Do This One Thing and Your Business Finally Grows | Ep 965

0:00How do you and your role make the company money? It sounds like a very simple question. Like people should be able to know how the business works, especially as it relates to their job. If you ask this to your team today, many of them will not know the answer to that question. And that will frighten you. Salutations, everyone. Some of you guys have been asking for a schedule for us to do these lives. And I am a pain with those types of things because I hate fixed schedules. Just a personal thing for me. but right now I'll give you the loosest commitment of all time which is that around midday on Thursdays is when we are going live that is when I do my recording whether it starts at noon or noon 30 or 1 or 11 30 no idea but if you're like ah around the midday of Tuesday is when you know Alex will go live now is the time to do it with that being said there's one belief that keeps most entrepreneurs trapped and unable to grow they stay stuck and so I've been building businesses for a decade and a half now.

1:01Today, my portfolio at acquisition.com. Last year, we did over$250 million in revenue. And when I started, I made the same mistakes that everyone makes. So I used to think no one can grow my business like me. If you want it done right, you got to do it yourself. No one can do it like I can do it. Never let anyone else handle the money or never outsource sales, never outsource marketing, never outsource anything, right? It's not all these different people who tell me these things. And it's interesting because they were a little that had to be in business, I think, oh, they must be right. But they were just limited business owners like anyone else.

1:31And it wasn't until I broke that belief or that system of thinking that I was able to build real companies, ones that make money, even if I'm not involved in the money making. And so in this video, I'll show you five steps that will let you hit your money goals by building a business that runs without you, or rather that can create value without you being required. And so conceptually, this is the big idea. A business that requires you isn't a business. And I'm going to say that the technical sense, anything that generates a profit with an LLC is a business. But in terms of the intention of the vast majority of people who begin a business, it's for freedom.

2:07And then what ends up happening is that you create more liabilities, more dependencies, you lose your optionality, you lose your freedom. And you now somehow or have you you have a job you cannot quit tough right and what's interesting about this is that i want to talk about transitioning this thing from an iron man suit where it just enhances your ability to do but still requires you to run not like the newer iron suits which didn't require a person let's not get into it but was actually that the businesses are valueless without you all right and if you can get the iron man suit to become upgraded so it can run and go fight the bad guys or make the profit without you, then it becomes something that is inherently valuable to anyone.

2:50And once something goes from valuable to you to valuable to anyone, it means it's something that other people would want to buy. When it's something that other people want to buy, it's something that is valuable and inherently has worth. And so let me give you some simple math here. Let's say you have two businesses. All right. One that does, I'm going to use some math. You can remove zeros if it hurts your eyeballs to think of more zeros. All right. Let's say you've got a$10 million year business over here, top line,$10 million business over here doing top line. So 10 and 10. Okay. Which business do you want?

3:18You need more information, right? Of course. Now let's say that both businesses are 10 million, top line, 2 million bottom line,$8 million of cost in both. Now, which business do you want? You still need more information. Of course. Now let's say that of this 10 top line,$2 million bottom line businesses, this one, the owner is running 80 hours a week, like every day of the week they're working, and is required to work, different than choosing to work as a side note, but I will get into that for now. The second business, the owner never is there and just owns it like you would own a stock on the stock market.

3:53Now think about which of these business owners is richer. Now at the onset, you'd think, oh, well, they're both the same top line, both the same bottom line, but the difference is actually very dramatic. And so let me explain. So this guy, first guy, very frustrated entrepreneur Fred, he makes$2 million a year and then he pays his 50 % taxes and he makes a million bucks left over. Then he leaves his living expenses, whatever. Maybe he's got a family. Okay. He takes home$500 ,000 he can put away. So he's getting richer at$500 ,000 a year, roughly, in terms of his net worth. That's a slow way to accumulate cash.

4:26Now don't be wrong. $500 ,000 is a lot of money, but I'm just saying big picture. Now this guy, let's call this, we had Frustrated Fred, and let's call it Wealthy William. Sounds very fancy. So this guy has an entire team that actually runs the business day to day without him. And so he just owns it like he owns the paper stock of a company. And his business right now trades at six times profit, meaning somebody would be willing to come in and write him a check for six times$2 million, which is$12 million. And so of these two guys, this guy adds$500 ,000 to his net worth every year. This guy has a business that is worth $12 million.

5:02This guy's way richer. But check this out. Now, let's say that both of these guys work, figure out a way to make the business make an extra$500 ,000 a year in profit. So they go from$2 million to$2.5 million,$2 million to$2.5 million in profit. That's what happens here. Now, here's where it gets extra sexy. This guy, after he makes his extra$500 ,000, let's say that he pays the 50 % taxes, and that$250 ,000 after taxes goes straight to him. So he goes from taking home$500 ,000 to$250 ,000. He doesn't change his living styles. All right, so all the extra money, he just, he saves. So he starts making$750 ,000 in savings per year.

5:39Okay, after taxes. Neat. This guy, the$250 ,000, sorry, the$500 ,000 that comes in after taxes, he gets a six X multiple on. And so he actually gets another$3 million added to his net worth. So his 12 million becomes 15 million. And this is the game of wealth. This is how you get wealthy. It's very, very inefficient to become wealthy off of regular income because it's taxed to oblivion and there's zero multiplication that occurs on it, right? You don't get 10 years of work. You get one year divided by two after taxes. So the difference is like a 20x difference between a valuable company that can sell for 10x versus one that can't.

6:20Now, hopefully I've sold you a little bit on the idea of why this is worth doing. Now let's walk through the steps of actually doing it. So the first step of actually taking it from frustrated Fred to wealthy William is you do a self-inventory. So what that means is that you actually list out everything you do, literally all of it. And then you turn each of those checklist items into something that someone else can do. And you want to get as granular as humanly possible. And this is how you get out of the day-to-day without breaking the machine. And so I would say the step even before this, if you don't even know what you do, what we have people do is run a time study.

6:55So time study, real simple, you don't need any like fancy technology for this. You just take an Excel sheet, and you write times on one side every 15 minutes. And you simply put in a timer, you turn your timer, and every 15 minutes, you just know what you did. It's very simple. Now, some of you might think, wow, I could never, that sounds like so much work. It's like you literally have a timer, and then you write one word down every 15 minutes. What's crazy about it is it'll be the most productive week of your life. Every time I do a time study, I think I should do this every single week. And I don't.

7:24But you certainly will be really productive because you're going to improve yourself that you're super productive. I'm just telling you, that's what will happen. So anyways, you can also, by the way, do this with your team. If you're like, I have a key man risk over here, this person is super valuable to business, I have to have less dependency on this person. You walk through this process. So you do a time study, then you get the list of stuff. Great. Now we have this list, and we can break it down into component parts. This is the kind of list of everything, right? And what we want to do is we you want to start building little processes or installing people.

7:55So it's either a project, a process, or a person that's going to install in each of these little slots next to it. So you have all the list of things, and then you have all the people or process or project. Okay. So project is a one-time thing, which sometimes creates a process, or we have a person who does this thing on a continuous basis. And you probably have people on your team who are underutilized. Some of these slots, you can just be like, I think Angela can do this. I think Tommy can do this. And you can start slotting them. Then you'll have your red, yellow, green. And so my red, my green is I can give this to somebody.

8:24So I'm going to look at my team, teach them how to do it. They get this. My yellow is there's a one-time project or process that I have to install here, but I can do it and I know how to do it. The red is where it's something that I either don't know how to do, or there's a person that I know I need to have, but I don't have. And so I solve these in green to reds because the greens you can get out quickly. The yellows is the next level that you can do with a little bit more time. And then the reds is like, once I've done my greens and yellows, I can move on. Now, the way to think through this is having, so in addition to this list, it's like, okay, these are the things I'm doing.

8:59There's also the decisions you're deciding on, right? And so as these, this time of documentation comes up, we want to start saying, if this, then that. These are rules of behavior, right? They're decision trees for common scenarios. And I'll give you an example. So when I, Prestige Labs was the first physical products business that I started, supplement company. And I remember the manager of the support team saying it's really hard to get new people on. And of course, I like lost my I was less patient than I am now and less polite. And I was like, how hard could this be? I was like, change my change my change my address, change my car, change my flavor, change my billing cadence.

9:36I was like, cancel refund. What else do we have here? Right. And when I said it like that, you know, Layla pinged me and was like, don't be rude to people. They're trying to win and you are making it look really bad. And don't do that. So I will tell you the story because that's what happened. But fundamentally, it's just if this than that. Somebody will come in and say, I would like to change my card. This is how you change your card. Someone will say, I would like to change my flavor. This is how you change the flavor. I would like to change my billing cadence from once a month to every two months.

10:02This is how you change the billing cadence. It's just if this than that. The more complex the roles, the more one-off the scenario. The more duplicatable the job, the more people you have in a specific department or function, typically, the more standardized the questions become. All right. And so once we have that, then we can say, all right, there are all these questions that come in. Some of these questions require approval. Okay, somebody has a bad night's day at our hotel. How much money do I normally gift them in credit? Or do I give them a gift card to our restaurant or something like that?

10:36We decide that under$500 or under$1 ,000, under$10 ,000, depends on the size of your company, under$100 ,000 sometimes. This person can act independently without your supervision. Now, of course, you still have financials. And at the end of the month, something looks out of whack. You can go check it out. So I'll give you an example of that. We like to over deliver and have people have an amazing experience if they come out to our headquarters. And so I let people do surprise dinners. And so my team, like if they see two or three people that they think would like jive well together, we tell them, hey, we made a reservation at this nice place, go there.

11:11And so it's like a nice surprise and delight thing. And so then I got like the pill at the end of the month, and we were spending$250 ,000 a month in five star dinners. And I was like, guys, listen, I love our clients. But the question is, is this actually generating true value? And so it turned out that that was not something. And when we removed that thing, it didn't change anything about our happiness scores or reviews or anything like that. So it's like, okay, so I say this because there's going to be a feedback loop and you're going to mess up, but understanding like, what is the amount of money that I'm let, I'm able to let someone make a decision on their behalf.

11:46And you can also put a cap on it. So it's like, you can make decisions under$500 in total up to 5 ,000, right? So they give some 10 shots to mess up or, you know, fix something in the business. Now underneath of that, this is where having kind of clear scorecards and KPIs around these things help. Because if we're going to unlock some sort of decision tree. We want to also make sure that it's unlocking some sort of value. And so I'll give you a really powerful frame that you can talk to anybody in the business with. You can say, how do you and your role make the company money? It sounds like a very simple question.

12:22People should be able to know how the business works, especially as it relates to their job. If you ask this to your team today, many of them will not know the answer to that question. and that will frighten you. But fundamentally, like some of them are easy. Sales. People come in and I get them to give us money. And if they give us money, we make more money. That makes sense. Great job. Okay. But then you have some ancillary roles. Like what does finance say? What does tech say? What does media say? What does market? So when we make, so if I ask my guy who's behind the camera, right? So of course, marketing is something that generates money.

13:01But you don't do marketing. What do you do? I hold the camera. Okay. So then what ways do you make us money? Not the marketing function. This is where it gets more interesting. So if I had this camera person and he or she, right? Slow down. He or she holds the camera. I say, all right, what does bad camera work do? Bad camera work would be a waste of time, right, of the entire team. Number two, the media would perform not as well. because it would be off center or, you know, it would just, the lighting would be off, whatever the hell, right? On top of that, we would, I mean, we'd waste the footage.

13:41I'm trying to think what other things would it cost us in the business? We probably have equipment that would be ill-fitted. We wouldn't save the stuff that we'd have. All of these are huge cost centers. And so you can reverse each of these kind of potential mistakes into these are the things that we have to make. What percentage of the time was everything saved correctly? Was it named correctly in the system? saved to the correct drive, time stamped appropriately, the lighting and or camera was set up correctly, and it was on time. So we could start at the time we said we're going to, if that's 100 % of the time, it's like, dude, you're making us money.

14:11And here's how. And I think that when people have the understanding of how what they do relates to how the company makes money, it gives more meaning to like, what impact people are like, I wish I had more impact. It's like, it's usually because they do it. Like if you have a job in a company, you have an impact, you probably just don't know what the impact is. And so decide and explaining that to somebody, I think is a very big unlock because they see the value that their role provides in the overall work. All right. Now, before you have this, because again, we're trying to replace ourselves here.

14:39We have our little scorecard. We have our KPIs. Let's say you were the camera guy, right? The next thing is we have to have some sort of test to graduate the person, which is can someone 80 % is you get 100 % of the result. And the key learning that I had, this is a belief that I had to have broken, was that number one, there are people who can, no one's going to ever be able to do it as well as you. Not true. No one's going to be able to do it as well as you with, you know, one-tenth of the work, with one-tenth of the practice or reps, but every human is replaceable, in my opinion. And we know that because humans have replaced all humans since the beginning of time.

15:15But we can know that on a shorter time horizon, if they only learned all the things that you learned the right way without learning all the bad mistakes, they might be able to get to 50 % as good as you right off the bat. Yeah. If I can do it right with part of my time, someone else can do it better with all of their time. So you might be able to do a five out of 10, which you consider to be a hundred, because it's one 10th of your time. But if someone spent all of their time doing, they for sure should be better than you over time with enough practice. So the first one, big picture, is we get a big inventory.

15:50We create the decision trees. So we have a big list of stuff. We slide in the people we have, what's left over. We then have our scorecard that we can make for people. We have our decision trees that they can decide up to with certain amounts of money. And then we have a test at the end, which tells them whether they pass or not, are they good enough? Okay. You can outwork anyone in your business. You will not be able to outwork everyone. And this is something that it took me too long to learn. I kept, I mean, you can imagine me, I pride myself on my work ethic, but I cannot work everyone. And so the longer it took me to realize that the longer it limited my ability to grow, I can do a mountain of work, but I can't do Mount Everest.

16:29That requires more hands and more shovels. So you want to start trading doing for managing and leading. So here's the simple math by this. Like there's actual math here, which is, let's say you swap 200 hours a month. So, you know, roughly 50 hours a week of work for doing 20 hours of managing. So now you go from 50 to five. So you have a 10th or 10x improvement in leverage. And you replace yourself again by hiring a manager the next time. And then you trade the four hours for one hour, right? And so this is basically how leverage occurs through labor is that you have to turn your effort into an organization that produces without you, right?

17:15And so employees or AI in the future, right, make a fully functioning enterprise that can continue to scale. And that's kind of my litmus test is the baseline is, does it burn down without me? For many of you, if you just get to here, you'd love your business 10 times more. Like I can actually leave for a month and come back and it didn't burn down. Thank God, right? But where it gets really nasty and really exciting is where you can leave for a month and when you come back, it's in a better position than it was when you left. That is a business that people want to buy because what it functions as is essentially a faster growing annuity for an investor, which gives them a big multiple, which is why they pay lots of money for it.

17:49So let's walk through what this actually looks like. So the first, there's kind of three steps to it. So you'll shadow train. So this is where they watch you do it. The next is you supervise them doing it. So they do it in front of you. So you do it in front of them, they do it in front of you. And then after that, you kind of just support their independence and you're available, but not involved. So it's like, I'm fully available. You can hit me up whenever you need anything. And then what happens is in the beginning, they require a little bit more ad hoc calls, consults, help. And then over time, if you have a competent employee, those decisions get automated back down to them, right?

18:24And so that's when the full handoff occurs is that they own it completely. And again, initially, I'm cool with 80%, sometimes 60 % as good, as long as I have a clear path to them getting better. And I'll give you a little pro tip. I used to measure employees by how well they started. I measure employees today on how fast they improve. Because if you look at two employees, right, let's say somebody starts here and someone starts here. If this person's flat and this person's like this, I know that in three months, six months, this guy's going to pass this guy. But then what happens in another six months, right?

18:59And so sometimes it's worth taking someone who's a little bit less experienced or has fewer inherent skills because they didn't have as much time because they're able to learn faster. And so intelligence, I measure as rate of learning. And so I will rather have a more intelligent employee who learns faster than a more experienced employee who learns slower. Just something that I've learned. And it depends on the role, obviously. But I would say that I've had a big shift in terms of how I think about talent. Now, the goal here is that we want to move from doing the work. This is the big picture I point to.

19:32Move from doing the work to managing people, right? We focus on recruiting A players, not doing A player work. We focus on the business, aka strategy, prioritization, not on the tactics of what we need to do next or what we need to do today. And so your job becomes attracting talent and aligning incentives. And so the ultimate test for you is can you take three months off and have the business grow anyways. Like this is the easiest, especially for those who are brick and mortar. This is super important. If you're brick and mortar, a lot of you guys want to get my second location, want to get your third location.

20:04This is the simplest litmus test. If you can leave it alone, like your phone doesn't, like your phone doesn't ring and I'll tell you how to do that in a second. I'll call it the phone test. I'll tell you later. But three months later, it's bigger. Great. It's the same. We have to figure out a way to get it to be able to grow. Unless you're in a super cap market where there's no way it can grow, fine. But the vast majority of businesses can improve, can grow year over year over year if you have a good business. And if it's flat, the thing is that you still have some sort of magic over here. As soon as the eye of Sauron moves, sometimes if it's flat, it's going to go down.

20:39Now, all of a sudden, you've got double the liability, double the debt, double the overhead, half the talent because it's spread. And now you have more risk and less profit. No bueno. So this is why it's so important. You're like, man, that's never going to happen. It's like, right. That's why a lot of people shouldn't have second locations for much longer than they think. So over expansion is one of the number one reasons people got a business. Zooming out, I want to, so you're like, okay, how do I find these types of A players, right? Is we want to look for people who describe their role in metrics in as much detail as humanly possible, right?

21:13So I can measure someone's skill in any endeavor based on the quality and the quantity of metrics they track. So if I said, and I'll tell you, I'll tell you the first time, a great example of this. So the first time I hired a really good HR professional, and I've had plenty of them in my history, but the first time I hired a good one, she asked me questions on the interview. She was like, so what's your cost of acquiring talent? And I was like, I don't know. That's a good question. I should know that. She was like, what's your time to fill? And I was like, wow, I didn't really think about it. She's like, okay, what's your two-way fit in terms of what percentage of 90 days later do both the employee and the manager say that it's a 10 out of 10 fit?

21:50And I I was like, don't know. And so she starts giving me all these different metrics for the talent side of the business that I had no idea about. I was kind of in the internet marketer world of, oh, if I have a low refund rate, therefore my product is good. It's kind of like I had that on the talent side where I was like, oh, which by the way, that is not how you know you have a good product. Just FYI. I was on the talent equivalent of that of like, well, you know, I mean, we haven't had any lawsuits lately. it's like, duh, you think? That's probably not a good way to know if you have a good culture or a good team or a good talent management process.

22:27And so again, the quality and quantity of metrics. Now, this particular HR professional was a leader in turnarounds. And so she knew all these different metrics. And then obviously I learned all those things from her and then discarded her. I'm kidding. But I learned those skills so I could apply them. And fundamentally, that's, I try to find people who can teach me things because that's like the best thing in the world. It's like, you pay someone and say, hey, you know way more than me. Go do that in here. When you're starting out though, it's hard to afford those people because those people don't work for you or you can't afford them or both.

22:53Now, I'll give you a couple rules of thumb that also took me too long to figure out is that number one, I would interview more people than you think you should. And I know how costly this is as a business owner. So you want to stack as many as you can. Also, I highly encourage group interviews pretty high up. Once you get into director and executive, it's tough, but like anything that's like frontline to maybe even manager, you can have group interviews because it'll save you time and you'll very quickly be able to read people's vibes. And so the idea here is that I'll tell you, I'll tell you a story.