In this Issue

⚙️    Build AI With People & Systems
🚀    AI to Multiple Arbitrage
🔍    Five Whys

⚙️  Build AI With People & Systems

In 1982, General Motors’ CEO, Roger Smith, had a bold vision: lights-out manufacturing. He wanted factories entirely automated with cars built by robots.

Over the next decade, GM invested almost $90 billion to automate and mechanize its factories.

It didn’t work. Famously, GM’s robots painted the other robots instead of cars. There was too much complicated technology, and operators didn’t know if they were making cars or fixing robots.

Toyota took a holistic approach. They blended people, systems, and automation. Using Lean and Kaizen principles, Toyota applied technology efficiently to solve defined problems to eliminate waste and defects while increasing throughput and capacity.

That trifecta is the answer for any business approaching AI: People, Systems, Technology. They have to be built in parallel.

Where AI systems are shining is automating algorithmic business processes with lots of data: payroll, dispatch, IT help desk, and audit, to name a few. Think of tasks that require intelligence, but are tedious and repetitive. It’s “thinking admin.”

AI is not a silver bullet on its own. It becomes one when coupled with people and systems. This is a powerful unlock that enables a company to break through a Growth Ceiling to scale to the next level.

🚀  AI to Multiple Arbitrage

Multiple arbitrage is a “buy-and-build” strategy to consolidate a market. A company increases its valuation by acquiring smaller businesses and making them more efficient and profitable.

For example, a larger company buys a smaller, regional competitor for seven times EBITDA. It rapidly integrates the company into its business system to increase revenue and profitability. This reduces the valuation to five times EBITDA. It then repeats this with ten more acquisitions, increasing the overall value of the investments to ten times EBITDA.

For professional services firms, AI can be the foundation of a multiple arbitrage strategy.

AI systems are expensive. It’s not like “we use ChatGPT.” These are enterprise software investments on the scale and complexity of an ERP system: hundreds of thousands to millions of dollars to purchase, configure, and implement. They require a massive shift in people, culture, and systems over eighteen to twenty-four months.

It’s a risky investment for an industry accustomed to running on billable hours.

For the few companies committed to the investment and culture shift, AI can become a powerful acquisition platform. It gives a true system advantage that can be stamped onto firms that don’t make the AI leap.

This is one of the more interesting growth strategies that we’re working on with clients. If it’s relevant to your business, let’s schedule a call.

📊  One Stat to Watch

5.5X

The math maths for consolidators. Multiple arbitrage leads to a 5.5X gain by consolidating smaller players in an industry, according to PitchBook, 2025 Allocator Solution.

🔍  Five Whys

Take a moment to pause when a strategy seems overly complex or the solution overly complicated. When you’re speaking in paragraphs versus sentences, you may not have gotten to the crux of the issue yet.

Five Whys is a simple root cause analysis technique:

1. Definition: Start by naming the problem or issue you’re trying to solve.
2. Ask Why: Why is this problem or issue occurring?
3. Ask Why Again: Repeat the exercise four more times to go even deeper to the root cause.

For instance, a manufacturer might have an issue with overtime. They look to automation and management systems, but pause when they see the implementation cost. They perform Five Whys to get to the root cause:

• Why is payroll over budget? We had overtime due to late starts.
• Why did we start late? We started late because the equipment was down and needed to be repaired.
• Why wasn’t the equipment repaired before the shift? The maintenance team’s shift starts at 9:00, but the plant starts at 7:00.

The process continues. The root cause for the manufacturer: overtime is a symptom of a scheduling gap that is relatively inexpensive to fix, but it requires difficult decisions related to culture, hiring, and plant operations.

Five Whys is a simple, repeatable exercise. It’s especially useful for evaluating AI projects and getting to the root cause of what you really need to automate and why.

🤔  Thoughts on Today’s Issue?

We’d love to hear your feedback. Message with any thoughts, comments, or ideas for future issues.