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Spill the Tea about Creative Destruction. SME Chat with Lucas episode 5

SME Chat with Lucas (2021 #GetChatty Series)

Lucas Merlo is the Founder and Principal Mentor at NewLedge. Lucas invented the NewLedge-Framework and CDI methodology (Capability-driven Innovation) during his PhD at RMIT and the CSIRO, to fill the transformation gap between ideas, innovations and new measurable values.

This episode was inspired by Lucas’s recent article What is knowledge? we went deeper into the concept of Creative Destruction, caused by clever industry reporting methods and gaps between data and knowledge.

In this conversation, Lucas and I discussed:

  • how failed business can become part of stats that attract others to go into an industry
  • some tips on how a SME owner-operator can use what they know to navigate
  • the importance in constantly seeking to innovate but not to rely on using novelty or mystique as points of difference

In the months since the production of this episode, Lucas launched a special program NewLedge for STEM, to mentor upcoming/recent graduates to find their own paths.

If you’re interested in watching our previous chat about What is Knowledge, which inspired this episode, please head over to Spill the Tea about Knowledge. SME Chat with Lucas episode 4

Transcript (00:17):
Something called creative destruction – Lucas, do you mind expanding the topic a little bit?
Yeah, so when you hear the saying that “you innovate or die”, so it is true. We know that if you’re incrementally improving on your existing products, you’ll only have a finite lifespan. So technology and everything happens in waves and patterns, and more innovative companies come along and they destroy. They destroy the old firms who aren’t innovating and that’s what’s called creative destruction. So it’s a natural process that that happens in the market where the more innovative dynamic disruptive companies come in, and then they wipe out the old companies. You think about companies in the case studies, like Kodak and Nokia.
Creative destruction is really interesting because it is actually good for the economy and this goes back to why the government, the federal government, doesn’t actually pick individual winners/firms, they pick industries that we’re going to put our funds into because even a failing company is spending money.
It’s very interesting – imagine that someone who would enter the market of being an entrepreneur, maybe have developed something based on what is existing, but then turns out that actually is towards the end of the cycle for that particular way of operating. Although they will be destroyed (and become) part of this creative destruction, but of course that they would contribute to whatever sector’s contribution to the GPD.

When you look at how our gross domestic products are made up – a lot of it is consumption. That’s why they always say that recessions are caused when people panic and start to hide their money under the bed. Because the consumption expenditure goes down, there are two ways to look at it: one of the ways would be, to actually evaluate opportunities before giving funding to make sure that you know our investments are well spent. The problem is, if you’ve got a two-headed coin, you’ve got a 50/50 odds of correctly predicting an outcome – what that means is, sometimes, and this is actually proven in venture capital sector, sometimes they’re better off guessing – because it’s really hard to predict a winning company so the government doesn’t even try. If you look at CSIRO you look at innovations connections, if you’re in a particular industry and you’ve got the money to spend on doing R&D with a university, they’ll fill out your application form, they’re that desperate to play ball with universities so they’ll fill out your application form and they’re not going to evaluate the likelihood of success of your product or service, all they care about is you’ve been in business for a certain amount of years, overall companies got revenue to spend, and then let’s go.
The problem is it’s not actually predicting the winner that’s important, it’s the process of going through evaluating an opportunity, and I know this myself – Next week, I’m doing a business plan again for Newledge – people say “business plans, why would you bother?” but that process of stepping through your thoughts sequentially is what matters.

Transcript (04:28):
What I like about is that you have a 360 approach.
You encourage critical thinking, I felt that it could be a generational thing that critical thinking or just spending a little bit of time to evaluate, “is it going to work?” or “is it something that would make sense?” might have lost over the past years.
Exactly and one of the reasons is, we’re very cautious of giving criticism because society will jump on us and say that you’re cancelled. Now it’s like “whatever you want to be”, “you can be right” but that’s just bullshit because we know that the failure rates and the market doesn’t care and the market is not kind.
The market just cares about the end goal the performance can you outcompete, can you get the job done better cheaper or both.
Plenty of people go into business thinking and particularly the first time, thinking that I have a right to succeed you know because “I believe in what I’m doing” and it’s very problematic.
For example, millennials like myself, there’s a lot about side hustles or starting your own businesses and sometimes, because we are passionate about what we’re doing – we, unfortunately, would turn a blind eye about things that might not be the best approach. The reason I said that is because, at the beginning of my career, I work with a lot of like artists, art galleries, festivals and etc.
Good example industry
They have a great level of optimism and which I admire and I am inspired by them. However, one of the conversations that really stuck with me was almost more than 10 years ago – They were saying like “oh the Australian Council of Art reported the past financial year, there’s 10 billion GDP came through the creative art industry”, and then I asked them how many of them also include theatre, concert and music; and how many of them are actually like circulating in the visual art sector? which is where my client was. I guess it ended up becoming quite a heartbreaking conversation to them – the thing is for me because I don’t want to see them not knowing what they’re getting into. If you know what you’re going into and you still make that decision, fine go for it; at least make an informed decision – just imagine how many failed art studios out there or artists in a really bad financial position – but then they are still part of the GDP.

The thing is, when you’re starting a business, the saying is “friends, family and fools”, that’s your first source of support. And (many) fail once that runs out before you try and go the next step, but the thing is that majority of businesses that start out there, will only end up (if they’re successful) creating a job for themselves. There’s nothing wrong with that, as long as you realize that that’s the expectation you should have.
Starting a company – if you’re giving up your old 9-to-5 job and you’re creating yourself a job – that’s what the majority do. To the niche leaders, that’s a huge leap/step and there’s no way that that’s going to happen easily. We see Facebook, Canva and Atlassian, those guys & girls have done so much hard work in the background to get to where they are, none of them just rolled out a napkin and came up with the business idea and said “let’s go!”
well, they might say that on their press releases
exactly! because that’s what sells!
I think it’s important to have a dream. For me I started my business working with a lot of friends, families and not fools, (but they said yes to a nut job like me, so hmm…). I think for me, building the right image, at the same time, getting the right referrals from satisfying clients – it should be 50% of my promotion effort; the other 50% would be advertising and such as. I know some people would put like 70% or 90% on the advertising, but for me, because I’m a content person, so ultimately having the right repertoire and having the right image, would actually make it easier – People would say “oh, I like working with Arthur, maybe my friend would like him too…”
and that’s actually that’s how I managed to survive.
Think about that, yours is a good example: you know what your core capabilities are, you know what you’re good at, and then you also have a point of difference in your brand. You stand out to other people, that’s enough. You wouldn’t need to do too much if you can pick one or two things that you do better than the majority of the market out there, that’s where you start your business. We all get influenced by what we all want, I’m shocked at this – I always want to do too much and I constantly have to reign it in and go, “well, this is the part that I can do better than other people in the market – this is where I have to focus”

Transcript (12:33):
… The other thing is, a lot of international students came from backgrounds that are not being empowered to think critically or just don’t ask questions.
Yeah and well that’s it’s difficult for them
That’s why I’m kind of circling back to our original topic – the article you wrote What is Knowledge? on your LinkedIn. There’s such a difference between data, information and knowledge yeah – you got to do your leg work…
I remember when I was like 19, 20 years old – I don’t even know what I’m doing -It’s such a long path and I think at the end of that article, I wrote my own experience. I was lucky enough to get into an honours degree and then get exposure to a project at the age of 22; and early publication, got into a really good brand company, during that time I got a scholarship and started MBA then experience overseas. Only now am I’m stepping out into starting my own company without partnering and I’m 42 – so it’s a long path…
If I am doing what I’m doing, when I was like 22, I probably wouldn’t appreciate it as much; If I read your article when I was 20 then I’ll be like “uh… whatever” I’ve done my leg work and it’s like “oh that’s the point!”

Transcript (15:52):
I want to ask you to draw the connection between creative destruction and what is knowledge?
It’s interesting, isn’t it? when you get asked a question like that our brains are like databases…
We have to have to build up.
Knowledge is like the precursor for innovation, you can’t have innovation without new knowledge – but that new knowledge doesn’t have to be new to the world, you can bring something in that’s new only to your firm. So we were talking about CRMs earlier, we’re not going to invent our own CRM but that is still innovation: if we bring in Newledge, we implement it and then we get some value right and value is measured in two ways: it’s economical which is really what matters right and societal which we want to do the right thing. We talk about purpose and so you’ve got new knowledge implementation, creation of new value – that’s what companies are always trying to do the problem is if you’re always just bringing in things that are new only to your firm, you’re not risking producing any products that are new to the market, new to the industry, the world & etc. Eventually what you’re doing, is going to be replaced.
If you look at digital marketing now. 10 years ago, it’s a relatively niche market, if you know what’s going on as an agency you can make money. My brother and I built a website yesterday with Squarespace, we built it in four hours; some digital marketers (on their websites), they’re trying to charge $1400 for one landing page – You see the conundrum, that’s almost bordering on unethical. Because of the advancements in technology those players, they will be destroyed, creative destruction will come along and knock them off.
At one stage, someone said to me that I was made for social media marketing. I was like “I’m very glad that you think that I’m good at it, but then I started years before social media become a thing…” Let’s say in 2010, digital marketing had a bit of a mystique, that image and narrative are very different now.
I think a disruptor like yourself, in the form of Newledge is great because it helped people to either do the best with what you got or try to do something completely different based on what they can do.
If I was going to give digital marketers advice now, I would say that the revision to your business model – technology is always the enabler but it can’t be your point of difference.
So you’ve got things like PowerPoint, beautiful.ai, you’ve got Canva, if your business model relied on you knew about technology like prior to the client and then you were hiding that from the client, and that was how you were making money, you’re going to be found out. It’s not like the agency is the only person that knows about this technology, as soon as it’s public knowledge, your business model is destroyed. If you’re a marketer, the one thing that technology will not replace is understanding the customer problem, breaking that down into a really succinct way things like, market research, you look at the things that ai and technology will not replace how you know you a position, your capabilities – the technology around is just an extra enabler of what you offer, but it’s not your core offering
it’s like um it’s like a cake and it’s icing
yes, that’s right and that’s the mistake people make they use the icing as their point of difference!

We’ve spoken about that the features and functionalities of technology – you know, customers are smart when it comes to partying with a dollar we are smart
oh yeah trust me
With me, it is like “kind of give it another six months to just plan yourself properly, before you push money out there…” I would never ask anyone to do an advertising campaign or do an event, before they have their brochure ready have platforms that people can learn who they are.
We had a good conversation before about how one can do a video and have that transcribed directly into audio. That’s fantastic assistance in itself, but it’s not going to be enough to write a clever blog post. We know we’ve got to have the heading 1 heading 2, we’ve got to break it up into bullet points, it has to be a certain amount of words and it has to you know resonate with us; the other one is taking pre-written articles now and you can turn them into videos, the AI will take your transcript and put clips to it, it’s good yeah but it’s not good enough.
I’ll tell you this those turning transcripts into videos the one that failed actually got more views because unfortunately, some people look at those videos as entertainment
You do need that human touch because otherwise, it’ll just be another piece of entertainment.
The technology is great because it can save us time, but it really comes down to the skilled coach, consultant, trainer who has to apply their expertise and that’s what our clients should be paying for.
I even made that mistake myself, I’m going to put together some time next month to revisit some of my article pages. I was trying to have the video transcript underneath, I really want to connect with my multicultural audience and I would love to do some kind of automatic translation app further down the track – but most importantly before I can do that I need to make sure that I rearrange the words and that’s the job that I need to do and without doing that would be I would be stupid to push the video or advertise the videos.
And you hear people complaining about cheap virtual assistants not being able to write your content articles, no shit. If you want to write a good article that resonates with who you are and what you’re trying to achieve. You have to do it yourself.
This is what knowledge is about like you know this is what you need to put in the legwork.
It’s complex it’s not it’s very different to information there’s all that information out there but how do you get the right piece of information in front of the right person at the right time when they’re ready you also like you said earlier reading a blog post like mine 10 years ago, you may not have been ready to absorb that into knowledge.
So you know companies have got a big challenge on their hand how do you manage your knowledge you know how do you create communities of practice and interest in blogs and get that sharing of information because it’s not like build it and they will come anymore we’re not impressed but we take a lot to be impressed.

SME Chat with Lucas (2021 #GetChatty Series) Lucas Merlo is the Founder and Principal Mentor at NewLedge. Lucas invented the NewLedge-Framework and CDI methodology (Capability-driven Innovation) during his PhD at RMIT and the CSIRO, to fill the transformation gap between ideas, innovations and new measurable values. This episode was inspired by Lucas’s recent article What…