164. Forget the Business Plan - Secrets of the Top 1% Entrepreneurs

0:00Take a second and think about some of the fastest growing companies in the world. Think about their revenue, their influence, their rise to prominence. What if I told you that the top 1 % of companies on the Inc. 5 ,000 list all have at least one thing in common? They didn't start with a business plan. You heard that correctly. It turns out that the top 1 % of the fastest growing companies have more in common than you would ever believe. And today's guest is here to reveal the shocking secrets from their experiences that will have you questioning everything while changing your own approach to growth.

0:29This is Ryan Atkinson and you're listening to the Outfit Podcast, where we uncover the secrets of building and running successful businesses. Today's guest is a serial entrepreneur, Pete Martin, whose new book, Scale Up Faster, is the accumulation of over two and a half years of researching, analyzing, and interviewing the top 1 % of the fastest growing bootstrap companies and find out how they were able to consistently outshine their competition while achieving unprecedented growth. He's here today to share those insights with all of you. And Pete, I am so, so excited to have you on here. Thank you so, so much for being here.

0:58Yeah, thanks, Ryan. I appreciate it. I'm happy to be on. Yes. And for the audience listening right now, they may be going, okay, Pete Martin. Yeah, I'm excited for him. But like, kind of who is he? So let's lay some of the groundwork before we dive in. Can you share a little bit of your background and why you wrote up Scale Up Faster? I'd like to say I'm genetically encoded and entrepreneur. My grandfather, my brother, my father were all entrepreneurs. I started out running a car leasing company when I was 18 years old. I thought I was a classic snot-nosed kid who knew everything. And the world kind of slapped me around a little bit.

1:28And then I went back to college, went to work for IBM on the complete opposite extreme. Did the kind of corporate Fortune 500 thing and then started up my own companies again back in 2002 and built, scaled and sold four companies along that path. My last one was sold 10 years ago to KPMG. And it was that point in time when I thought about writing a book and telling everybody how smart and successful I was. And so I started writing this book and I'm like, you know what? Nobody gives a shit about me. Like maybe my friends and family will buy a couple of copies, but that's about it. So I kind of put it off to the side.

1:59And then during the COVID time, it seemed like every week the business media was talking about a brand new unicorn founder. And it was pissing me off, right? The VC money was just kind of flowing and somebody's putting an arbitrary value on somebody's business. And it made me mad because I'm like, that has nothing to do with building a sustainable business and building a sustainable business for the long-term, profitable, and gives the owner all the freedom that they want. That's really difficult to do. So it was kind of this combination of putting my book aside 10 years ago, and then all the stuff going on with kind of all the VC money coming to the floor.

2:33And so I'm a huge business book reader. I'm a big fan of Jim Collins' book called Good to Great. And there's never been anything written for private companies like Good to Great. So that was my inspiration. That's what I wanted to do. And starting, running, scaling a business and being successful, getting past the seven-digit mark and an eight digit mark is really, really tough. And so I wanted to dig into how the companies that were doing this better than anybody in the world, what they were doing and what the secrets were. I absolutely love that. So let's go back into like the traits that these top 5 ,000 companies have in common.

3:07Obviously you did your research on them. You've had a ton of conversations here. What are some of the common traits that stand out to you with some of these top companies in the world? Yeah, let me give you a little context first. So what I did was I looked at 32 ,000 companies over a seven-year period, making 5 ,000. I filtered my companies at double revenues every year for at least four consecutive years, which is really, really hard to do consistently. And that took 32 ,000 companies down to 386. And then I eliminated the ones that I knew took on growth capital to do that. So I really wanted to look at just bootstrap companies.

3:41And that took that 386 down to 324. And it crosses literally every industry, B2B, B2C, direct-to-consumer, franchises, the whole bit. And a lot of things that came out of it were really contrary to business advice. So you kind of mentioned at the top of this pod, which was they didn't have a business plan. And that was consistent with pretty much everybody. Everybody said the only time they actually wrote a business plan is when they had to go get some kind of funding, like a line of credit or something from a bank. And the bank's like, where's your business plan? So they had to build it. We'll talk about what they did instead in just a minute.

4:15So that was number one. Number two was they were masters at cash flow management. And there's this concept called cash conversion cycle, which means how quickly do you get cash in the door to be able to pay all of the expenses and the service or product delivery to that customer. And all of these companies had a negative, what's called a negative cash conversion cycle, which means they were all producing cash along the way. They all did a phenomenal job describing their culture in really, really rich detail. If you looked at any of these companies that we studied, and you're a top performer in your profession, and you were to look at their website versus the websites of their competitors, you wouldn't even go work for their competitors because they were so good at just building a culture, describing a culture, crystallizing what it meant to work for them, and then kind of building this just very terrific culture.

5:08One of the other things that they all did really well was they created communities. Some did that very strategically and some just kind of happened. What I mean by that is, so one of the companies we studied is called ClickFunnels. So they make sales funnel software company. ClickFunnels is one of the fastest SaaS companies, software as a service companies to get to 100 million. They just kind of lit it up. And one of the things that they did is they built this community called Funnel Hacker. So they were people that used their technology and then ClickFunnels, the company, helped these tunnel factors basically help build their businesses.

5:45And they all did that. One of the other companies we studied was a company called Farm Girl Flowers. And it's the only full female-owned floral company, direct-to-consumer floral company in the country. They're up against, you know, 1-800 Flowers and some of these big guys. and they did a phenomenal job of tapping into this community of their customers and really nurturing that community. You can't control a community, but they nurtured it and that helped propel the growth because then customers are talking to customers, they're supporting the company, they're referring business without you even asking them to do it, right?

6:19So they all did that really extraordinarily well. There's four of the many. Absolutely. I think it's really interesting. And number two, a master's at cashflow management. I can speak from experience. Cash flow for a company is one of the hardest things to manage. So people, please go look at all of these four different ones. But can you speak specifically to cash flow management? How do they manage it so well? Are you able to cover some of the strategies they have, et cetera? Yeah, there were two things. So the first is they built a culture. They were very proud of the fact that they were bootstrapped.

6:53And they made that actually a hiring criteria. So they wanted to develop a culture of people that were frugal and conscientious with money. And so as they interviewed people, they would say, you know, we're a bootstrap company. What it means is we may not pay the most. We may not have the biggest bonuses. We may not have the ping pong tables and all the luncheons, whatever. But we are completely in control of our destiny. We don't owe anybody any money. We're not beholden to VCs or private equity people. and so we're in control of what we do. So that was number one. Number two is because they built this culture, everybody was focused on ways to save or make money or generate cash flow.

7:32So there's just stupid stuff that goes on in businesses all the time. If you send out an invoice that's incorrect, right? And you want 30 days payment terms, guess what's going to happen? Customer's going to bounce it back. You're going to go back and forth and you just extended your 30 days to 45. So there are some things that just sound so tactical and simple but they mastered these things so that they could produce positive cashflow. With your consulting firm, with all your other companies, did you find that you shared a lot of these traits or what do you think kind of led to like your success?

8:02Yeah. You know, I would say what's led to my success is we made all the same mistakes everybody else makes. We screwed things up. We were sweating on a Thursday night before we had to pay payroll. We were all of the things that the stories that entrepreneurs, startup entrepreneurs and even tenured entrepreneurs talk about, we hit it. And so a lot of it is just making those mistakes along the way. And even though I'd read the books, kind of the real life doing business in a real world can be a little bit different. And so because I've started and scaled five companies, I obviously got better along the way, right?

8:36I kind of knew the potholes to escape from. I knew to ask customers for cash up front. All of the things that went into all of the different characteristics of running a business, I got better over time because I made all the mistakes in previous companies. If you're ready to enter the 1 % for yourself, there's no better way to start than with a business that sets you up for success on day one. And with a Lawn Squad franchise, you get exactly that, a revenue generating business backed by proven systems, training, and support. Some Lawn Squad franchisees are making over$400 ,000 a month. Their franchise system gives you the step-by-step roadmap to succeed even if you have no prior experience.

9:13If you're ready to start your journey, just head over to franchise.upflip.com slash lawn-squad to learn more. That's franchise.upflip.com slash lawn squad. Can you talk about one of the biggest mistakes that comes to mind right away that you've had to learn from? Because as an entrepreneur, I've talked about a lot in this podcast, that's where you really grow and learn from is when you're at that low point, when you're mistaking mistake after mistake, but that's really how you grow and learn. So can you speak specifically to mistake that you made that like really sticks in your mind from a learning perspective?

9:43Yeah, for sure. So I like to say that all business issues are people issues and that's mostly true. And so there's a concept that says hire slow, fire fast, right? Hire slow, meaning do your due diligence on the individual, make sure that they are a good culture fit, make sure that they align with all of the values that you align with as well. And so a perfect example is we had a fairly rigorous hiring process in my consulting firm. And we had a lot of people, we had team interviews, we had tests and exams and assessments and all this kind of stuff. And we had brought this individual on that I had known for 10, 15 years.

10:21And I thought he'd be a really good guy. And so as the CEO, I'm like, nah, we don't need to do all that stuff. I know this guy, let's bring him on board. And everybody said, yellow flags, red flags are flying right left, right? I'm like, it's good. It's good. I got this right. And he was on board for around 90 days. We were consulting for him. He has some specific deliverables for a client that he was supposed to provide. And a week went by, two weeks went by. He didn't deliver him. We didn't deliver him. I finally get a call from the client who said, you know, what's up? You know, these things are late by a couple of weeks.

10:52And I said, oh, I was told that they had been delivered. Right. And so I start to uncover it and unravel it. And it turned out he hadn't really done anything. I don't know what he was doing to this day. He'd only been with us for four months. And the more I dug, the deeper I got. And what was interesting about the story was I was ready to fire him instantly. And my business partner who owned half the company, it was like, no, let's just give him a chance. It might've been some health issues or something. And I'm like, nope, my gut tells me that we need to just rip off the Band-Aid, right? And he lasted for another two months.

11:26So we're paying his salary this whole time. This guy was a 200k a year salary right and then finally just i don't know if we let him go and of course when that happens all these customers come back and they're like god he was screwing up the whole time like why didn't you guys see this why didn't you do due diligence you know why didn't you find out what was going on and i've got many people stories like that and my business partner used to say you know p when are we going to stop making hiring mistakes and my answer was was the minute we figure that out we will be billionaires because even the big companies screw this up.

11:57Right. And so it's usually the people stuff. Hiring and interviewing was shockingly like one of the hardest parts about like being a CEO and being a founder is like, because you get so many good applicants and you're like, oh, well, these people would be really good to start interviewing like, oh, well, they're like kind of together. Like, how do you know, like, who's going to be good? It is so hard to actually uncover, like, who's going to be good in the role and who won't be. What we discovered in these companies that these top 1 % companies is they had built assessment and hiring processes that looked at not the resume, not where they came from, but the competency that they brought to air.

12:32And so they would create a hiring process, an interviewing process that mimicked the job that they were going to be doing. And did that in what I call a competency-based hiring. And so it's looking at, first of all, it's figuring out what true competency does the person need to be successful in that position? and then figuring out a hiring process that actually demonstrates those competencies out. And you can do that. We talk a lot about that in the book and that's the only way to do it. And it becomes a much more objective. And, you know, we would have done this with this guy that I'd known for so long.

13:04You would have never bothered, period, because he didn't have those competencies that we needed in that particular role. That's honestly a great tidbit because when I think about our hiring process, like we could definitely do a better job of like the competencies of the actual role. But I want to talk about something else that like surprised you. Obviously, you did a ton of research, interviewing some of the different companies, really nailing it down. What surprised you the most about your research from the book? There was a couple of things. Not having a business plan was number one. Number two, I would say I'm a sales and marketing guy by degree, my college degree, and just kind of my affinity where I've kind of always aligned myself.

13:39And I always used to talk about this. You have to have this multi-channel marketing strategy where everything's integrated and feeding off itself and sales and marketing is lined up and stuff. The fact of the matter is all of these companies, all of them picked one primary way to go to market and they mastered it. Five of the companies that we profile in the book, the way that they have grown, some of these companies are$8 ,500 million by cold calling. You would never believe that. But they made that their go-to-market strategy and they prosecuted it until they figured it out and mastered it and looked at all of the steps along the way and measured them very specifically.

14:18So they knew when things were not going the way that they should go. So that was the second thing is, you know, just having one primary way to go to market. And if you think about as a business person to try to generate sales and you hear from the latest guru, like cold outreach or founder led or SEO or like this and that, right? There's so many ways to do it. And the reality is there's not a best way. The best way is what works for you and what you've mastered and what culturally fits with your company, right? And it could be anything. It literally could be cold email. It could be cold calling.

14:51It could be SEO. It could be partners. It could be whatever. So that was the second one. And third one is, and I kind of discovered this about a third of the way through my interviews. And I started having a conversation with the CEO from Girlflowers, actually, this female. And I won't go into the whole story just for sake of time. But after this 20-minute conversation about kind of the founding of the company, I was so stressed out for what she had gone through. And I'm like, oh my God, why are you doing this? And she's like, I need to prove something to my parents, basically. And I started thinking about the other CEO conversations I had.

15:23And I'm like, wow, you know, he said kind of something similar. And that guy said something similar too. So what I call is I call it a chip on your shoulder, right? What is it that drove them through all of the difficulties of running and scaling a business to keep on going? And it was, there was something from their past, something in their core, in their stomach, that fire in the belly that was causing that, that was, you know, motivating them to just break through all of the obstacles to running a successful company. And as I discovered this, I kind of went back and talked to some of the guys.

15:54And I said, hey, I want to ask you about this chip on the shoulder. And you know exactly what I was talking about. And then we talked about this notion of can you manufacture a chip, right? Can I manufacture that motivation, right? And I don't think you can, but we all have experiences in our life that we can pull forward and go, all right, that really upset me. That really pissed me off. And I'm going to use that as my motivating driving factor to kind of push through and create the resilience and the grit. I absolutely love that part of it. Cause like, I'm thinking of like, I also have like a chip on my shoulder.

16:24Like there's like some stuff that like thrives me cause it like makes me so angry to like think about where like that's what like keeps me going. And like, honestly it is good to channel. That frustration of like difficulties in the past that kind of do keep you going. I think that's a really good part of the book that people like should definitely consider is it's kind of an entrepreneurial mindset. Like entrepreneurs have similar traits, but one of them is a hundred percent that chip on the shoulder to get them going. Yeah, I use analogy too. If you watch last year's Superbowl, When it was towards the end, Travis Kelsey got pissed off and kind of went to push the coach, right?

16:54And you read and everybody's like, oh my God, he's pushing the coach, right? And he was just so fired up and passionate about winning. You know, all he said was, coach, let me in the game, right? I can win this game. Just let me in. You mentioned me. That was his chip, right? He has some things to prove as well. And so if you can figure out what that is, as I do, you tap into it, man, it's really powerful. I would totally lean into the chip. Yeah. But you also said like you can't manufacture it. So like you're really gonna have to like dig into your past and like find stuff that like really fuels your fire.

17:21Yeah. Number one, I think a point going back to one of your main points, a lot of listeners might be thinking is like, Pete, did you say like building a business plan is essentially pointless? Someone might be asking you, okay, like, Pete, like I'm not going to do a business plan, but how should I go about planning a research before I start a company? Like what advice would you give to that listener? So if you think about what goes into a business plan when you're a very early stage, either just startup or even a couple of months in, virtually anything you put into that business plan from the financials to the market to everything else is wrong.

17:53You just don't know. And so what I always suggest first-time entrepreneurs and what I learned from all these companies is they just went out and started having conversations, right? They just took action. They took massive action and just went out. And when you do that and you start talking to enough prospective customers, you start to learn more about what the real issue is, like what problems you're trying to solve with whatever your solution is, whether it's a coffee shop or technology or some kind of a product. But you start to understand better from the customer's point of view, what that fit is for what I call product market fit, right?

18:27And you can't do that from sitting behind your desk writing a business plan. You just can't. You have to get out and talk to people. And I've talked to entrepreneurs that are introverts that either got past it or didn't. And the ones that didn't get past it, they were not successful because they wouldn't go out and have these deep, meaningful conversations. And I'm not talking two or three or four. I'm talking a couple of dozen because you got to get to that 15th, 20th, 25th conversation to start to see some commonality in the words and the description and the issues that they're talking about.

19:00And so if you're not a first-time entrepreneur, there's a notion called fall in love with the problem, not the product. And so if you can fall in love with the problem and being maniacal about solving whatever that opportunity is that you see, you'll be better off because most of the entrepreneurs fall in love with their product or their company or the brand or the logo or the colors. Yeah, it doesn't matter, right? People buy anything to solve some issue, right? Whatever it is. And so as an entrepreneur, put the business plan aside, go talk to people, go figure out what that problem is. And if you talk to enough people, you'll figure out whether there's a market or not.

19:36And there's lots of books to help you kind of go do that. But that's what all of these companies did. They just went out, they talked to people, they figured it out. They kept iterating, they kept getting better. They talked to a lot more people and they scaled from there. Absolutely. I want to talk about that, about getting started. Because a lot of our listeners, they tell us, I have an idea in mind. I've had this idea in mind for so, so long, but I just don't know where to start. But I never took that first step, essentially what they're saying. If you were talking to that person, what would you recommend they do?

20:02Go talk to a client or what would be that first step for someone that hasn't taken action on their idea? Yeah. So first of all, I think most people, when they start out, think that theirs is the only solution because they don't see it elsewhere. Right. And so first thing is just do some basic research, like, because I talked to hundreds of entrepreneurs, I've never talked to somebody who had such a unique idea that somebody else wasn't already doing it. And if there's nobody else is doing it at all, it could be because there's not a market, right? It's hard to say whether it's truly innovative or just there is a new market there.

20:34So to your question, it is really going out, doing a little bit of research, and then kind of framing up what you think the product, the solution, the offering is, and going out and talking to people. And that will start to refine both the problem and the potential solution, whatever that is. It's getting out there, taking action. How would you say, how should people start to identify problems, especially early on where they're like, oh, like I want to think of something, but identifying a problem, like how would you do it? There's a lot of folks that will talk about getting on to like Google trends, for instance.

21:07So you can look at Google trends over a period of time and see, you know, somewhat kind of some sense of what problems is the world seeing, right? What's trending. And if that's something that you're passionate about, I've met entrepreneurs who a couple that I interviewed as part of this research, weren't necessarily in love with what they were doing in terms of the industry, but they're still super successful because they did the right things. Because I used to say, you know, you got to be really passionate about this problem. Passion is like the only emotion that you can't fake. And if you don't have passion, you're not going to be successful.

21:38And I've completely gone back on that because I bet these people are like, yeah, I saw an opportunity. It seemed to make sense. I talked to a bunch of people. They said, oh yeah, that's a real problem. And I'll give you money to fix that problem. And they built a business out of it. And so it's really hard to say, but it should be something that you should be excited about. It's one thing to go into an established business and maybe not super passionate about it and continue to grow it. It's another thing. If you're not getting income for a while and you're putting financials at risk in your personal health and your family or whatever, you should at least like what you're doing, right?