Strategic Management and Scaling

0:00If you want to be the CEO, be the CEO, but find out how to be a true CEO, because a true CEO is not actually working in the business very much. the true CEO, you've at that point got direct reports that do all of the things that are not leading. How much more successful would you be if you had lunch once a week with insanely successful entrepreneurs who shared their biggest secrets on how they think and achieve success? Grab your seat at the table because this is Business Lunch with Roland Frazier and Ryan Dice.

0:40Welcome to another episode of Business Lunch. And today's a snackable episode with Roland where he's going to get into some more tactical strategies that you can start using to live a rich and happy life. If this is the first snackable episode you're hearing, I'd encourage you to go back and listen to some of the other episodes that Roland has put out. And if you want to get notified every time we release a new episode, go to the new businesslunchpodcast.com website, and we'll send you detailed notes along with every episode. That's businesslunchpodcast.com, www.businesslunchpodcast.com. And you can sign up for the free email newsletter where you'll be able to get all the highlights and resources from the episodes.

1:15I want to answer the broader question of like, now that we've talked about how scale doesn't happen, I think we should speak to how does scale happen? And so let's flip the script. Let's talk about the things that need to be in place in your business if you want scale to occur. And if you don't just want scale, but if you want to be exit able, if you want to be able to exit your business one day, whether that means exiting the day to day or selling out completely, we want all of the above for you. And to talk about this, how you scale, how you exit, I would like to invite to the stage my friend, my business partner, the person who's taught me more about scale than anybody else in my life.

1:52You know him. You love him. His name is Roland Frazier. Let's give him a big round of applause.

2:00Thank you, sir. Welcome, sir. Thank you, sir. Thank you. Hey. So Roland and I, just a quick backstory on Roland. By the way, how many of you know who Roland is? Can I get a whoop? Oh, look at that. Yeah. There was a time when Roland was kind of my dirty little secret. I get that a lot. Yeah. Roland and I met because he came to an event like this. We had a mastermind. Roland joined the mastermind that we had, and he was an attendee. He was sitting in the mastermind, and every meeting he would show up. And the basic structure of a mastermind is like, what do you need help with? We'll try to help you.

2:38What's something that you can give to the group? That's the basic structure. You ask for help for the things you want help with. You give in the areas where you figured some stuff out. And every day he'd show up for the mastermind. He's like, I'm good. I'm good. But he did two things. Number one, he took notes for everybody and distributed the notes. And number two, he gave more than everybody else. We actually had this contest. Who gave the most? who had the best ideas, and he wanted meeting after meeting after meeting to the point where it's like, okay, you can't do this anymore, right? It's not fair.

3:08But I remember going to like, so who are you? Like, what do you do? And I got to learn more about Roland. And, you know, I think very much like a startup entrepreneur, like a founder, like an operator. Roland has all that. He also thinks like an investor. And when we get into talking about on day three, how do you make the mental shift from entrepreneurial operator to entrepreneurial investor? That's what Roland has taught me, and that's what we're going to be talking about. But what I want to go into now is what I think is the coolest thing that you've ever shared with me, and that was this concept of kind of the five exits of the entrepreneur.

3:43And so again, goal here is to lay a foundation on which you can hang all of the other pieces on. So can you talk through the five exits and how these work? Yeah. So, so, um, raise your hand if you are currently doing anything in the business other than just managing. So are you working in your business at all doing any of the jobs? Okay. Thank you. Yeah. So a lot of you, right. Um, and I'm wondering if you guys have this, this is kind of how I started was, um, the first business that I started, I was very proud of that. I was like, nobody's going to outwork me. I'm going to be there before anybody else.

4:24There wasn't anybody else at first, so it was easy. I could show up at any time. But then I'm going to be there. And also, I'm going to get everything done by the weekend. I'm going to get everything done by the weekend. And that kind of started out that way. And then business started to grow. And I found myself working longer and longer and harder and harder to get the things done so that I could have my weekend. And eventually, I got to the point where I couldn't get done. And I had, and I would tell, I had three business partners, and I would tell them, I said, I believe in the, in, I know it's a myth, but I believe the myth of unlimited capacity.

5:05I can do whatever needs to be done, and I can't find anybody that's going to do it as well as I can, which is the most arrogant thing you could possibly say, right? I can't find anybody that could possibly do it as well as I can. I'm indispensable to the company, and I am forever chained then to the line, and I didn't get it for the longest time. But if you are working in your business in it, meaning you're doing those things, and a lot of people raise their hands. That's fine if you are on the journey towards escaping from that. If you're not, then you have ever longer hours that you're going to have to work, ever harder to grow because you don't have the capacity to grow.

5:55And on our sheets, it was kind of interesting, when you guys signed up or signed in to come here, we asked you some questions. And the number one thing that you said that you wanted was more leads and customers. And I want to challenge it a little bit. The second thing that you said was you wanted processes and systems, but that was about half as many responses as said they wanted more leads and customers. And then after that, it was people. I think that maybe a little bit of a mind shift for you as we talk about this, you won't be able to make this first exit from the line. We call people who are doing the actual servicing or producting or whatever in the business.

6:42If you're wearing a hat that is causing you to interface directly with a customer in any way, then you are occupying the line. And that is going to be something that if you want to grow and scale, which hopefully everybody is, you're at the right show, right? There's a Blue Cross convention here too. So, okay. So if that's what you want to do, you're going to have to get off the line. And the only way to do that is to go, like, you are a worker when you're on the line. You have to at that first escape, that first exit is to move from being a worker to being a manager, from doing to delegating, from working in the business to kind of having one foot in working on the business and one foot in working in the business.

7:33And it's okay to do that. To do that, you're going to have to figure out what are the essential roles that you're occupying now, and what would somebody look like that could do those essential roles. And you might start with the least productive things. Like if you're really good at sales, if that's what you're selling for your business, which is very common with entrepreneurs. If you're the person that's in charge of sales, but you're also doing the books, then get somebody to do the books. Because sales brings in the money, right? Find those things first. Like think about how can I exit the line in the most elegant way that's not going to adversely impact my cash flow.

8:15In the next session, I'm actually going to show you a specific process for doing just that. If you think about when he talks about being on the line, when we talked about mapping the value engines, those value chains, that's the line. If you're responsible for any of those boxes, you're still on at least some of the line. Here's the cool thing. Something kind of magical happens when you do that first thing. And several of you said that you're in the 1 million to 4 million business range. And several of you said that was actually the bulk of you. But I'll tell you what, I go into businesses all the time where they're doing 40, 50, 60, $70 million plus, and the founders are still working on the line.

9:04They're still in that critical job. So you can have a big business and still be stuck on the line and ultimately not scale. Because if you've built the business to 40 or 50 million, the path to 100 is super fast with the right people on the bus. But if you are on the bus driving, sitting, riding, repairing, doing everything to it, you're just not going to be able to make that happen as fast. You might still be able to make it go. But one of the benefits of being here is we're going to show you how to kind of skip a few steps. so think about like process wise because it's easy for us to say you need to get off the line and you're like screw you i can't i don't have time i won't have enough money i don't have enough money to hire the person at some point you'll have to invest in you and your business to get the other person or people that are going to replace the least productive things that you do so that let's say you're selling let's say that you're marketing let's say that you're closing right?

10:06So that you can do more of that because when you can do more of that, because you hired that person, even if they kind of suck at it as they probably will initially, because you're not going to, as Ryan said earlier, you're not going to have time to train them. Please don't make it be random intern person, right? Get a quasi qualified person. But man, I'm telling you, where your business suffers on that non-essential thing, you're going to have more time to focus on that thing that is essential, that's feeding the lifeblood of the business, and you're going to be able to do a whole lot better.

10:37I hope that, does that make sense? I'm going to ask for some response. Does that make sense? Okay, good. Because it's important. So you've got to get off the line. You've got to lose that I'm essential to the business kind of thing. Even if you are right now, you can't keep that, that is a mindset that will stop you from ever growing. Okay? So now, then we move from that and now we're a manager. Okay. We've gone from a worker to manager. Now you're, you've got some people that are doing that, but you're still, like I said, you got one foot in working in the business and one foot working on the business.

11:12You're headed in the right direction. Right? So then the next thing that we're going to do is go from manager to leader. And that's a really interesting step because you're going to move from delegating to leading other delegators. And that's a very, very difficult step. And I don't know, do we have a session on doing that? Well, yeah. Richard's going to be talking about how do you bring on an operator to kind of be that number two. And yeah, the first step is to be that person. So we'll talk about exactly what that means. So yeah, day three for sure. So that's an important step. And I'll tell you something that goes against what I see a lot of books about and a lot of gurus saying, I think that if you are the CEO of your business, if you are a true CEO, which we'll talk about what that means, then that's okay.

12:04You don't need to find that person to replace you as CEO yet. You don't maybe need to find that person ever because it's actually okay to sit in some of these roles. And I'll tell you, having gone through and hired several CEOs that are hundreds of thousands to millions of dollars that get equity in the company that we paid expensive search firms to find, a lot of them suck. They really do. It's difficult. And I'll tell you, it's been a very hard road for me personally to get on board with that because you're like, man, I know the business and nobody's going to care about it like me. And I'd say that that is generally true.

12:50So my advice to people these days is if you want to be the CEO, be the CEO, but find out how to be a true CEO because a true CEO is not actually working in the business very much. The true CEO, you've at that point got direct reports that do all of the things that are not leading. So that means that you have somebody that's capable of creating financial statements, forward-looking FP &A, they call it financial planning and analysis, all of that kind of stuff, budgets and such on the finance side. You've got marketing people that are coming up with, God forbid, their own ideas of how to market your business.

13:31And they're actually following up and they know the numbers and they're giving you reports and dashboards that say, this is how things are going. These are our conversions. These are our numbers. These are the areas that we're going to work on. Here's my plan looking forward. Holy crap, that's amazing, right? And your salespeople are giving their reports and so on and so forth. That's to be a true CEO. You're just a coach, truly just a coach to those people. And that's going to require that you have the ability to make some investment in some key people. And those people are not going to be inexpensive, but they're going to ultimately be the key to the ultimate growth and success of your business.

14:11So for everybody here that wants more customers and more leads, it's like for the business to scale, it's not a hack. It's not, hey, here's this cool trick on Facebook that we learned. Here's this button color that converts better than the others, because all of those things ultimately fade. And what you need is a system for creating leads. And the people that are going to put the system for creating leads in, ideally, are heads of marketing. So that's, to me, like, that's a big deal. And the ideal CEO is really focused primarily on the vision of the company and then coaching. So that's moving from manager to leader.

14:55And like I said, you're kind of doing in a tap dance in and out of working in the business at that point. It's really nice, by the way. It's very, it's very, it's very light, right? But you're really focused in the on. Now, then the next step is you're going to say, okay, and you can occupy as we go forward. You cannot grow and scale the way that you're going to want to, that real companies that have significant valuations and vacations and all of that kind of stuff do with, if you are going to stay in that first role of line manager, or if you stay in that second role, excuse me, that first role of line worker, or that second role of manager.

15:35You can, however, keep your toe in all three of the next things. So we call them exits because ultimately you will be moving probably out of those roles in the order that we present them. But as you move from the CEO spot as a leader into the board of directors as a governor or director, that's the next exit. And so now we're going from the CEO who's creating the vision and communicating to the board and outside people to someone who's truly saying, what is the company doing and how do we make the company be a good corporate citizen? How do we hold the CEO accountable for meeting their vision?

16:20And how do we look at valuation of the company and moving it forward? And so that is the next step. And now you've moved from leader to governator. And when you go from that governing spot to the next place, you're moving from a governor or from a governing role into an investor role. And so the reason that we say you can occupy more than one of these is very often you'll be the CEO of the company. You'll have a great team under you. They're super qualified. You've got a scalable company at that point, and you want to take some chips off the table. So you're still the CEO. You sit on the board of directors because you are the primary shareholder, most likely, and you're also an investor because you have a significant amount of your net worth or value tied up in your company.

17:16It's probably your biggest asset. And so when you can sit in those spaces, but then as things move, you are going to say, I need to move out of that CEO position. I need to hire somebody to do that. Or you sell the company because that happens a lot to you. You're just like, I'm going to sell it while I'm CEO, director, investor. Okay. But, but that's really the, the process. And from the CEO on at director and at investor, you are working above the business. Above the business is, I don't, I'm not worried about the widgets, products, services that the business sells. I'm worried about the business itself.

17:56The business is my product. That's what, that's all you are as an investor. When you own stocks, you don't really care so much about Apple selling iPhones and what's going to be in the iPhone and what's the operating system going to look like. You think about how do I increase shareholder value, which is also going to increase value for you. So these are really the five exits and it's kind of a process of moving from working in the business to on it to above it. And if you can get to the point where you're working above it, then you can scale as an investor and you can own multiple businesses.

18:30And once you get this, it really empowers you because you can go through the cycle, which we'll talk about on day three, of acquisition, growth, exit, which is kind of an acquisition operating system. Does that make sense? Does that make sense? Yeah. Can you awake? All right. So what I want you to think about right now is what exit would you like to make in the next 12 months? So as you look out to next year, If currently you're working on the line more than you would like to, and you're like, I got to get some frontline workers so I can be a true manager, right? That's exit number one, right?

19:06Exit number one is I just don't want to do anything. I've got to hire some people. I bet most of the people in this room, you've already made exit number one. Most of the people in this room, congratulations, whether you realize it was called that or not, you have already made exit number one. What you would really like to be doing is you'd like to be functioning as a true CEO, right? I'm seeing heads nod. You'd like to function like a true CEO. I wish I didn't have to do everything. It's one thing if I'm going to hang on to this little line role for a bit, but I'd like to be able to function like a true CEO.

19:38Like Roland said, that's going to require functional leadership within your company, but it's going to require functional leadership that is functioning based on an operating system, okay? That's how we make sure that if these functional leaders, when they come in, they actually do the job because they're operating based on an operating system that they're looking to improve, that they're personally optimizing. But if they leave, it's not you that has to jump back in. There's an operating system there. You can bring somebody else in. Some of you may want to stop there. You may say, look, I just want to CEO my company.

20:07I'm an operator. I love operating this business. That is amazing. I would never, ever want to bring somebody else in to run my company. Fine, fine. You may change your tune at some point, but wouldn't you just like to know that you had the option to sell it if it came down to it, right? Even you say, I never want to sell it. I want to keep it in the business. Great. Then wouldn't you like at some point a family member to come in and do that? That's going to require exit number three. That's what we like to live, right? We love to live above the business. We like to have CEOs, operators within our companies that are running things.

20:37That is where we both like to live. But then at some point, it makes sense to sell something. Great. Now I'm going to take off the operator hat and I'm going to put on the governor hat and I'm going to put on the investor hat. And then at some point, it makes sense to sell it out completely. So these are the five exits. What I would like for you to write down and think is, what is the exit that I want to make? This is the question that we ask all of our new clients. Our goal is to help you systemize and scale the business so that you can achieve your ideal exit. We're not going to dictate what it is, but it's important.

21:08This is the goal that we're going through. And whether you realize it or not, this is what scale looks like. This is what scaling companies look like. So how do we do it? What we've realized, and again, I'll give credit to Roland, is that scale comes down to three things. Those three things are leveraged sales, bankable profit, and transferable value. These are all things you've probably heard. Sales, profit, I got it. I know what those things are. But Roland, can you speak to like, we're not just talking about sales in general. What do you mean when you say leveraged sales? Yeah, so really it's just everything in terms of leverage.

21:42Leverage is just how do I get more results from less effort? That's really what that's about. So thinking about sales like the least leveraged sales is you're the person selling. You're having one-on-one conversations with prospects and converting them. That's the least leveraged sales that you can get. Adding a sales team creates huge leverage because now you can multiply infinitely as long as you're able to sell and you've got profit and you can scale as far as you can go. So there's a lot of leverage there. That would be a form of leveraged sales. And there are lots of other leverage. There are lots of other types of leverage you can get with sales as well.

22:21You want to share some of this? I mean, so what we talked about before in terms of there's process around leverage sales. So what I showed you before, we're going to map our growth engine. We're going to have scorecards to document it. We're going to complete this process. That is a way of having leverage sales. I think we were at like 192 ways is where we are right now. Yeah. Having just a list of things to go through that you can deploy to get more leverage sales, whether that's increasing your average order value, upsells, cross-sells, things like this. The key that you want to make sure is when you start off at the month, it's not zero every time.

22:52And if you get sick, sales don't stay zero. So it's not just sales, it's leveraged sales. Yeah, and recurring revenue is a great example of that. Talking about not starting at zero, it's just adding recurring revenue and then optimizing recurring revenue up so that you start every month with whatever your annual recurring revenue is divided by 12. If you think if you've got a million two or 12 million of annual recurring revenue, then you don't have to sell that first hundred thousand or that first million the next month. And that's a big, big, big advantage. Yep. That's when we get that ramp we talked about.

23:25Bankable profit. This is what I was talking about before. Not just paper profit, not just P &L profit, distributable cash. But I think most people intuitively know and understand that. They don't. I don't think they do. So I can't tell you how many people we talk to and it's like, so how's your business doing? It's doing great. Great. What did profit look last year? It looked like, it looked like$2 million. Okay, great. So then what did you take home? I took home$2 million. Okay. Cause I mean, you know, in looking at your business and talking with you, it doesn't seem like you're taking home$2 million.

24:00Did you really like you basically operated the business, it generated$2 million in profit and that$2 million went into your bank account. Oh, no, no, no, I had to reinvest it in the business. Well, you know, that's great, but I can't tell you how many people have gone bankrupt reinvesting in their business, right? I can't tell you how painful it is, well, you probably know if you're suffering from it, how painful it is to see that you made$100 ,000,$1 million, $10 million, but you have nothing to show for it personally. That ability to bank the profit is a critical distinction. And so many people think that bankable profit means that the business made $2 million, therefore I made$2 million.

24:45Is it even in your bank account doing something outside of the business? Then to us, it doesn't get to count. It's necessary, it's important, and you should reinvest in your business, but you should also have money outside of your business. And that's something that took me a long time to learn. But you've got to do that. And so thinking about that actively, and we have 63 ways to do that, right, that we have in our profit multipliers, that is a very important thing to do as well. So if you've got leveraged sales and profit, you're right, like most people don't intuitively understand bankable profit.

25:20I think they think they do. I think it's insidious because you think, you know, my business is making money, but it's really, yeah, it ain't paying you. So, but I think, I think business owners get the concept at least of sales and profit. The one that most forget about is that third, transferable value. And we talk about transferable value as happening in two forms. The ability to transfer the value creation process from you and the founding team to your employees. That's the first aspect of transferable value. The second aspect of transferable value is transferring the value of the company to someone else in the event of a sale.