Your Profits Should Double Every 2.5 Years Here’s Why It’s Not

Speaker 0: I'm confident that I've just discovered he's been embezzling and committing bank fraud. He found out the two of them were having an affair, alleged affair. Do not make decisions around things like reporting structures and accountabilities for any other reason than what's best for the business. Mhmm. Most of our frustrations with people are a result of unclear expectations.

Most of us, however, our biggest line item expenses are people, and we never look at people through an ROI lens. Every system is perfectly designed to get the results it gets. And if you want a different result, you need a different system. We anoint ourselves CEO whether or not we're actually cut out for it. Mhmm.

And then we have to force ourselves to try to fit the role. And if you're really gonna be elite versus just good, elite is in the margins. And if you allow the margins to be too big

Speaker 1: Welcome, and thank you for joining us for today's episode of Disruptors Where Millionaires Are Made. Today, we have Michael Erath with Next Level Growth and author of five obsessions of elite organizations. And Michael drove in, we just found out, up the street, just a few miles from here. And today, we're talking about how your profits should double every two and a half years, and here's why it's not happening right now. Guys, I wanna mention Create Millionaires.

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Speaker: Yeah. I'm ready.

Speaker: Alright. So, I wanna talk a lot about your business. The the big thing here is, you know, as a teaser for everyone that's listening, is you mastered a lot of the existing business operating systems Mhmm. And he decided to say, this isn't good enough

Speaker: Right.

Speaker: For our clients. We need to create something better. Right.

Speaker: And

Speaker: we're gonna talk about that journey.

Speaker: Mhmm.

Speaker: Before we get into there, I wanna talk about how you built or worked with your family Mhmm. To build a $45,000,000 business only to have it kinda fall apart, I guess, in front of your eyes Right. When, when, I think was it COVID when COVID happened?

Speaker: No. This was actually in 2008.

Speaker: 2008. Yeah.

Speaker: Oh, in the middle of the housing market collapse In the

Speaker: big recession.

Speaker: With, business partners, fraud, embezzlement

Speaker: Right.

Speaker: All kinds of great stuff.

Speaker: So you started your you started working in your family's business. Right? It's

Speaker: Right. Yeah. I grew I grew up in at work in high school, college, summers, and took it over when I was 27.

Speaker: Okay. So a lot of your life Mhmm. Yeah. When you took it over, revolved around the business

Speaker: 100%.

Speaker: Which is exciting because, you know, I don't know. We'll see what with my kids and what will happen, especially with AI, if they're gonna be involved in my business. But, you know, everything they know Yeah. Was me and my business.

Speaker: Right.

Speaker: So walk me through the journey of taking over an existing business and then growing it.

Speaker: Yeah. So, so when I took it over, my father we manufactured hardwood veneer for the furniture industry, kitchen cabinet, people like that. He had grown it to about 8,000,000, had about seven 70 employees. Manufacturing facilities in Virginia, sales offices were in High Point, North Carolina, which for people that are familiar with North Carolina is kind of the furniture capital of the world.

Speaker: Okay.

Speaker: So that's where, up until that point, almost all of our customers, the manufacturers were in Virginia, North Carolina, South Carolina. So we were right in their backyard. Most of our competitors were in the Midwest. So we had a big advantage there. Fortunately for me, about the time I took over, all of our customers started moving to Asia, primarily China, moving factories and offshoring production.

So our whole domestic business kind of turned upside down, and that was in the late nineties. So we started to reinvent ourselves, as I came on board as an international company, started opening some offices overseas and and doing more and more exports. One of our challenges was

Speaker: so you had to do that, though.

Speaker: Mhmm. It was forced to. Yeah. That was a pivot that I was not expecting.

Speaker: Mhmm.

Speaker: And, but it was it was the reality.

Speaker: The Carolinas was the capital. Like, that was the place.

Speaker: They still claim to be. Okay. But it's essentially now warehouses of furniture that's reimported.

Speaker: Got it. Okay.

Speaker: So that's kind of the the way it looks now. And so but one of our biggest challenges was sourcing the raw materials. Mhmm. It's very competitive to buy hardwood logs and the veneer higher veneer qualities. So we were basically if you think of it, we were buying retail, for our raw materials.

I had brought on board a young log buyer, who was on our procurement team, and his background was in timber merchandising where he had worked for a company that would buy standing timber. And they were selling all over, primarily Southeast Asia to flooring companies, and selling lower quality logs. And so we kind of cocreated this idea that if you married a timber trading company with a hardwood veneer manufacturer, we could actually start going wholesale Mhmm. And buying standing timber and really controlling the resource. We would keep the best logs the

Speaker: middle man.

Speaker: 100%. So we would keep the best logs. We would export everything else and just merchandise it. So we were going through my father's estate work at the time. He was still living, and we didn't wanna build a new business in his what would have been in his estate.

So we carved out a separate company, and my partner became the managing director of that company doing all the exporting of the timber. We had a trading arrangement between the two companies. We bought the better logs, at a wholesale price and produced those. It's worked really well.

Speaker: Everything sounds really good so far.

Speaker: It was really good. Dude, it was I mean, I was a pilot. Like, I'd bought a King Air at the time. I was flying it around. I flew my family to The Caribbean for vacations, and, like, it it was it was great.

They're they're business business trips, by the way. That's past seven years ago, so we're I think we're alright. But, it it was great. And we were we were growing like crazy. We had offices on six continents at the time.

I was traveling a fair amount overseas for work. And during that time, this this partner, Matt, and I became best friends. We vacationed with our families all the time. I was the son's godfather. We lived in the same town.

And as the 2008 housing market started to collapse, we we had grown to 45,000,000 by then. We had about 200 employees.

Speaker: Well and just to for context, you were self implementing?

Speaker: At that time, no. So at that time, I was I was a member of YPO, on the East Coast in the Southern Seventh Chapter, and our forum group had been through, we went through Good to Great together. And I got really fascinated with Profit Per Ex and Flywheels. And so I had kind of figured out together with my four mates, one of our exercises, we all worked on figuring out Profit Per Ex in our businesses and kind of helped each other through that.

Speaker: Okay. So through YPO, you had your own community and network.

Speaker: Right. So top grading, we went through that together, and I started implementing some things from top grading. We read Mastering the Rockefeller Habits together, the precursor to scaling up. I started implementing a few of those things. But it was all this kind of, like, bits and pieces from different things that I was cobbling together.

And it was helpful, but it wasn't really by design. There was no, like, holistic design to it.

Speaker: So Lots of tactics, not overarching strategy.

Speaker: Exactly. It wasn't it wasn't really congruent throughout the organization.

Speaker: Got it.

Speaker: So when the housing market collapse started to happen and revenues were declining, there was one odd thing that happened that actually tipped off my CFO to what my partner was doing. And this was actually something structurally that when you have a a close friend in the business, one of the one of the biggest mistakes I made is I did not really set the structure of our organization up the way I should have, and I let him dictate the structure in the company that he was directing.

Speaker: What was the structure? What should the structure have been?

Speaker: So the way this should have been set up, I had a very experienced CFO. He was at the time about 60 years old. He was CFO in our manufacturing business. In the trading company, we had a controller that was keeping the books for that company. My partner, Matt, wanted the controller to report directly to him as opposed to our CFO.

And at the time, I trusted him, and I just kinda let him have

Speaker: Doesn't sound crazy.

Speaker: Until Yeah.

Speaker: No. It doesn't sound crazy.

Speaker: Until it does. And I think this is a lesson, especially for somebody who's in an earlier stage with their business and they're starting to grow a leadership team Mhmm. Is do not make decisions around things like reporting structures and accountabilities for any other reason than what's best for the business. Mhmm. No other reason should should get in the way of that.

So what ended up happening

Speaker: And by the way, these are lessons that we're we're still learning.

Speaker: Right? Yeah. I mean right, we're we're emotional creatures, and so we tend to do things out of emotion sometimes. And and And

Speaker: the question we've started asking more recently within our organization, is that the best for the organization?

Speaker: Right. A 100%. That's always the right question. Yeah. Right?

It just is. Especially, you know, is that the right, decision for the vision that we have for our organization?

Speaker: Right.

Speaker: Right?

Speaker: Yeah.

Speaker: And so what we found out so I was I was actually driving to Washington, DC. It was my year to moderate our forum. I was going to training for that, and I got a call from Bob, our CFO. And he said, I need you to pull over. I need to talk to you about Matt.

Speaker: Because that's the beginning of the conversation.

Speaker: Right. And so so and and so I was like, alright. I'll call you right back. So I got to the next day because I pulled off, and I'm thinking, like, it's my best friend. What happened?

Like, freaking die? Like, what's going on? So I called Bob back. I was like, is Matt okay? What's going on?

And he was like, yeah. He's he's okay now. He said, but I'm confident that I've just discovered he's been embezzling and committing bank fraud. Shit. Right?

So, so I kinda Two major charges. Yeah. So I called my attorney, and he said, yeah. Cancel whatever you got. Meet me at my house.

I'll call Bob. And it was, like, 09:00 at night. I finally got back to my attorney's house in Roanoke, Virginia.

Speaker: You canceled everything you were running.

Speaker: Yeah. I I called a couple of my foremans. I was like, guys, somebody's gonna have to moderate for a little while. I gotta figure out what the hell's going. Yeah.

So got back to our attorney's house. And for an attorney, he's a pretty gracious guy, had a bottle of wine out for us, and then we spent a couple hours talking. But what had happened was the controller had been signing the borrowing base certificate. So What? The borrowing base certificate.

So we had a line of credit, for that company.

Speaker: Mhmm.

Speaker: And the way our line of credit worked, the availability was based on a calculation, and the bank would extend us up to the maximum limit of the line 85% of our accounts receivable balance, because most of our receivables were lines of credit or letters of credit rather, I'm sorry, with foreign companies, and 25% of inventory. So if you think about it, the housing market collapse is happening. Revenues are dropping rapidly

Speaker: Mhmm.

Speaker: Which means accounts receivable is dropping rapidly.

Speaker: And accounts receivable is meaning money you're expecting to come in.

Speaker: That's owed us by our customers. So as our sales drop, there's less due in from customers.

Speaker: Mhmm.

Speaker: The aggregate amount that we can borrow from the bank comes down.

Speaker: Mhmm.

Speaker: Makes sense. So what was happening though is we found out my partner had been he was putting an addition on his home, which I knew about. He was actually funneling that through the business, which was the embezzlement and how that was getting started. And what what was happening was our the controller, we had I mean, we were shipping 200 containers a month. So our freight forwarding bills were $2,030,000 dollars a week.

Very common. She was recoding invoices that the company was paying to the contractor putting the addition on his home as payments to our freight forwarders. Why would she do that? That makes no sense. She had no financial gain there.

Speaker: Mhmm.

Speaker: So, ultimately, in the investigation, we found out the two of them were having an affair, alleged have alleged affair, I should say. So that became her right. She was, like, ten or fifteen years older and divorced or going through a divorce, and it was it was just a a crazy thing. So that, we believe, was the reason behind her doing this. So she very quickly flipped on him and Mhmm.

And was was a witness.

Speaker: And covered her own.

Speaker: Right. Yeah. Because she didn't like what this was gonna yield for her.

Speaker: But So help me understand. Yeah. And maybe this isn't important, but I I just have to understand.

Speaker: Yeah. If it's interesting, it's you know?

Speaker: Yeah. So she would make payments to his contractors.

Speaker: Correct.

Speaker: So instead of sending four shipments or 20 shipments. Was it 20 shipments a month?

Speaker: Alright. Just say $20,000 invoice to a freight forwarder.

Speaker: So just there'd just be an additional invoice? Yes. Okay.

Speaker: Yes. So what I was doing is I was during that time, because cash flow was getting tight, I was looking at our register. We use Peachtree, which is sort of like QuickBooks. We were using Peachtree, and I was looking at the Peachtree register every day, but I wasn't looking at the aggregate being paid to the freight forwarders. And so I would see 20,000 to a freight forwarder, 25,000, whatever.

Nothing nothing comes out. Kept going. Yeah. And we had so many transactions at that volume. I wasn't gonna look at the individual checks and match them back.

That was their job to

Speaker: do. Mhmm. And The controller's job.

Speaker: Right. So all of that started to come together, but but what had happened and what tipped my CFO off and this is where if she had been reporting to the CFO, this would have been caught. It it wouldn't I don't think it would have been able to happen.

Speaker: Mhmm.

Speaker: But he started signing the borrowing base certificate, which meant she had been signing it. She was no longer willing to sign it. That seemed very odd. So my CFO started digging into it, and that's when he discovered

Speaker: Oh, so she was so she started it, but she had a conscience.

Speaker: Right. So initially, she was the one signing off on the borrowing based certificates. I did the calculation. Here you go, mister bank. Mhmm.

This is all legit. I signed it. She stopped signing it, and that started signing. And so that was when my CFO is like, well, that's odd.

Speaker: Mhmm.

Speaker: And so he started digging, and that's when he discovered

Speaker: So that was the the red flag?

Speaker: That was the first red flag. Then what he started to discover was he was looking at invoices and seeing actual log numbers that were showing up on invoices, but were also showing up in our inventory. Mhmm. So what Matt was doing was he was converting inventory to receivables so he could get 85% instead of 25% advance from the bank Mhmm. To in to continue putting the addition on his home and funding his contract.

Speaker: Bank

Speaker: fraud. Yeah. Plain and simple. Right? And so long story short, we went through a it was about a four year investigation with all of this.

He ended up serving two years in federal prison. What happened though with the business is both of the entities banked with the same lender. And about a year before all of this happened, I had taken out a $6,000,000 term note and added quite a bit of machinery we had added onto our factory, and we expanded from three production lines to four because things in 2006, 2007 were rocking and rolling. Banks were giving money away. I mean, obviously, it was great.

So as we're going into this, my father had passed. He passed in o three. We had transacted my mother out of the business, but she was hung on that bank guarantee for the $6,000,000 term note. So now the situation we've got is on the same day after we brought in a retired FBI forensic accountant that did an investigation for us with my CFO, I had the luxury of same day going to the bank into the US attorney's office with couple boxes of evidence, like, this is what we just found out happened. Mhmm.

So the bank immediately froze all of our accounts. We became illiquid overnight. Yeah. In the middle of the housing collapse. And the my my initial thought was we're he and I are partners.

Like, the the the feds are gonna just grab everybody. Like, this like, what the hell?

Speaker: So So your concern was that you were gonna get arrested too.

Speaker: Like, somehow, I'm gonna get drugged down with this guy. Mhmm. Right? And so it became very evident very early on that I was a victim of of his crimes as well. And so we worked with the the feds.

It was interesting because after nine eleven, for white collar crimes at that time, the Secret Service, not the FBI, had taken over.

Speaker: Mhmm.

Speaker: So I was actually dealing with the US attorney's office and the Secret Service, which was even more intimidating than the FBI. I spent two hours in a room like this Mhmm. Doing signatures with a Secret Service agent just glaring at me just to make sure that my signatures were forged on documents they had. It was Oh,

Speaker: you're just writing your signature over and over again. You weren't signing documents.

Speaker: Yeah. He he had me print my name, write signatures, sign my name large, small, left handed, like, all this

Speaker: Oh, crap. Wow.

Speaker: And I'm I'm sitting there doing this in a little room like this, and, and he's just he's just staring at me the whole time. I was like, this is miserable. Yeah. So so all of that's going on. And what I had to figure out was I had to figure out how to protect my mother.

My wife and I were in our mid thirties at the time, so we felt like we could live to fight another day as as hard as bad as it was. But I went to the special assets group at the bank, and I don't think this any other time, I don't think this would have been something they bought. But if you think about o eight and the housing market collapse, most people in trouble were given the keys to the bank and, like, call my attorney. Yeah. I'm done.

And the special assets group, the workout groups were just, like, inundated with all of this mess to deal with. So I went to the special assets group and explained the situation. We had all this brand new equipment we had bought that they would have gotten scrap values for at auction. And I offered if they would give us enough liquidity to keep the manufacturing business operational until I could unwind it and let me unwind it over time, that would be something I could do for their benefit. I would take a minimal salary just to keep things, you know, stable in in my personal life.

Speaker: To mitigate their loss.

Speaker: Mitigate their loss. So at the time, I was one less fired to fight, so they accepted that. And probably the hardest but best education I had for eighteen months, I had biweekly meetings with the special assets group of SunTrust Bank, which is now part of Truist, reporting on status and updates and and whatnot. But it was a really educational process to see how they looked at the business. Mhmm.

Right? So we made it through that and actually had a couple of really fortunate bay breaks. I got the bank made whole, and I got the creditors made whole on our manufacturing side. My wife and I took the haircut. We were living in what we thought was gonna be our retirement home and and off the Blue Ridge Parkway.

And so we decided we needed to get restarted and get get reset, so we moved to Ohio. There was a contract. Yeah.

Speaker: Vicky here Mhmm. Is your mom's no longer personally guaranteed here. Like, your mom

Speaker: We got we got her off the guarantee. We got the bank made whole. Guarantee went away. She was protected.

Speaker: But the bank got she was off the guarantee after you made the bank made whole?

Speaker: Correct. She was on the guarantee the entire time. So this was a play more than anything to protect my mother

Speaker: Right.

Speaker: Because she was the easy target.

Speaker: Mhmm.

Speaker: So my father had passed, so she had the assets.

Speaker: Mhmm.

Speaker: Right? She had the liquidity to deal with it. And so this was this was a way for me to keep them from going after her.

Speaker: Okay. So you you made the bank hole on the primary business.

Speaker: Correct.

Speaker: But the timber trading company

Speaker: The timber trading company, it went chapter seven and gone. Yeah. But that was that was I think I think the bank wrote off about 1,000,002 on that one. It would have been a much bigger hit on

Speaker: So how much does this guy embezzle?

Speaker: He embezzled right at half $1,000,000 over about an eighteen month period.

Speaker: Did he begin embezzling while things were good? Or Yeah.

Speaker: Yeah. But he got so deep into the embezzlement, he couldn't stop when things got bad. Got it. Because his lifestyle depended on that.

Speaker: So he was outliving or outpacing.

Speaker: Significantly. Yeah. Right.

Speaker: And so he started doing something stupid while things are good. Right. Okay. And

Speaker: it's just it's it's like these guys that do Ponzi schemes. Right? It's like you you know, it's it's stupid. Right. But as long as the cash is flowing, it it works Mhmm.

Until it doesn't. Right? Yeah. And most of them end up that way.

Speaker: Yeah. The music stops at some point. Right. And then the the not There's

Speaker: not a chair

Speaker: Yeah. That's a sit in. Exactly. Right?

Speaker: So your ass is on the floor. Mhmm. That's basically what happened. So we we decided to sell our house.

Speaker: But you got out of so so the the bank was made whole. So, like, I mean, like, yeah, the business shut down, but, like, you made it out alive. Lots of scratches, lots of scars. Sure. But you learned a lot the whole way too.

Speaker: Exactly.

Speaker: What were the biggest lessons? And you say you learned a lot from the bank. Like, what were the biggest lessons you learned? Because, like, it's hard. Like, as an entrepreneur actually, one of the most viral videos was Cameron Herrell talking about, like, you never talk about the bad stuff.

Speaker: Right. Exactly.

Speaker: Right? Right. You're sharing, like, here's all the bad stuff.

Speaker: Right.

Speaker: Right? It's it's easy to talk about, like, you know, check out the planes, check out the watches, the cars, the vacations. Right. But let's talk about, like, let's just dive deep. Like, what were the things you learned from the bad stuff?

Like, man, like, this, these things could never happen again. Here's what nobody's telling you. If you're a wholesaler trying to scale, the reason you're stuck usually is not your marketing. It's that you're spending your whole week managing human lead managers, and training a sales team is slow, expensive, and falls apart the second someone quits. You didn't get into this to become a glorified sales manager.

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Speaker: Yeah. Gosh. So, you know, it was interesting because I was listening to your podcast with Cameron, and he was talking about when they almost bankrupted $1,800 Got Junk.

Speaker: Right.

Speaker: Right? And why the bankers were like, we won't lend to you because you don't understand how to manage your cash.

Speaker: Yeah.

Speaker: That was a big piece that came from it. And we were we were a business, the manufacturing side, especially. It was a high volume, low margin business. And we had not when times were good, we had not built up enough of a war chest of cash and cash reserves to withstand a significant downturn. So that was already a big stress on the business.

So there were some things like that, but I think also working with the special assets group and learning more and more about how they're so focused on the balance sheet and not just looking at income statements and how profitable you are or aren't at a given time, and really understanding what it takes to have a strong balance sheet and keep a strong balance sheet, to be lendable and to have runway. So that was a big piece of it. We had as I mentioned earlier, we we'd I'd kinda geeked out on profit per x, but that was in 2007, and this all happened in o eight. So we were starting to see some good benefits from really obsessing about our profit per x and changing decisions around that. But as we were starting to reap the benefit of it, this shoe fell.

Speaker: Right.

Speaker: And so that was

Speaker: elaborate on profit per x before we go into, because I I feel like a lot of these lessons here led directly to one of your five obsessions.

Speaker: Right. It did.

Speaker: But let's talk about, like, profit per x because, like, you know, Good to Great, incredible book. Had to go through it multiple times really. And probably still haven't still probably haven't gotten everything out of it.

Speaker: It's very intellect it's a very intellectual read. Right?

Speaker: Yeah. But profit per x, remind me what that one is.

Speaker: Yeah. So profit per x is what drives your economic engine. Mhmm. And the idea is it's a ratio of profit per some denominator that if you will consistently grow that over time and really obsess about how you grow that over time, it will build what Jim Collins refers to as a fabulous economic engine in the business. And so what I started to realize was we think about the theory of constraints, and you look at your business almost as a as a sideways funnel.

Where are all of the constraints that make it difficult to continue growing your profit? And once you start to understand that, how can you look at profitability per that constraint and change the decisions you're making or influence the decisions you're making to optimize that ratio? So I I kind of look at it and think of it as profit per constraint. And I I hear people talk about looking at profit per employee.

Speaker: Yeah. Because that's where my head went to because, like, that's what they talk about in scaling up. Right? Ken were the guys Greg Crabtree

Speaker: was maybe was his name? Yeah. Greg Crabtree. So so he so he looks at oh, gosh. It's employee there's an efficiency ratio, and the name is slipping me right now.

Right. But when I hear people talk about profit per employee, I think I I I say this not to be rude, but that it's a little bit intellectually lazy because different employees come with different fully burden costs. And so if you look at it just per employee, I think that's a very baseline way to look at it. I prefer to teach. And so, like, if we're working with professional services companies, we'll often encourage them to look at profit per human capital dollar.

Speaker: Mhmm.

Speaker: So fully burdened all the taxes you pay, the benefits you pay, the total cost per employee, what are we doing to grow whether it's gross profit, net operating income, net profit? Whatever the right profit lever or or level is, how well are we growing that per the dollars we're investing in human capital?

Speaker: Mhmm. And

Speaker: are we increasing that ratio consistently over time? And does our strategy allow us to do that? And Yeah. In our case as a manufacturer, like like I mentioned, I mean, adding one production line with the building expansion was over $6,000,000. So it was very prohibitive cost prohibitive to just add production capacity to grow.

Mhmm. So if we wanted to grow, we had about $250,000 a month of primarily fixed cost.

Speaker: Yeah.

Speaker: Some were slightly variable. Only two line items were purely variable. So we knew every month we didn't make a dollar of profit until we covered about 250,000 of gross. Yeah. So what we started looking at was our gross profit, and the denominator for us, our constraint was throughput in the factory, which was measured in board feet.

So what we started looking at was, what's our gross profit per board foot that we produce on average for a month? And then what is it by species? So think of species as different, product lines. And we had about eight species of hardwoods that we produce. Mhmm.

And then within that, we could look at for any given species, we might have 20 or 30 vendors that we bought logs from. We could now start to stack rank those vendors based on their contribution of profit per board foot on this specie from the supplier versus the supplier. And what it allowed us to do is start reallocating budget among our procurement team. So if we're buying logs off of you and our profit per board foot on logs we buy from you and a certain species 50% higher than somebody else, but maybe we're allocating more budget to somebody else, we start making those changes.

Speaker: So just reallocating your resources.

Speaker: Based on intelligent data versus feel.

Speaker: I think I'm trying to go back. It's been a long time. I think it's profit efficiency ratio. I think it's what we're

Speaker: I think you're right.

Speaker: And I think we we we put that in a spreadsheet, and we went through it. And it's like, I don't know how to do this.

Speaker: Yeah. Oh, you're talking about crab trees, the labor efficiency ratio

Speaker: There you go.

Speaker: Is is exactly right. Yeah. Yeah. Which is really important.

Speaker: Yeah. So we went through that spreadsheet. I think we we spent, like, maybe three weeks. I was like, alright. I don't I don't wanna do this

Speaker: anymore. Some of these things you need a good CFO for or a good a good numbers person. But

Speaker: Yeah. Okay. So, so profit per constraint. So then what are some of the main constraints that you focus on?

Speaker: So different businesses have different types of constraints. I've worked with trades companies where they've looked at the constraint of growing their their profit and their scale as technicians and trucks. So they'll look at profit per technician or profit per truck, things like that. And there's a there's a restoration company I work with who is looking to really leverage AI to blow that up. And they're they're on the early stages of looking into how they can leverage autonomous driving vehicles, how they can leverage robots Mhmm.

To set up equipment and do things We're

Speaker: getting there, man.

Speaker: Using meta glasses to scope a facility Yeah. And take all the measurements. And, and so what they're looking at is if they can, with the same number of employees, scale the business by leveraging AI robotics and autonomous vehicles, then they can significantly grow their their profit per Mhmm. Vehicle. Right?

Because of how much more they're able to do. So there there are things like that that that

Speaker: So then is this, like, something that sits on their dashboard? Is it, like, a CEO thing where you log in every morning or, like, every week?

Speaker: Profit per x is more of a because it's the aggregate number is more of a monthly and quarterly

Speaker: Mhmm.

Speaker: Thing to look at. The detailed numbers, when you start to filter that aggregate profit per x number down into all of the different contributing paths to get to it, that's where you start to get into dashboards and things you can look at daily and weekly.

Speaker: And Okay.

Speaker: But but the importance is that you build it. And this is where I like this term that that Collins used about a fabulous economic engine. Mhmm. If you really construct your business in a way that you're building a system of data and you're building even, like, in your in your accountability chart or your organizational structure, building an economic engine through that. And there's a concept in the book that is in the first obsession, great people, called the most critical outcome.

Mhmm. And this is something that we've we've built that if you layer in a most critical outcome throughout an organization, you can absolutely build an economic engine by refocusing everyone on not the leading indicator, but the outcome that they have to take ownership of and how that's being measured, which leads to the leading indicators. But we're actually now measuring people on outputs, not on activities. And so you mentioned I saw traction over in your in your bookshelf. I gotta I gotta put this one next to it.

Speaker: Just to let you know.

Speaker: But, one of the things to the second bullet point under the data component is measurables for all. About two thirds of our clients have come to us from having used EOS. None of them, working with implementers or not, have been able to answer the question that they have a single outcomes based number for everyone in the company.

Speaker: And I do wanna talk about that because that was my greatest challenge for the longest time. Right. So this is 2009 when you wind down the manufacturing company?

Speaker: Yes. 02/2010, and then we moved to Ohio. We took all the equity out of our house, moved into a townhouse, used that and a $100,000 SBA loan to restart. In Ohio, there was a contract manufacturer. So I kept one salesperson, one log buyer, and my wife and I, and just bootstrapped it and restarted.

Speaker: Mhmm. Grew

Speaker: that to about 7,000,000. And then in 2015,

Speaker: So you went back, but you're you just redid the same thing, what you already knew

Speaker: Mhmm. And

Speaker: did it again in Ohio. Right. Okay.

Speaker: Yeah. Slightly different business model with the outsourced production and no partner. And I think,

Speaker: I don't know

Speaker: if you've heard Joe Polish talk about this, but the one of the, you know, the the one ship you should never board is partnership.

Speaker: Mhmm.

Speaker: And I I kinda realized that after what I went through.

Speaker: Yeah.

Speaker: But we started that. But by 2015, I was starting to get pretty frustrated with the industry. It was just, it had become a race to the bottom, from a pricing standpoint with our industry and profitability was tougher and tougher. So I exited that business, and I had self implemented EOS in that business in Ohio. But I had done it by taking a very hybrid approach, based on other things I had studied, like I mentioned earlier, through YPO and top grading and, Rockefeller habits.

There were some things where I felt like the intent behind what was in EOS, I liked. But the actual tools that they prescribed, I wasn't a big fan of. I I've I've always felt like the people analyzer tool is very kind of vague and weak, and the a player assessment, which is kind of a top grading and scaling up methodology, is much better. Mhmm. So I adopted that.

There were you know, I was I was back into profit per x. We built a flywheel to really understand our business model. And I was just wherever I felt like a tool wasn't a good fit for us, I would just substitute something that I felt like was better.

Speaker: Right. And and I think a very entrepreneurial thing to

Speaker: do. Sure. Right? That's what we do. Right?

As entrepreneurs, we find things that could be made better and we make them better.

Speaker: Or maybe not even make them better. We tweak it and then maybe make it worse, but it's ours.

Speaker: Either yeah. Either way. Right? You get your you get your stamp on it. Yeah.

And so what happened was when I started in 2015, when I started to exit that business, I started working as an EOS implementer in Columbus, Ohio, and I had a lot of success early. I I set records for the second and third year revenue, and those those stood for a number of years. But as I started to understand my success

Speaker: Revenue,

Speaker: as an EOS implementer.

Speaker: Okay. So you were setting records Yeah. There. Yeah. So all those things all those hard lessons you learned before were handy here.

Speaker: So what was happening is when I would sit down with a prospect and they would ask me about my story and I would tell them kind of what I told you, they were like, holy shit. Like, I kinda made the analogy, like, if if you're gonna be a boxer or an MMA fighter, like, you probably want your coach to have cauliflower ears and a busted nose. Oh, yeah. Absolutely. You don't want them to be like, well, I read about it.

You know, I studied it, and I got an MBA in it, but I never did it. Yeah. It was the it was kind of the school of hard knocks and having the lived experiences

Speaker: Right.

Speaker: That made it very easy to convert leads into clients. Mhmm. And then when when I started working with clients and they realized that I would be very flexible and and wasn't trying to hold them to a prescription that Mhmm. You know, I was showing them additional tools or other ways of doing things, that really stuck. And they really they really found value in that.

And at that time, before EOS became a franchise, before private equity was involved, I operated under a license agreement. So they didn't like us teaching things that were not EOS, but they couldn't stop it. Mhmm. When they became a franchise in, I think, 2020, that's when all of that got locked down.

Speaker: So to help me understand the difference between a licensing agreement and a franchising agreement.

Speaker: So mhmm. So the licensing agreement, we were licensing their IP.

Speaker: You were allowed to talk about their IP.

Speaker: I was allowed to teach and profit from teaching their IP.

Speaker: And then you pay them, like, a, like, a royalty or annual fee.

Speaker: The way that worked is and the way this is the way most coaching organizations worked, and which is why I refused to set next level growth up my firm the same way. Most coaching organizations, you write a check for $3,050,000 dollars just to show up for day one and be one of their coaches. And then you go through the training, and then you pay them a monthly, you know, thousand bucks, 1,500, 2,000 a month, whatever it is. Yeah. So that business model and this is one of the things I realized that I wanted to to break or disrupt as, for the sake of the podcast, was that model, the only way you grow and survive is to bring in more and more new guides or more coaches because you need those big chunks of revenue.

And you need them every quarter or you stagnate or go backwards.

Speaker: Mhmm.

Speaker: So what happens is it becomes a numbers game. And now you're forced as an entity to focus on quantity, not quality. Mhmm. So the bar over time starts to lower.

Speaker: Naturally.

Speaker: It just it has to happen that way. They're fighting gravity. Nature. Right.

Speaker: It's just gonna happen.

Speaker: So when I set up Next Level Growth, what I decided to do, I went back and I talked to a number of clients. And this was so sorry. You asked about the license agreement versus franchise. So the franchise agreement is contractual. And so as opposed to a four or five page license agreement, it's a 100

Speaker: to talk about it.

Speaker: It's a 100 page contract, essentially.

Speaker: So I'm guessing prior license, here's what you're allowed to do. Franchise, here's what you're not allowed to do.

Speaker: Exactly. Yeah. That's exactly right. So a couple of things came out of that as I was reviewing the franchise agreement. One, they were going to require everyone to use an email address that was through their domain.

So I knew from having gone through this stuff with my business partner that anything he did through the email account that was paid for by the company was the company's property, not his Mhmm. Which meant I I had full visibility into every email he ever sent. Mhmm. So that meant that if they wanted to, they could see all of my emails between my clients and I. The reason that's a problem is also in the franchise agreement, if you were my client and you said, hey.

I really wanna understand our flywheel, or I wanna get into profit per x. Technically, I would have to tell you that I it's against my agreement to teach you that.

Speaker: That doesn't make a lot of

Speaker: sense. You would fire me. I would expect you to fire me at that point. Right?

Speaker: I want what's best for me.

Speaker: Right.

Speaker: I don't care what you're allowed to do. Right.

Speaker: So what ends up happening is all these EOS implementers like, well, that's not pure, but, yeah, we'll do it anyway. But the risk is if they choose to search your email and they see me emailing you about our flywheel or about your profit per x or things like that that I'm working with you on, there is at least the risk that they could pull my franchise and put me out of business. So when I started reading that, I was like, this is this is so bad and so values misaligned. There's no way. So I talked with a lot of my former clients and asked them Before

Speaker: we proceed, I've been introduced to multiple franchise opportunities, and this has been my issue every time. Mhmm. It's like I look at it I I look at these agreements. Like, you're telling me, like, I can't do this thing. It's like, I got into business for myself.

Speaker: Right.

Speaker: Right? I left the corporate world so that I could be my own boss.

Speaker: I don't

Speaker: mind playing by the rules.

Speaker: Right.

Speaker: I do mind saying I can't do something when I can't justify it.

Speaker: So this is the thing that I discovered that I thought was really interesting. The reason in early stages, I think, these I call them prescriptive business operating systems are attractive to less mature entrepreneurs or less experienced entrepreneurs is they don't know how to constrain their energy. Yeah. And these systems are constraining

Speaker: Mhmm.

Speaker: Which at a certain stage they need.

Speaker: Right.

Speaker: The problem is you and I and Cameron and and entrepreneurs are not built to be constrained. Mhmm. Right? And so the thing that was actually helpful in the very beginning becomes a hindrance Right. Going forward or becomes a frustration.

And so Prejudice is

Speaker: a nice much better word. I was gonna say prison.

Speaker: So Yeah. But it is. Right? I mean, it's, it's it's like a straight jacket in some ways. And so what I started to really realize was all of these different prescriptive operating systems is one person's way of saying, this is how you have to do it.

And the fact that it's prescriptive always puts primacy on the system over the user. Yeah. So it forces every business into that box or that system. If instead they're all based on essentially the same principles, and that was the big discovery for me is that I I come came to find there really five principles that great organizations obsess about. And I could give a damn what tool you use.

Mhmm. If you're obsessed about great people, and I can help you find the right tools that work for your business, your culture, your industry to make sure that you're recruiting, hiring, retaining, developing, coaching great people, I don't care where it came from.

Speaker: Mhmm.

Speaker: And it it's that it serves you well. And so if we focus on the principle and obsess about excelling in the principle, the tools in the system become secondary, and they become custom fitted to you and your organization. And, I mean, we we work with health care companies doing hundreds of millions of dollars in revenue, construction companies doing the same, and we work with wealth managers doing $3.04, $5,000,000. To say that the exact same tool for a professional services company of 4 or 5,000,000 and a construction company doing half 1,000,000,000 Mhmm. Should be identical is fucking crazy.

It's right? It just doesn't that that just doesn't make sense. And so but they should both be obsessed about great people in their organizations. Right. My job and our job as guides is to help guide them to the right tools that work for them.

Speaker: Can you give me an example of, like, something that doesn't quite fit for the two different industries? Like, I don't know. Like, you're saying with People Analyzer.

Speaker: Mhmm.

Speaker: Right? Like, how can People Analyzer be different for $5,000,000 company versus the $100,000,000 company?

Speaker: So I guess I look at it this way. There's what I what I was struggled with in terms of the PeopleAnalyzer compared to how we teach an a player assessment is a few things. If I look at and and part of this even needs to go back and understand accountability charts and how we're different. But if if we take, for example, core values on the people analyzer, for people that are familiar with that, and you're my direct report. I'm evaluating you based on how consistently you live the value, and I'm giving you a plus, a plus, minus, or a minus as a as a score.

And the pluses most of the time, the plus minus is they're kinda hot and cold. The minus is rarely do they live that value. There's still so much room for ambiguity in that

Speaker: Mhmm.

Speaker: That it it causes people to avoid difficult conversations when they need to happen. Yeah. And if you're really gonna be elite versus just good, then elite is in the margins. And if you allow the margins to be too big, then it it gets too vague. It's even more direct when you look at the accountability chart.

And the reason I say that, I think the evolution in traction from an org chart to an accountability chart was good because it created more clarity. But I think it still left room for unclear expectations. And I'm a big believer that most of our frustrations with people are a result of unclear expectations. And so in the next level accountability chart that we've created, we have three components to it. And this goes back to your challenge about numbers for all.

So the first is for every role in the company, our clients have to articulate in one sentence, it's a high level, what is the mission for a person in this seat? What's the consistent deliverable they have to achieve in order to be successful? You gotta you gotta justify to me why we're gonna spend money on this position. Right? So if I understand that mission, that then allows me to ask, okay.

What is the mathematical equation that you will use to measure an outcome that will prove to me that somebody is successful in that mission? Yeah. That alone starts to get me to an outcomes based number for everyone in the organization.

Speaker: What I know what I like about this is why does this role exist? Right. Right? Typically, it's like, what do what do you do in this role? Which is still good.

Mhmm. But why does this role exist?

Speaker: Right.

Speaker: Now we have very clear clear alignment between the leaders of the organization and a person that's sitting in that seat.

Speaker: So take this podcast, for example. Right? There are two guys working in the studio when I showed up here. Yeah. I've been in places where there's one and three.

You and I could have an intelligent conversation around you explaining to me, and I could help you get down to one sentence, each of them, what's the mission for this person and this person? That helps you understand why there are two. And, you know, I'm sure there there are very good ex you know, reasons for that. Then we could start to look at, for each of them, if they're two separate roles, what is the outcome that you'll measure, and how will you measure it, and show it to me as a mathematical number that will prove that they're successful in that mission. Mhmm.

Right? And you can get to that. Now we start to have an have a goal for everyone, not just here's your four or five KPIs. Mhmm. Here's the outcome we're gonna measure.

And we we may only measure it monthly because it is an outcome lagging indicator. But at the end of the day, you have to achieve this outcome or you're not successful. And the second question it answers, which I think is even more important, is when you look at investments in your organization, most people will look at a capital investment and calculate a return on investment. So if I'm looking at three or four different software products, I'm gonna look at cost and expected return, and how soon am I getting paid back, things like that. Most of us, however, our biggest line item expenses are people, and we never look at people through an ROI lens.

Speaker: Mhmm.

Speaker: This allows you to do that. Because now what I can say is, okay. If this is what we're gonna measure, what is the what is the actual goal for this outcome that justifies the return on investment you need for the fully burdened human capital cost of Joe versus John

Speaker: Mhmm.

Speaker: Being the person in that seat? Because now we can start to prove success in the mission, and we can prove ROI on the individuals. So here's here's where I mentioned an economic engine earlier. If you take if you take your accountability chart, and as CEO, if I were gonna hire a CEO to come in and run my business, I would probably have some sort of a mission for them around growing the enterprise value of next level growth by guiding the long term strategy and culture, which is a pretty straightforward statement. But if I were gonna hire you as my CEO, that would be what we agreed to.

And so we're gonna measure that. We're gonna come up with some estimate of enterprise value, and I'm gonna have some expected annual growth goal for my enterprise value. That is now your outcome. Mhmm. If you know your job ultimately depends on that, you're not just thinking about EBITDA.

You're thinking about how to change the multiple to grow up faster because that's success for you. And so it causes you to think more strategically versus just maintain. If you then build your leadership team where each individual based on their skill set, their most critical outcome is how they and their role help you drive enterprise value. You've got a leadership team now that's supporting your economics. If they then hire their direct reports Mhmm.

With that same logic. We we had this in our in our manufacturing business in Ohio all the way down to a warehouse forklift driver, had a most critical outcome that supported the supervisor, that supported the production manager or the operations manager that supported me as CEO. So that that laddering of outcomes based focuses

Speaker: Mhmm.

Speaker: That all we can we can mind map all of these outcomes back to growing enterprise value. We have now built an engine in the business that if people will focus on how they achieve those outcomes and solve issues to achieve those outcomes, we build a financial model in our business that is significantly stronger than if we don't have that.

Speaker: Well, as you're talking about this, like, I'm just picturing my head. You know, we talk about how important it is that everyone's rowing the boat in the same direction.

Speaker: Right.

Speaker: And I'm just as you're saying, this makes it a lot easier

Speaker: It does.

Speaker: For everyone to row the boat.

Speaker: And if you if you imagine if half the people in your company were hitting the outcome Mhmm. And all of them are focused on it, you're probably making a hell of a lot more money and you've got more cash, which means you can now go do more of what you do. Mhmm. You can have more reserves. You can be more downside resilient.

You've got capital and cash to invest in things you want to. You're much more bankable. Yeah. We're all I like

Speaker: Well, I think or remind well, this reminds me of we you know, I read the OKR book Mhmm. And never did anything with it. Like, you you read these books. It's like, alright. I I got I'll I'll implement that one day.

Speaker: Right.

Speaker: Is this the objective in OKRs? Objective key results?

Speaker: Not not exactly because that's really more about goal setting. And so this was actually a pivot that we couldn't have done with, with EOS. But we teach when when our clients set quarterly, rocks, we follow more of an OKR process.

Speaker: Mhmm.

Speaker: And so we get really clear on what are you what will you accomplish, and how will you know it's successfully done? Yeah. And and and the rock has to really state that. And then what are the milestones? So we we've brought some of the OKR philosophy into our rock setting process because we think it made it better.

Yeah. And that's really what what we focus on. It's it's kind of interesting if you if you think about traction. Traction was written in 2007 Mhmm. And EOS had 20 tools.

You know what else came out in 2007? Your iPhone. Yeah. The original iPhone had 16 apps. Mhmm.

Would you buy an iPhone today that had 16 apps? Was limited to 16 apps?

Speaker: Not for me.

Speaker: Yeah. No. But none of us would. Right?

Speaker: Maybe for my nine year old.

Speaker: They work for our lives because all these different apps that have evolved. Yeah. Attraction still has 20 tools.

Speaker: Yeah.

Speaker: Right? Twenty years later. Almost twenty years later. And so I think the world has evolved so much. The the principles have not, but the the ability to source new tools and other schools of thought Mhmm.

To me, I think it's it's just kind of asinine to think that, you know, what I've got in this book is perfect and it's all it's ever gonna be. We're constantly trying to evolve and change and look for new tools and read new books and study new things.

Speaker: Well, especially things are changing so fast Yeah. Right now. Right.

Speaker: I mean, when I wrote this, there were part of the research I did, there were in February in 2023, just in the Continental United States, there were 53,000 people that called themselves a business coach on LinkedIn. 53,000. I mean, you talk about a sea of sameness. And with AI, the ones who don't have significant lived experiences, I could probably today build a project in Claude that could teach EOS to a leadership team. Mhmm.

And, you know, it's not that hard.

Speaker: Right? Right.

Speaker: I think the you know, you and Cameron were talking about and and I Cameron feels that over the next two to three years, ninety nine percent of business coaches will be gone. Yeah. Pick your number, but but for sure, a a large swath will.

Speaker: Yeah. A big debt is gonna happen.

Speaker: Yeah. And I think the the key and and you guys talked about this, but the key, I think, is human relation and lived experience.

Speaker: Mhmm.

Speaker: And one of the models that I focused on when I built out Next Level Growth, and I mentioned earlier, I I I surveyed a lot of my clients and was, like, why did you choose to work with me versus one of the other 53,000 of us. Right? And it every single time it came down to you'd scale the business, you lost everything, you had to figure out how to restart, like, that story Mhmm. Is why I wanna work with you. So what I decided to do in building next level growth is I will not consider anybody to join me as a partner and guide.

If the old YPO qualifying standards, when I joined, we had to be doing 10,000,000 in revenue and have at least 50 employees and be the CEO, owner, or president. Mhmm. So if somebody has not been an owner, CEO, or president of a business doing at least 10,000,000 with at least 50 employees, I will no matter how good they are, I will not consider them to be part of next level growth because that's one of the things that protects our brand.

Speaker: Mhmm.

Speaker: And I think that ability to have lived experience and to have been an owner or full p and l responsibility in of the nine of us, we're from eight different industries.

Speaker: Mhmm.

Speaker: It allows us to have significant lived experience that we can share Yeah. And use to help guide our clients, And we do our best to match guides with clients based on industry background as well so that we're almost more of an advisory firm than just a coaching firm.

Speaker: Yeah. You know, it's, not to bring politics into this, but my buddy, he's my senator. Known him since seventh grade.

Speaker: Uh-huh.

Speaker: And he was we're we're having a debate. And I my when I said to him, I was like, look, I appreciate your perspective. I appreciate your your intelligence. Right? Like, we're we're in the same gift of classes together and all these other things.

Right?

Speaker: Right.

Speaker: I respect you. But you never had to face the consequences of making a decision Right. That impacted everyone in the company. Right? As a legislator, you make a decision, and you hope it was the right choice.

Speaker: Right.

Speaker: Right? But you've never had to, like, look someone in the eye and it's like, look. I made this call. Yeah. It was the wrong call.

Yeah. And we're gonna shut down this department.

Speaker: Right. Oh, in in in the first book I wrote Rise, there's actually a letter, or an email that my wife wrote to her sisters

Speaker: Mhmm.

Speaker: That we put in there. And she talks about there was one particular woman, Joy Wimbush, was an elder older woman that fed one of our dryers. My wife writes about a time I was walking through the factory when all this was going on, and she came over and was just hugging me, asking me if things were gonna be okay.

Speaker: Yeah.

Speaker: And I couldn't tell her that they were.

Speaker: Right.

Speaker: I was like, that kind of stuff is like, you you know, many of us at some point in time are gonna be on the verge of going through that Mhmm. And hope we never do. And that's the kind of thing that on an emotional level, an AI bot can't connect with you on.

Speaker: Right.

Speaker: Right? And so I think there's a there's something in that lived experience, the sharing of that, the human connection that I think is where I mean, we're doing tons of things to use AI to supplement our coaching.

Speaker: Of course. Right? Well and I think, like, the I look at AI. It's an incredible tool.

Speaker: Mhmm.

Speaker: Right? I'm and we're using it a ton. Right? Yeah. But I think you look at AI as a tool is in a lot of ways, it's like reading a book.

It's like watching YouTube videos. Like, there's a lot of value there.

Speaker: Right.

Speaker: But the thing you're always gonna miss is the confidence and clarity. Right. Right? It's like, hey. You know, I think this is what I should do.

Here's what I've researched. Mhmm. Am I going in the right direction?

Speaker: Right.

Speaker: AI can't Right. Give you that confidence. It can't.

Speaker: And the other thing I think, human beings most human beings are not good at holding themselves accountable.

Speaker: Right.

Speaker: And as much as AI that I've built can tell me what I need to do in certain situations, I'm not going to feel a high level of accountability to it. Yeah. But if I make commitments to you, and you're disappointed in me, and you're in my ass because I'm not living up to what I said I was going to do, there's an emotional toll there that makes me want to be better, to do better with it. And I think there's there are pieces of that that we just have to figure out, like, how do we maintain that and use AI to enhance everything else?

Speaker: Yeah. So you did Pinnacle EOS. Was that the one?

Speaker: Scaling up.

Speaker: So, like, you've you've been certified and done well in each one of these. Mhmm. But you've now moved away from, like, here are the specific systems.

Speaker: Mhmm.

Speaker: And more like, here are the overarching principles and philosophy.

Speaker: Right.

Speaker: So what are the overarching principles and philosophies?

Speaker: What what I have found, and I think I've I've seen and studied sports organizations as well as as businesses. But truly, I use the term elite. Organizations obsess about filling their ranks with great people, and those are people who are culturally aligned with their vision and values. There are people who have the experience, aptitude, and desire to perform to a high level consistently, and they're people who are are part of a shared vision and just cause to use, a Simon Sinek term. Those great people are also led by an inspiring purpose.

If you think about some of the dynasty sports programs, they were all bought in to the same system, to the same purpose, bought into each other. And this idea of an inspiring purpose is something we've really tried to expand on because I I believe that you could fill your company with people who share your values and have the skills and desire and aptitude to perform to a high level, and a high standard. And they'll be good, but if they can get emotionally connected to what you do and why you do it, they will always bring more passion and energy and creativity to their work. And that's really where they become their best. So that's the whole idea of this inspiring purpose as one of the five obsessions or principles.

Speaker: So maybe because I've never had a team that was our support hasn't been any good. I live in Phoenix. Right? You live in Phoenix. Mhmm.

So between the Suns, the Cardinals, and whatever else, we've never really thrived. Right. So maybe I'm missing it. But what is the purpose? Because, like, for me, I think about, like, the purpose, like, we're gonna bring home the trophy, we're gonna bring home the ring, or whatever.

Mhmm. But I'm getting the sense here that there's more than just winning the championship.

Speaker: There is. And and I think that's a sign of fulfilling a purpose. Right? And so there's I don't know if you've read Simon Sinek's most recent book, The Infinite Game.

Speaker: I haven't. Okay. I've heard him talk about it, but

Speaker: Yeah. Yeah. So one of the things that really struck me in that because I I really enjoyed start with why. Mhmm.

Speaker: And

Speaker: he talks about his evolution of thought around that. And what he started to do in the infinite game is he refers to your why as your origin story. But what he started to come to realize was the really, really great organizations that inspired people and drew people to them. They also were very clear on what he refers to as their just cause. And he defines that as a vision of a future state that doesn't currently exist and may never fully exist, but about which you are so passionate you will commit your entire career to seeing its advancement.

And so we talked about Steve Jobs and and how he had this vision that an individual should be able to stand up to big brother. Mhmm. Right? And, you know, they wanted to disrupt the status quo. And so his belief in that future state is what drew all those people to Apple in

Speaker: the beginning. All the rebels.

Speaker: Right? Exactly. And look what they were able to do. Right? And so it's this idea of understanding what your purpose is, but even going deeper into, well, what is it you believe that drives that purpose every day?

Right? And so when you start to understand that, that becomes a a huge alignment tool and also a driver for people because now everything is beyond just my job and my paycheck. There's there's something really that that we're doing that's purposeful in the work. And so connecting those dots for people is really important.

Speaker: So to clarify, we won't talk about one obsession, and we're talking about a subpart of that one obsession. Right? Talking about people

Speaker: The just cause so so the first obsession is great people. The second is an inspiring purpose.

Speaker: Okay. So second one is purpose.

Speaker: Correct. And and just cause is one element of what we work with companies to help really construct their inspiring purpose and how they talk about it and how they use it. For example, the marketing, very few companies spend any of their marketing budget marketing to their employees. Right? But you have a story to sell Mhmm.

And not just to potential customers. There's a story to sell to your employees. Yeah. Right? And I think there's value in doing that and spending time on it.

Mhmm. So that's the the inspiring purpose piece of it. The third obsession is optimized playbooks.

Speaker: Yeah. And Well, before we go to the third one. So people, we feel like it's just it's good enough. We don't have to spend any more time talking about it.

Speaker: I can go into more of accountability chart, as as as the performance side of that for sure.

Speaker: If Yeah. So let's talk so let's let's go about people. Right? So what are like, two or three things we need to know about the people side. Mhmm.

We're gonna talk about the accountability chart with the mission statement.

Speaker: So, yeah, there are three components. We covered two of them. So mission, most critical outcome, and then obsessions. And so the obsessions piece of it and this is what really helps tie the whole culture of performance together, which is the fourth obsession. But the obsessions piece is again, it's an evolution from Gino Whitman's accountability chart Mhmm.

Where there there were a series of four or five roles in an accountability chart if you follow the EOS style. And when I was teaching EOS and when I was was self implementing it, if you look at the examples of director of operations, one of their roles, the statement was make the product. Mhmm. What the hell does that mean?

Speaker: How do

Speaker: I hold you accountable? It's like, what's the standard? What's the expectation?

Speaker: What does success look like?

Speaker: Yeah. Exactly. It's it to me, it was like, well, okay. That's better than this is your name and this is your title and this is who reports to you, which is the org chart. But it's still it's like it's too vague.

And I don't know exactly what the expectation is. So when we started to think about obsessions, they are all short statements, and they all have a verb because they're focused on action. So if you take an operational chain of command within a business, you might have a COO or a director of operations that if they're the head of all the operations, one of their obsessions, which would be my version of make the product, would be something like own the operational playbooks execution and outcomes. So if you're my director of operations, and one of your obsessions that we're gonna talk about every quarter, you're gonna be measured against is your ownership of our operational playbooks, execution, and outcomes. Unlike most companies that do EOS for years and never have playbooks built, even though that's one of the components Mhmm.

It's usually the weakest. If that's your responsibility and you report to me as CEO and you're not getting them built, you're getting worked out of a job.

Speaker: Yeah.

Speaker: Period. That's owning the playbooks. You own the execution, which means you own the training of all the employees under you on those playbooks and the quality of which they're executing those plays, and you on the outcomes. So on the operations, playbooks, execution, and outcomes. So if we if our playbooks should prevent us from having customer satisfaction issues, but we're having customer satisfaction issues, your job is to go fix the playbook so those issues go away.

Speaker: It's funny as you're saying all this Mhmm. Because I have somewhere right now that runs my operations. Okay. And my coach, she was like, you should be running operations. Like, I don't know.

Like, you look at her profile, she does not, in any way, indicate that she would thrive in this role.

Speaker: Okay.

Speaker: But she's thriving in those those three things.

Speaker: Okay.

Speaker: And those are three things, like, we there's a dramatic shift in our culture Mhmm. In the last six months

Speaker: Okay.

Speaker: Because she's coming in. It's like, well, where's the, what are the s o where are the SOPs?

Speaker: Right.

Speaker: Right? And, like, hey. We're having these problems. It's because you're violating the SOPs. And she's just going back to, like, you know, you call it playbooks.

Mhmm.

Speaker: But

Speaker: it's like, hey, like, you didn't do what everyone agreed was how you're supposed to do it. Right. And so, like, yeah, we're we're we're tight knit. We're more aligned, and everyone's executing a higher level Yeah. Because she's doing those three things.

Right. But we never said those were three things. It's just that's just how she's wired. Right. And so it's

Speaker: And so that's that's also the value of having an outside influence to give you feedback.

Speaker: Mhmm.

Speaker: And Tiger Woods talked about this about why he always had a coach was he said, I can see the shot, but I can't see the swing. Yeah. Right? And so that outside perspective helps you see things sometimes that you don't. And so in this case, it worked out well for you.

Right? And so that's that's a real net positive. And so with obsessions, every role in the organization has some obsessions that we can measure against that is that that are the things they have to obsess about on a daily basis in order to achieve their missions and reach the most critical outcome.

Speaker: Yeah.

Speaker: Typically, at an executive level, there's four to six, I tend to find. Frontline employees might have two. So if I go back to that playbook's example, say a director of operations is to own the operations, playbook's execution, and outcomes. They might have a supervisor or a a person reporting to them as a mid manager who doesn't own them, but whose obsession is to drive the operations playbooks execution and outcomes. A frontline employees might be to follow the operations playbooks, period.

But if you simplify it like that, if like, I think about a machine operator in our company. If they had two obsessions to follow the operations playbook for their role and to meet or exceed their goals and metrics. If they focus on those two things every day and obsessed about it, they're gonna be great.

Speaker: Yeah.

Speaker: I don't need to overcomplicate it. Right? You have a playbook for how you operate this machine. You have an expectation on throughput. If you obsess about those two things, you're gonna be the top top pay band.

You're gonna have as long a job here as you want. Like, everything Well,

Speaker: this kinda breaks down to, like, you know, Nick Saban and Bill Belichick, which, like, you know, two of the best coaches of all time. There was this HBO special where they just interviewed. Like, they just interviewed each other. It was, like, it was, like, the coolest, documentary. But, like, they both have the same exact line, which is just do your job.

Speaker: Yeah. So Sabin talks about that that when he went to work for Belichick, there was only one sign in the entire building. Yeah. Do your job.

Speaker: Right.

Speaker: There's a video. It's funny. I show when when I'm going through a discovery process with a client, there's about a sixty fifty or sixty second Nick Saban video where he talks about five choices we all have. I don't know if you've seen this or not.

Speaker: I can't recall.

Speaker: I share that with prospects, and I and and it's where the term elite came from when I was coming up with the name for the book. But he says that we we all have five choices in life. We can choose to be bad at what we do. Sadly, some people do. Yeah.

We can choose to be average, and we can choose to be good. And he said, most people never get past good. He said, you can also choose to be excellent or you can choose to be elite. But if you choose to be excellent or elite, you have to have a special discipline and passion and focus and drive to do things to a high standard all of the time Mhmm. Or you never get past good.

Yeah. And that's one of the things we talk about. Kind of our tagline, is helping driven entrepreneurs build elite organizations. It used to be helping entrepreneurial leaders build lead organizations. And what I found was lots of entrepreneurs aren't that driven.

I don't wanna work with them. Like, they they can go do something else and then hire somebody cheaper and, you know, go check the box. But the ones that are driven, those are the ones that can really build something elite.

Speaker: Yeah. Well, I like that you used the word obsession.

Speaker: Mhmm.

Speaker: Because, like, people that have asked me, like, you know, you had a lot of people come on the podcast. Like, what are the things what do they all have in common? And, you know, a couple of things I always throw out is, like, you know, they're, you know, they're driven. Right? They're coached.

Mhmm. But then the third thing is they're obsessed. Yeah. Right? Like, they wake up thinking about this.

Right. They're eating dinner.

Speaker: Right. Thinking about it.

Speaker: Their their wife doesn't like it. They're thinking about this.

Speaker: They're making love thinking about it. I mean, it's like it's they're obsessed.

Speaker: They're obsessed. Right. And, like, that is the key Yeah. To get to that elite level.

Speaker: It is.

Speaker: Okay. So that's first like, so people, purpose.

Speaker: Yep. Optimized playbooks is the third.

Speaker: Okay.

Speaker: And it's it's this idea of really continual optimization. It's not doing your playbooks to check the box and have them done. It's it's really optimizing playbooks, thinking about them as checklists. I I use the analogy of a pilot's checklist since I was a pilot.

Speaker: Mhmm.

Speaker: You know, in the in the seat back pocket in the King Air, there was a manual that was over a thousand pages, and it stayed in the seat pocket. Like, it never came out. That was part of my initial training was getting through that. But whenever we would fly, there was a checklist we would flip through. Right?

And that checklist is just to make sure that of all the things I've been trained on, I never miss a step. Because if I miss a step, that becomes the first link in a chain of events that goes badly. Mhmm. It's the same thing in your business. Right?

If a if a salesperson converts a prospect into a client and there's some onboarding documentation that gets handed off to operations and the salesperson doesn't follow the process and properly fill that out, they create downstream problems.

Speaker: Right.

Speaker: And that just creates inefficiencies and chaos in the business. And so the more we can focus on how do we optimize our process and part of that term, optimize, also comes from something I discovered is that in most businesses, the majority of the issues and challenges we face are the result of either a process issue or a people issue.

Speaker: Mhmm.

Speaker: And it's, I think, unfair to always blame the people if we don't look at the process. Right. Because if something doesn't go right, what I always ask people to do is, well, first of all, do you have a documented defined process that should have prevented that? Mhmm. If not, go create it, train on it, roll it out.

If you do, why wasn't it followed? Do we have a training issue? Do we rush somebody through their onboarding? I I like to say, do we onboard or waterboard people? Right?

And I think most organizations waterboard people. They don't onboard them. So maybe we waterboarded a few new employees, and now we're pissed because they're not following process, but they never really got properly trained on it. Maybe we have somebody that's just apathetic and isn't a good fit, and they just don't care enough. Or maybe they don't have the aptitude for that thing that we need them to do.

And maybe there's a better role for them in the company, or maybe they just need to be a better fit in a different How

Speaker: do you measure the aptitude?

Speaker: I think it's evidence based over time. Right? I mean, I I'm a big believer that people who are culturally aligned and and from from the culture perspective a good fit, we owe it to them to invest in coaching them where they need it. But at some point in time, people will sometimes prove to not be coachable. Yeah.

And that's either an apathy issue that they just don't want it badly enough to take the coaching, or it could be an aptitude issue.

Speaker: Yeah.

Speaker: I've I've had people and I've had situations in organizations where people are getting coaching, they're lovable, everybody likes them. No matter how much coaching they get and no matter how hard they try and you can see it, they just can't get there. And that's debilitating to them. It's frustrating to them. And if we keep them in that role and they keep coming up short, it's kinda like we're doing a disservice to them Mhmm.

As much as the organization, and it has to be addressed at some

Speaker: a hack. I know we're talking about AI. Mhmm.

Speaker: We

Speaker: had a a a someone that we just recently hired. And, like, this is someone I was super excited about, like, recruited him. Yeah. Right? And we onboarded him, and we didn't have procedures yet, playbooks yet Mhmm.

For how to effectively onboard a new client.

Speaker: Okay.

Speaker: And so he just took all the transcripts and vetted AI. Mhmm. And he created a playbook. Right. And then he shared that playbook with the rest of the customer success teams.

Like, hey. Here's what I've gathered. Here's what we've created from Claude. Yeah. This is what the onboarding process looks like.

And everyone's like, yeah. That's it. Right. It's crazy how much easier it is now.

Speaker: It's not that hard. Yeah. Exactly. I mean, we've, you know, I've I've coached people through situations where, like, oh, we got this, you know, this 67 year old guy that's about to retire, and he hangs on to all of his knowledge. He's like, dude, get a Ploud device.

Sit down and talk to him for an hour or two, and just get it all out of his head, transcribe it, and let Claude turn that into a like, you'll get all of the processes out of their head. It's not that hard Right.

Speaker 2: Like it

Speaker: used to be. And those are just, you know, very there's lots of very simple hacks to make this a lot easier than it used to be.

Speaker: Yeah. So that was the fourth hack.

Speaker: That's the third. Third. The third is optimized playbooks. The fourth is a culture of performance.

Speaker: Mhmm.

Speaker: And I think this this is an area where a lot of organizations fall short. There are a number of things that we teach around a culture performance, but this is really about, one, I'm a big believer in this quote that, it was actually from a health care CEO named Paul Bataldin that every system is perfectly designed to get the results it gets. Mhmm. You want a better result, you need a better system. Yeah.

And so if you have people who are consistently underperforming, you have a system that enables underperformance in your organization. You need to change something about that system. And so we really focus on this idea of if we if we measure on a regular basis people against the core values and against their mission most critical outcome and obsessions, and we use an a player assessment that kinda comes out of top grading and a little bit of stuff from scaling up and some things that we've added to it, We measure people on a numeric scale in each of those areas, and each number has a very specific definition to make it you'll never remove all the subjectivity from evaluating people. Yeah. But if you can mitigate and minimize the subjectivity by having congruence with the definitions we use, you get to a very acceptable outcome.

But anybody so one of the definitions is consistently meets expectations, and there are there's levels above that, levels below that. If we use that as the baseline, that anybody in any one area who is not meeting expectations consistently is getting coaching. And there's there's a tool we use called seven people solutions, and it's seven escalating levels of intensity around how we deal with with people issues. And so the third of the seven is coaching conversations. And so if you needed to coach me for a while because there was an area I was underperforming, as as as the business guide, I would just ask at a leadership team level, how long, Steve, are you gonna coach Michael before you go to the next step?

Mhmm. Because it has to be time bound. Because I was running into situations where I'm coaching him. I'm coaching him. Well, he's been on the issues list for a year and a half.

Like Yeah. Either you suck as a coach or you're just tolerating way too much. So let's make this time bound. And at the end of that, we have to escalate to the next step if they're still underperforming. Yeah.

And so if I, as your direct report, know that and know that that's coming and step four is a corrective action plan that leads to my termination if I don't level up, I may have a two quarter window to fix it or I'm gone. Mhmm. So maybe it's ninety days you're gonna coach me. Okay. How frequently?

Are we gonna meet weekly, biweekly? What are we gonna do? You're gonna give me clarity on that, and you're gonna coach me At the end of the ninety days or whatever the time frame is, if I'm still underperforming, we move on to the next level. Almost always what happens is I begin to realize I am not capable of meeting the expectation, and I'm going to start looking for another job.

Speaker: Mhmm. I'll

Speaker: probably leave on my own. I'm not your HR problem now. You were very clear with me, and you gave me lots of your energy and time and effort to get me coached up. I wasn't gonna get there, so I left. That that prevents you from often having to fire people.

The other thing though that I find is the majority of the time, people with the right coaching and with the intentional effort will get to the point of meeting expectations just fine. Yeah. And so these are kind of pulled out of the air statistics, but roughly, eight out of 10 will be able to make a text to meet expectations. Of the 20% that typically don't, about 90% of them leave on their own.

Speaker: Right. This is the way of leveling them up or leveling them up.

Speaker: 100%.

Speaker: And I like this, because this is where, you know, as an organization, we struggle

Speaker: Mhmm.

Speaker: Here and there. It's like, okay. Crap. It's it's not working. Right.

Is it the person or is it the process? Okay. It's the process. Let's improve the process. It's not working.

Speaker: Right.

Speaker: And so, like, it there there's this part, like, it's it's it feels almost the way we do it today. Entirely arbitrary.

Speaker: Okay.

Speaker: Right? It's like, okay. Like, this is the third time we talked about this person in a strategy meeting. Like

Speaker: Right.

Speaker: It's time to go. But it sounds like here is, like, you already have a system and everyone knows the system. Correct. So there's no, like, guessing, like

Speaker: Right.

Speaker: How long am I on the leash? And there's no question on our end. Like, here's how long we're gonna work with you.

Speaker: Right. And and that, to me, that system needs to be explained in the interview process with your final candidates. Because if I'm interviewing you for a job and I lay out for you, this is how we measure accountability for culture and performance, and this is how we handle when people aren't performing because our goal is to coach everybody up, but we also have guardrails that get people coached out if need be. And I need to understand if you take the role, are you comfortable living within that system? And if you're a high achiever and you love accountability and you thrive and you're driven, you're gonna, yeah, love it.

Like, because I'm gonna be a rock star. I'm gonna crush it.

Speaker: Right? You don't have to worry about me.

Speaker: But if right. But if you but if that scares you, like, I wanna figure that out before we make you an offer or you accept an offer.

Speaker: Yeah. So it's a great filter.

Speaker: It's a very good filter. And some people will kind of they'll start ghosting you after that. Yeah. And you know that's perfect. That's what I want.

Speaker: Did its job.

Speaker: Because it did its job. Exactly.

Speaker: What are the seven you said the seven stages?

Speaker: Yeah. So the the first is no action. And I and I learned this from a good friend of mine, Tip Quilter, who I used to be in this mastermind group with. The the first is no action. So this could be, hey.

You know, Steve's name came up a couple times on the issues list, but based on what it keeps coming up for, like, we're not gonna take action on that, so let's stop talking about it. Let's start let's stop giving it oxygen. Fair enough. The second is observe and revisit. So maybe somebody's name came up on the issues list, and I'm the person they report to.

I need to gather some more information. I need to go kinda look into this a little bit, and we're gonna revisit it. What what we all do as business guides, if that comes up in a in an executive team meeting when we're looking through people, is by when will you revisit this. You have to put a date on the calendar. And by that date, you have to come back to this people issue with what you've discovered.

Because otherwise, we say we're gonna do that, we get busy, we forget about it, and six months later, same problem again. Right. So it has to be time bound. The third is coaching conversations. And so those are less formal.

You know you're getting coaching. You know it's gonna lead to step four if we don't get the improvement. But when we do the number two step, the observe and revisit, the outcome is always either no action or I'm gonna start coaching them. Right. So we go one or two directions.

Speaker: Flowchart.

Speaker: Yep. If the coaching conversations don't work, you move on to corrective action, which is now formalized. We have witnesses because this might lead to termination. This is no longer a dialogue. It's me directing you and what needs to change, and we move forward with that process.

Each of those are time bound. And there's a number of meetings. And depending on the circumstances in the individual, it's it's customizable how you do it. The fifth step is to, to move seats. And so this may be somebody's underperforming.

We get into it, and we realize that we actually put them in the wrong seat. We hired them into a seat where they'd be much better off somewhere else. We just move them into a different seat. The sixth is, so the seventh is termination, right to work state, go straight to termination. The seventh sixth is find and replace.

So this is a situation where I know the person needs to leave, but if we fire them today, it's gonna cause more collateral damage than if we take our time. So we're strategically going to start looking for their replacement. We might do some, you know, some silent job postings or things like that. And as soon as we find the right replacement, we will move them off.

Speaker: Yeah. Well, the other thing I like about here, as you explained to all seven Mhmm. Is that there is a debate, that I've had with multiple business owners, which is, like, do we do written performance improvement plans or do we do verbal corrective conversations? Because a written one is received, especially more by younger people.

Speaker: Mhmm.

Speaker: It's like, this is just their process of firing me. Mhmm. Right? It's it's not like I want you to get better. Right.

It's just received like, okay. They're just covering their asses before they fire me. Right. And so this is more like, hey. This isn't good.

Yeah. Okay. This isn't getting better. Now it's formal.

Speaker: Mhmm.

Speaker: And then if it still doesn't get better, well, you knew this was coming. Right. And this is not a surprise. So

Speaker: yeah. So so I have two very specific thoughts on that. Number one is if if it's best for the organization, record the meetings and, you know, it's it's so that we do have something, you know, that we can come back to on what our agreements are, and it doesn't become a, well, here's what I remember versus what you remember. But it's feels a little less formal than maybe, you know, the documentation. But even more importantly, regardless of the generation of the individual, if in their onboarding and even in the interviewing process, if it was explained to them, we get to step four and it's corrective action.

We will document everything. You will sign off on it. A witness will sign off on it because there's an unfortunate reality that it might lead to termination if we have to go there and you're not improving.

Speaker: Mhmm.

Speaker: And back to what I asked you earlier, are you willing to take this job and come into that system and accept that system? Yeah. So now if I'm the 25 year old kid who, you know, got a trophy for everything I ever did in my life no matter how bad I was, at least now I know the expectation. It goes back to what I said earlier. Our frustrations come from unclear expectations.

Speaker: Right.

Speaker: So if I agree to come to work for you and your organization knowing full well what accountability looks like

Speaker: Mhmm.

Speaker: I can't complain about it later because I knew coming in eyes wide open. Yeah. Right? So that's you know, I I think to your point, it's debatable, and it depends. Like, you

Speaker: know Oh, but I'm saying, like, having yours, it removes the area for debate because we're clear, you know where you stand. Everyone knows where you stand.

Speaker: Right.

Speaker: Versus before is, like, yeah. It's written right up, but he's gonna get rid of me anyway. Right. Right? And and that's just a mismatch.

Like, no. I don't want you I don't get I don't want to get rid of you. I want you to get better.

Speaker: Right. Yeah. And that's that's the whole point is and and for the most part, like I said, if we put that effort into it, most people get there, and it's just fine.

Speaker: Yeah. And then you have a fifth one

Speaker: Mhmm.

Speaker: Which I feel like probably should be the first one. So, which ties back to the title in today's episode. So the fifth one is

Speaker: Growing Profits and Cash Flow. Yeah. And one of my one of my personal biggest kind of pet peeves with people in the coaching industry is you've probably heard this too, but there are so many coaches that talk about profit and cash as the byproduct of doing everything else right. Mhmm. And I think that's just intellectually lazy.

I think if you don't treat and obsess about profit and cash flow, if you treat it like a byproduct, it always will be. And it is the absolute lifeblood of every organization. And I think part of the problem is most entrepreneurs have never really been taught financial literacy. And if you go back and think about the e myth, so many entrepreneurs are a technician in someone else's business and decide, screw this. I'm gonna do my own thing.

Speaker: Right.

Speaker: Go start their own thing. But we don't put the time and energy into understanding profits and cash flow Mhmm. And and really going deep into that and what are the mechanisms that drive them. And so, you know, we we talk constantly about cash conversion cycles and studying them and how do we get incremental improvement over time in these things, looking at margin and looking at profit per x and how do we drive incremental margin growth in these areas, and and really working on teaching financial literacy to, to executive teams as well as deeper into the organization. And what I tend to find it's it's interesting.

In within this obsession, I find many companies that we work with, the person that's at the executive team level in the finance seat, some of these organizations do have a really great CFO that is, in fact, a really great CFO. I often find lots of organizations that have someone they call a CFO who's probably a controller at best in terms of their skill sets and their ability to do analysis. I also find some smaller organizations that show up and say they have a controller who's really just a bookkeeper, and isn't really a controller. And I think that's an area, sometimes even where the CEO doesn't know what that role should actually be capable of. And so they give a title to the person that does their books, but it's not really with the right expectations.

Speaker: Can you just, you know, third grade level, give distinctions between bookkeeper, controller, and CFO?

Speaker: Yeah. I think, you know, basically, a bookkeeper is doing correct data entry into your accounting system and producing accurate financial statements. A controller should be capable of providing cash flow forecasts, doing some basic financial analysis, expense analysis, things like that. When you start to get to CFO levels, CFOs ideally should be able to understand and talk business strategy and connect finance and not just accounting, but really a knowledge of finance and connecting that to strategy and be a strategic thought partner for the executive team who's also protecting our financial performance, and metrics.

Speaker: So I have not had a CFO yet.

Speaker: K. Yeah. I I've had one in my entire career. And when when I had a true CFO, I realized it.

Speaker: Yeah.

Speaker: It it became very clear. I mean, he was a Darden MBA, studied finance. The controller was the one who was the accounting expert.

Speaker: Mhmm.

Speaker: The CFO was a finance expert with an MBA who was passionate about numbers, which, which gave me a strategic thought partner who had visibility into those things. And and it was really he was the one who helped me crack the code on profit per x for our business. And when we did, that was just a huge light bulb for us, and and he really went off the deep end on analysis of all the different levers that affected it, which gave me great input to be able to make better strategic decisions.

Speaker: Can you share with me a recent, success story of someone who you came in and helped them implement the the profits part. Like Mhmm.

Speaker: What

Speaker: was their cash conversion cycle? What was all that?

Speaker: The the profit oh, you mean the profit breaks? Or

Speaker: Just in general. Believe them. Just, the the obsession about profits. Because, like Mhmm. You know, like, Mike Michalowicz talks about profit first.

Speaker: Yeah. Right.

Speaker: Right? And it's like, okay. I get it. Profit first. But, like, how?

Right. Right? So, like, what was, like, someone that you did recently where, like, you were able to dramatically grow their their profits focusing on just, like, two or three, like, strategic moves within the organization.

Speaker: So there was a health care company that and there was also some, some you know, timing never hurts. Right? Great timing never hurts. But there was a health care company that was understanding their profit per x. And I don't remember the exact metric that they hold, but what it led them to is they started looking at strategies to optimize that.

They were in the behavioral health space. They were very early adopters of telehealth and virtual visits

Speaker: Mhmm.

Speaker: Because that was driving their profit per x. That happened, and they got the systems all set up and in place shortly before COVID hit. And when that happened, and now people aren't doing in person visits, they already had the platform and the technology in place, so they quickly flipped. Mhmm. And they grew exponentially.

The the company, when we started working together in 2017, had had evaluation done, and it was less than $10,000,000 that the company was worth. In 2003, the I'm sorry. 2023, the owner sold the business for a $130,000,000. And it was that platform that came from the obsession about profit per x coupled with the the the strong tailwind they got

Speaker: Oh, for sure.

Speaker: With with the pandemic. But it all really tied back to once they got clear on profit per x, they started making system level changes to things that would drive it. And then the timing happened to hit perfectly. But to go from in 2017 to 2023, from less than $10,000,000 to a $130,000,000 sale, that was a pretty significant advance.

Speaker: So someone listening right now because they're saying, like, you know, your profit should double every two and a half years.

Speaker: Mhmm.

Speaker: What takeaways does someone, have right now listening? Like, is there, like, do you focus on all five? Is there one that you lead on first?

Speaker: You know, I think one of the first things that really helps drive that is and and and I go deep into it in the book, and I've got videos on our YouTube channel about this, but really understanding the most critical outcome logic and beginning to build that out into the organization. And I think to get the most critical outcome right, it's much easier if you get the mission right for every role first.

Speaker: Mhmm.

Speaker: Even if you do those two things before you get into all the obsessions and start to set up the right dashboards for that. And the other thing that I found, the way we teach scorecards is every most critical outcome typically has two to four key drivers that are the things you do on a daily or weekly basis that drive that outcome. Those are the things that go on the weekly scorecard or the daily score scoreboards, that lead to that outcome. If you start there, that will begin to build the foundation that allows you to drive great economics into the business. The other things, you know, getting clear on profit per x and looking at cash conversion cycles, if that's if if cash flow is not if if I'm working with somebody who's got great cash flow, we don't we don't prioritize, well, you have to do cash conversion cycles right now because that's part of our obsession.

Right? It's it's not needed. They're they're crushing it there. We're looking for the areas that they need the help and starting there versus saying it has to be linear and you have to go a certain way. And so I do think though that most critical outcome is a great starting place, to really start to drive better financial results.

Speaker: So when you're working with clients, do you, yourself, or one of your guides basically build out these five possession, obsessions, or do you like, how how does it work?

Speaker: So we so we work with them to build theirs out. But one of the things when when I was when I was in EOS as an implementer, the leadership team manual that they give their clients to use is essentially lots of blank templates that you fill out when you're talking to your coach. And so there's a little bit of context in there, but but it's pretty thin. So if you didn't take great notes when you were sitting in the meeting with your coach and you go back to your office to try to build the stuff, you don't have a lot to connect the dots. So in so we have what we call a base camp field guide for our clients.

It's about a 120 pages, tons of content and examples. So when somebody when we work with our leadership teams, we're helping them build out the accountability chart as kind of a first draft. But as they go back and are working with it in our in our Basecamp field guides, there are three different examples fully filled out with missions, most critical outcomes, and obsessions, multiple layers within a business. There's an example of a manufacturing company, a trades company, or a home services company, and a professional services company. So regardless of what type of industry you're in, they actually have three examples fully filled out that are actual client versions

Speaker: Mhmm.

Speaker: Which allows you to get much more clarity if you're looking at real examples. Right? Like, you know, I can I can look at something and I can mimic it if I'm drawing? I'm not an artist. But if I gotta start from a blank sheet of paper, it's not gonna be the same.

Speaker: Right.

Speaker: And so what we've tried to do and this just goes to trying to figure out how to make things better. You know, make it a better experience for the clients by giving them lots of examples that they can follow. And then I've also got an AI clone that I created, that that came out with the book. Similar to, Cameron's got one as well, and it's meant to be a companion to the book. So if somebody's, you know, a smaller organization or just a do it yourselfer that refuses to, you know, to bring somebody on as a guide, they can use the book, they can use the AI clone, and they can do most of this on their own and get their questions answered that way.

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Speaker: So your story is is a crazy. Okay. And you obviously have taken a lot of those lumps

Speaker: Mhmm.

Speaker: And built it into your your your system. So then, you know, like, when you're working with clients, is it, like, an implementation day, like EOS? Is it, like, a long engagement? Like, how does this all work? Because, like

Speaker: So the the yeah. The overall cadence is not too unlike the cadence with The US. I thought that was that was a good cadence. I will, suggest I we don't refer to what we have as a system. We refer to it as a framework Mhmm.

Because it's flexible. Whereas to me, a system connotates it's something, you know, that's linear and constrained. Mhmm. But when companies implement our framework, the way we work with them, we don't have contracts. We don't get paid upfront.

We essentially get paid a monthly membership. So so companies that work with us essentially become members of Next Level Growth. They they pay a monthly investment to have access to us, to be on our calendar. We go through typically a two to three day onboarding process, that is over the first ninety days that we have those two to three meetings, and that's getting a lot of the foundational pieces in place and custom tailored to them. And then we run their quarterly and annual planning sessions.

Some companies like to bring some of the mid managers in for parts of those sessions that we work with them. We do monthly CEO working session calls with our CEOs to stay more connected with them. And I think also part of that is to drive more awareness and accountability with the CEOs. I I actually had two of these calls earlier today. And in both cases, I asked the CEOs.

This is a question I've started asking all of ours is, if you had a hired gun CEO running your business and you were an investor, or you were chairman of the board, would you hold them to a different standard than you're holding yourself? And it's a it's a really interesting question to see how they respond.

Speaker: Mhmm.

Speaker: Because I know for a fact, if I had hired a CEO running next level growth, I would be harder on them my I am on myself. I accept my own bullshit. Right? And I wouldn't accept theirs. And most of the CEOs are are that way.

Right? And so it's a good question to just sit with because we all know there's stuff we're tolerating that it just I don't wanna have to deal with that, so I'm just gonna focus on other stuff. Yeah. And that that forces us to deviate to mediocrity. And I'm I would be disingenuous to say that I do that perfectly.

Right? I've got the same challenges. I'm an emotional creature as well, and the same habits. But I think most of us as owners, we anoint ourselves CEO whether or not we're actually cut out for it. Mhmm.

And then we have to force ourselves to try to fit the role. And that's something that I think we have to to sit with and wrestle with.

Speaker: Well, I really do love that question. Mhmm. The there's two things that come to mind. So David Sandler, I learned a lot myself's philosophies from his teachings. And one thing he said was that, if he was sitting in the middle of the Dallas Cowboys stadium, 50 yard line, and everyone was watching him work, he'd be a very different salesperson than he is in his natural state.

Speaker: Sure.

Speaker: Right? He said he would be the best salesperson in the world. Right. The second thing is, I said this to my coaching clients, and they I don't think they like it. But it's if your child came to you and said all the same things you just said to me Mhmm.

Would you accept that?

Speaker: Right.

Speaker: And they're like, no. It's like, why are you giving it to me?

Speaker: Right. Yeah. No. That's exactly right. That's exactly right.

It's it's a different perspective. I, they all sometimes, you know, ask teams, like, you know, if if you were to if we were to sit here and watch the last ninety days of your business as a reality, as a reality TV show, we're just gonna sit here and watch it. What would you be yelling at the people on the screen?

Speaker: I definitely don't wanna go through that.

Speaker: Right? But, you know, it's it's important that we kinda take ourselves out of our own biases, and try to look at things from the outside in. And, and a lot of times, it takes some some external force to help us do that.

Speaker: Yeah. And then you said something earlier about, Tiger. And Mhmm. For me, one thing that, you know, I'm I'm proud of or at least was proud of Mhmm. My jump shot.

Speaker: Okay.

Speaker: Right? You know, I've I've spent a lot of time. I don't know if I put in the ten thousand hours. I put in a lot of hours. Right?

And I know you gotta bend your knees. You gotta, you know, have your elbow Right. In. You gotta have the follow through. You gotta have fingers.

Like, I know all these things. Right. But, man, you're on the court. You don't know what you're doing.

Speaker: And you

Speaker: have to ask a buddy. I remember I asked a friend. It's like, hey. Like, my shot's off today. What's going on?

He's like, I don't know. So you decide today you say, you seem to decide to not use your knees. Yeah. Yeah. What?

Right? And then it's like, okay. I started bending my knees more. It's like, I'll start going in. Yeah.

Right? You just you need that

Speaker: Yeah.

Speaker: Third person.

Speaker: Exactly. Jordan Jordan even talks about that in the, in the last dance, you know, and how there were certain things that Phil Jackson could say to him because he would see something where he'd just be a little bit off. And he just give him one little word or one little comment, and that correction was all it took. But he was so in the game that he wasn't picking up on that one little technical thing.

Speaker: Yeah. So the book here

Speaker: Mhmm.

Speaker: Five Obsessions of Elite Organizations, I'm assuming available on Amazon.

Speaker: Available on Amazon, Audible. Yeah.

Speaker: Yeah. So, this is incredible. And, you were recommended, by Cameron Herold. Obviously, he's Yeah. He sees some good things here Yeah.

In your work. So really, really profound. Anything I didn't ask about that people that the people that are listening should know about, you know, your book, what you do, so on?

Speaker: No. I think I think we really covered a lot of great ground. I think one one big thing I would hope most people take away that that has nothing to do with the industry you're in, and I think this works in your personal life as well as your professional life, is that quote that that every system is perfectly designed to get the results it gets. And if you want a different result, you need a different system. And so if you think about, like, if you're on your third marriage and it's not going that well, you've got a system for pretty bad marriages.

Like, you need to fix the system. But, you know, whatever it is, if you're if you're not growing at the rate you wanna grow, if your profits are not where you know they need to be, whatever it is, there's an underlying system by which you operate, even if it's not well designed, and well defined that's causing that outcome. And if you try to break it down and think with a system's mindset, what are the things that have to change to get a different result? You know, you could look at real estate investing. Look at all these different things and Mhmm.

You know, how is your system working for you based on the outcomes and results you're getting

Speaker: Or not for you.

Speaker: Or not. Right?

Speaker: Yeah. So if someone wanted to connect with you, what would be the best way for them to do that?

Speaker: So, our website is nextlevelgrowth.com. So that's the easiest way to find us. All of our guides are on there. Right? Yeah.

There's a whole story in the book behind the logo and there's a little bit of little bit of attitude in that. But, and then the book, it's on Amazon and Audible, and there's a website, 5obsessions.com. When people read the book, they can go there and download some tools and resources to go along with the book. And then we also do on the next level growth website, there's an assessment that people can take to measure how they're currently doing in each of the five obsessions. Comes with about a 20 page report that's customized based on their scores, and it's got lots of links to different resources they can use that are all free, to help them in any of these these various areas.

Speaker: Yeah. There's there's a lot. I learned a lot, and I can't even I can't even imagine how much more that we need to talk about in the book. So I'm super excited to go through the audible Yeah. With this.

Appreciate it very much.

Speaker: Steve, thank you. Enjoy. This was great. Thanks so much.

Speaker: Thank you guys for watching.

Speaker: Shout out to Steve. Train. Jump on the Steve train. Disrupt us.