The Lean Team Dilemma: AI, Efficiency & Business Value

0:00Yeah, I do. So it's been interesting. I've noticed a lot, especially on social media and even in groups. There's a trend that seems to be emerging emerging. where entrepreneurs are bragging about running their businesses with extraordinarily lean teams. Like we've swung a pendulum, right? Like it's a badge of honor to operate with as few people as possible. And I think it's an interesting conversation because obviously AI is fantastic. Lean operations are fantastic. But I'm curious from a lot of different ways, but from a business value perspective.

0:45Hey, everybody. Welcome to Business Lunch Podcast with me, your host, Roland Frazier. And co-hosting with me today is the wonderful and I think only second appearance on Business Lunch, but we're trying to fix that, Richard Lindner. Richard, how are you doing today? I'm good. Time number two. Yeah, I like it. We're going to get this to be a regular thing. I'm Richard is so busy operating companies that he's like, Oh, I have to work and doesn't have time to do podcasts and stuff. So we're trying to drag him in to share all of the wonderful knowledge and information that he has with you guys. So this is our first attempt to potentially be on a weekly schedule, right?

1:24Yeah. I could quit. I quit my job, my day job. No, no, no, no, no, no. Don't do that. Are you sure? Don't do that. Don't do that. Okay. Well, it's an option that's out there. So you had something that you were kind of chatting with me about. You want to share it here and we'll talk it through and see what people think? Yeah, I do. So it's been interesting. I've noticed a lot, especially on social media and even in groups, there's a trend that seems to be kind of emerging where entrepreneurs are bragging about running their businesses with extraordinarily lean teams. Like we've swung a pendulum, right?

2:04Like it's a badge of honor to operate with as few people as possible. And I think it's an interesting conversation because obviously AI is fantastic. Lean operations are fantastic. but I'm curious from a lot of different ways, but from a business value perspective, when you're looking at companies or when other companies are looking to acquire companies, is there such a thing as tooling, right? Like what are the trade-offs between operational efficiency and profitability and building something that actually has transferable value long-term? Yeah, I think it's a really great question. We talked not long ago about a thing called, we decided to call it the great flattening of businesses into like one person departments and AI has enabled that.

2:58But even before that, I think that what you're talking about has been the case. And I think it's, number one, a question of, do you want a lifestyle business that is basically going to cap out at what it can do and not have employees and the hassles that are associated with them and be kind of a one-person show? or do you want to have a very lean company that is as tech enabled as possible and, um, and therefore very, very flat, or do you just want to really optimize so that you don't have too many people, but you do have the ability to scale. And so I, I think that it's like, what bucket are you falling into?

3:44If you're in the first bucket of the lifestyle business, transferable value wise, it's going to be really hard to sell that business because you are number one owner, you'll probably be considered an owner operator because it's just you. Um, and therefore market, you know, market multiples are significantly lower for owner operated businesses than professionally managed because a professionally managed business can be bought as an investment and owner operated businesses bought as a job. And so more people are investors than our job seekers, you know, for, for an acquisition. So I think if it's that first bucket, it definitely hurts you.

4:22If it's the second bucket of let's pancake this thing down with technology to as lean as possible. It's interesting. I think that the RPE, you know, the revenue per employee of a business like that is going to speak well towards a high valuation, but the risks are going to be replacement cost dependencies on individuals for entire departments and things like that. Um, so, you know, and, and also what happens if there's tech interruption, because there's tech threats all the time. Right. And how committed are you capital wise to tech? Cause tech is becoming more and more expensive as a budget item, almost like a CapEx, like a capital expenditure, but not, not like not a fixed thing that I can then turn around and sell because probably it's worth nothing.

5:17Cause it got obsolescent, you know, last week. And then that third bucket of, um, I want to have the right number of people that I need. Um, I also want to balance that number with tech efficiency. Um, but I want the human touch to still be involved. and I also don't want any giant dependencies is the best place to be. So I think for, you know, so it depends on which of those three we're talking about, but I think those are the things that you're kind of thinking about. What are your thoughts? Ever wonder how some people build real wealth through acquisitions while others just sit on the sidelines?

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7:54Yeah, I agree. I think you're, I think if you have a lifestyle business, then you need to build a lifestyle business, right? You need to, it needs to be as profitable as possible, as automated as possible. And as let you need to be as leveraged as possible, right? It's a lifestyle. So make it that if you're building something to sell, then you're selling the ability to execute, right? And, and technology breaks. So technology, it needs to be there to amplify. And in my opinion, we need to have roles that technology can completely own and have roles that technology amplify. And to your point, you know, departments of one, but not departments of one AI employee.

8:40I think that's when it becomes dangerous because I mean, AI tools are changing every six minutes, every six days, every six months, it's a complete redo. An employee becomes obsolete over a period of years. If they choose not to have any interest in professional development, an AI employee may become obsolete in a matter of weeks. So I think it is a sweet spot. And I think identifying what are the critical value drivers and departments in the company that you need areas of human ownership and oversight and, and start there. And as long as we have people there that can execute and can delegate and whether they're delegating to humans or artificial intelligence, you still have that, that, that human, and it can be a very flat org and limited number of direct reports into the founder or the CEO or however that structure works.

9:46But I think that is dangerous in some of the bragging that I'm seeing on social media, where there's these non-lifestyle businesses that are down to three and four human employees that, and frankly, some of the people that I'm talking to that are looking and aspiring to get that lean with the goal of exiting that business in the next 18 to 24 months. I think it's going to be seen as, as a massive devaluation. Yeah. I was just looking at, um, at my notes because, um, there was one of the companies, I just don't remember the name of it, that, um, they achieved a$40 million a year savings by replacing most of their front end customer service people with AI.

10:38and then everything fell apart and they got terrible reviews and terrible customer experiences, lost customers, and basically had to kind of go back to having humans. And so like an area like customer support, I think it's really dangerous to try to be, to be lean in customer support is usually to give poor customer support, whether it's AI based offshored, you know, with contractors or, um, or you just don't have, like, you don't have customer support, like a lot of tech companies, you know, you can't, you can't reach anyone. You have a problem. Uh, you know, John Asaraf sent me a, uh, a text today and was like, you know, do you know anybody at Facebook?

11:21Because we're having this big problem. I'm like, I've never talked to anybody at Facebook except the one time I was there, you know, that's like, it's, it's impossible. So I think that bragging about it is interesting because, number one, why are you doing that? But number two, is it something to really brag about? I mean, if you're a lifestyle company and you're like, I don't have any employees, I run my business. Or our friend Tom that has the forklift thing, he's awesome. And he's living truly a lifestyle business and, you know, makes, you know, multiple seven figures a year with one employee, his, him and his wife.

12:03And he loves it and runs it out of his house basically. And it's a great business. And he doesn't, he doesn't really see taking it to, you know, a giant level, but he's super, super happy with it. And he, by the way, doesn't brag about it. But when you, when you talk to him, that's a pretty cool business. And so there are lots and lots of businesses like that. it's one that he will be able to sell and probably do really well with it because, you know, it fits well. That's the other thing to think about. Like that fits well into an acquirer who would probably fire all the employees anyway. Right.

12:36And just take the point. Yeah. So like, like our business, when we sold TNC, right. Traffic and conversion summit, they basically were like, yeah, we don't, we don't need you guys except, you know, maybe to speak and we don't need any of your employees or any of your contractors or anything else, we've got a team and they just basically put all those people into, you know, they just dropped it into their company. I think that's something to think about. Like if, if you have that kind of business, if you can identify that you're possible, your potential acquirer probably doesn't want your people anyway, then it's probably okay.

13:10But still really, really good point. Yeah. Yeah. What are your thoughts on that? I think it's a, that's fantastic. And I think identifying your, you know, potential acquisition partners and targets is fantastic and saying, do they see any value in my human capital? Like, are they, are they going to bring them in and, and, and fire them because it would just be duplication without a culture fit. Maybe they would see that, that they have to unlearn what we've taught them and, and, you know, reform new habits. I think then you could make a case for an extra layer of lean, but still I would think that they would want to know that unless they're completely AI augmented and run that humans can run the company, right?

14:00Because if they're going to acquire it and then have humans run it, I think that they would want to know that there are SOPs There's an operating system that can be run by real people so that they have that transferable value versus prompts and scripts and things in the background that not everyone can decouple. Yeah. And you can't decouple. You can't have customer service not have customer service. I think it's been proved over and over again from Dell's outsourcing, you know, debacle to, you know, to the guy that I was just mentioning whose company for some reason I can't remember. But, but that just, it is a H2H environment.

14:45So if it's a human to human department, then trying to run that ultra lean probably gets you in trouble and isn't anything to brag about. Because the people who have bragged about it ultimately had to recant, right? You know, so that's just embarrassing. So don't do it. It is embarrassing. Well, I mean, it reminds me of the, you know, the CEO that, that gave everyone a, what was it? $178 ,000 a year salary, no matter what their position was at the company. And I mean, it didn't work, right? It didn't work. You had to go back and adjust. And what do you know? I mean, the company I don't believe is around anymore.

15:22One, if you're going to try something, you don't need to brag about it. Maybe don't. I mean, do it, see if it works, but also model it out. I mean, I think that's the bigger deal to your example of the company that banked$40 million. What did they lose in customer loyalty and market cap? Yes, can you go back and rebuild a customer care, customer service department? Sure. How do you go back and rebuild brand trust and brand loyalty if that's the department you go with first? And that is the scary thing. the departments that I see people attacking first, customer service is one of the number one departments that people are going after and saying, oh, I can just use AI.

16:08I don't think that that's going to pass along the empathy and pass along the brand loyalty. It's efficient, but it's not empathetic. It's not going to go over and above and you can train and create custom agents and all this other stuff, but, but you can't train judgment and give it a budget to go above and beyond for a customer and do those things that, that really create that culture of, of customer loyalty, customer service, and, and those experiences that keep people coming back. And I think where I would just caution people is if you're going to make some massive changes like that, and you're modeling out the good on the cost savings, identify a potential bad and model that out, and then do a little simple math and say, well, if I double the bad and half the good over a three-year period, where do I end up?

17:09Am I a net neutral? Am I a net negative? Am I a net positive? By how much? Is it worth it? And then if I were three years ahead and now I did a three-year look back at the multiple I'm going to get, what impact did that have on the value of my company? Yeah. And let's just do some, even if it's back of the napkin math, because I think, I think there's a bit of, I don't know. I think there's a bit of trendiness to it as well, where it's, it's almost just cool to do. It's moved past the efficiencies and into a bit of a trendiness that I think is dangerous right now. Yeah. I mean, the bottom line is, you know, when you're thinking about transferable value, there has to be cross-training.

18:02There have to be elimination of dependencies that are key. And so small businesses that are overly lean are just not going to be as marketable as companies, you know, as businesses that have redundancies, you know, that like maybe a department of two instead of a department of one, you know, and, you know, cause if, if you're like, and if you're wearing all the hats, I can tell you like that, that's not anything to brag about because you are absolutely losing business and, um, and you are not seeing around corners that a good solid team can help you see around. And I mean, and I've watched over the years and I've, I've, I have been that person that's like, I don't want any employees and I don't want, you know, but the truth is that I've watched a, and I've, you know, fancy myself good at different things.

18:58Right. And then I watched the expert come in and they're just so much better and it makes the business better. And even just having different personalities, different ethnicities, different backgrounds, you know, all of those things, those people bring insight that you don't have that the company, like, like a really tiny, super hyper lean company, isn't going to understand its customers as well as one that has at least some diversity in the personnel and, and someone to challenge in an environment that it's safe to do that. The leadership who is trying hopefully to get feedback from them, but if the leadership is making decisions that don't make sense, maybe they're blind to some important trend or some customer, you know, complaint or some product or service shortcoming or any of those things and not having somebody that is close enough to them in the company to be able to have conversations with them about it, challenge them, discuss it, debate it.

20:01That's dangerous, I think. I agree. Yeah, I think that's a really good point. If you're only viewing your business, your customer, your product positioning, your brand positioning through one lens and that's yours or you and one other person, then you've got blinders on, right? I mean, you, you may be fantastically positioned to everyone who's just like you, but what about everybody else, right? What about the rest of the marketplace? Um, are there, maybe we get tactical or maybe specific for a minute and think about the roles that are critical. Like what are those roles in departments? If we're thinking about a team that is lean, but we've got the right people in the right places before we start augmenting and building, what are those critical roles that you see?

21:04I mean, I think it's pretty obvious that customer service is a role that every company needs to invest in and probably overly invest in. And that needs to have a human touch, a human element. It can obviously be supported by and enabled by AI efficiencies. What do you see are other critical roles? If you want to have a lean, but incredibly profitable organization, that is one that you could exit. I mean, like what, what is necessary versus what I think is helpful to get you to realize the full value of it are, are different. because I've very much believe now that a three-person minimum finance department in a significant company, like if you're doing 10 million a year or more, and it's size-driven to some extent, but if you're doing 10 million a year or more, you need a CFO who's a true CFO, not somebody who can add up a column of numbers and takes the title.

22:08You need a true CFO. you need a controller, you need an FP &A person. And in marketing, watching professional, like a true CMO, chief marketing officer come in and what that does to a business when that person knows what they're doing, it's insane. And those people need people under them as well, because if you hire the top people to do those jobs and don't give them the teams that they're used to supervising that can execute on the functions that they need, they will not be a good investment for you. And, and so that goes across the board, like same thing with sales. Right. And, and so I think it's across each of those divisions, you're, you really need a strong executive team.

22:55And then under those people, you would have the technicians that maybe could help be a cross between the human and the tech. It might be that it's a team of two under each major arm of the executive team. So you've got, let's say, CEO and then under CEO, let's assume that COO reports to them and finance reports directly to the CEO as well. Okay. So now I've got CEO person and I've got whoever the heads are of the major departments within the company. Now I've got in, and let's just look at finance. Now I've got my three people in finance. That is the triumvirate that I feel you need FP &A, controller, CFO.

23:44And under them, let's say that you could get away with a very, very AI-ified, tech-ified department. And you've got one person that is the human touch person and one person that's the tech person. And even then you probably need a backup for each of them. So like, that's, I think that's kind of the minimum. I think, and I do think you need a person that is tech that's departmentally dedicated, not your CTO is responsible for all of that because they're going to be mega overwhelmed and they won't have the relationship with the department heads or the departmental knowledge to be able to deploy the AI and the tech in the way that is best for the department and the company.

24:28So, I mean, it's, it's going to be what, 20, 30 people, no matter what, I feel like in, in a decent company to, to like really max out the value where you're going to, you know, where you're going to be as lean as you can, but still be, um, really optimized, you know? Yeah. I think what you said and it was so smart, you breezed over it pretty quickly on the tech per department versus having that CTO responsible for the tech enablement. That is so critical. Having someone who understands the technology at a departmental level, because they own the relationship with the humans, because they understand not only the technology, but because they understand the department that they're in, it just bridges so many gaps to be able to connect the human to the technology and really be that connector of humans doing poor jobs explaining where they need help.

25:33If you think about software engineers and writing user stories, and now it's prompt engineering and things like this. If you've got one generalist who understands technology and then needs to generally understand every department, but not generally because we're building technology enablement to, in some cases, replace employees, but they don't understand the role of the employee, then it's like hiring a really bad employee. Only you built this one. Right. So that's your fault. I mean, hiring a bad employee is your fault, but you could also say, I hired a really bad employee that's really good at interviewing.

26:12Yeah. Right. And they took personality tests and I don't know, maybe they're a sociopath. So they even flogged that really well. But you built it. You built a bad employee that's on you. So I think that is so critical to making sure that we're not deploying technology generalists to build departmental specialists. Yeah. And I think what you did at Digital Marketer is really the thing that can help supplement and address that. So like a digital marketer for anybody that doesn't know, what Richard did was he came in and said, let's take all of our training. And instead of training people, let's train AI agents to do what the people used to do that can now help either supplement those people or replace them in a marketing department.

27:03So that's specific MarTech, right? Marketing technology that is AI based, that's dedicated to marketing, that's provided by an outside company like Digital Marketer to help marketing teams. And I think that there exists or will exist the same things in finance and HR and product and all of the other places as well. And so that's like having that extend, like maybe it's not that you need separate people in-house for each of those things, depending on how big you are. Like if you can't afford that many people, there are definitely going to be more and more solutions like Digital Marketer provides where it's, we will train your AI staff and help you see how to have your department interact with that.

27:55And then we will set you free, you know, into the world to use that and operate. That's, I think, where it's probably headed. Yeah, and I'll tell you, digital marketer, if you don't have at least a marketer, we won't work with you to do that. Because one, you're not going to be able to give us the information we need to create your AI assistance. and two, there's not gonna be anyone to run them, right? We wanna amplify a team of at least one. So I think that's so good. Going back to kind of the org chart because we talked about a lean team and then we got to 20 and there may be some people out there that's like, holy crap, now I'm CEO and COO and CFO and there's a lot of Cs and I don't have any Cs and 20s a lot.

28:43I think the point there, think of more responsibility. And I'm talking 10 million. Like if you're not doing 10 million in revenue, you're probably not there. 10, 20 million, but drop a C level, right? It's who is the, who's the head of operations? Who is the head of marketing? Who's the head of sales? I think the, what I love about kind of the, the breakdown there is in your company, someone needs to own accounting and finance. And maybe you're pre 10 million, maybe you're 5 million. And maybe there's some fractional aspect of that. And you have one role internal that's more of a bookkeeper and you have a fractional kind of CFO type service.

29:25But someone needs to own that and responsible for it. The level of experience that they have is and kind of the are they a C level or are they ahead of or are they an individual contributor? That kind of doesn't matter. Just think of the roles like someone needs to own marketing. like there's a human that needs to own marketing efforts and make sure that you are generating awareness leads prospects right that needs to be happening and that may start as one person and then be five people and then have a head of and a cmo and all these things if it's one person now it needs to be a person and then we can talk about how do we make this person give this person the superhuman ability of being five people.

30:11AI. Sales, right? It's tough to have a salesperson because, well, salespeople, you know, you need to have a pair at least, but someone needs to be responsible for sales. So if you've got sales, there needs to be a head of sales. Similarly, you've got to deliver whatever it is that you sell, product or service. So someone needs to be over fulfillment, delivery, et cetera. So now you're starting to see these departments. If you think about it, the departments grow as the complexity and revenue grows. So maybe you have five people. Maybe you have three full-time employees and you and five. You don't need an operations person if you're a million dollars.

30:55You're probably that operations person. right? But start to think about those key value driving departments in the company, who is over responsible for them. And especially if you're not over 10 million, I think that's where I think the biggest opportunity is right now is for the companies in the messy middle who are too big to be small, too small to be big. Yeah. That can't yet go and buy the team they know they need, that's the biggest opportunities, not to brag because I don't think any of us should necessarily be out bragging. That's the biggest opportunity to go. I now have the ability to turn one into 10.