Micro CEOs: The Future of Agile Business Teams

0:00Ryan Deiss:Hey everybody, welcome to another episode of the Business Lunch Podcast with your host Ryan Deiss and me, Roland Frasier. Welcome to the podcast. Ryan, how are you doing today? So good. What the heck are we talking about today? So you sent me over a bunch of topics and the one that I liked, let me pull up what you sent me, said stop hiring A players, hire owners. and then to talk a little bit about the micro CEO shift, which you wrote about, I don't know, 20 years ago, I think, versus the A player gospel. And so basically, I'd like to talk about that. Like maybe start with the thing that we talk about that you in particular talk about with like just hire an A player and everything's going to be fixed.

0:49Ryan Deiss:Let's start there and then talk about. Yeah, I mean, it's great advice. That philosophy, is it right, is it wrong? Then is it the A player? Like if you have the business that justifies hiring the A player, is that always the right thing to do? And then what are the alternatives?

1:07Roland Frasier:How about that? Sure. Yeah, so I mean, in terms of the A player thing, I hate, it's fortune cookie wisdom. I hate advice like that because it's right, but it's unhelpful. It's like saying to your sad, lonely, single friend, man, you know what you need to do? You're sad. You're lonely. You need to just start dating tens. Just start dating like just drop dead gorgeous people who are funny and who, you know, laugh at all your jokes and, you know, awesome. Or you should get married. You should laugh. Yeah. You should just get married to somebody awesome. You should just do that. It's like, okay. And so this idea of hiring A players, I don't like the advice in general because one, it's unhelpful.

1:47Roland Frasier:Two, what exactly do we mean by when we say A players? Because I think it acts as though there's, in this world, there are A players, there are B players, and there are C players, and these humans are fixed. They're not. An A player at one business is a D player at another business, and it doesn't speak necessarily to their character. And so I just think it's generally unhelpful. More times than not, the way that A player is defined is just very, very fungible. So I just don't like the term. I don't really like the concept. One of the things that we say is, you know, focus on hiring A players from Rockstars, focus on building a company that doesn't require them because those are the kinds of companies that A players want to work for.

2:30Roland Frasier:But I thought...

2:31Ryan Deiss:The other thing that you say, though, that I would like for you to share is the business might, like, you might just break them. Like, if your business isn't ready in the first place, they're not going to help you. they're just going to scale the chaos you've already got, assuming that they don't just leave or say, you know, I can't work here.

2:52Roland Frasier:Yeah. A true A players again, thrown up air quote, whatever the hell that means. You get somebody valuable into a company, they're going to be an accelerant. Like that's what they're going to do. And so they're going to come in here. And if you have chaos, they're either going to accelerate the chaos by doing the thing that they're really, really great at. So they're specialists at what they do. They're phenomenal at what they do. They want to come in and they want to run their playbook. But if you don't have the infrastructure to kind of prop them up and to hold that, it's just going to collapse under the weight of their awesomeness.

3:27Roland Frasier:And by the way, if you wonder if this is true, just look at your own business, because more times than not, business owners are their company's first A player. And it is us when we move too fast and when we bring too much value to the table before the infrastructure can support us. It's us that bring our own companies crumbling down. So either that's going to happen or they're going to get there. They're going to go, this is not a place where I can do my best work. And they're going to leave. And so the idea of I'm just going to hire an A player and that's the thing that's going to fix everything, it's not.

4:01Roland Frasier:The right way to hire an A player is before we get to the right way.

4:06Ryan Deiss:Okay. But I want to also kind of talk a little bit about it. It is a luxury to hire an A player. And it's a luxury that carries liabilities with it that you might not be thinking about. And there are a few specific examples that I've got that I'll share. But basically, the first thing is, can you afford them? And, you know, somebody might say, oh, you can't afford not to have them. You know, it's like, OK, but like, can you afford that? Like, do you have the money to pay them? And very often they're going to ask for some sort of equity if they're higher level A players. And you may not be ready to do that.

4:45Ryan Deiss:And the equity that you give them at this point might be the most expensive equity that you ever give. Because if you could just get a little bit farther in your business, the valuation would be higher and the cost of that equity to you will be significantly lower. The next thing would be, so we had a absolutely A plus player who was coming into one of our portfolio companies or interviewing to come in and in the final aspect of it. And when we ask about what are the first things that you're going to like, what are the first 90 days look like, which is a very common thing that we'll ask. She said, well, we need a lot more staff because, you know, where I was before was a, you know, a$3 billion company.

5:31Ryan Deiss:I came in when they were only 800 million and and I had 600 people that were working for me. And, you know, right now this company is, you know, with its 200 employees is, you know, horribly understaffed. Like that's the hole in the company. You know, the company she was with, I think had 10 ,000 or something like that. And and so like it was she excelled at executing within, you know, very well funded guardrails of an unlimited budget and enough people to throw at, you know, and tools to throw at any problem that she came up with. And that was what we ultimately came up with. And I told the company that was looking at hiring her, I said, you know, look, she's amazing, but I don't think we're ready yet for that.

6:21Ryan Deiss:And you got to understand that everything that she costs is a times 20 because she will fix all the things, but she's going to fix it with lots and lots of people and lots and lots of tools. and honestly, even as profitable as we are, I don't know that that's the best use of our money. And she might just get frustrated because if we put her in a room in an office and say, all right, we expect you to do the thing you did over there, she's gonna be like, okay, where's my resources? Even the A player CFO that you bring into the company is going to hire a bunch of people that you don't think they're going to hire.

7:00Ryan Deiss:They're going to hire a controller that's the accountant. They're going to hire the head accountant. They're going to hire assistants for the controller. They're going to hire an FP &A person for, you know, for planning and analysis. They're going to hire some people under each of those people and maybe an assistant. And like, bang, you've got, I don't know, six or seven people in your finance department where before you had a bookkeeper or a fractional CFO, you know, that is a big difference. And the other thing is that they're very often not entrepreneurs. They are management operators. And it's a different philosophy that will be colliding with the way that you think a lot as an entrepreneur.

7:46Ryan Deiss:and they're going to think more along the lines of processes because that's what a good operator is going to think about than outcomes, which is what you're thinking about. You're going to be thinking, I just need to get there. And they're going to be thinking, okay, well, how do we do it? And how do we build a replicable, repeatable process so that we have this handled going forward, which is the right answer, unless you need the outcome to survive long enough to be able to do that next thing, which is where a lot of entrepreneurs are when they're thinking about hiring these people. And then the, I think the last of the points there would be this, the same, it comes from that same place, the operator versus entrepreneur.

8:29Ryan Deiss:From a mentality standpoint, the A player is not thinking about, let's sacrifice everything for the company like you have. Not thinking about, let's not take a paycheck this month because we need to put that money back into the company. they are thinking my contract says I get this. I am building my resume and I expect to be paid as per the contract that we negotiated and is in writing and that I will absolutely sue you for to enforce if you don't do what you said. And I don't even mean that in a bad way. And I don't even think that they are bad for thinking that way because it's not their freaking company, right?

9:09Ryan Deiss:It's yours. You're the entrepreneur. You're the person who is trying to have the culture of whatever it takes, let's go. If we have to work late nights and blah, blah, blah, blah. And they're thinking, my contract says I work four days a week and I get this much time off and you're going to cover this and you're going to pay that. And you better be ready to do it because you will be held to it. And again, it's not bad. It's just different. And the things that they're going to be thinking will be very often resume development oriented, like what are the KPIs that, you know, How was I able to affect the company?

9:45Ryan Deiss:Because they're thinking about where they're going to go next. So a couple of scenarios for you. One company, we negotiated five months and still we're almost to the end of a contract. And then some things happened in the company that the operator said, oh, well, now that changes everything because I was thinking this and all the things that we agreed to now have to change because this isn't what I thought. That's not wrong either. But it's extremely frustrating to us as entrepreneurs to be like, yeah, OK, so the, you know, EBITDA came in a little bit different than we thought it was. You know, would you know, if it had come in higher, would you have been like, I'll take less money?

10:33Ryan Deiss:Probably not. You know, so do we change because it came in a little bit lower? You know, but they're not wrong to ask for it because they're They are contractors, you know, mercenaries too strong, but it is kind of the applicable answer. They are hired guns. And so that's something to think about. Another was a software company that brought in a CEO that had all the right credentials, multiple exits, was independently wealthy, and was going to be, you know, the solution to all of the management challenges of the business. Business was highly profitable, multiple seven-figure EBITDA. And they ended up having to buy that person out because the person came from enterprise and this was not enterprise.

11:17Ryan Deiss:This was more SMB focused. The enterprise solutions, shock, shock, didn't work in the SMB environment. And the contract that was negotiated because everybody was in love with getting this person in was a terrible contract that then had to be bought out at a significant price that cost the entrepreneur founders significantly right off the bat. So I say all that, you know, to say they're valuable, but they're not panaceatic. They are full of challenges and liabilities. And particularly the culture clash, I think, is the biggest surprise that I see when entrepreneurs deal with them.

11:58Roland Frasier:Yeah, and this is one of those, somebody that would be like, oh, but that's not what I mean by an A player, right? By an A player, I don't mean somebody with like all of this pesky experience and all that kind of stuff. And that's why I don't like the term because what you just described is in reality when most businesses are thinking about hiring an A player, they're saying we need to hire somebody who is a level or two up from where we are right now, who's been where we are and has gone where we want to go. They're going to have vastly more experience than anybody else. We're going to bring them in.

12:24Roland Frasier:They can take it and run with it. They're going to do all the things that you just talked about. But a lot of people are like, no, no, I don't need somebody necessarily who's that. I just need somebody who can step in and do this thing or who can own. And that's the distinction, again, between A players and owners that we're trying to drive. And in the earlier days of a small business, which I would define as kind of everything up to and through 50 million in revenue, right? you probably don't need what the rest of the world would define as an A player. And what you probably need to do is to build more of a team of owners who are leveraging tools and who can drive particular outcomes.

13:05Roland Frasier:And obviously, it's different if you go and raise capital or something like that.

13:09Ryan Deiss:So when you say owners, though, let's clarify for people because a lot of people are going to be like, no, no, wait, wait, wait, I don't need more partners.

13:14Roland Frasier:Yeah, lowercase O. Yeah, lowercase O.

13:17Ryan Deiss:These are people who - You were talking about it in the context, I think of micro CEO. So what is that?

13:23Roland Frasier:Yeah. So I mean, a micro owner, a micro CEO, these are people on your team who you can say, I need you to own this specific outcome. And you're very clear on the outcome that you need. So I need you to own the outcome of, we need to generate 3000 marketing qualified leads a month. That's the outcome that this business just needs, right? Now, you don't necessarily need a CMO who can go and do that. Now we're not necessarily thinking about title. What you're doing is we're isolating roles into outcomes. And this is the bridge. Because at some point, yes, it'd be nice if you just had a team of people who they themselves were working and collaborating and they were figuring out all of the ideal perfect outcomes.

14:11Roland Frasier:But those kind of folks who have the ability to think multiple steps ahead because they have the experience, you probably just can't afford them now. And if you did get them, you probably could not metabolize their awesomeness. You're still a baby. You're still a little, and I don't mean this in a pejorative sense, but you don't give an infant a T-bone steak. They can't chew it. They can't metabolize it. They're not ready for it yet. And so this idea of like, we can just bring talent in and it's magically going to fix everything. It's not. It's almost certainly not. And so how do we bridge that gap?

14:52Roland Frasier:We bridge that gap through shifting from, because kind of the first phase is there's going to be me and then I'm going to get a bunch of helpers. I'm going to bring in helpers to help me do it. And so I, as the owner, I'm the one defining the outcomes and I'm getting people to help me achieve those outcomes. The shift in between that and the quote unquote A players are the micro owners, the people who we can collaborate with to define the outcome in a functional level, and they can drive to that specific outcome. They may not be able to look out two, three years from now and talk about how the outcomes are going to change.

15:37Roland Frasier:That's why you're still very much sitting that visionary CEO role, but they can own an outcome and you can assemble the team who could own that outcome and you can incentivize them to achieve that outcome.

15:48Ryan Deiss:How does that differ from an employee or is it the same thing just with a label?

15:54Roland Frasier:They're all employees. I mean, that's the right. A players are employees.

15:57Ryan Deiss:But like you would like if we call it a micro owner, that feels like that should be different from just basically an employee. Like I'm not saying how I would certainly from a legal standpoint, they are an employed person at the company as opposed to a contractor. But role wise, expectation wise, authority wise, autonomy wise, what's the difference between the average employee and that person?

16:25Roland Frasier:Yeah, the average employee is going to manage to a task. So they are going to be responsible for doing a particular task. I'm going to, I got to move this pile of things from here to over there. I got to take widget two and connect it to widget three. I need to draft an email and send an email. But they're managing to task. That's kind of the level one.

16:47Ryan Deiss:So would you say that the employee is basically managing to a task set that applies to the role that they have? Yes.

16:58Roland Frasier:I'm sorry? Yeah, their role is defined by the tasks that they're responsible for completing.

17:07Ryan Deiss:And vice versa, right? So if they're CRO, we know all the things CRO is supposed to do. There's a job description for it, hopefully. If not, you research one, get AI to generate it. And then you're like, oh, okay, this is what the CR is supposed to do. And then you're like, hey, Ryan, you're in the CRO now. Here's the list of things that, you know, ChatGPT told me you should be doing. And you're like, okay, I got it. And the subtasks associated with it. But if you are instead of CRO, you are the micro owner. Is it the micro owner of the task? Or is it actually more of you're the mini CEO micro owner of this division or product line or P &L, you know, line or something like that?

17:52Roland Frasier:Yeah, it's to a metrics based outcome. And that's the difference, right? And so frontline employees, like a level one employee is managing to a binary, did I complete the task? Yes or no. And I guess it's not totally binary because it's did I complete the task to the stated? Yeah, like, did I do a good job on it? The next level up is kind of that micro owner where they're managing to a specific outcome-based metric. So there is a number that they need to hit and it is their job to figure out how do they assemble the things to achieve that metric. Now a level up from that, now what we're thinking about is strategic outcomes.

18:33Roland Frasier:So not necessarily a metrics-based outcome, but a strategic based outcome. And that is as a company, we're moving in this direction. Now that's going to waterfall down, down to what are the metrics that need to be true. And then that's going to waterfall down to one of the tasks that must be completed to achieve those metrics. And it is that middle part that is the one that most of us, I think, ignore, forget about, aren't aware of. And it's because what we start off with is I've got all these helpers and I just, but I'm overwhelmed because I got too many helpers. And then what we think is the next level up is a manager.

19:10Roland Frasier:But in reality, if you just get a manager, then the only thing that we did is we just elevated the task. Now their task is to manage the helpers, right? If these people who are hiring above aren't managing to a specific metrics-based outcome, we're not actually taking anything off of our plates and so if we think about it like that and say okay what are the metrics-based outcomes that we're looking to do now who's somebody who knows how to achieve that metrics-based outcome so the way that i interview for this is not