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? I really enjoyed recording this episode, as we talk about the difference between data, information and knowledge; how gaps could form if SME owner-operators only focus on part of the value chain.

In this conversation, Lucas and I discuss:

  • the difference between data, information and knowledge
  • the danger in knowledge had been misrepresented by the abundance of information
  • how we navigate ourselves outside the comfort zones
  • how we would like to adapt these principals to help local SMEs

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.

Transcript (from 00:47):
What motivated you to write this article?
I guess I went on a bit of a learning journey when I created a course for Victoria University and knowledge management.
You throw the terms “knowledge”, “innovation” and everything like that around – but it’s difficult to have a deep appreciation of what they actually mean and how they fit and in what order as a process. So I really learned a lot through creating that course and then teaching it over a two year period.
I learnt, like the history of knowledge management and the Japanese contribution to knowledge management mainly the differences between, you know, data, information & knowledge; where learning fits in and; how we have innovation… I think it’s just a really interesting topic and once you understand it then, you can understand and appreciate how to learn better.

Did you start the process before you do your PhD, MBA & etc?
yeah exactly so in 2014, I came back from overseas and then I wanted to do PhD and at the same time I started a company. That company was dealing with business opportunity evaluation, so people with new business ideas startups would come to us; we would evaluate their opportunity and then we would be able to tell them with pretty good accuracy whether they’d get funding and then go on and trade successfully.
I had a really good mentor, the creator of that algorithm, for my PhD, professor Kevin Hindle, he was one of the best professors in entrepreneurship globally and had some really good recognition. Over 90 peer-reviewed publications and is he is the consummate professor, he loves to profess. That was basically the genesis for my PhD was just seeing this amazing algorithm and we’ve recently sold it to a venture capital trading platform. Obviously, lots of companies want money, they want to raise money so we built a screening tool, that was based on a big pile of business plans, from the big pile of business plans the research found out with 89 accuracy – which companies would get funding based on a set of criteria; and from those companies that got funding, which would then trade successfully for three years (meaning fifty per cent increase in revenue for 3 consecutive years), could predict that with 79% accuracy.
We built it into a software program and that was really how my introduction into the appreciation of knowledge and innovation really grew.

Maybe we can start a little bit about the definition of data, information and knowledge?
If you take it even back before data: so computers are made up of just bits of things, a bit of thing that is data, on its own it’s there’s not much you can do with it; with data, data are simply facts or figures pieces of information but not the information itself.
We can collect data quantitatively or qualitatively: we can go and do a survey and then we can analyze that which is quantitative, or we can interview which is qualitative. I’ve always been a big numbers man, but after two years into PhD, I realized that quantitative was never going to answer the question of how can we increase innovation and competitiveness. I went to qualitative and started doing interviews so the data on its own doesn’t have much valuable information is where you’re presenting the data – so you might write a report, you put it in a thesis, you put in a presentation, so you make it explicit in some way so you take that data and make it readable or digestible to the user.
We’ve got a lot of information out there, we know that we can store our information, we can reproduce it, we can publish it, but information on its own is not knowledge okay – that’s where we all fall victim now in 2021 – we all want to become more knowledgeable from sliding on our iPhone and glancing at information and expecting to absorb, it’s not the way it works. We’ve become really demanding and selfish as knowledge consumers now, we expect to learn without actually becoming knowledgeable. The transfer of information to knowledge is where you have to give effort. I don’t know about you, I’m not the sort of person that can be listening to music, have the television on and soak it all in, I have to sit there and try, sometimes I have to read things 2-3 times, write it down and do a diagram – once the penny drops that information then becomes knowledge. the knowledge that you can transfer to somebody else.

There’s something a little bit frustrating as marketing managers is that, sometimes you come across people who just want a marketing plan, get you to run for it for a few months, and then get some new graduate to do it.
The thing is you do need the leg work, you do need the experience to develop that finesse to make things work – that is not just information, it’s not something that you can google, or just go through your smartphone and then learn it – you actually need to put in the work and then see: ah that works but that doesn’t work.
I think that knowledge had been misrepresented by the abundance of information. There’s a lot of information available, which is wonderful, but if you don’t have that ability to filter it, to learn it, to transfer it and translate it – then they’re just words.
That’s right and that’s why in the article I mentioned that I’ve always had a lot of respect for having a mentor
Friends of mine have said to me as far back as 15 years ago, they’re like “why don’t you just get out and do the business on your own? (you get less of a shareholding)”
I earn less, but that’s what’s enabled me now to start my own company and start to become relatively successful. I see the people who didn’t have mentors fledging and the reason is like: think about the best chef in the world – the best chef in the world can write down their recipe which takes that tacit knowledge and makes it explicit right in a codified form. You can study that recipe & try it a hundred times, but it’s not until you’re standing side by side with the chef, that you’re going to come up with a chocolate cake that’s you know nearly on par with the masters right!
We don’t have enough respect for that and I think universities really miss that too, I’ve got a bundle of degrees but I can’t say I ever had a mentor at university.

Transcript (from 08:20):
You shared your own story (on the article) and I really love one of the last lines, which is “the doubt came from the fear of knowing what you don’t know” I love that line.
i love it too … Bertrand Russell said “…the fundamental cause of the trouble in the world today, is that the stupid a cock-sure while the intelligent are full of doubt…”, and you’ll find that so many self-confessed coaches and facilitators throughout Linkedin and they’re the ones with the least experience and expertise, are often the most old and brash. So you need to sort from between the weeds don’t you – in the top left hand we see that we know what we know, we all whether a company or an individual, we know that we know things then; if we’re wise, we know that they’re things that we don’t know, okay and that’s where we go out and fill the knowledge gap: we find a mentor, we hire somebody, we speak to each other – we constantly fill those gaps consciously because we know that we’ve got knowledge gap. The other one is your company you don’t know what you know okay so we all know more than we realize and that’s where we’ve got to untap it, a lot of that comes from losing the shame and fear of you looking silly – we all know more than we actually know. The one to be really really fearful of is you don’t know that you don’t know and that’s the one that comes and bites you on the ass whether you’re a company or an individual, that’s when you get too cocky.

We’re in a day and age that… Let’s just say a couple of generations ago, that you can just do one job and that job can last you for the entire career, and that was good for its time – but right now, if anything 2020 had taught us, things can change any moment. Of course, there are also opportunities popping up any moment, who knows, maybe 10 years later and not a completely unrelated opportunity would pop up. If we just stuck with one mindset and not exploring what we don’t know or what we know we don’t know, we will only be trapped inside a small corner and what was, unfortunately, could happen is … look every year there will be some younger or someone fresher ideas to come into the scene you know it’s yeah it’s tricky

In 2016-17, i took almost a year off – I didn’t know why but nothing satisfies me & it doesn’t make sense, unfortunately, i didn’t have a mentor. I took off, went away and tried to start again by learning short courses, doing random jobs and doing some travelling, and learn about things completely outside of my comfort zone or knowledge. I didn’t know at the time that the need of change and after that time off i realized that – oh these are the things that i didn’t know… for me my attitude is – I’m gonna learn until the day i die…
That’s right, we all feel silly if we look back upon ourselves from a year ago, but that’s that’s part of being hard on yourself and committing to learning long term. This is why it’s so important to have a coach and a consultant facilitator. I saw my friend start a company two years ago and i said to him (sometimes you’ve got to deliver the hard truths, we always say like, when you’re evaluating businesses. Not all babies are beautiful, but it’s very hard to tell somebody with a new business that your baby isn’t beautiful, because we our first business we always get really attached, right?). So i gave him the hard truth, i said “look for these… this reason, this reason and this reason – it’s not just my knowledge, i’m relying on a proven system to evaluate companies and i told him, “look, i think in this period of time, this this business isn’t going to work (for this reason) and you’ll have to go back to this job and maybe he’s not ready to talk to me because he never had a mentor and he always said to me “i already know it” – “i already know that” is very dangerous…
Social media turns out to be a really good live example of echo chambers. If we (only) stuck with “we know what we know”, then we will only be able to surround ourselves with people like that. In retrospect, i do feel that might have been the reason why my well-being was declining before 2016 – i felt that i was just doing the same thing & what’s going on for the rest of my life?
Unfortunately the person that you were talking about, maybe at the time, he wasn’t ready for that information, wasn’t ready for that news; but of course even as professionals ourselves, even there’re news that are difficult to digest, i wish i had a mentor.
You interview professors and lecturers, part of what you’re doing now is in a way, you get to learn. You’re putting a clever way to absorb tacit knowledge, because you’re speaking face-to-face with people different areas and that’s the beauty of what you do.

Transcript (from 15:12):
The other interesting thing is when you’re starting your own business, like my previous company that we sold, we evaluated 144 companies, and of that 10 went on to raise money and they traded successfully. It’s very easy to look at somebody else’s company and make unbiased decisions and inform them, but it’s very hard to look at your own business when you’re doing it, and that’s why even at Newledge, i’m seeking out people for advice – i’m not too shy to say “geez i’ve got half a dozen degrees and phd and all this experience i’m like … no i i need advice as well”.
I think that’s that’s the great thing about just being open-minded
Like 5 or 6 years ago, i hate the word “entrepreneur”, whenever you see somebody say “i’m an entrepreneur” because everybody wanted to have their laptop, sitting at the beach and posting instagram photos “hey i’ve made it” but the the chances of success for small business it’s it’s really low.
Most businesses when they start will stay operational for two to three years because that’s the time you take to suck money out of friends family and “fools” until you really have to get funding but many have gotten too cocky. The other one is the cost of getting good advice, that’s where I think people like you and I as advisers – we need to work on that value-based pricing and say “well, we know you don’t have the money to pay hourly exorbitant fees, I don’t think anybody should be charging hourly fees anymore but – what if I could take your business from here to here and we measure the performance what would that be worth to you?” That’s the way you can help these people – you have to know in yourself that you can get their business from where they are now to where you’d take them to go, if you can’t then you have to tell them they’re not the client for you.
It’s like this it’s a supplier demand chain, after all, you got to find the right match. I think sometimes that people can take things a little bit too personally because, as you said, it’s all their babies but not all babies are pretty.
I don’t think there’s many successful entrepreneurs out there that haven’t had a failure. I started the business (the early 2010s) in Korea and it was for factors outside of my control – it was a long story but what happened in Japan with the nuclear fallout actually ruined my chances of getting some product into Korea to on sale and I lost quite a lot of money, and I took it’s really hard, I got really down about that it wasn’t an exorbitant amount of money but at the time and it was more than failure because I was just so cock-sure. A good failure will kick you in the ass and then you’re wiser you listen to people.
yes and that’s part of the experience that become your knowledge, it’s not something that you can just google up or just get a pamphlet and learn it. It doesn’t work like that…

Certainly, a bit of magic starting a business but there are certain things (and this is what our company did), we would look at the product, market, industry, people, and money. So we had five pillars that you would assess. There’s basically 15 criteria and they’re all weighted a little bit differently, if you scored highly in one you didn’t need to score as highly in another. The first one was basically looking at the product: is there something that’s novel and does it have a market impact; the next one was to look at the market and say: well is the customer receptive to the offering and how effective are the substitutes at filling that gap? because we all have competitors even if we don’t think about it, (where) our substitute products come from a wide range of areas; the other one is, is the industry attractive? okay so you want to get into an industry at the right growth stage, how much capital do we need to invest? is it marketing intensive…?; then you look at your people because when you’re starting a company, the people are really important they say “you back the jockey right not the horse”; then you look at the financials – financials when you’re starting a business. It’s difficult because if you haven’t got runs on the board, we can all do the most elaborate excel spreadsheets, and come up with a 24-month financial forecast – 3 months later go “what the hell?!” right?
There’s some criteria you can look at and you can give somebody a really unbiased explanation of how this relates to the likely success of their company, but the rest of it is you know that how much skin in the game have you got? do you wake up every morning just fighting off the down and getting into it? There are other things that come into it, but you can give somebody pretty good advice about the likelihood of success for a new business.
I came across some potential clients, that was like “okay I need you to backtrack a little…” and just “let’s be realistic for a moment…” because from all of the bibs and bobs that you talk about, for example, finance. Sometimes people do overestimate themselves a little bit or, they got a little bit too cocky, or they’re a little bit too confident in what they’re doing, or too hopeful… As professionals, we do need to be honest about: “okay, let’s step back for a moment, just look at it from a realistic point of view, what can we do? are you doing the right thing?
For any blind seller, there’s always a blind buyer – but let’s have a look at what can sustain your marketing? what can sustain your business?

I agree and like you said, it’s not to put them in the hot seat, you know you see shows like Shark Tank? I’ve met quite a few angel investors and I will categorize them all as one (for this conversation). It’s very easy to be in the chair, asking the questions to make somebody squirm if you want to – we can all pull out questions that somebody’s not prepared for – because when you (SME operators) want money, you’re desperate & you want to sell your business.
I really disapprove of that approach, that’s not a caring approach. It has to be you ask the questions but it’s a work in progress, like “If we don’t have answers for it, let’s go and see if we could work on it to get that score up?” Whether you’re just trying to get a grant or you’re trying to raise capital whatever it is. Venture capitalists are, most of them, make their determination based on gut feelings, so Shark Tank is actually pretty accurate. Think how stupid that is: you’ve got six people in a room; I don’t wake up the same every day – how the hell am I going to judge your business the same today as I would tomorrow?
That’s why my first company came in with a proven system to aid in decision making and that’s the combination you need of… let’s say information or a knowledge system and then the expert themselves right. So think about you’ve got decision support systems which aid in human decision making, so that’s what we had okay – you go through this criteria but then the team of people will still give their opinion right and that’ll have a lot of weighting; expert systems come along and replace the need for the expert – now I don’t know that there are many expert systems out there that truly work, because you take the human element out of it and computers really aren’t you know. I don’t think AI is where it should be…

Transcript (from 23:38):
well… at least right now, there’s still proof that a person’s knowledge and experience have something important. It is not something that can be easily transferred. Hey, we might have just discovered that something like Shark Tank or RuPaul Drag race provide people with some data and information, to refer to, as they are developing their knowledge.
The problem is, we’ve all got our bound and rationality. Like when I go home to my small town (I grew up in a tiny little country town, it’s still in a farming community), I remember being back in the days, Melbourne was scary; then as you get more experience and open up, we have a bigger sense of the world. When Shark Tank advisors are making their decisions, it’s like a computer system, they’re drawing on their experiences but still, that’s just case studies and war stories right – what they know today is not as much as they’ll know in a year – so that’s where the computer or the information system and the human decision making together, I think that’s where we’re at.

At the end of the video, we previewed our next topic, Creative Destruction. If you’re interested in finding out more, please head over to Spill the Tea about Creative Destruction. SME Chat with Lucas episode 5