. They’re all trying to get out of audit and tax, even though it’s this incredibly reliable revenue stream.

Jeff McKay (27:45.894)
Doesn’t it? Yeah, does it make sense?

Jeff McKay (28:01.838)
Yeah, that’s funny. Yeah.

Jason Mlicki (28:12.544)
And I think that some of it is because it’s sort of seen as tactical and it’s sort of seen as commodity-like, even though it’s a really weird dynamic there. And I think that would be the issue for McKinsey, is that it sort of devalues the aura of things in ways that maybe they probably wouldn’t want. That would be my initial thought.

Jeff McKay (28:37.676)
Exactly. Cause you can say the same thing about law. McKinsey could get into legal services. They could get into engineering services. They could extend that brand in any one of those areas and maybe be successful long-term, but it just doesn’t seem to make any sense. It would be fighting against who it is.

And I think ultimately when you’re making these adjacency decisions, when you look at, growth opportunity, risk capabilities, and your brand relevance or brand strength, and then throw in investment, propensity and culture, if you want those, those are straightforward. think rational business.

decision criteria, but ultimately it comes down to who is the firm at its core and what is the most, I don’t even know if I would call it logical, intuitive extension of who the firm is. Because it really is a gut decision. Because you could build a business case

You even given this example, when you talk about your Ohio state times for wanting to buy Volvo, right? Jaguar was it? Yeah. Yeah. Yeah. We just wanted it, right? It was inconsistent with brand, but we wanted it.

Jason Mlicki (30:12.898)
Yeah. Jaguar. You read my mind because I was thinking about that as you were talking about that.

Jeff McKay (30:29.466)
That’s not the way to make the decision in my mind.

Jason Mlicki (30:35.374)
By way, Wendy’s did the same thing with Tim Horton’s, I was told. I heard that indirectly, that when they bought Tim Horton’s, that’s kind of the same thing played out. There was like a, although, this is third hand, I don’t know this for a fact. But yeah.

Jeff McKay (30:51.62)
Yeah. Yeah. I’ve heard that story so many times over my career. Yeah. You can see it with the banks, gosh, the bank acquisitions, you know, they don’t can, you know, there’s lots of talk about cultural and integration and all that. It’s like, we don’t care about that. We want the size. We want the assets, right. And who cares about culture? It’s banking.

Jason Mlicki (31:20.98)
All right, so let’s land this thing. If I’m a firm leader or a marketing leader, and I’m sitting here and we’re having these where to play discussions in our firm right now, we’re talking about this for whatever reason, I guess what’s your advice to firms on how to navigate this correctly? What would be your kind of?

final thought on like if you’re thinking through this right now, what should I be thinking most about in terms of making good decisions here?

Jeff McKay (31:57.671)
I think there’s two questions. One, where does the adjacency fall in terms of its total score across those criteria? You know, what’s the growth opportunity? What’s the risk profile? What are our capabilities? How is our brand aligned? What’s the investment time and material in order to get there? What’s that profile look like?

Jason Mlicki (32:23.088)
You get there,

Jeff McKay (32:27.078)
vis-a-vis other opportunities? And then two, is this opportunity consistent with our core identity and who we are as a firm?

Jeff McKay (32:45.286)
It’s that simple. it’s simple, but it’s not easy. Because when you’re having these discussions within a firm, you have so many constituencies vying for limited resources with such an impetus for growth that sometimes

people aren’t willing to make the hard call and say, no.

There’s a better choice. And this is a lesson I learned at Arthur Anderson. And I learned this at my family’s company too. Arthur Anderson never merged with another firm. Never.

Because they never wanted to dilute the culture and what made them who they were. Yeah, they might make it.

Jason Mlicki (33:46.474)
I mean, looking back, maybe they should have. That might have been their death knell. Hey, I’m just saying, you know.

Jeff McKay (33:50.83)
Now just stop that. Stop that.

Jeff McKay (33:57.986)
but that was a firm who knew who it was. Look, a Hewitt is another one. Hewitt was another one firm firm. And then they went public and instead of making the decisions about who their core identity was, they listened to the market and the need for growth. did the,

acquisition of the HRO company and that was their demise. Right? They never really recovered. They ended up being sold off to Aon.

Yeah. So I think those are just a couple of examples. Now listeners may say, Hey, I can give you a hundred examples of the other direction. That may be, that may be, you have to ask yourself what type of firm are you trying to create and how are you defining value of that firm?

Jason Mlicki (35:07.308)
All right, Well, let’s let’s take it to rap enjoy the Green River But don’t drink from the water my

Jeff McKay (35:14.854)

Very well. I’ll see you buddy.

Jason Mlicki (35:22.808)
See ya.