Getting Off The Org Chart: How to Hire a CEO Who Fits Your Next Chapter

0:00This is going to be a different business lunch. I'm going to let Ryan actually, I was like, I was going to open it and hand it over to you. I think you open it this time. Okay. So, hey, everybody. Welcome to Business Lunch. I'm your host, Ryan Dice, with the inimitable Roland Frazier. Yay. How'd I do? That was amazing. The energy that you bring is just like off the charts. I love it. Yeah. I mean, it's like, I don't know what the heck I'm doing because you normally do it. But no, I am excited about this. This is going to be fun because all this ever is, Like the whole genesis of this podcast was just you and I talking about stuff.

0:35Like, what is it like if we're just sitting here having lunch and you're, you know, eavesdropping at the table next to us kind of thing? And that's exactly what I want to, you know, do here. Not that it's any different, but this is something where I specifically want to talk to you about something. So I want to just ask you a bunch of questions and have you tell me a bunch of things and just be that obnoxious, you know, twerpy little pest who just keeps being, yeah, but what about that? and what about that and what about that? Does that sound like fun to you? Sounds fun. Okay. So I want to get to a topic that I know is near and dear to your heart and something that I believe you're, you know, definitely a leading expert in, and that is getting off of the org chart.

1:17How do you go from founder to operator to I ain't doing that stuff no more because somebody else is running the company for me? And it's the thing that truly if anybody I know in this, you know, out there in business world, and I know lots of people, you have done this better and more consistently than anyone else of never getting yourself kind of stuck, trapped, being there where you need to be there, but then getting the heck off of it when you're ready to do that. So I want to talk through that process, how you do it, because I know that there's a lot of people out there who they like their business.

1:50Maybe they don't even want to sell it necessarily yet, but they would like to exit the day to day, whether it's to hand it off to the next generation or to just have more time or just to have a little bit more of a passive lifestyle type business or maybe just to jump into another project or initiative. Lots of reasons to do it that we can get into, but that's what I'd like to talk about with you. What do you think? I think it sounds great. Let's do it. So just for context, how many companies do you own, you know, majority, minority, where you're not, it's not one of these things where, because a lot of people are like, I've got a portfolio of companies And it's like, you know, they own 2 % of this and 1 % of that.

2:31It's like, yeah, I mean, that's like me saying that Apple is in my portfolio because I, you know, own their stock or something like that. But in terms of like the actual businesses where you have some authority, like legitimate ownership in, how many are in that overall portfolio? You and I share a lot of them, but I know there's a lot that we don't necessarily share. Yeah, it's gone down because we've had some exits and things like that. I think it's 11 now. Okay. So you got 11 businesses today. How many businesses would you say, and I know this is an unfair question, so maybe just give me ballpark numbers, that you've owned over your lifetime?

3:11Minority, majority? Gosh, hundreds. And of those, so of the 11 now and the hundreds that you've had in the past, how many were you the primary operator CEO in the trenches on the day-to-day? um the primary operator um

3:39like maybe five five okay how many in the last uh 10 years would you say zero okay that's and that's the that's the thing like you have been better at most at getting involved in businesses without getting stuck in them and in keeping yourself off the org chart. That's the thing that you're an expert in. So I want to talk about how the heck do you do that. But before we get to how you've done it, why would somebody want to do it? And I know there's different cases. There's people like you who maybe don't want to operate at all. You think about yourself as more of an investor. So hitting on that.

4:16But why would somebody who, they have started this business. It has been their baby, so to speak. Why might they want to get off the org chart? What are some of the benefits of that? Sure. I think there's a lot of reasons. The one that I think is the biggest for most people, whether they, you know, well, the one that I hear, I'd say the most is burnout, that like they're just, the business is asking too much of them. And so they're working too hard and it's affecting either their health or their personal life or just their general happiness. So I think that's a big reason. But then moving to, you know, to more strategic reasons, our saying is, right, the more valuable you are to the to your business, the less valuable your business is, is very, very true.

5:04So if you want to make your business more valuable in terms of just what it's worth to a potential acquirer of the business, and honestly to you, it makes sense for you to be off the org chart because if you are on the org chart, if you are critical to the business, then you're going to have to stay. You won't be able to sell it unless you agree to stay until a replacement is found. or maybe in a few circumstances, there are 100 % buyout firms that are basically just kind of sucking your business into theirs and they're going to, they don't want you to stay really, but they are gonna make you stay for a while to transition.

5:47And that is a period of just absolute hell for everybody that you talk to that's ever done that. You're just this unwanted person that's there as a safety net and scapegoat with no power and probably answering to someone who doesn't know anything near what you know about business and particularly about your business. But also just as a hedge against risk, because if you are critical to the business and you're on that org chart and something happens that means that you are not able to be there, then that's a problem. Or you don't really have the ability to get away because you're so indispensable to the business that you can't go and take some time off, even a week or two, much less a month or two.

6:33And I think those are probably the primary reasons that most people would want to get off. Yeah, and I've seen the same thing. When people come to us, you know, and they're like, I just, I want to, you know, I'm just fed up. I got to get rid of this business. I got to do something. And this is a better option than just burning the entire thing to the ground, which a lot of people want to do. So if you're in a really bad place, let's see, can we get you out of the business without destroying the business? But also, if the business is going amazingly well and you just want to be able to maximize the value that you can get from the business without attaching you to it, then you also want to get off the org chart.

7:13So going back a little bit, maybe define what does it mean to be off the org chart? Does this mean that you have no role whatsoever in the company? You have no job title? Can I still be CEO? would be off the org chart? Like what, give me, kind of clarify the definition for me. Sure, yeah. So by definition, the organizational chart is the thing that documents all of the roles and responsibilities of the people that operate the company. And so at the top of that is the CEO, the chief executive officer. And then under that would be the people that report to the CEO. And then each of those people have a number of people that report to them.

7:51The number of people that reports It's referred to as a span of control. You typically, unless you're Jensen Wang, you typically don't want more than four or five of those people. I think he has something like 35 or 54, some crazy number, because that's the number of people that you can, you know, basically manage effectively, according to most business gurus and such. And the U.S. military. So if you are on the org chart, then you have a job title, and you have a job description, and you either have someone that you report to or you have people that report to you. And so the goal to be off of that is, no, you could not be a CEO and be off it.

8:32Not if you're a true CEO, because you would have the COO and the rest of the C-suite that's reporting to you and then you're reporting to the board. That's really what we're talking about is getting out of having a job. You could still be an investor in the company. You could still be an advisor in the company. You can still be a guide to the people, a coach to the people that work there. It's just that you're not essential to the business. It doesn't mean that you're not helpful to the business. It just means that you're not critical to its operations. And importantly, it doesn't mean that you don't still own the business and you don't still have control.

9:11Correct. Over the business from basic. So, I mean, you could still be not just a board member, but you could be the only board member. Maybe. You still have all full authority and control. You just don't have day-to-day operational responsibilities over the business. So you're not stepping in to over, like, run, you know, run roughshod over people, but you definitely can hire and fire the CEO, right? Yeah. Yeah. It divorces operations from ownership, really. That's, you know, ownership and control are separated from the actual operations of the business. Yeah, break that down a little bit because I think that there's a lot of business owners, you know especially startup founders entrepreneurs who they don't quite understand or grasp that that distinction of i own it but i operate like what do you mean so kind of double click on that so if if you think about like the the owners of the corporation or are the owners of a business are generally the shareholders of the corporation or the members of an llc or the partners in a partnership.

10:11And then those people will typically have the control of the business based on their voting rights, right? And there's all kinds of different ways to slice and dice that. That's a different discussion. Those people then will elect someone who is supposed to be responsible for the business. It might be a managing member if it's an LLC, a CEO if it's a corporation, a managing partner if it's a partnership. And then that person is effectively what we're talking about, the first pinnacle person on the org chart. And so the ability of the owners who control the business to determine who that person is, is everything.

10:56Because they can remove that person if they're not performing, they can replace them, they decide who is there, they decide what that person needs to tell them about the business. They can establish KPIs. They're like, they are the people that make those decisions. And so they can have tremendous influence over the company. And we call it governance because they are governing how the company is going to be structured from an operational standpoint, but they are not making the day-to-day decisions on how the company operates. That's the responsibility of that person that sits at the top of the org chart.

11:32So if you're thinking about it, it's the shareholders or owners elect the manager, the kind of the top manager and the top manager then will very often appoint the officers that are going to be working under them. And those people typically have to be ratified by the board as well. So you have three levels. You have shareholders or owners. You have directors, like the board of directors that are kind of the governing body that the shareholders elect to oversee the people that are operating the company. And then that board elects the CEO and the officers who are going to be doing that day-to-day stuff.

12:12Got it. So let's say somebody's decided that, all right, I'm ready to get off. Maybe they're burned out. Maybe they think they want to sell at some point. They made the decision they want to get off their own org chart. I want to talk about the right way to do it and how you think about it and how you approach it. what are some of the things that you see people do that is either maybe unwise or just flat out, like, if you do this, you're a special kind of stupid and you will destroy your business in any particular order. Just what are some of the things that people might try? Because I think sometimes it's better to know what not to do than sometimes you know what to do.

12:45So what are some mistakes that you think people make? Well, one was when I was putting together the case study for the the workshop that you and I are doing tomorrow is you have someone who is helpful to you and you make them the CEO of the company, despite having no skills or experience to do that. If you recall that happened with us, I recall it very well. Thank you for bringing it up. And so I think it's that out of desperation or expediency, you put someone in the role that you feel will do okay, but you didn't do it intentionally by saying, here is the job description. Here is the required experience and credentials that you have to have to come in to be the threshold of whether you can even apply to be in that.

13:45So it's just basically ignoring a formalized hiring and vetting process to put somebody in that spot because you need to take pressure off of you. I think that happens probably more than anything else. It's the, um, it's the, they can fog a mirror, um, brand of, of hiring. It's like, yeah, I got it. They're willing to do it. I'm not congratulations. You're hired. Cause you're there. I've also seen this happen. Maybe somebody isn't super overwhelmed and burnt out and they'll just take kind of anybody. I've seen it happen with people who they'll just hire somebody who has the most tenure and they almost feel like, well, this person has been around for a while.

14:26So I guess they've, I guess they deserve it. Right. Have you seen people do that before? Yeah. Yeah, absolutely. So that, that's the, um, you know, out of guilt or obligation promotion, which is very Peter principally, you know, let's just promote them up until they're incompetent. And again, it's because you don't have a vetting, a qualification and a job description that's clear. And then on the opposite end of that spectrum, I see people that go and hire a search firm and, and go through a vetting process and lay out all of that stuff. And they still hire the wrong person because they don't know really how to identify the person that's going to be the best in that.

15:15And I've also seen them hire the right person, but then micromanage them because they really didn't want to not be the CEO. They want to kind of have the person do the dirty work, you know, the stuff they don't like doing, but the actual CEO job, they kind of want to hang on to. So they micromanage the person and the person never really gets to be any kind of independent. And you end up with this, you know, management team of cronies that just are yes people that, you know, that you're micromanaging. I kind of like, I guess they're warm bodies that can do stuff, but you're so on top of them that you really haven't relinquished that job and that position.

15:58And so you shouldn't have a CEO. You should have a COO. Yeah, they wind up with like a, you know, $250 ,000,$350 ,000 a year executive assistant who, if they have any dignity whatsoever, will quit. But frequently they're fine just to hang around and waiting for you to tell them what to do. And you wind up with the worst. And if they are there, they're not right. Yeah, they're the wrong person for the job. Yeah, exactly. Yeah, yeah. It's like the best way to tell that somebody's qualified is that they quit if you don't let them do what they're supposed to do. Yeah, exactly. So I think so you got to know that this is, in fact, something that you want, that you do actually want to be off the org chart, because I think a lot of people don't necessarily do business with the reality that this is a significant identity shift.

16:41it is right a lot of the stuff that you you know got value for that you felt validated from people you know being able to walk into a building or you know call a team meeting getting to boss people around like these are things that very often as business owners will complain about but if we're being honest we kind of like the power of it all like it's it's what happens when people sell their company and they're no longer welcome you know at the company like we don't need you anymore. So you sell your company and this thing that you've done for five, 10, 20 years, you don't get to do anymore. You don't walk in and say, okay, what's going on?

17:16Tell me the KPIs. What's, you know, what's the dashboard looks like? What are we going to do? How do we manage that? Let's fix this problem. Let's fight that fire. You don't get to that, like, and you're not wanted because you're just going to get in the way of the people doing their jobs. So that's something to think about. It's also to me, Ryan, a great preparation for what it's like to sell your company is to get the CEO and get off that work chart because now you'll know, like you can always go back in. You look at Sarah Blakely and, you know, Steve Jobs and other people that went out and came back in and, you know, were very successful at it.

17:53That is always an option as long as you have that higher level we talked about of control, the ability to determine who is that, that CEO person. But, um, but like taking the test drive of getting out of that role will be very indicative of whether you're going to be happy or not, not in that role. And so I think that it's a, it's kind of a really good stepping stone to get off the org chart and see how it feels. You know, how does, how, how does, how does it fit, you know, to live in that for a little bit. And if you like it, then it's indicative of, yeah, you could probably sell your company and still be happy.

18:32And if you don't, then you can always go back or find some kind of, you know, half halfway place between the two, I suppose. Any other kind of big common pitfalls, mistakes that you see people making when they? I mean, it's equity, compensation, you know, the way that you structure the plans and those things. if you want to talk about stuff like that, I can talk about that. But like the overall things are being ready and letting the person do what they're supposed to do and then hiring a qualified person using some process to vet them and get multiple candidates so that you actually do get the best person for the job.

19:12Yeah, I definitely want to talk about compensation. Let's get to that when we get into kind of the steps. So I need to know that I'm ready. maybe I should also, you know, go on an extended vacation and see how I felt about that. We've had, we had a client recently who finally convinced her to take an extended vacation. And she's like, I, I, I, you know, I, I felt unnecessary. Everything was great. Sales were up while I was gone. I wasn't needed at all. I told people not to bother me. They didn't. I came back and everything's fine and I hate it. And I'm like, okay, we need to do some like identity work here then before you can put me, because this is the same person who like six months ago was like, I just want to get rid of this business.

19:54I got to, you know, and so knowing that you're in a place where you are ready for this. And also I think it's important to know where are you going to go next? There's a lot of people think about exiting from, but they don't think about exiting to. Like, so what are you exiting to? So you want to exit this org chart, but then what? Let's make sure it's much like retirement. The people that, that kind of fritter away are the people that retire without a plan of what they're going to do after. I think you need a post exit plan before you exit or you're going to be unhappy. Yeah. Probably touch on that too.

20:27If we have time or maybe another episode to be. All right. So I know that I want to, I know I'm ready to do this thing. I've taken a vacation. I love it. I've got another project that I'm really excited about over here that I can do. I'm not quite ready. It's most common that I hear about with the people I work with is they're they're not, done. They're just ready for the next thing. Yeah. Ready for the next challenge. I feel like I've taken this business as far as I can take it. I'm kind of bored with it. It's kind of bored with me. I'm ready to exit your truck, but I don't want to sell the business yet.

20:53You know, I feel like there's still some more growth to happen. I've got some contribute. If that's where I am, what, what's step one? What, what do I do next? I think it's, you, you create the process. You say, who, who do I want to replace me? What do I want them to do? And if you don't know that, then you have to take the step back and do a time study and figure out what are you doing right now? And are you actually doing what a CEO does? Or are you the head of sales and the head of accounting and the head of, you know, product development? Because that's, that's going to tell you who all you really need because the CEO doesn't do a lot of that stuff, right?

21:36CEO is not an accountant. They're not going to do the books and get your finances right for you. They're not going to, you know, usually develop your marketing plan. Although I would say of, of all the things that CEOs do, marketing seems to me to be the more common one that you see them, you know, specializing in and sales. And then, uh, you know, so, so do you have a team that can be led? You know, Do you even have a team, I guess, is that kind of first thing to realize. And then it's, what am I doing currently, time study, and then based on all of that, what is my CEO of my company going to need to do to do what I expect and get the results that I expect from them?

22:20Yeah, it sounds like there needs to be a core org chart to exit from. Yeah, I'm making the wrong assumption that you do actually have an org chart. So yes, that would be helpful. So you would need to have, I mean, really, to think about exiting the org chart, step one really is to build a business that currently is able to scale with you sitting in a true CEO role. And that's why I think it's important. You know, you talk about the five exits of the five evolutions. you know evolution number one is when you make that first hire and you exit the line right go from doing to delegating yeah go from doing to delegating exit two or evolution two is this is when you're exiting the staff correct and you're actually occupying the true ceo role and that really doesn't happen until you've got an operating system in place and you've got functional leaders you know, people who are operating the core value drivers of the business.

23:19Yep. Right? Like, so those really are the first two steps. And you have to do those before you can then achieve what we're referring to as this third exit, this third evolution, which is to exit the org chart. Right? I mean, anything else that you would say about that? No, I mean, I think it's really hard for people. I think the primary block to most people doing that is either an unreal, an unrecognized need to be indispensable to the company or a belief that no one can do it as well as you and not having the patience to either find the people that can or train them or accept that there might be a period of time when the quality of performance is not as good as you doing it, but realizing that I had this right now, I'm going through with somebody that, that leads a company and it's kind of like, nobody can do that, but me, you know, and it's like, I mean, I'm looking at your company, which is in a market of a lot of companies like your company and as, as almost all companies are and only the ones we're being in and all those other companies are somehow managing to do it without you being there.

24:38So how is that? Like those two things can't both be true. So there are people and maybe it's for people to do what you do. I'll give you that because you're running yourself ragged and you know, and you're absolutely burnout and frustrated and resentful about everybody else and everything else. But you also won't take off the mantle and pass it on to somebody else. That's a problem. And you won't do it because you believe a you're indispensable and B, you're indispensable because no one can do what you can do. And if you're not there, then the company is going to go and not be there. And to me, I would argue if that's actually true, which it almost never is, then you don't really have a business.

25:16You have a job and you're never going to be free of it and you're never going to have a sellable company. Yeah, you're a craftsman. Yeah. Congratulations. You're selling your skills and your general awesomeness. So it sounds like step one really is to make sure that you have fully exited all functional roles in the staff. Like you have fully achieved the second evolution and you've exited all of those roles because what is going back to the mistakes that people make, they'll want to hire for a CEO or God forbid, like a CEO or an integrator type person. And what they mean by that is I want somebody who will do all the crap that I don't want to do.

25:51Don't want to do. Exactly. Which is almost like an EA, like a high level EA, right? Yeah. Except sometimes they mean really high level, important, difficult things that only they quote unquote know how to do. So it's, it's poorly defined, but you do need to make sure that when you talk about exiting the org chart, you are exiting it as that company CEO. Because if you're exiting the org chart and what you're really doing is occupying three, four, five roles at the same time, that's not a hire. That's three, four, five roles. Yeah, it is. Yeah, what you're doing is you're not exiting the org chart, you're abandoning the organization.

26:33Correct. That's what's actually happening. So step one is to backfill all functional roles is kind of what I, you know, heard you say and get good systems in place so that the business can actually function without you. You can actually take an extended vacation and things do still happen because you're there for more visionary style leadership and things like that. you're not necessarily there to do the things that the customers require to be done. Yeah. And I will say that if you don't have systems and you're not good at it, or you don't want to go through it, then you're going to hire people that are going to build those systems.

27:09That'll be part of their mandate once they come in. So I think that it would be helpful to them and to you to get those systems in place sooner. But if you are at the point where you feel like you want to step off, you can hand that to somebody else, but that's going to have to be a really, really high priority for them. Because if you don't have those in place, if you don't have that operating system in place, you don't have those dashboards, then you're going to be flying blind with somebody running your company and not know if they're doing their job or not. Yeah. And I would argue that you're not actually able to exit the R chart fully until you have done that because you're still going to need to be there.