Strategic Filter: Dodging Shiny Objects

23 min
Season 1
Listen directly on:

In this episode, Ivan Zak and Ryan Leech from Veterinary Integration Solutions talk about the strategic filter that accelerates and automates the M&A process. The strategic filter is what goes into the system, and there are two maturity levels to focus on. It’s important for the clinics that you buy, and initiatives that you take into consideration for consolidation.

Topics discussed:

  • Consolidator Operating Framework: How all elements connect and interact
  • Knowledge Base: Proven, integrated principles, practices, and workflows
  • Buy or not Buy? Learn about different software, tools, and pieces
  • Strategy vs. Strategic Filter: What’s the difference?
    – Strategy: New divisions/departments need new processes and initiatives
    – Strategic Filter: Depends on maturity level (inception or development)
  • Core Values, Goals, and Competencies: Are they permanent? Can they change?
  • Change Management: Starts from top to introduce planning to prioritize together
  • Checks and Balances: Visionary pushes things through filter, integrator shares it
  • Cost of Delay: Calculated by adding business value, time criticality, opportunity
  • 3-Pronged Approach: Strategic filter, prioritization, and work-in-progress limit
  • Quarterly Planning: Purpose is to share dependencies—not to plan

Helpful links:

Consolidator Maturity Model – Strategic
Consolidator Operating Framework
WeCrashed: The Rise and Fall of WeWork
Traction by Gino Wickman
The Fundamentals of the Lean Methodology

Speakers

Dr. Ivan Zak has earned multiple accreditations in veterinary medicine. After graduating, he worked in 35 veterinary hospitals across Canada, where he was inspired to create Smart Flow, a first-in-the-industry workflow optimization system. Smart Flow was subsequently acquired by Fortune 500 company IDEXX, where he became General Manager of the Software division. After consulting 500+ practices worldwide on workflow optimization, he decided it was time for a new adventure. Dr. Ivan has a holistic view of the whole veterinary business market and he’s making his next step the creation of a more cohesive, unified platform that will ultimately benefit the veterinary professionals.

Transcript

Dr. Ivan Zak

Hey everybody and welcome to Consolidate that! Ryan, welcome. How are you today?

Ryan Leech

I’m great. I had a wonderful holiday, and I’m glad we’re getting back together.

Dr. Ivan Zak

Yeah, likewise. What are we going to talk about today?

Ryan Leech

The other day when we were chatting, you mentioned strategic filter. I’d love to learn a little bit more about that from you.

Dr. Ivan Zak

If you’ll remind me, we talked about strategic filters in the context of acceleration of the M&A process, is that correct?

Ryan Leech

Yeah, we were talking about how to automate your M&A, the sales process, and how I looked at it as a sales process. You threw in the negative, the strategic filter, to keep me learning and guessing. I wanted to hear a little bit more from you about that.

Dr. Ivan Zak

Actually, if you want to refer to our framework, you can open it on our vetintegrations.com up top and find Framework. You’ll see a big gray button in front of the whole value creation stream that says, Strategic Filter. There are two ways to talk about filters at the beginning of the maturity of the organization and then they can somewhat merge.
What every organization needs to learn from the very beginning is what they should do, and more importantly, what they shouldn’t do. I think it was Steve Jobs that said that the most important thing that we learn is to say no. That’s what every organization bumps into, especially consolidated.
When they start seeing all the shiny objects, all these software products, and all the things that can improve the productivity, efficiency, the life of the veterinarians—you become scattered. The strategic filter is important for the clinics that you buy, and then also for the initiatives that you take into consideration.

Ryan Leech

It’s funny. I don’t know if we did it on the podcast, but I remember we were talking about going to trade shows and conferences. I think you and Bill maybe called me a shiny little thing when I would stand at my trade show booths, making sure that people could learn more about different software and everything. It’s definitely a big thing that can distract people. We’re talking about the veterinary space, especially if you’re new to that, there’s a lot of things that you know and don’t know. There are software, tools, and puzzle pieces that can’t make a lot of sense for that.

Can you give maybe a couple of examples just to wrap my mind around how a strategic filter would be in place, or maybe just how companies and consolidators would look at strategic filters?

Dr. Ivan Zak

When we talk about the filters, it’s mainly what is going into the system, if you think about any filter. When my wife talks about me having a filter, it’s mainly what’s coming out of my mouth. But in this case, it’s what’s going into the system.

Ryan Leech

We have that in common. I’m told my filter’s broken sometimes.

Dr. Ivan Zak

I usually say that I have one, but it’s very coarse, so big chunks get through it. The one thing that is super important is when you identify your product-market fit as a consolidator. When you start buying the clinics, identify what clinics you want to buy. Especially if your business development team is compensated on the EBITDA or their metrics associated with their KPIs or compensation associated with the number of clinics that they bought, sometimes it happens that they will buy anything.
You have to be very targeted in what kind of clinics you buy, and you discover it with time. But let’s say you landed on we’re buying two to three doctors with revenue over $1 1/2 million and EBITDA of at least 15%. That would be an example of a filter for the clinics that are coming into the system. It’s very important.
That’s why I mentioned it in the M&A automation is because if you’re automating it through some sort of CRM, you can set the properties inside of your CRM that have to be checked and they’re required. Your business development team has to fit them into certain criteria, so you don’t spend all the time nurturing the clinic that doesn’t fit those criteria. Then it gets to the point where there’s a decision to buy or not to buy, and it turns out it doesn’t fit.
The second example that I want to give you is different. It’s about the initiatives that you start in your organization. As a consolidator, you’re starting so many things at the same time in multiple departments. The teams are growing, they’re expanding vertically. And then in all of these new divisions, departments you want to develop, new processes, new initiatives. You need to understand what initiatives fit in your strategy and what initiatives don’t fit in your strategy.
Aside from creating a strategy, which is super important, that strategy needs to lower the entire organization in a form of a filter so you know what you do and what you don’t do.

Ryan Leech

I’m glad you said that because I was going to ask you the difference between strategy and strategic filter. I’ve been playing a lot of chess after watching The Queen’s Gambit on Netflix, and I have not gotten better at my strategy. But maybe I need to have a better strategic filter of who I’m willing to give up there. That’s really helpful to look at the difference between those two there.
I know we’re always referencing our consolidated maturity model. At the beginning of this, you talked about our framework that people can find on the website. Is there a specific level of maturity where this needs to come into play, where your strategic filters need to be introduced?

Dr. Ivan Zak

Yeah. Again, this is specifically why I mentioned two filters. The first filter about what kind of clinics we buy—that usually develops in your level one maturity. That level is where you start defining your product-market fit, and we call it an inception level. You start to develop it there, you hone on it, and understand what you’re buying because, for example, we decided to buy small animal practices. We have someone in operations that understands the processes, how to optimize efficiency, and then business development comes in and buys a mixed animal practice with the equine component.
The EBITDA might be attractive, the size of the practice may fit our filter, but it is not within the scope. Nobody will know in your organization how to change these in, or maybe it’s practice—small animals. It’s not mixed, but it has a boarding facility for 150 dogs. Does anybody know how to manage that? That shows they have a healthy revenue and a healthy margin, but does anybody know how to manage that? That’s why it’s important on level one, which is inception.

Ryan Leech

When you’re talking about that—you made a good example of it being coarse or fine. In that situation, should people be looking at making their filter finer to be able to reduce and have a better strategy of what they’re looking at there? Or is it maybe, okay, it’s more coarse, maybe we’re not hitting the metrics that we’re looking for. Is that the spot there where they should be looking at where that comes together?

Dr. Ivan Zak

It kind of grows, that’s why I mentioned there are two maturity levels where you focus on the filter. The second one is when you start developing your processes. You went to your investors and you went to the clinics that you’re buying. You said we’re great at improving marketing, we’re going to improve talent acquisition, and we know how to do inventory management because we’re coming from this retail space. We just have a kickass formula on how to do that.
When you are buying your practices with the filter, insert it with the first level of maturity—this is your two to three doctors, $1 1/2 million, and the 15% EBITDA—then you better look for practices that will fit your strategy with marketing, talent acquisition, and inventory management. If I know how to do those three things, I should be buying practices that are lacking or there’s an opportunity in them to improve marketing. You look at their website.
There are certain things that you can actually do pre-acquisition like researching their website, their social media presence, and you know that you can lift a couple of points by just improving those. From inventory management, we know that you can improve from one to four points if you do it right off the bottom line if you implement a certain process.
It is wonderful if you can do a pre-acquisition assessment and understand if this practice does have that opportunity. As the organization matures in a level two and three, which we refer to as the process development and the value creation tools development, then you can really hone on your filter, and it will become refined and not as coarse as I have.

Ryan Leech

Bring things in, improve the way that the business is running, and as you improve your business, you’re improving your filter. When I set goals for myself personally and professionally, it makes me wonder, are they permanent? Can you change them? What does that cycle look like? Are you stuck with them? Are these your core values? We just had a great meeting within VIS about our core values and how our team grows. Are those your strategic filters or is it something that does change and adapt as the business grows?

Dr. Ivan Zak

That’s a great question because the core values are probably a little different. That’s something that you form as an organization, believe in, and hire, fire, and review of people using that sort of moral and cultural filter. They’re not good or bad. They’re basically doing you fit or not fit into their organization, and what are your beliefs?
But the strategic filter is something that allows your entire organization to be laser-focused on the things that you promise your investors and the clinics that you bought. It should be pretty rigid. As you evolve, let’s say you hired a new COO or the first COO and he or she comes with great competency. Let’s say inventory management wasn’t one of your competencies and all of a sudden, you’re hiring someone who has that particular competency.
Maybe your filter now includes those clinics, then have that opportunity to improve. You may change it, but the more you change it, the further your strategy will be misaligned. Because as the organization grows, you also need to inform everybody. There has to be rapid communication in changes like that, and sometimes it just doesn’t penetrate through the organization.
If you’ve formed your filter, you started in level one, in two and three, you honed it with the processes that you’ve developed to improve these clinics. You should probably stay in levels three and four, which is quantitatively measured until you get to level five, which we call continuous improvement. That’s when you maybe will see, okay, every value creation plan that we targeted—marketing, talent acquisition, and injury management—we now improved. We have the processes and clinics that we buy. They’re going methodically through this process, and we know that they add five points to the bottom line.
Now, what’s next? That’s level five where you’re in continuous improvement mode. You say, okay, we need to discover something new, then you add an additional item after certain testing and putting it through the proof of concept, and you can add that to your portfolio as part of the strategic filter.

Ryan Leech

Cool. Your continuous improvement is not just adding new things but it could be refined in the way that you are adding the existing things or the way that you’re implementing them and things like that. You mentioned rigidity and I know—as we talk, just even internally—how rigid are people on these filters. Is this a live-and-die-by thing? Is this something that people are doing well? Is this something that people could maybe get a little bit better at? Is this something we can get better at? Where do you think that fits?

Dr. Ivan Zak

I always try to preach what I do and walk the walk. What we do internally is we use an additional instrument to the filter. I’m pretty sneaky. If I want to do something this quarter, I’ll push it through. Regardless of how you or anybody else will resist, I’ll make a case.

Ryan Leech

It’s no.

Dr. Ivan Zak

I’ll make a case. I’ll say, hey guys, we’re implementing this new software because it will help our filter, and I will make a nice story around it. That happens a lot. Let’s say the CEO sees a real vision in it, and someone convinced the CEO, it would be hard to say no. But what becomes an additional instrument to that is it is a very well-defined prioritization.
Now, we took all of these things that are through the strategic filter and another five questionable, then we should define what is more important, and how do we prioritize it. That’s another additional instrument that helps. If people are not too rigid with the strategic filter and they end up with 15 goals, or even worse, 150 goals—which happens—then prioritization is the key in that second instrument that you can use there.

Ryan Leech

The way that you’re talking about pushing through something just because the CEO is passionate about it does make me think a lot about WeWork. I think that’s a perfect example, perhaps, of not having the strategic filter there. There was a great podcast—obviously, Consolidate that! is the best podcast to listen to. But if you want to listen to another one instead of us on repeat, there was a great one called, WeCrashed, which discussed the rise and fall of WeWork.
That strategic filter probably would have been something that would have been very helpful for them to go from being a fantastic idea of co-working to becoming a health and wellness brand and a lifestyle brand. Where you look at Uber with their flying taxis that they wanted to introduce, and how they’ve just recently sold off that portion and some of their autonomous vehicle stuff. It can’t just be the CEO. Who else should decide on the order? Who else can be involved in that process?

Dr. Ivan Zak

This is the reason why you want the proper instrument for the prioritization. Whichever method you use—and there are multiple. There are risk spider graphs for your organization. There’s a weighted shortest job first, which I prefer. But it is the instrument where, let’s say, executives decided what they want to put through into this quarter, for example, for the quarterly planning. These are the initiatives that we’re starting.
But then a part of the change management that starts from the top of the organization is to introduce in your quarterly planning everybody to what you’re starting doing and then prioritize it all together. That exercise shouldn’t be done by the person who pushed stuff through the filter. That creates checks and balances. If you’re using traction methodology, this is where the visionary is usually the one that is pushing things through the filter, and then the integrator is the one that should say, now the whole leadership team needs to sit down and prioritize these things.
The reason why I like weighted shortest jobs first is it comes from a safe methodology. It’s scaled agile. And then what it does is it takes your cost of delay. Basically, how much would it cost if we don’t do this thing right now? It divides by the duration, how long it would take us to implement this initiative.
There are various ways that you can flex this tool, and the cost of delay is calculated by adding business value. You need to altogether decide what is the business value of this initiative, and then you put the time criticality—how urgent it is compared to other things. You may say, this is super urgent, but when you have 15 things that are super urgent, then you can start honing on it and say, okay, maybe this one is a little less. You just go with 0-10, you just add those numbers together, and you all together look at it. Then you assess the business value, the time criticality, and what is the opportunity for the business.
Those are all the components for the cost of delay, and then you divide it by duration because then, this is supercritical, valuable, and a great opportunity that will take six years to implement. It was like farming lobster. It’s a great idea, they cost a lot, but they grow slowly. Therefore, it’s better to farm salmon.

Ryan Leech

Hold on, it’s farming lobster, a common example that people give for things? It’s a new one for me.

Dr. Ivan Zak

No, I came up with it from the aquaculture course in the vet school. If you compare the two, the salmon is a two-year cycle. Lobster grows for 12 years to get big. You don’t farm lobster, nobody does that. There’s just a fishing quota. I’m going to coin that term.

Ryan Leech

Farming lobster. All right, that’s a new one for me. Thank you.

Dr. Ivan Zak

This prioritization will help you to—with things that were poorly filtered—prioritize them and maybe deprioritize those that weren’t filtered in the beginning.

Ryan Leech

The big thing that people should be looking at—we talked about the weighted shortest job first. We talked about how to prioritize those things. I know you have that big saying, they are always sending me to the stop starting and start finishing, which I enjoyed from last time when you mentioned it to me. That’s common. Starting a new task, starting the things that you love, and the exciting things at the beginning of each quarterly planning. But how do you look at that? How do you keep starting things but making sure that you are finishing them as well?

Dr. Ivan Zak

It’s a three-pronged approach. There’s a third tool. One is a strategic filter. Two is the prioritization. The third one, which is super important, is to put the work-in-progress limit in your organization. It also comes from the lean methodology, […], Toyota, and all of those, but super important.
If I’m one person and I have seven initiatives on me—they’re prioritized 1-3 through seven. But then the CEO goes, all right, here are your seven things. Start tomorrow. What is very important is the work-in-progress limit. If you don’t know what your work-in-progress limit is, start with one. You take one initiative, you start it, and you finish it. That’s where the same comes from, stop starting, and start finishing. Because if you will start seven at the same time, you’ll never finish all seven. Then you arrive at the end of the quarter, and all of them are in progress.
A three-pronged approach is you filter the initiatives and only those that are aligning with your strategy will come in. Then you prioritize them, and then when they are prioritized, you take one at a time into the progress. When you finish it, then you take the next one. You should put certain policies in place where when you start something, present it to the entire team on your level.
Let’s say it’s leadership. I’m starting to do a marketing initiative of improving the websites of every hospital that comes into our pipeline, and then I will show the vendor that I chose and just go through it. When I’m done, I’m doing a presentation for the same team. That’s super important because that creates accountability. It’s not just, hey, I started this, finished it. There’s no definition of done, no definition of ready. I’m still finishing a couple of things here. That’s what you want to do and that work-in-progress limit is super important.

Ryan Leech

Got you. An example from my side of the world, from the sales side of things, is it’s straightforward and easy to be able to say, add 50 people to the sales team. Make the sales team full and add an entire floor of salespeople. We can do an entire thing, and we can make 100 things great. But without having a marketing team, that can put those leads in for you and get the traction that you need for that. Then also being able to implement and put together the deals that you’ve sold. You’re probably not getting in the right prioritization.
You want to make sure that you have all of the teams that are there and in place to be able to allow your sales team to be able to thrive. If you think of your front desk or even your veterinarians, the work that they can do needs to be able to be supported by all of the other departments. You can’t just push 1000 new clients into a clinic if you only have two veterinarians working in there. That prioritization is going to allow you to look at that strategic filter and make sure that you have the right teams in place too.

Dr. Ivan Zak

But there is an additional practice that you should have in place, and that comes with the proper quarterly planning. If we’re saying, before the next year, before the next quarter, we plan these things. They fit it with our strategy, with our filter. Then we say, there are 15 things, but we need to prioritize them. We prioritize them and then we give owners to executors. We assign executors on each initiative. For each person, let’s say there are 15 initiatives and we have five in finance, five in marketing, five in operations, and then they’re prioritized with the WIP limit of one to go through.
But let’s say my initiative number one in my business development needs to generate 15 clinics in the first quarter. If I’ll jump into that but my operations are not ready to accept that, that means that there is—and the keyword is—dependency. You have a task that has a dependency on another department. If you do not plan that well, then everything will collapse because you will bring 15 leads, they’re going to stale, and then basically, they’re going to go away.
The purpose of the quarterly planning—at least this is how we do it, and we try to recommend that—is once you created your goals, once you put them through filters, prioritize, assign people, and assign the work in progress limit. You do quarterly planning not to plan, but to share the dependencies. That’s where your marketing team talks to the sales team, talks to operations, and everybody in the one quarterly planning of the entire company, they get together. We simulated that through Zoom, which works phenomenally. Everyone is just sharing. You’ve been present with our planning.

Ryan Leech

Yeah. Very different from any other ones I’ve done, so I know. We definitely need to do an episode on this style of quarterly planning because it was very different. Nobody’s monologuing. Everyone’s dialoguing, which is nice to see.

Dr. Ivan Zak

That’s a cool idea. Let’s do that next time. Everybody probably has their quarterly plans right now, but maybe this will be a little bit of a first idea on how they can plan their next quarter, especially if they get to the end of this quarter and they’re not hitting on their targets, this is a cool way to do it. You preplan, assign the goals, filter, and then the quarterly planning is aligning between the departments, setting the dependencies, and discussing them. Let’s talk about quarterly planning next. I hope I answered all your questions.

Ryan Leech

You did. I’ve got a lot to dive into, learn, and read. But very helpful and looking forward to our next conversation.

Dr. Ivan Zak

Awesome. Thanks for asking all these cool questions.

Ryan Leech

All right. Talk to you soon.

Dr. Ivan Zak

Cheers.