← Business Lunch
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- [00:01]
A
This is going to be a different business lunch. I'm going to let Ryan. Actually, I was like, I was going to open it and hand it over to you. I think you open it this time.
- [00:07]
B
Okay.
- [00:08]
A
So.
- [00:09]
B
Hey, everybody. Welcome to business lunch. I'm your host, Ryan Deiss with the inimitable Roland Frazier. Yay. How'd I do?
- [00:18]
A
That was amazing. The energy that you bring is just,
- [00:21]
B
like, off the charts.
- [00:22]
A
I love it.
- [00:23]
B
Yeah, I mean, it's like, I don't know what the heck I'm doing because you normally do it. But no, I am excited about this. This is going to be fun. Because all this ever is like the whole genesis of this podcast was just you and I talking about stuff. Like, what is it like if we're just sitting here having lunch and you're, you know, eavesdropping at the table next to us kind of thing? And that's exactly what I want to, you know, do here. Not that it's any different, but this is something where I specifically want to talk to you about something. So I want to just ask you a bunch of questions and have you tell me a bunch of things and just be that obnoxious, you know, twerpy little pest who just keeps being. Yeah, but what about that and what about that and what about that? Does that sound like fun to you?
- [01:02]
A
Sounds fun.
- [01:03]
B
Okay, so I want to get to a topic that I know is near and dear to your heart and something that I believe you're, you know, definitely a leading expert in, and that is getting off of the org chart. How do you go from founder to operator to I ain't doing that stuff no mo, because somebody else is running the company for me. And it's the thing that truly, if anybody I know in this, you know, out there in business world, and I know lots of people, you have done this better and more consistently than anyone else of never getting yourself kind of stuck, trapped, being there where you need to be there, but then getting the heck off of it when you're ready to do that. So I want to talk through that process, how you do it, because I know that there's a lot of people out there who, they like their business. Maybe they don't even want to sell it necessarily yet, but they would like to exit the day to day, whether it's to hand it off to the next generation or to just have more time or just to have a little bit more of a passive lifestyle type business or maybe just to jump into another project or initiative. Lots of reasons to do it. That we can get into. But that's what I'd like to talk about with you. What do you think?
- [02:14]
A
I think it sounds great. Let's do it.
- [02:16]
B
So just for context, how many companies do you own? You know, majority, minority. Where you're not. It's not one of these things where. Cause a lot of people like I've got a portfolio of companies and it's like, you know, they own 2% of this and 1% of that. And it's like. Yeah, I mean that's like me saying that Apple is in my portfolio because I, you know, own their stock or something like that. But in terms of like the actual businesses where you have some authority, like legitimate ownership in how many are in that overall portfolio? You and I share a lot of them, but I know there's a lot that we don't necessarily share.
- [02:51]
A
Yeah, it's, it's gone down because we've had some exits and things like that. I think it's 11 now.
- [02:57]
B
Okay, so you got 11 businesses today. How many businesses would you say, and I know this is an unfair question, so maybe just gonna be ballpark numbers that you've owned over your lifetime. Minority, majority.
- [03:13]
A
Gosh, hundreds.
- [03:16]
B
And of those. So of the 11 now and the hundreds that you've had in the past, how many were you? The primary operator, CEO in it, in the trenches on the day to day,
- [03:31]
A
the primary operator? Maybe like maybe five.
- [03:42]
B
Five. Okay, how many in the last 10 years would you say? Zero. Okay, that's. And that's the, that's the thing like you have been better at most at getting involved in businesses without getting stuck in them and in keeping yourself off the org chart, that's the thing that you're an expert in. So I want to talk about how the heck do you do that? But before we get to how you've done it, why would somebody want to do it? And I know there's different cases, there's people like you who maybe don't want to operate at all. You think about yourself as more of an investor. So hitting on that. But why would somebody who they have started this business, it has been their baby, so to speak. Why might they want to get off the org chart? What are some of the benefits of that?
- [04:26]
A
Sure, there, I think there's a lot of reasons. The one that I think is the biggest for most people, whether they, you know. Well, the one that I hear I'd say the most is burnout. That like they're just the business is asking too much of them and so they're working too hard and it's affecting either their health or their personal life or just their general happiness. So I think that's a big reason. But then moving to, you know, to more strategic reasons, our saying is right, the, the more valuable you are to the, to your business, the less valuable your business is, is very, very true. So if you want to make your business more valuable in terms of just what it's worth to a potential acquirer of the business, and honestly to you, it makes sense for you to be off the org chart. Because if you are on the org chart, if you are critical to the business, then you're going to have to stay. You won't be able to sell it unless you agree to stay until a replacement is found or maybe in a few circumstances. There are 100% buyout firms that are basically just kind of sucking your business into theirs, and they're going to, they don't want you to stay, really, but they are going to make you stay for a while to transition. And that is a period of just absolute hell for everybody that you talk to that's ever done that. You're just this unwanted person that's there as a safety net and scapegoat with no power and probably answering to someone who doesn't know anything near what you know about business and particularly about your business, but also just as a hedge against risk. Because if you are critical to the business and you're on that org chart and something happens that means that you are not able to be there, then that's a problem. Or you don't really have the ability to get away because you're so indispensable to the business that you can't go and take some time off, even a week or two, much less a month or two. And, and I think those are probably the primary reasons that, that most people would want to get off.
- [06:41]
B
Yeah. And I've seen the same thing when people come to us, you know, and they're like, I just, I want to. You know, I'm just fed up. I got to get rid of this business. I got to do something. And it's, it's. This is a better option than just burning the entire thing to the ground, which a lot of people want to do. So if you're in a really bad place, let's see, can we get you out of the business without destroying the business? But also if the business is going amazingly well and you just want to be able to maximize the value that you can get from the business without attaching you to it, then you also want to get off the org chart. So going back a little bit, maybe define like what does it mean to be off the org chart? Does this mean that you have no role whatsoever in the company? You have no job title? Can I still be CEO but be off the org chart? Like what? Give me kind of clarify the definition for me.
- [07:29]
A
Sure, yeah. So, so by definition the organizational chart is the, is the thing that documents all of the roles and responsibilities of the people that operate the company. And so at the top of that is the CEO, the Chief Executive Officer. And then under that would be the people that report to the CEO. And then each of those people have a number of people that report to them. The number of people that reports referred to as a span of control. You typically, unless you're Jensen Wang, you typically don't want more than four or five of those people. I think he has something like 3:35 or 54, some crazy number because that, that's the number of people that you can, you know, basically manage effectively according to most business gurus and such and the US Military. So if you are on the org chart, then you have a job title and you have a job description and you either have someone that you report to or you have people that report to you. And so the, the goal to be off of that is no, you could not be a CEO and be off it. Not if you're a true CEO, because you would have the COO and the rest of the C suite that's reporting to you and then you're reporting to the board. That's really what we're talking about is getting out of having a job. You could still be an investor in the company. You could still be an advisor in the company. You can still be a guide to the people, a coach to the people that work there. It's just that you're not essential to the business. It doesn't mean that you're not helpful to the business. It just means that you're not critical to its operations.
- [09:06]
B
And importantly, it doesn't mean that you don't still own the business and you don't still have control Correct. Over the business from, from basic decision. I mean you could still be not just a board member, but you could be the only board member maybe. Yeah, like you still have all full authority and control. You just don't have day to day operational responsibilities over the business. So you're not stepping in to over like run, you know, run roughshod over people. But you definitely can hire and fire the CEO, Right?
- [09:34]
A
Yeah, yeah. It divorces operations from ownership.
- [09:37]
B
Really.
- [09:37]
A
That's, that's, you know, ownership and control are separated from the actual operations of the business.
- [09:42]
B
So yeah, break that down a little bit because I think that there's a lot of business owners, you know, especially startup founders, entrepreneurs who they don't quite understand or grasp that, that distinction of I own it, but I operate like what do you mean? So kind of double click on that.
- [10:00]
A
So if you think about like the, the owners of the corporation or are the owners of the business are generally the shareholders of the corporation or the members of an LLC or the partners in a partnership and then those people will typically have the control of the business based on their voting rights.
- [10:21]
B
Right.
- [10:21]
A
And that there's all kinds of different ways to slice and dice that. That's a different discussion. Those people then will elect someone who is supposed to be responsible for the business. It might be a managing member if it's an llc, a CEO if it's a corporation, a managing partner if it's a partnership. And then that person is effectively what we're talking about, the first pinnacle person on the org chart. And so the ability of the owners who control the business to determine who that person is is everything. Because they can remove that person if they're not performing, they can replace them. They decide who is there, they decide what that person needs to tell them about the business. They can establish KPIs. They're like, they are the people that make those decisions. And so they can have tremendous influence over the company. And we call it governance because they are governing how the company is going to be structured from an operational standpoint. But they are not making the day to day decisions on how the company operates. That's the responsibility of that person that sits at the top of the org chart. So if you're thinking about it, it's the shareholders or owners elect the manager, the kind of the top manager. And the top manager then will very often appoint to the officers that are going to be working under them. And those people typically have to be ratified by the board as well. So you have three levels. You have shareholders or owners, you have directors, like the board of directors that are kind of the governing body that the shareholders elect to oversee the people that are operating the company. And then that board elects the CEO and the officers who are going to be doing that day to day stuff.
- [12:12]
B
Got it. So let's say somebody's decided that, all right, I'm ready to get off. Maybe they're burned out, maybe they Think they want to sell at some point, they made the decision they want to get off their own org chart. I want to talk about the right way to do it and how you think about it and how you approach it. What are some of the things that you see people do do that is either maybe unwise or just flat out like, if you do this, you're a special kind of stupid and you will destroy your business in any particular order. Just what are some of the things that people might try? Because I think sometimes it's better to know what not to do. Then sometimes you even know what to do. So what are some mistakes that you think people make?
- [12:47]
A
Well, one was when I was putting together the case study for the workshop that you and I are doing tomorrow is you have someone who is helpful to you and you make them the CEO of the company, despite having no skills or experience to do that. If you recall that happened with us,
- [13:12]
B
I recall it very well. Thank you for bringing it up.
- [13:16]
A
So. So. So I think it's. It's that out of desperation or expediency, you put someone in the role that you feel will do okay, but you didn't do it intentionally by saying, here is the job description. Here is the required experience and credentials that you have to have to come in to be the threshold of whether you can even apply to be in that. So it's just basically ignoring a formalized hiring and vetting process to put somebody in that spot because you need to take pressure off of you. I think that happens probably more than anything else.
- [13:58]
B
Yeah, it's the. It's the. They can fog a mirror brand of hiring. Like, yeah, they're willing to do it. I'm not. Congratulations, you're hired because you're there. I've also seen this happen. Maybe somebody isn't super overwhelmed and burnt out and they'll just take kind of anybody. I've seen it happen with people who. They'll just hire somebody who has the most tenure, and they almost feel like, well, this person's been around for a while, so I guess they've earned. I guess they deserve it. Right? Have you seen people do that before?
- [14:33]
A
Yeah, yeah, absolutely. So that. That's the, you know, out of guilt or obligation, promotion, which is very. Peter. Principally, you know, let's just promote them up until they're incompetent. And again, it's because you don't have a vetting, a qualification and job description. That's clear. And then on the opposite end of that spectrum, I see people that go and Hire a search firm and, and go through a vetting process and lay out all of that stuff. And they still hire the wrong person because they, they don't know really how to identify the, the person that's going to be the best in that. And I've also seen them hire the right person, but then micromanage them because they really didn't want to not be the CEO, like, like they want to kind of have the person do the dirty work, you know, the stuff they don't like doing. But the actual CEO job they kind of want to hang on to. So they micromanage the person. And the person never really gets to be any kind of independent. And you end up with this, you know, management team of cronies that just are. Yes. People that, you know, that you're micromanaging. I kind of like, I guess they're warm bodies that can do stuff, but you're so on top of them that you really haven't relinquished that job and that position. And so you shouldn't have a CEO. You should have a CEO.
- [16:01]
B
Yeah, they wind up with like a, you know, 250, $350,000 a year executive assistant who, if they have any dignity whatsoever, will quit. But frequently they're fine just to hang around and doing, waiting for you to tell them what to do. And you wind up with people and
- [16:15]
A
if they are there, they're not.
- [16:17]
B
Right.
- [16:17]
A
Yeah. They're the wrong person for the job. Yeah, exactly.
- [16:20]
B
Yeah, yeah.
- [16:21]
A
It's like the best way to tell that somebody's qualified is that they quit if you don't let them do what they're supposed to do.
- [16:27]
B
Yeah, exactly. So I think so you gotta know that this is in fact, something that you want, that you do actually want to be off the org chart. Because I think a lot of people don't necessarily do business with the reality that this is a significant identity shift.
- [16:42]
A
It is, right.
- [16:43]
B
A lot of the stuff that you, you know, got value for that you felt validated from people, you know, being able to walk into a building or, you know, call a team meeting, getting to boss people around. Like, these are things that very often, as business owners will complain about. But if we're being honest, we kind of like the power of it all.
- [17:01]
A
Like, it's what happens when people sell their company and they're no longer welcome, you know, at the company. Like, we don't need you anymore. So you sell your company. And this thing that you've done for five, 10, 20 years, you don't get to do anymore. You don't walk in and say, okay, what's going on? Tell me the KPIs, what's, you know, what's the dashboard look like? What are we going to do? How do we manage that? Let's fix this, you know, problem. Let's fight that fire you don't get today, like, and you're not wanted because you're just going to get in the way of the people doing their job. So that's something to think about. It's also, to me, Ryan, a great preparation for what it's like to sell your company is to get the CEO and get off that work chart. Because now you'll know, like, you can always go back in. You look at Sarah Blakely and, you know, Steve Jobs and other people that went out and came back in and, you know, were very successful at it. That is always an option as long as you have that higher level we talked about of control, the ability to determine who is that, that CEO person. But, but like, taking the test drive of getting out of that role will be very indicative of whether you're going to be happy or not, not in that role. And so I think that it's a, it's kind of a really good stepping stone to get off the org chart and see how it feels, you know, how does, how does, how does it fit, you know, to live in that for a little bit. And if you like it, then it's indicative of, yeah, you could probably sell your company and still be happy. And if you don't, then you can always go back or find some kind of, you know, half, halfway place between the two, I suppose.
- [18:42]
B
Any other kind of big common pitfalls, mistakes that you see people making when
- [18:46]
A
they, I mean, it's, it's equity compensation, you know, the, the way that you structure the plans and those things. If, if, if you want to talk about stuff like that, I can talk about that. But the, the like are being ready and letting the person do what they're supposed to do and then hiring a qualified person, using some process to vet them and get multiple candidates so that you actually do get the best person for the job.
- [19:12]
B
Yeah, I definitely want to talk about compensation. Let's get to that when we get into kind of the steps. So I need to know that I'm ready. Maybe I should also, you know, go on an extended vacation and see how I felt about that. We've had, we had a client recently who finally convinced her to take an extended vacation. And she's like, I, I, I, I, you know, I felt Unnecessary. Everything was great. Sales were up while I was gone. I wasn't needed at all. I told people not to bother me. They didn't. I came back and everything was fine. And I hate it. And I'm like, okay, we, we need to do some like identity work here then before you completely. Because this is the same person who like six months ago was like, I just want to get rid of this business. I got to, you know, and so knowing that you're in a place where you are ready for this and also I think it's important to know where are you going to go next? Because a lot of people think about exiting from, but they don't think about exiting to. Like, so what are you exiting to? So you want. You, you want to exit this org chart, but then what? Let's make sure you're not.
- [20:13]
A
It's much like retirement. The people that, that kind of fritter away are the people that retire without a plan of what they're going to do after. I think you need a post exit plan before you exit or you're going to be unhappy.
- [20:25]
B
Yeah, probably touch on that too if we have time or maybe another episode to the. All right, so I know that I want to. I know I'm ready to do this thing. I've taken a vacation. I love it. I've got another project that I'm really excited about over here that I can do. I'm not quite ready.
- [20:39]
A
Common that I hear about with the people I work with is they're. They're not done. They're just ready for the next thing.
- [20:44]
B
Yeah. Ready for the next challenge. I feel like I've taken this business as far as I can take it. I'm kind of bored with it. It's kind of bored with me. I'm ready to exit your chart, but I don't want to sell the business yet. I feel like there's still some more growth to happen. I've got some contributions. If that's where I am. What's step one? What do I do next?
- [21:03]
A
I think it's. You create the process. You say, who do I want to replace me? What do I want them to do? And if you don't know that, then you have to take the step back and do a time study and figure out what are you doing right now and are you actually doing what a CEO does or are you the head of sales and the head of accounting and the head of, you know, product development? Because that's, that's going to tell you who all you really need because the CEO doesn't do a lot of that stuff. Right. CEO is not an accountant. They're not going to do the books and get your finances right for you. They're not going to, you know, usually develop your marketing plan. Although I would say of. Of all the things that CEOs do, marketing seems to me to be the more common one that you see them, you know, specializing in function that they'll stumble onto.
- [21:54]
B
Yeah.
- [21:55]
A
And sales. And then, you know, so. So do you have a team that can be led? You know, do you even have a team? I guess is the. Is that kind of first thing to realize? And then it's what am I doing currently? Time study. And then based on all of that, what is my CEO of my company going to need to do to do what I expect and get the results that I expect from them?
- [22:20]
B
Yeah, it sounds like there needs to be a core org chart to exit from.
- [22:27]
A
Yeah, I'm making the wrong assumption that you do actually have an org chart. So, yes, that would be helpful.
- [22:34]
B
So you would need to have, I mean, really to think about exiting the org chart. Step one really is to build up to build a business that currently is able to scale with you sitting in a true CEO role. And that's why I think it's important. You know, you talk about the five exits of the five evolutions. You know, evolution number one is when you make that first hire and you exit the line. Right.
- [22:56]
A
Go from doing to delegating.
- [22:57]
B
Yeah. Go from doing to delegating. Exit 2, or evolution 2 is this is when you're exiting the staff. Correct. And you're actually occupying the true CEO role. And that really doesn't happen until you've got an operating system in place and you've got functional leaders, you know, people who are operating the core value drivers of the business.
- [23:19]
A
Yep.
- [23:20]
B
Right. Like, so those really are the first two steps, and you, you have to do those before you can then achieve what we're referring to as this third exit, this third evolution, which is to exit the org chart. Right. I mean, anything else that you would say about that?
- [23:38]
A
No, I mean, I think it's really hard for people. I think it's hard. I think the primary block to most people doing that is either an unreal, an unrecognized need to be indispensable to the company, or a belief that no one can do it as well as you. And not having the patience to either find the people that can or train them, or accept that there might be a period of time when the Quality of performance is not as good as you doing it. But realizing that I had this, right now I'm going through with somebody that leads a company and it's kind of like nobody can do that but me, you know, and it's like, I mean, I'm looking at your company, which is in a market of a lot of companies like your company. And as, as almost all companies are,
- [24:32]
B
and only the ones worth being in,
- [24:34]
A
and all those other companies are somehow managing to do it without you being there. So how is that like those two things can't both be true. So there are people, and maybe it's for people to do what you do.
- [24:47]
B
I'll give you that.
- [24:48]
A
Because you're running yourself ragged and you know, and you're absolutely burn out and frustrated and resentful about everybody else and everything else. But you also won't take off the mantle and pass it on to somebody else. That's a problem. And you won't do it because you believe A, you're indispensable and B, you're indispensable because no one can do what you can do. And if you're not there, then the company is going to go and not be there. And to me, I would argue if that's actually true, which it almost never is, then you don't really have a business, have a job, and you're never going to be free of it and you're never going to have a sellable company.
- [25:22]
B
Yeah, you're a craftsman. Yeah, congratulations. You're selling your skills and your, your general awesomeness. So it sounds like step one really is to make sure that you have fully exited all functional roles in the staff. Like you have fully achieved the second evolution and you've exited all of those roles because what is going back to the mistakes that people make, they'll want to hire for a, for a CEO or God forbid, like a CEO or an integrator type person. And what they mean by that is I want somebody who will do all the crap that I don't want to do.
- [25:52]
A
Don't want to do. Exactly. Which is I almost like an ea, Like a high level ea, right?
- [25:57]
B
Yeah. Except sometimes they mean really high level, important, difficult things that only they quote, unquote, know how to do. So it's, it's poorly defined. But you do need to make sure that when you talk about exiting the org chart, you are exiting it as that company's CEO. Because if you're exiting the org chart and what you're really doing is occupying 3, 4, 5, roles at the same time, that's not a hire.
- [26:24]
A
You hollowed out a company.
- [26:26]
B
Yeah, it is.
- [26:27]
A
Yeah.
- [26:27]
B
Yeah. What you're doing is you're not exiting the org chart, you're abandoning the organization.
- [26:34]
A
Correct.
- [26:35]
B
That's what's actually happening. So step one is to backfill all functional roles is kind of what I, you know, heard you say. And get good systems in place so that the business can actually function without you. You can actually take an extended vacation and things do still happen because you're there for more visionary style, leadership and things like that. You're not necessarily there to do the things that the customers require to be done. Yeah.
- [26:59]
A
And I will say that if you don't have systems and you're not good at it or you don't want to go through it, then you're, you're going to hire people that are going to build those systems that'll be part of their mandate once they come in. So I think that it would be helpful to them and to you to get those systems in place sooner. But if you are at the point where you feel like you want to step off, you can hand that to somebody else. But that's going to have to be a really, really high priority for them because if you don't have those in place, if you don't have that operating system in place and you don't have those dashboards, then you're going to be flying blind with somebody running your company and not know if they're doing their job or not.
- [27:41]
B
Yeah. And I would argue that you're not actually able to exit the org chart fully until you have done that because you're still going to need to be there. You're just your, your role shifts to, you know, full time consultant and system co collaborator and developer.
- [27:54]
A
I mean you would think so, but, but you ask about things, you know, like what are the mistakes? The one of the mistakes is to put somebody in place and just assume everything is going to work out all right.
- [28:04]
B
Right.
- [28:04]
A
It's, it's the Austin Powers thing where he's like, you know, trying to kill the. Dr. Evil's trying to kill Austin Powers. This dating myself with the movie. But to me it's the perfect, it was the perfect way that they do things in, in like James Bond movies is like I'm, I've strapped lasers to the heads of sharks in a shark tank and they're going to go around and I'm going to drop the person in. They're going to be cut to pieces by the lasers and the kids like, well, why don't you just kill them? And he's like, no, I prefer to just create an impossible situation and drop them in and not look and assume everything works out exactly as I'd planned. It's like, that's what people do. So they do do that without having put that in place. Assuming that this plan is going to work. And if there's no measurement, then there's no performance evaluation. I've seen plenty of CEOs that were super qualified come in. I'm negotiating one out of a company right now that came in with all the credentials and multiple successes and wasn't able to do it in this particular business because the business was kind of different. Even though it was the same industry, it was kind of different. And now it's a hassle getting them out because the people didn't build in the performance and the accountability or any of the exit ramp. You know, that's another big mistake that they make when they're bringing somebody in is just like they, they put them in place with a contract and there's no exit, you know, ramp. There's no sunset, there's no way out if it's not working. And there's no way to measure whether it's working or not. That's a bad situation too. But that does happen more often than you might think.
- [29:39]
B
Yeah, but. So we've got it. So we fully exited the staff. We've been sitting in the CEO role. We are. We've got solid systems in place. Right. I mean, the business is basically able to run the day to day. We're still driving the thing, we're captain of the ship. But in general we have a solid business in place now ready to exit. So what is the first step from there? Is it to define now what the CEO role actually is? Since we actually have. We're doing the CEO role?
- [30:11]
A
It is the role and the qualifications. I think that's the really critical part. Before you start to look, you've got to know what are you looking for? Or you won't have much chance.
- [30:22]
B
So break that down for me. How would I do that if I wanted to do that? Is that. Am I hiring an outside firm to follow me around? Am I doing my. You mentioned a time study. How am I just going to AI and typing in, Give me a CEO job description?
- [30:35]
A
I think any or all of those things, you know, can work. I think that it's good for you to. Because what I have found is that, that like successful CEOs don't port well from other industries in my experience. So I don't think that it's like, I'm a professional manager and I can manage anything. And I've hear that from a lot of professional managers. But I think it's you, you want to know that the, the qualifications that you're setting up is somebody that's got the experience and ideally has seen what you want to happen at your company and happen at other companies that they've worked for. And they have also, and this is very hard to verify, but you can do it with good interviewing, that they have been the cause of the change that you want to happen in your company, that they were the cause of the change or the leader of the change in those other companies. And then that will help you determine what it is that you want to happen. What they're going to need to do may or may not be what you're doing now. But I do think that you having an understanding of what you are doing now through a time study that you can do yourself. To me, I call it a time study to give it a name, but basically it's just write down everything that you do for a couple weeks and then categorize those by function and then that will tell you a lot about what you're actually doing right now. Because a CEO might come in and be completely different. I've had CEOs that were brought in that were actually expected to be salespeople, you know, or marketing people. And they're not. That's, that's not their primary job.
- [32:13]
B
Right.
- [32:14]
A
So that's important for you to know. What do you want your CEO to, to know? And you and I were talking about Tim Cook stepping down at Apple and the different skill set that he had from Steve Jobs, which is different from the skill set of the new person. His first name is John. I forget what his last name is. That's coming in, right? That, that's something that they needed to know. Like Steve Jobs needed to know that while he was doing all of this innovating and stuff like that the CEO that he wanted and needed wasn't him. Didn't, wasn't like a clone of him. He didn't need another Steve, he needed a Tim. And Tim is leaving now knowing that innovations kind of fallen off at the company and new products are needed to reinvigorate and take it to the next level. And so he doesn't necessarily need another Tim. So he's going to get somebody that's got those other skills that he knows are going to Take the legacy to the next place. So I think it's important not to think that you're trying to clone yourself and you're doing this time study to know, to hand it to the next person and say, okay, this is what you need to do. They need to bring the skills to get the company to the next place it needs to be, but they also need to know what they're replacing because they're going to probably put a team together to fill the gaps between what you're doing and what they're willing to do going forward.
- [33:34]
B
That's such a cool insight. I had not thought about it like that before. Because we do assume, mostly because we're arrogant entrepreneurs, we do assume that we need to find somebody who can basically do what we've been doing. But, um, frequently it may not be necessary. But even more frequently it, it may be not what the company needs at the next level. Like, very often the reason you want to out is because you know that whether you're willing to admit it or not, you're burnt out and you're stuck because you're kind of at the point of you're at your limit. Like you, it doesn't mean that you
- [34:09]
A
couldn't, you're at your handoff point.
- [34:11]
B
Yeah. And it doesn't mean that you couldn't develop new skills and morph and adapt. But like, it's hard and maybe you don't want to and, or maybe that just isn't your skill set. And I think the Apple example is such a great one because I remember people freaking out and saying, oh my gosh, I can't believe they hired this logistics person and this operations specialist, finance person, like, to replace Steve Jobs. Like, you know, the most prototypical visionary kind of business has seen in the last hundred years. Like, how could they replace him with this guy that's different. And the reality is Steve Jobs picked Tim Cook and Steve Jobs picked Tim Cook because Steve Jobs was smart enough to know that that is what Apple needed for the next phase, the next evolution. And you can crap on Apple right now and be like, they haven't innovated and they haven't done this, but look at their financial performance.
- [34:59]
A
Yeah.
- [35:00]
B
I mean he could have, he could have picked Eve's.
- [35:03]
A
Right? Eve's the designer of all the cool stuff, would have been, I think, the logical choice that everybody thought was going to come in. It's like this is the guy that, you know, made all these cool designs that everybody loves about Apple, but he probably wasn't. I'm not going to speak to it because I don't know his business skills. But that's probably because that was his area of genius and joy. It wasn't doing the things that Tim Cook knew how to do. And so if you had, if you had hired the guy that was basically Mini Steve, then you probably wouldn't have ended up with the 3 trillion plus valuation on your company.
- [35:39]
B
And similarly now what you have is you have Tim Cook who is exiting the org chart taking on the, I believe it's the executive chair, executive chair role. So Tim Cook's exiting, he's now replacing himself with John Ternus, who is the most Steve Jobsy like person at Apple today. Somebody who is very product focused builders
- [36:01]
A
and it's the right, I think it's the right move for the next evolution of the company.
- [36:04]
B
I agree. It's because they realize that, you know, I think smart CEOs who are exiting the org chart realize that what the company might need to the next level isn't somebody who's a clone of them or exactly like them. It might need to be somebody who's different than them. And what I think is so important about this step and getting clear on defining the CEO role. Yeah, you want to look at what you're doing today because there's almost certainly things that you're doing that are essential and they need to keep happening. So let's make sure we acknowledge those. But also think what kind of CEO is needed for the next level because it does tend to follow a repeatable pattern where businesses are going to be started by some visionary who invents the thing. They're then going to be scaled by more of an operator who's going to keep everything, make sure the business doesn't crumble under its own weight and then ultimately they're going to need to be revived and they're going to need to be refreshed by builder 2.0.
- [37:00]
A
Correct.
- [37:01]
B
To come in and do that. And frequently builder 2.0 who comes in is the original founder stepping back in because the other person, you know, wasn't able to do it. But often, no, that is exactly what the company needs. It does need somebody who's more operations minded and so cool. So define the role I guess is what broadly speaking we're saying and defining the role is going to come from looking at what am I doing today that absolutely must continue happening. What am I doing today that perhaps somebody else could be doing further down in the, in, in the, or somewhere else in the org chart and then what isn't happening today. That must happen. And, and that's where you kind of, you're building the role based on I'm doing this and it needs the, the new CEO needs to keep happening. I'm doing this and somebody else needs to be doing this and then this isn't being done. But we need somebody who is doing these things. And it's kind of the thing one and thing three that define what the new CEO role is. So we've done that. We've got role clarity where how do we go about finding this person?
- [38:11]
A
So I think that what I see happen most often is not done the right way. It's, you find them because you think they're in your company or you start asking around and you, you talk to your network and see who you can find. That, that's tough.
- [38:30]
B
Right.
- [38:31]
A
Because you're so constrained. I think the proper way is to,
- [38:35]
B
and just real quick on that, that happens, I think, because they didn't do step one.
- [38:39]
A
Yeah, well, I mean, even if they, yes, they, they typically go hand in hand. But, but even if they did step one, it's a lot of people just don't want to pay a search firm to go through the process. And I, I think search firms, slash recruiters bring to the table lots of candidates for you to look at that you wouldn't otherwise see. And it's a great way to have somebody who spends their, you know, whose sole job is to find the right person for the, you know, that will fit into the, you know, the glove of your company, that that's worth that investment. So I, I strongly feel that that's the optimal way to go. I don't think that you should not also look within the company. I don't think that you should not talk to your network. I think you should do all of those things to get as many people as you can to come through your CEO funnel to find the right person that seems like they're going to fit that job.
- [39:36]
B
And I, I, I agree by the way, on the, the search firm and having somebody else to run the process, both because if you find the right firm that has experience hiring executive leaders in your industry, and I do think that's in my experience, at least tell me if you disagree. Having a search firm that has experience hiring and understands your industry and the importance of finding something that's important than just, oh, my buddy has a recruiting company.
- [40:03]
A
Yeah.
- [40:04]
B
And they know how to be recruiting.
- [40:06]
A
Like, they'll have a pool of candidates like instantly because they're in the business. And the people that are moving in and out and around will be looking to them.
- [40:15]
B
So yeah, and I want to be clear, this isn't like a pitch for some. Like we don't own a search firm. Like, we're not recommending any of them here. But the concept and the reason that we like it is just that they are going to bring, they're going to bring candidates right off the bat. They're, they're also though going to run the process for you, which especially for this, I think is important because nobody else can make this higher. Like this is your hire. It's not like hiring for, you know, entry level position where you can have managers on your team. Like this is gonna be you doing it. You're almost certainly busy, you're almost certainly burned out and you need somebody else to run this process for the sake of your own time, but also to remove some bias, because you're gonna want to hire the first person that fogs a mirror. So just having somebody else there to force you to stick to a process is gonna be really important. And even if it is, even if you have an internal hr, internal recruiting function, I still think having an outside group is going to be important to do that.
- [41:12]
A
Unless your internal recruiting function is hiring CEOs, which it almost never is. Or they've done it once.
- [41:18]
B
Right, Exactly. And you know, look, maybe if you've got a massive board and they've got experience like you, maybe there's somebody there who's willing to step up and do it. But in general, you just need to pay somebody to do it. So what are you typically paying a search firm or recruiting firm to find this person for you?
- [41:34]
A
I mean, they'll typically have some sort of upfront fee and some sort of percentage of compensation. Compensation that is probably the most common. A lot of them that we use these days are flat fees. So like to find a CFO might be $90,000 to find a $400,000 CEO. So, you know, I think you're, you're, it's expensive, but the expenses, I mean, it's an investment in getting the right person in your company. And if you think about how much it will cost you to have the wrong person, oh my gosh, it's, it's a, it's free.
- [42:07]
B
It's millions. I mean, it's million. I mean, we added at a much smaller company years ago. I did all the wrong things. Fired myself from, from the business, didn't go through this stuff, aired a CEO because I was just burned out. And you know, this person, you know, we could easily see just revenue wise, like profit wise. We lost in about eight months $1.2 million. That doesn't even count all the talented people that were run off or fired. That doesn't count the opportunity cost. I mean, conservatively, if you just look at where that company was growing.
- [42:41]
A
But think of all that you learned about org charts from that person.
- [42:44]
B
Learned so much about org charts from that person. Yeah. I mean, it is incredibly expensive. And I would say if you're not willing to invest 90, $100,000, if you're basically not willing to invest at least a quarter of what you're going to pay this person, then you're probably not ready to do it. Correct?
- [43:01]
A
Yeah.
- [43:02]
B
So we've got the search firm, they're rocking and rolling candidates are coming in. We're talking to them. What next? What's the process? How are we vetting these folks? Any tips on interviewing? How do you detect the good ones from the bad? It's not like hiring a salesperson where you're going to have them on for a 30 day plan. If they don't hit quota, they're gone.
- [43:21]
A
I think because we're an hour in now that it's going to be a two and a half hour podcast. If we go into all that, should we break it into.
- [43:30]
B
Let's see how much because I think we can probably the last. This one would be faster.
- [43:36]
A
Okay. I mean, so the, the vetting process is to me that you, you want to look at the experience and you want to see, you know, what's on their resume and then you want to create really good questions for them. I highly recommend there's a book on motivation based interviewing, mbi, which is a way of really finding out if they were the people that were responsible for the thing and how behaviorally will they, you know, will they act or react in different situations that are likely to come up? I think that's just gold. It's like when I found out about it the first time, I was like, where has this been all my life? It's, it's so much better than, you know, you. And I joke about the shoe clerk at Nordstrom that's like, you know, worked there for five years in, you know, helping people put on shoes or stock stockroom in the back. And they're like, well, I took Nordstrom from, you know, 100 million to 400 billion. Yes.
- [44:28]
B
No, you didn't.
- [44:29]
A
You were there for the ride, but that was not you. And that's what happens with a lot of actually, even CEOs, so I think it's important to find out with good, incisive questions, what exactly did they accomplish and at the place that they were, and what impact did they directly have on that? Were they actually responsible for it or not? And that's just good, really good questioning technique. And then you need to be sure that they're going to fit within the culture of your company. Unless you're ready to blow it up. Because you and I kidded about, you know, like, when I came in with you, that was either there's going to be a Kumbaya culture or there's going to be a pirate ship culture. And the two are not, you know, able to really stay in the same business at the same time. And so, you know, if you bring in somebody that's, you know, every person for themselves, eat what you kill, kind of, you know, Hunger Games mentality, that's going to be different than the person that's looking to really build a deep culture where people, you know, count on each other. And. And, you know, I'm not saying either of those is wrong or right. I'm just saying if it's not a cultural fit, then pretty much everyone who's not that cultural fit in your company is going to go away because they're either going to be fired, replaced, or quit.
- [45:47]
B
How important do you think? And by the way, I think what we'll do is, for this, for this episode, let's get to, like, we've hired the person, and then the next episode, let's pick up with how we work with them once we got them.
- [45:57]
A
Love it.
- [45:58]
B
Because I think that'll be good. So how important is it that you like the CEO that you've hired to replace you?
- [46:08]
A
I would argue that it's critical that you like them. I think that if you don't like them, it's just not going to work.
- [46:16]
B
Man, I'm glad. I'm so glad you said that, because all too often I hear people say, you want to find somebody who's different from you, because if they're just like you, then that's. And it's okay. You're probably not going to like them. And I'll give you that. You may want somebody who's different from you, but if you don't, they're not.
- [46:33]
A
Those aren't mutually exclusive.
- [46:34]
B
Right. If you don't enjoy spending time with this person, if during the entire interview process, they were really grading on you, even though you feel like they're the most competent, but they're not, Somebody that I would, you know, want to hang out with.
- [46:48]
A
It's our friends from, from Kajabi, John and Kenny. The tacos and tequila, you know, test, right? It's like if they're not somebody I'd want to hang out with and have tacos and tequila, eat absent having this business relationship, then you probably shouldn't do business with them. You probably shouldn't have them invest in your company. You probably shouldn't do it with a firm like that. You shouldn't have an attorney like that. You know, it's like, to me, your life is going to be so much better and, and the quality of the interactions and frequency is going to be so much better if you like each other.
- [47:17]
B
And importantly, it's not a. It's not a guarantee that you've hired somebody who's a good culture fit, but it's a. It's a. It's a solid, like, yeah, this, this person. If we're vibing. Because more times than not, the culture of the company is a function. It's going to trickle down from the personality and the culture of the CEO, of the founder, of the leader. And so you do want somebody. If you don't like them at all, there's a really good chance that nobody else in the company is either. Because the people that work with you, guess what, they probably like you if they've stuck around at least a little bit. And now if somebody else comes in, you can bet the culture will change because these people will either be forced to adapt or they'll leave or they will be f. You know, they'll quit and they'll be fired.
- [48:01]
A
Yep.
- [48:02]
B
So we got a competent person. We use the. What's it again? Yeah.
- [48:07]
A
Motivation based interviewing.
- [48:08]
B
Okay. Mbi. Motivation based interviewing. That's going to kind of measure for competency. Can they do the job? We're going to make sure we do crazy referral checks. Another reason to have a search firm, because they're going to do that for us. And then we're gonna make sure we're hiring for culture questions around that, like the person. Cool. We're making an offer to somebody. What does a typical structure look like?
- [48:29]
A
Can we cover that next time? Because again, it's like there's just so much that, like, I don't want to glance over. I mean, like, the high level is. It's going to be some combination, most likely at that level of cash and equity.
- [48:43]
B
Okay, then let's leave it there for this episode.
- [48:48]
A
I like it.
- [48:49]
B
We've got you off the org chart. We've got somebody that you're ready to hire. What we're going to be picking up in the next episode is how do we compensate them and how do we work with them once we got them? Does that sound good? So if you like this, you're definitely going to want to tune in for the next one. Cool. Ben, you want to close us out?
- [49:07]
A
I'm going to let you do it because you opened.
- [49:09]
B
Oh, my gosh. I don't know how you do this. You always do this hard work. Hey, if you liked this, leave us a review. Tell a friend if you didn't like it, don't leave us a review. No reason. Just to spread negativity. And thanks for listening. Thanks for watching. You can find us, by the way on all of the socials based on our names. And I probably forgot something. What'd I forget, Roland? Anything?
- [49:29]
A
You did perfect. We'll see you guys next time.
- [49:31]
B
All right.
- [49:35]
A
Hey, business owners, I've got a quick question for you. Do you feel like you're missing the
- [49:38]
B
data you need to make strong business decisions? If so, it's probably time to build a CEO dashboard.
- [49:44]
A
It's an easy way to get everyone in your company literally on the same
- [49:47]
B
page, focusing on the numbers that matter.
- [49:49]
A
So the scalable company put together a
- [49:51]
B
free spreadsheet template that will give you
- [49:52]
A
everything you need to deploy your own dashboard.
- [49:55]
B
And to make it even easier, Ryan Deiss recorded a short training on how to use it. If you want to get your hands on the template, go to businesslunchpodcast.com dashboard that's businesslunchpodcast.com dashboard and you can download it for free.