Travis Klassen 0:30
We talk a lot at Klassen about creating value, but how do we actually measure it? One of the best tools we use to understand that is something called the value stick. This tool helps us see both sides of the equation, what our customers are willing to pay and what it costs us to deliver our willingness to sell. The bigger the gap, the more value we've created. In this episode, I'm sitting down with Greg Rees, our Chief Commercial Officer, to dig into the math mindset and meaning behind the value stick, and how everyone at Klassen plays a role in expanding it. That's interesting. Where does it say that? Do we still have that in our value creation guide? Or maybe one of the other ones, that if you can't ones, that if you can't, oh, here it is. If you aren't doing one of the four P's, you should be hunting, hanging out with friends or family, skiing, or doing anything else that gives you joy. Love it. So for you, Travis, it'll be learning to be a better drummer. As I heard, was one of your goals. It was a life goal of mine. I just told my wife this yesterday. I wanted to become an excellent drummer, and Greg is an excellent drummer, yeah, who hasn't played in a decade, but you're a metal drummer. I mean, I dabble in

Travis Klassen 1:40
The next page we want to look at in our value creation guide is the value stick. And I'm gonna be honest, I have read this one several times. It may be because I am the chief people officer and I see things in Color Purple, and you have definitely aligned something here that I am very excited to to learn about. So tell us about the value stick totally.

Greg Reese 2:04
So this, this concept comes from, he's a Harvard Business Review professor, fool. I'm gonna butcher his last name like Felix Obert sold sir G or something like that. There's a, there's actually a really, there's actually a really great link to a video that we could that I he's going to do a 10 times better version of this, but I'll struggle along and throw in a couple relevant examples. Nice. But the the value stick is like is just it's thinking about at the top, if you So, if you think about a stick and your vertical at the top is sort of like the very highest price that any customer would be willing to pay for something. And at the bottom, it's the very lowest,

Travis Klassen 0:07
welcome to the value Creators Podcast, the exclusive Insider PodCast for the Klassen group. This is where we talk about how we create value, how we work, lead and grow together and real stories from across the Klassen tree. I'm your host, Travis Klassen, whether you're in a machine at a desk or on the move, we're glad to have you on the Klassen.

Greg Reese 2:51
like price a customer would be willing or a vendor or an employee or something would be willing to receive for something they give you, right? Okay, so, and in the middle is sort of like the price that you actually charge, and then the cost that you actually incur and pay from a vendor, or you the compensation you give to an employee, or something like that. And then the difference between pricing cost, as we know, is, is margin right? And maybe this is a good example of, sort of like how we think about with how we get to K bucks. I think there's k boxes. It might be a good way to kind of tie into here. So before I go in deep, deep detail, if you think of price at the top is price times our volumes, price times the number of things we sell is, is our revenue as a company. So our, it's our top line in quotes, right? And then cost times the number of things that we sell is our total cost of goods sold, right? And then, then there's on top of that, sort of our overhead and administrative and so on. And as you boil it all down, what's left over at the end of the day, I'm broadly simplifying, sorry, sorry, finance, finance team, I'll let you, I'll let you take this one over next time, but broadly simplifying to what's left over our K bucks, right? And as we just describe them, and that's our profits, right, right? And so part of our share. The s in the 4p is share the spoils. And so part of that is, is, how do we increase firm margin without extracting value either from our employees, from our vendors or from our customers, but actually increasing, like expanding the amount that that's there to share, right? So growing the pie, that's as Vice keep saying,

Travis Klassen 4:44
you've been talking about growing the pie being it's not a zero sum game. We don't have to take someone to get something else totally. We're trying to create value for the entire system.

Greg Reese 4:52
Yep, absolutely, customers, employees, vendors and shareholders. If you haven't heard that's the that's our mission, creating value for those folks. You. Um, so anyway, so then picture the stick again, yeah. And let's start at the top right and say, okay, willingness to pay is just the difference between increasing our willingness to pay is just the difference between what a customer the maximum a customer would pay, and then what they actually have to pay. And that that difference between their perception and the what they like, the perceive versus receive, sort of whatever, if you want to say sure is the is this surplus or the delight that they experience? So they expected to pay $10 and we got it to them for nine, they received a quote, dollars worth of customer delight, right? Because they were willing to pay 10 if they really had to. But we got it to them for nine. Got it right. But there's other other scenarios where they, if we did something else, they would be willing to pay 12, and we can get it to them for 10, right, and because we had increased the quality of our of our goods or our services. We actually raised that bar in their head about what they would be willing to pay for that thing, because we changed that. We've changed the frame of reference from, yeah, I'm just here buying a bag of dirt right to, oh, I'm buying garden blend, which is for my fruits and veggies in my garden that I'm growing and I'm doing all these things, and if, and if I can get a better yield from my my stuff in my garden, I'm gonna, I'm gonna be way happier, right, right? I'm not. I don't want to just buy dirt. I want to buy dirt that makes, makes my stuff grow, sure. And so in that that's like us choosing to increase the quality, put a little bit of chicken manure in there, do something that, whatever, and and make a better product, put it in a big bag, crane it directly into the garden that you're going to be growing those things in, and you can and now you've just halved the time, or, even better, that it takes you to spread it all out and then start planting your planting your seeds, right, right? And so that's a that's an example of where, if I go back to those real numbers, it's like, okay, I would have, I would have paid $10 for that old thing, and you charged me nine, but now I'll pay $12 if you do this, and you, if you charge me 10, I'll be like, doubly happy. Oh, that's $2 of surplus in delight, in my opinion, right? But the firm has retained an extra dollar, right? So we've, we've increased the value of that equation.

Travis Klassen 7:30
That's amazing. So what are the ways that that we can increase that value, the perception of value? I mean, as you're talking I'm thinking of a story. When I was I just disclosed to you that I've been here now 25 years, which is surprising to myself, but it's also surprising that I'm a grandfather at 42 years old. So we're all getting surprised this year. But one of the stories I was thinking of as I was 16 or 17 years old, we sold a product. It was a soil. We didn't make the soil. I know you know, my sister Kate's gonna shoot me that I'm talking about someone else's soil. I know K grow and K boost, K boost. These are the soils we're selling, and that's really important. But back in the day, we sold garden blend, that was pretty basic. But then we sold something called Hanks blend. And Hank's blend came from Hank's trucking, and they didn't, they didn't call it Hanks blend. They called it garden blend. It was just another soil. For some reason, when I was 16, I was a little entrepreneurial, excited. I even wore black cords to work, and I called them my soil selling pants, and I got really into it. Hopefully they're not your soiled pants. They're soil selling pants. And they were, it was pretty awkward in the middle of summer, wearing black cords outside in the landscape yard. I really have some questions for myself, but nonetheless, I decided to put on the sign Hank's blend, instead of just whatever. We would sell it for a generic soil. And as the years went by, people started asking about this, and I would tell them, it would grow miracle tomatoes, and it would, you know, it'd be incredible. But suddenly our competitors started selling Hank's blend, and and even the vendor themselves was surprised that their soil had become legendary just because we decided to like people want to know who uncle Hank was, you know. And I think so there's this idea that perception does create value and it's changing sometimes the understanding of a customer has about the product, but that's my

Greg Reese 9:21
I would even take that one step further, so that you doubt use the that was the product and the perception totally but then there's also the like, over time, you're starting to reinforce what that means, and then it starts to drill, it's into the customer's head, right about Hank's equals, right value, right, right? And if you, if you roll that and apply that broadly across all of our either our product brands like you mentioned, K, grow, K, guard, K, boost, K, show, K, play, whatever these like buckets of customer, or our product groupings, and then those products themselves, whether it's Hanks in this case, which, again, we don't. Not our product. It's actually somebody else's but or a garden brand, or enriched or whatever, go down the list, plus the like, people start those names and those those things start to live in people's heads. And it's become shorthand for value if we are backing that up, right? We are acting consistently in our mission on the value in our value proposition. We're acting consistently and reliably where we've developed trust, attached a brand name to something, right? Or, or it's, it's got the Klassen name on it that that all of a sudden, those two things just become synonymous in the market, in the customer's head, and that's at the end of the day, that's actually all that a brand in air quotes is, is just what customers say about you when you're not in the room, right? Right? It's just, it's just the the idea that, like, it's, it's what they feel and think about when they think of a product or service, a company or whatever, right?

Travis Klassen 10:59
The closet, and the person or the K check logo doesn't mean anything. Well, it could mean terrible things if terrible things were associated with that product or our services, or we didn't keep that Klassen promise. But if they, if it's associated with that acting consistently and all of the things that we're talking about, then it is reflecting something that's much bigger than dirt or shaving

Greg Reese 11:19
totally and that. And that is built up over time and that, and that's the nice thing is we've got time. We're here, over for the for the long run, we're trying to build a business for many, many, many years, right? And constantly be on that journey to improve and grow, right? So, right. Anyway, back to the stick. Is that the value stick? Is that cool? Yeah. Okay, so that's, that's a great example on that sense you can add the whole service component. Maybe it's easier to get Hanks because it's down the street for somebody, right? Versus they had to go drive 30 minutes down uptown, or whatever. Like, those are, those are all parts to it. So anyway, that if you can, you think about the equation. I would have, I would have, I would have been like, meh, at 10, you charged me nine. But actually, we've reframed the situation, you charge me 10, and I would have been met at 12, right? I got $2 of value. That's that's me as a customer. Customer delayed, right? Got it, and the firm got to retain an extra dollar in that, in that scenario, awesome. An extra k buck, perfect. Go down to the supplier surplus, the difference between the cost that we pay our suppliers and the the price, the lowest price that they would have sold it to us for. Otherwise, it's just not worth it for them, right? Like, call it like their break even, or their minimum margin, or whatever it is, right? There's some, there's some thing anyway. So it's, again, it's the difference between we would pay, let's say, let's say, in this case, we would pay, or they would sell it to us for $4 and we actually pay them five then, because it costs themselves three and so they're there as a vendor. They're keeping $1 and and so it's like, okay, cool. Now it's $2 because we paid an extra dollar on top of what they the lowest thing. They would have sold it to us for, right? But what if we reframed it again? It's, again. Now it's, it's, these are two different scenarios. One is the status quo. You just do everything. You don't create value. You just do the transaction. The next one is, what if we think creatively and we and we reframe the conversation to if their cost is three, what if we can help them get their cost down to two, which then gets us down to three instead of paying for right? That's value creation, because you're helping, you're you're helping them create efficiencies in their process, or you're giving them something they weren't getting today, right? And in in that case, like, I think your example previously, too, was just on our, like, our mail service, like something that's like, so core to our business, and that we're like my I love this part of our company, is that like, and this is why the vendors is also in the creating value for in the mission is because we get we're so unique, and that we get to create value all the time for our vendors and all the time for our customers due to the type of work we do, Right? And so whether it's, yeah, whether it's SEPA or Gorman's, or any of these other any, any of these mills that we're doing service on the fact that we're never plugging up their bins, the fact that we're always there on time. We're turning trucks as fast as possible. We're working to get like, I think my favorite example is like the tamping program with Gorman, sure, right? Where that's actually us working together with them so that we can pay a higher price for the fiber by reducing our freight cost, right, right? And you're actually just eliminating what otherwise is diesel fuel that should not be spent, right, right from the equation. And it's reduce. Increasing our costs, improving our margin, without having to touch the firm, the vendors price. So they're still receiving that extra dollar, a surplus. Yet we're able to increase $1 on our own because we can pay $4 because other costs. It's actually reduced other costs in our business

Travis Klassen 15:19
that's again, creating value, we've partnered with a vendor who traditionally like when we talk about this value stick, we aren't just buying something, marketing up a fixed price 30% and selling it. No, what we're doing is, and that's in fact, somewhere in here is like we're against that. We're against just a fixed margin. We're looking for market pricing, pricing by value. But when you talk about getting innovative, partnering with both the vendor and this and the customer to find real value for all the people involved, that's where this, this, this value stick, really comes into play, absolutely.

Greg Reese 15:54
I'll use one more example. I think that on this, on the willingness to sell piece with vendors that like that's a good example. Another example I use, go back to the willingness to pay, is, and this is a bit of a this was a discussion I was having with Ben and mark. So they're there. They work together on the commercial team for for packaging. And we were discussing, there's a customer of ours where he he's trying to actually bring some customers from another supplier that he services, from another savings company, and actually bring them to us, right? And in that discussion, there's a bit of a like, Oh, what are we going to do for for their AR terms? A lot of them actually like to bring extended AR terms. Or, what are what are we going to do to like, how are we actually going to win that business over, right? Because they're used to something, and our competitors are either being consistent or they're not right. And so how can we be better and actually show more value to them, to have them, to cause them to switch? Sure, right? And in that discussion, Mark was just laying out his strategy for for servicing the market, and it's actually using Auburn or Auburn Washington location as like a highly strategic mixing center, right where we can have all eight SKUs, all eight bales, different bales, all land in Auburn, and you can fill a whole truckload with eight different like, eight pallets of eight different products, and land it at a at a vendor. And so if you think, if you roll back to their what we were describing is what their issues or their concerns were, were okay, I was buying a full truckload from that guy, a full truckload from that guy, and a full truckload from that guy, three different products, all of them are now landing at my feed store in Southern California, and I've got to pay three vendors, three prices for three full truck loads. What if that's huge for his their terms like their payables, right? What if we could reduce that to one and have more frequent deliveries of more different products, right? And that's a great way to say, Okay, we've solved, we actually solved that customer's payables problem. We've, we've reduced it by a third for them, yeah, by offering them all of these things in one truck, versus having to take three trucks from three vendors. And that's a reason, yeah? Pile, totally, yeah, and that's a reason for them to want to switch to us. That's us saying, Hey, we understand your needs, and we're shooting we're trying to create value and win your business, right? And none. And in that conversation, did I mention price once? No, no. So we didn't have to touch price in that scenario. And in some cases, we might, we might be able to increase our price, because we're offering so much more value, sure that we're able to share in some of that with the customer, right? That's brilliant,

Travis Klassen 18:49
sales for a margin. I mean, you're still using the efficiency of a full truck load, right? Otherwise, that guy has got to pay for, you know, however many trucks, however much inventory, and you've still maximized all that value, yeah, and we're diversifying the SKUs. That's a really cool story. I didn't, I didn't know about that one yet.

Greg Reese 19:08
Yeah, that's right. It's fresh off the I was, I was on a car ride this morning. Call so, very cool.

Travis Klassen 19:12
Yeah, finally, on this, on this value stick page you have creating versus shifting, can you just talk about that a little bit more? Yeah.

Greg Reese 19:20
I mean, I think we've really talked around it this whole time, but it's really just again, that whole, are we expanding the total length of it? I'll go back to the stick. It's what has a value stick. Is that stick 10 centimeters long, or 10k blocks long, stacked up, or is it 1214, whatever? Right? Because if you reframe the offering to be something that's longer more valuable to people, then you're there's there's more to dole out, there's more to shift around, there's more to share with like the customer can receive twice as much satisfaction, and we can receive we can also. The same time receive more, or our vendors can receive the same price. And but we've lowered our costs in other places because we've reduced waste from a system, right? And so I think all of that the like shifting value is easy, if anybody can do that. What we're saying is creating value is hard, and that's what we're here to do. We're here to sign up to do the hard stuff because that's different. And we're trying to do something, we're trying to act differently. We're trying to that's our value proposition, right? And so being able to focus and be creative and think on, how can we do something different for the customer, do something different for the vendor. Do something different for our employees. At the end of the day, what's left over is K bucks, which is what shareholders and employees, too, in through the through our K days, right? Sharing the spoils. That's what's left over because we did. We all signed up to do the hard stuff of creating value. Up and down the value stick, right?

Travis Klassen 21:03
So that's excellent. I have nothing more to add to that. That's an excellent way to end this episode. I think on the on the value stick, we will come back to this time and again, I'm sure, yeah,

Greg Reese 21:15
and like, just think of it, trying to think of examples, right? Like, the the best is, like, this is out like everybody, like, we're already doing this today. That's obviously the most exciting thing, is that, like our again, like I said, our business is uniquely positioned, that every day we create value for our vendors because we're servicing their mills and keeping them, keeping them running right. And we've creating value for our customers because they're buying products, they're getting service that's in excess of what they expected. Yeah, every single day. And I it would just, it would be cool to hear everybody's sort of ideas and examples of this, because it's like, it's out there in the wild today. We just got to start pointing to it. We got to start naming some of these things. And I think that's broader, like just zooming out, like, that's what the value creation guide us for right is it's this rubric, this template of this is what, this is what we're trying to do. And anytime you see it, anytime anybody sees it out there in the wild, like, let's point it out. Let's talk about, say it right?

Travis Klassen 22:11
Even as I'm looking at this, though, like, we have teams of people doing that. We have teams of people servicing the mills creatively. We have teams of people trying to increase what the customer delight, the customer experience, is, is there a certain end of the value stick? This is a question that it kind of came up with here, just as I was hearing you reflect, is there an end that you start with? Do you start with the top line, the willingness to pay? Do you start with the willingness to sell? Where do you where do you look at that?

Greg Reese 22:36
I mean, I think we're all like, uniquely positioned in our in our roles in the business to either be like the obvious thing is, if you're selling something, you're dealing with a customer, you more often figuring out how to delight customers, or if you're if you're a driver and you're delivering to customers, just doing that extra little thing goes along with, oh, okay, I'm good. Can I do one more? Oh yes, the there was a, there's a brief period of time where we got into long haul trucking down into Texas. I do remember because we were having a lot of challenge getting getting capacity to send bales to all of our, our big, big people and and so one, one of the drivers that I hired, he was, he was just so excited to work with us, because we we were a little different, we were a little fresh. Like to from his perspective, we were just, we weren't all about the numbers and sure, and that meant that the division suffered because we weren't all about the numbers. But for the brief, for the brief time that we had him in our stead, he he made it his mission to to make every delivery, like the best delivery that that customer had received from us ever. Oh, wow. Because right? And so he would do stuff like, if we were dropping off at a, like, a big, like a big warehouse or distribution center or something like that, typically, what happens is you have, like, all the truck, like 30 trucks, all lined up waiting to get unloaded, right? Yeah, for him and for the firm, it's a real bummer, because then you're just sitting paying, paying wait time. Sure. So the driver hates it, obviously, yeah, and the firm hate the company hates it because you're, you're just, you're paying for to not move right, right? You're paying for dead time. And so what he would do is he, as he crossed the border, he'd stop at duty free, he'd get like, a pack of smokes, or, like, like a, like, a little bottle of whiskey or something, yeah, and he'd find whoever it was at that set at the distribution center and and be like, Oh, that's the guy that calls the shots here. I'm gonna, I'm gonna sneak him a pack of smokes. He's gonna be in. He's gonna get me up, up in front of the line, sure. And he would routinely do that, or, or he'd go, or we'd go out to deliver a load out in, like, Central Texas, like, literally throw a dart, middle of nowhere Texas, yeah. And, and he's got nowhere to stay. He's gotten already whatever. He's just gonna pull over in the side of the road and and he's like, What if I, what if I help these people unload quicker, so that I could get to my rest stop further up the road, so that I could be closer to tomorrow's to tomorrow's destination? Sure, right? Use my hours up. He's only got so many hours in a day for to drive. So he's like, How can I reduce the total hour time? And so he would, he'd get out there, he'd help him unload. He'd do stuff. He told me stories of, he was, like, invited in for dinner. He was like, had, like, stayed over at people's houses and and brought in and, and so like to wrap this all in, like, that's an example of a customer like they didn't expect that from from him, from Peter, right, that's his name. They didn't expect us as a company to do that, but him, but him as a driver, as an employee, he went that extra mile, sure, and and in the customer perceived more. So now, did we charge anymore for that, no, because there was, there wasn't much more to charge. We probably should have, yeah, it's harder. You got to institutionalize that sort of thing to charge more over time. But the it was, it was a great thing, because it started to build like we talked earlier, right? We started to build this like picture in those people's mind of who we are as a company, right? We're the company that gets out of our truck and helps someone unload, right? We're the company that sees me, understands that I'm a difference maker, and works together on solving a problem whatever, right? So I again, I'm sure there's like, 100 places everywhere else in the business where there's stories like that today. Yeah, I'd love to hear we want to

Travis Klassen 26:41
hear those stories, those stories. If you have stories, talk to somebody. Let's get those in Klassen matters. We can talk about that here on the podcast, but I think those are the stories that make the Klassen name, the Klassen brand, the K check. That's what makes it meaningful. That's it for this episode of the value Creators Podcast. If this is your first time tuning in, make sure to check out previous episodes. Each one offers a unique look at how we create value together, one conversation at a time. On behalf of the support team. I'm Travis Klassen, thanks for listening. We'll talk soon. You.

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