Tobi Pearce - Co-Founder of Sweat | The Founder Who Sold for $400M Says Most Business Advice Is Worthless

Summary

Success Story Podcast with Scott D. Clary

Guest: Tobi Pearce, Co-Founder of Sweat

Episode Theme: Real Lessons from a “$400M Exit”—Why Most Business Advice Is Worthless

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Episode Overview

This episode dives deep into the realities of entrepreneurship with Tobi Pearce, the co-founder of Sweat, who led his fitness brand to a $400M acquisition. Pearce deconstructs common myths around business advice, explains why most founders chase bad advice, and shares the raw truths behind scaling, selling, and managing ventures. The conversation centers on metacognition (the importance of thinking about how you think), the pitfalls of growth, how to actually seek useful feedback, and the underestimated complexities of hiring and building enduring businesses. This candid discussion is packed with actionable frameworks and hard-won insights for entrepreneurs at any stage.

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Key Discussion Points & Insights

1. Why Most Business Advice is Worthless

• Highlight Reel vs. Real Value ([00:59], [02:25])
  • Pearce challenges the value of mainstream business advice: “More often than not, it’s marketing material and highlight reel stuff…the majority of the conversation online is often about the story and what happened. It’s not necessarily about why and how.”
  • He cautions that stories of exits and wild successes are usually selective memory, lacking actionable reasoning.
  • Quote:

    “People think the story is the advice, but that isn’t value…even some of the advice about early on is you’re basing it on memory from 10, 15 years ago. So it’s not super reliable.” — Tobi Pearce ([02:32])

2. The Only Advice that Matters: Doing and Feedback

• Learning by Experience ([05:03])

  • The most valuable feedback is direct:

    “The best possible advice you can get in the world is actually free. And it is feedback that you get from doing.”—Tobi Pearce

  • Pearce stresses the need to act, learn, and listen to real results, not just secondhand “blueprints.”

• How to Filter Advisors ([05:03])

  • Find people who’ve done exactly what you want to do — industry, model, even skill-specific.
  • Make sure the advisor enjoys teaching and that you’re open (ego is the biggest blocker at higher levels).

3. Ego, Success, and Psychological Pitfalls of Founders

• Danger Zone for 'Successful' Founders ([01:33], [06:42], [15:22])

  • Accumulating wins can breed overconfidence:

    “When you win, it’s very hard to know why you’ve won. Why do executives get paid a shitload more money than you? Because they can think better than you can.”

  • Success can make founders blind and fragile, susceptible to misjudgment when stakes rise or the environment shifts.

• Failure as the Best Teacher ([15:22])

  • Early, easy wins aren’t helpful; meaningful failures, especially public ones, build true insight:

    “You learn materially more from the mistakes than from winning…when you lose, it becomes abundantly clear why you’ve lost.” — Tobi Pearce

4. Metacognition—The Ultimate Entrepreneurial Skill

• Thinking About How You Think ([09:42], [15:22])
  • Pearce explains metacognition as the ability to examine and improve your own thought processes—arguably more important than strategy and tactics.

    “Metacognition is just thinking about the way that you think and trying to improve the way that you think to improve your outputs or outcomes in your entrepreneurial endeavor.”

  • The best entrepreneurs aren’t just tactical—they develop frameworks to solve new problems.

5. Business Models & Exit Lessons

• Building Enduring vs. Flippable Companies ([20:41], [23:08], [34:06])

  • Systems and culture should make the business independent of the founder; otherwise, value suffers at exit.
  • Quote:

    “I’d argue that the best leverage is leveraging yourself out of the business…that makes the asset most sellable.” — Tobi Pearce ([20:55])

  • Many ‘great exits’ don’t lead to real wealth due to taxes, deal structures, and broken promises ([35:33], [36:17]).

    “The fantasy that 25 million [sale] means you’re on your own jets or yachts…that’s not necessarily real.”

• Understanding the ‘Game’ You’re In ([31:26], [32:22])

  • Different stages, types of capital, or goals should dictate your strategy—venture capital wants a founder-dependent business; private equity wants founder redundancy.

• Personal Financial Reflection ([39:10], [44:33])

  • Pearce urges founders to ground all decisions in personal goals, not societal vanity:

    “If it doesn’t actually serve your life, which, to be clear, the overarching question is, how does this serve me? Right. If it doesn’t actually serve your life, what’s the point?”

6. Talent, Culture, and the Reality of A-Players

• Defining Culture Simply ([49:05]):

  • Culture is one word: “Standards.” All hiring, management, and long-term company performance flows from those standards.

    “Culture is just your standards. That’s it.” — Tobi Pearce

• A-Players Are A Myth (Sort Of) ([51:52], [55:21])

  • “A-grade" talent is rare, expensive, and often context-dependent. Instead, focus on “good enough people” who fit the stage and the standards of your business.

    “You just want good enough people. They don’t need to be the best.”

  • Role fit and alignment with company standards matter more than pedigree or universal ‘A-player’ status.

7. Owner’s Role: From Micromanagement to Systems

• Persistent Curiosity over Delegation ([62:33], [64:20])
  • Founders must never lose curiosity about any part of their business.
  • Even after delegating, oversight is required to maintain alignment and standards.

    “If you become not at all curious about an area of the business because you recruited someone to manage it…one way or another they’re going to end up off piste because you’re not in the detail enough to maintain alignment.”

8. Mental Models and Decision-Making Frameworks ([68:12])

• Inversion Principle
  • Don’t just ask, “Why is this the right idea?”—ask, “What would have to be true for it to be wrong?”
• CAR Principle:
  • Cost, Assumptions, Return – Used to rigorously test commercial ideas and make judgments.
• 1-3-1 Framework
  • Present one main idea, three options/solutions, and recommend one, justified with CAR analysis.
• First Principles & Humility
  • Routinely re-examine assumptions; after wins, force yourself to return to the mindset of a beginner ([75:04]).

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Memorable Quotes & Moments

• On the Myth of Advice:

  “Most stories start like, ‘Oh yeah, we sold a business for this much money,’ …but that isn’t value. People think that’s advice, but…the advice actually isn’t that.” — Tobi Pearce ([02:32])

• On Exit Math:

  “Most people think that selling at 25 means you’re on private jets…when you look at 11 mil liquid…you’re two or three bad choices away from nothing.” — Tobi Pearce ([36:17])

• On Culture:

  “Culture is just your standards. That’s it. It’s just standards for how you work, behave, goals…it’s the confluence of your standards universally in your organization.” — Tobi Pearce ([49:07])

• On Learning from Failure:

  “Victory has made you weak… the more that you succeed unknowingly, especially early on, the more futile and fragile your success and skill set actually is.” — Tobi Pearce ([15:22])

• Advice to His Younger Self:

  “Care less about what other people think… I think I would have done lots of other stuff faster and better if I was just focused on that stuff, not on how other people might consider or look at that.” — Tobi Pearce ([77:32])

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Timestamps for Critical Segments

• [00:59] — “Most business advice is crap”—dismantling highlight reels
• [05:03] — Why feedback from doing trumps all other advice
• [09:42], [15:22] — Metacognition and lessons from failure
• [20:41], [23:08] — Building sellable, redundant businesses
• [31:26], [34:06] — Exit games: private equity vs. venture and founder objectives
• [36:17] — The real math of an “entrepreneurial exit”
• [44:33] — Personal P&L: Aligning business with life goals
• [49:05], [51:52] — Defining culture & debunking the A-player myth
• [55:21] — Why top talent is scarce and fit matters more
• [62:33], [64:20] — The founder’s ongoing responsibility post-hiring
• [68:12] — Pearce’s favorite mental models: inversion, CAR principle, 1-3-1 framework
• [75:04] — Staying humble—always be a beginner
• [77:32] — The one thing he wishes he practiced in his 20s

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Final Takeaways

• Don’t chase highlight reels. Real learning comes from your own actions and from direct feedback, not from entrepreneurial celebrity stories.
• Develop metacognition. Equip yourself to think about your thinking; this surpasses tactics as the ultimate entrepreneurial skill.
• Know the exit game you’re playing. Understand buyers’ motives and your own life goals before considering a sale.
• Culture is king. Codified standards are the spine of effective hiring and sustainable growth.
• Forget unicorn A-Players. Hire people who fit the stage, standards, and systems you’ve laid out. Most “superstars” are context-specific.
• Stay curious. Never become so “delegated” that you lose visibility or curiosity about any area of your operation.
• Use rigorous frameworks for every decision—don’t rely on gut or legacy thinking.
• Care less about outside perceptions. Focus on what really matters, to move faster and make better decisions.

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Connect with Tobi Pearce

• LinkedIn & Instagram: Search “Tobi Pearce”
• Future work: Transitioning from founder/operator to investor; expects to return to share learnings from investing.

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This episode stands as a masterclass in realistic entrepreneurship: why the best founders become great thinkers before they seek the “perfect” advice, and how success—unless paired with humility and systems—can be more of a risk than failure.

Transcript

[Scott Clary]

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[Podcast Host]

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[Scott Clary]

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[Podcast Host]

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[Scott Clary]

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[Podcast Host]

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[Scott Clary]

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[Podcast Host]

You say that most business advice is crap.

[Guest Entrepreneur]

More often than not, it's marketing material and highlight reel stuff. The majority of the conversation online is often about the story and what happened. It's not necessarily about why and how. That isn't value. And people think that's advice, but they often think that the story is the advice. The best possible advice you can get in the world is actually free. And it is feedback that you get from doing what?

[Podcast Host]

If the biggest opportunities come from seeing

[Scott Clary]

what everyone else ignores. Toby Pierce built one of the fastest

[Podcast Host]

growing fitness brands in the world, transforming

[Scott Clary]

a simple idea into a global movement.

[Guest Entrepreneur]

My second year, we made like 15 mil bottom line, and that was all cash. I thought that anything I touch will work here. I found out very quickly that wasn't actually true. In reality, at that point, you're pretty good. You're in the top 1% of founders. That's actually a really dangerous point to be. Psychologically. When you lose, it becomes abundantly clear why you've lost. When you win, it's very hard to know why you've won. Why do executives get paid a shitload more money than you? Because they can think better than you can.

[Podcast Host]

He's so scaled businesses and mastered the

[Scott Clary]

art of digital growth. From entrepreneurship to personal discipline. He's learned that growth only happens when you're willing to evolve faster than everyone around you.

[Podcast Host]

At what point on this journey did you figure out that metacognition, thinking about how you think is more important than the Actual tactics. So Toby, you say that most business advice is crap.

[Scott Clary]

Why?

[Guest Entrepreneur]

Firstly, most advice that people get in general actually comes from the Internet, from interviews like this.

[Podcast Host]

Right?

[Guest Entrepreneur]

And more often than not it's marketing material and highlight reel stuff. Firstly. And secondly, also, I think that the majority of the conversation online is often about the story and what happened. It's not necessarily about why and how. And so what I mean by that is that, you know, most stories start like, oh yeah, we sold a business for this much money or you know, we built this company and had this many customers or whatever it may be, but that, that isn't value. And people think that's advice, but they often think that the story is the advice, but the advice actually isn't that, you know, the advice is, well, this is what happened, but this is why we chose to do it that way. And we were presented with these options and out of the options we use this reasoning and decision making to make that choice to then you do this thing. That's actually the advice. So the first issue with most advice is that it's not actually advice, right? So that's the foundation. The second thing is that I think a lot of the time when people so really early on in someone's business journey, they're not famous, their story isn't cool or interesting then, so they're not giving advice at that point. Normally it's towards the end or even after the end of the business journey that they give advice. And one of the fundamental issues with that is that they're then telling the story and giving advice about, especially about how they got started 10, 15 years in the future. And from my perspective, I've always tried to be really, you know, I guess, like brutally honest about the fact. I'm like, honestly, I don't actually really remember everything that happened early on. I can tell you the Cliff Notes, right? But I can't actually say like, hey, well, I was feeling this at this point in time and this is how it worked, etc. Etc. So therefore even some of the advice about early on is you're basing it on memory from 10, 15 years ago. So it's not super reliable. So to me, the advice that matters actually is, well, when presented with these sort of situations, this actually is the way to think about it and make these decisions. That's advice. A story, and one that's 10 to 15 years later isn't actually advice.

[Podcast Host]

Where do you suggest founders? Because I think that's very wise. So the people that founders usually look up to, they're so far removed from the boots on the ground bullshit that they had to go through when they started a company that, yeah, memory is definitely foggy for sure. Now. That begs the question, okay, so then if not the, the people that have exited for tens or hundreds of millions that are now writing a book after they've retired, where do they find the best advice? Because then you have to weed and sift through all the garbage on the Internet and you advise founders for a living. I'm sure you get a lot of questions.

[Scott Clary]

Yeah.

[Podcast Host]

Where do you send people?

[Guest Entrepreneur]

The best possible advice you can get in the world is actually free. And it is feedback that you get from doing. Right. So. And that sounds a little like antithetical or counterintuitive, but the best feedback and. Or direction you can get from is actually doing things and failing. That's the best advice. Right. Which you can get yourself. Yeah. And you can start doing whatever you want in terms of actually then, like trying to identify like an individual, though, you perhaps, who's kind of been there and done that. I think, yeah, there's. There's several filters that I think you need to put whoever it is that you're looking, you know, at through. I think the first filter is that, you know, ideally they've actually done the thing that you want to do. And I think specificity matters here. So it's not, hey, like, you build a business and made money. That's very broad and general. It's like, oh, well, maybe I'm in, you know, direct to consumer, you know, consumable products or food products or supplements. Okay, well, out of that industry, you know, over the last 20 years, who are the best 10 people at this? So that's big filter, you know, number one. And just to be clear, I think even with that, you could go a layer deeper. Again, it's like. Or out of the companies or the people who have done that, maybe you've got a specific skill that you're trying to figure out wholesale or performance marketing or sales or whatever it is that you've got to get really specific about finding the person you want advice from. That's the first part. I think the second part is that even if you do find those people, you kind of need to put them through the screening process of, well, do you. Do you actually want to be giving advice? Because a lot of people don't really want to be doing it, but they still kind of do it, you know. So if I don't really get energized by like, teaching or coaching, then you're probably not going to get the maximum

[Podcast Host]

value add something due to that. I would say that most people think they want advice but then sometimes they hear good advice and they don't.

[Guest Entrepreneur]

Actually I was gonna say that that's the last part. Yeah, no, the last part because like even if you do get to someone who maybe is they're a good educator, they want to be doing it, they've got relevant experience. But if you at the student are not ready, then it's redundant anyway. Yeah. And as goes are saying it's like, you know, the teacher appears and the student is ready. Right. But I think like most of these things. Yeah. And kind of reinforcing that point. It's like if you're a good entrepreneur and yeah, that's a, that's a loaded, you know, term I guess. But if you're a good entrepreneur, like you'll figure this shit out. You figure out what skill is you need to learn. You figure out who's got that skill. You figure out whether or not you're ready and comfortable receiving advice that maybe you don't agree with or understand. Which I think is a critical point too. You know, a lot of the advice you get from people who are really experienced is very simple. And then people are like, oh well, but it's so simple, like that can't be any good. And I'm like, well it being simple is the point. Right. But a lot of people want to overcomplicate or they let their ego, you know, get in the way of actually learning. Because you know, and just to be clear, this is a fundamental flaw I think psychologically of a lot of founders experience. Once you get past the real grimy and dirty phase of like call it product market fit or whatever, and maybe you're getting sort of 10 to 50 mil revenue at that point you're pretty good. You're in the top 1% of founders now. You've done some pretty good stuff. You've clearly got high agency, you're clearly intrinsically motivated, you've clearly got a good work ethic, et cetera, et cetera. That's actually a really dangerous point to be psychologically for a lot of people, not all founders, but a lot of them get to that point thinking they're really good going to get advice, but they're not agreeing with the advice and not using it anyway.

[Podcast Host]

So they build an ego simultaneously to their own success. Yeah.

[Guest Entrepreneur]

100 and I've worked with quite a few people over the last few years like this, you know, one guy. Yeah. In Particular who always comes to mind. Yeah, I was running a great business at the time, about 35 mil. Yeah, really like profitable service based business. And spent a lot of money, not just on me, but on other people for advice. And I'm not sure any of the advice was ever taken. And then you fast forward two, three, four years later, business gets a bit bigger, gets a bit more complicated. Didn't do the things a couple of years ago that maybe they should have. And now that business is effectively, it's nearly double the size, but actually not making any money.

[Podcast Host]

Interesting.

[Guest Entrepreneur]

Yeah. And so I'm like, have you actually made any progress over the last two or three years? I'd argue for that person, no. They've gone materially backwards.

[Podcast Host]

It's so, it's so interesting because you focus, even after speaking to you for now, 2 minutes, 3 minutes, you focus a lot on how to think.

[Guest Entrepreneur]

Oh, I think, like it sounds like

[Podcast Host]

a silly thing to say, but I notice it more than others who would dive right into the tactics. You, you mentioned, you know what makes a podcast boring is just sort of riffing through the origin story and then thinking that's the advice. But then the layer two, like the taking it a layer deeper, a level deeper is usually going into the tactics, like the actual. Okay, so what's, you know, how do you, how do you have a positive roas on a Facebook ad, whatever. The thing is. But then I actually really appreciate where you're taking this because this is how this podcast has shifted. When I first started this show, it was very tactical and it's moved almost entirely, not exclusively, but almost entirely towards the mental models.

[Guest Entrepreneur]

Oh man. Metacognition, I think is a really, really big deal. And for those that are not familiar with it, metacognition is effectively just thinking about the way that you think and trying to improve the way that you think to improve your outputs or outcomes in your entrepreneurial endeavor. And yeah, it's an interesting thing that you call out because I think even, yeah, like a huge portion, arguably the biggest portion of people want the story because it's motivating and inspiring. Then there's some, yeah, we'll call it, you know, almost like utilitarian people that like, oh, like just, just tell me what to do, you know, I'll go and do the thing which is, you know, that there's some value into the tactics and sometimes you just need the answer. Right. But I'd argue that the best of the best people are the ones who actually have like a really alternate and or refined way of thinking. So it's not really about the story or the tactics. It's actually, well, I don't need the tactics or the answers so I'll just figure them out because I know how to think about these sorts of problems. Yeah. And I think, I actually think as well, like again like you know, looking at a broad spectrum of different founders, it's very easy to figure out the ones who have built the skill, not just the knowledge. And so when I frame that, it's like your knowledgeable. I can take a tactic from you that's a piece of knowledge. Right. And I can go and yeah, just copy paste that. But that's not necessarily a skill. I can't figure out, figure out that tactic by myself. I may or may not be able to contextualize why, why is that a good tactic and, or worth doing. And I often frame this to people who are employees, not, not, not, not founder entrepreneurs in the exact same way I'm like, well why do executives get paid a shitload more money than you? And they're like know how to think? Well yeah, because they can think better than you can. They, they, they have the capacity to make better judgments than you do and that is reflected in their decisions. Yes. There's potentially other variables and skills and whatnot, but ultimately it's really about judgment. Right? Yeah. And there's a reason why the executives of these gigantic organizations also get paid a lot more than any other employee because their responsibility is larger. But they are trusted with larger responsibility because of the decision making skills. And that all is effectively built on the foundation of the way that they actually think.

[Scott Clary]

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[Guest Entrepreneur]

and problem solve.

[Podcast Host]

You've had several companies. I think there was like 16 or 17.

[Guest Entrepreneur]

Yeah.

[Podcast Host]

Many have not worked out heaps.

[Guest Entrepreneur]

Heaps Learned more from that as well.

[Podcast Host]

By the way. At what point on this journey did you figure out that metacognition thinking about how you think is more important than the actual tactics? Like, I don't think it was out of the gate, I'm sure.

[Guest Entrepreneur]

No, no, I, like, honestly, I actually think almost down the opposite end of the spectrum. I was very unconscious. Yeah. Because I was pricelessly naive, you know, in some regards. So naive that I was like, I'll just do this stuff. Yeah. And yeah, I was very fortunate early on. So I actually didn't really have the hard getting started story, as in I. I'd had a, you know, a reasonably challenging kind of, you know, life up until that point. But when I actually got into business, the first three things I did all worked and made money first go, you know, so I didn't, I didn't really have any of that. Like, oh, we grinded and had to raise money and this, that the other, you know, like in as soon as I got online, which was my. So my third business. Yes. As soon as I actually got online in my second year, we made like 15mil, bottom line, you know, and that was all cash because there was no capex or inventory. It was. It was an info product. And so I didn't have any of that. It wasn't until later, you know, when things got bigger, more complicated, and I tried to do lots of different businesses at the same time because I thought that, you know, I was like, oh, I've got the modest touch, you know, anything I touch will work here. I found out very quickly that wasn't actually true in reality. But yeah, I'd argue that from the mistakes. And what have you learned materially more than winning? If anything, I think, you know, it's actually paraphrasing something Bane actually says in Batman, which is that he's like, oh, you know, victory has made you weak. Right. And I think that's a really good insight, you know, that I think the more that you succeed unknowingly, especially early on in the journey, the more futile and fragile your success and skill set actually is. It's not until you've had some, like, very meaningful And I'd argue, I think public failure is also really good. I know that's what it sounds like, a very strange statement, but I think public failure and significant failure is really important, both for the psychological components. So, you know, build resilience and all this sort of stuff. But I also actually think, you know, when you lose, it becomes abundantly clear why you've lost. When you win, it's very hard to know why you've went. And so you make all these assumptions and assertions about why, how good you are. Totally. And you see it with all these founders, they're like, oh, you know, yeah, our product is different, our community is unique, you know, blah, blah, blah. I'm like, no, you just got channel arbitrage on TikTok shop. And in five years time, a lot of those founders will be probably realizing that. Looking back at right now, one of

[Podcast Host]

my favorite, funniest ideas is that Zuckerberg has really only been successful at creating Facebook.

[Guest Entrepreneur]

Everything else has been purchased or copied. Outright failed. Yeah.

[Podcast Host]

Yes, one of the three. He really has not created a second good product, which is, I mean, it goes to show, obviously, incredibly smart guy, you don't actually need repeat successes if

[Guest Entrepreneur]

you ever really, you need to build inertia.

[Podcast Host]

But even at that level, it's not like everything he touches turns to gold. In fact, he just shut down the metaverse. Metaverse, yeah.

[Guest Entrepreneur]

And all the ocular stuff or whatever's been bleeding billions, tens of billions. But, but this is, this is the point too, you know, again, to the success piece is like success makes a lot of people really blind. And it also, it makes people very psychologically fragile, you know, because like I've seen this quite a lot. Like, part of the reason, I believe, I theorize that a lot of really successful founders that have exits, the reason they don't want to go and start more businesses afterwards is because they've got to get all the way back down in the detail. And that's the most fragile, vulnerable place to be, especially if you were unknowing and if you go into a new space. So like I. You went from service businesses, you know, to kind of info products online, then direct to consumer, you know, mobile, content, subscription. Right. I didn't know anything about any of those. And then once I sold that company, then I went into marketplaces, professional services. Yeah, all this different stuff. But it hadn't occurred to me that that was quite different to a lot of people. Whereas when you look at a lot of founders, they'll build and sell one company and they go back straight into the same industry because it's a safe.

[Podcast Host]

Oh yeah. You see founders that sell, wait for the non compete to expire and then build the same straight back in like exact same company. Not even say ministry. Sometimes it's because it's just a very safe.

[Guest Entrepreneur]

Yeah. And you know, whatever, if that's what you want to do. Right. For me, that was the complete opposite of what I wanted to do. I was like, oh no, I want to, I want to feel, you know, small and vulnerable and go into a spot that's complex and learn. Because to me, yeah, it's much more stimulating for me. If anything, I actually found, you know, this is like I've worked on with my coach, you know, quite a lot. But I got probably two or three years into building sweat and I kind of go, oh well, it's very obvious how this goes now I can see the next three to five years of this. Oh, that's actually not really that interesting. I mean like, sure, we'll make lots of money and that's great, you know, but I was like, oh, like I'm not really actually learning anything anymore. And so I tried very hard from a humility standpoint. I was like, I'll focus more on your kind of financial management, you know, ops, you know, leadership. I'll try to learn those skills more. But like the actual business itself and the business model industry, I was like, oh, I can see exactly where this is going. And that was a real problem for me because I got very disengaged, you know, by the idea. And at this point the business is still, you know, rocketing along doing this, but it just wasn't, There was no intellectual excitement for me.

[Podcast Host]

Yeah, one of my, one of my really good friends, he sold the company for, you know, in the hundreds of millions. And he, and he said before he exited he, he could like go home at lunch and take a nap. Like there was nothing for him to do anymore. Like at that point you have so many smart people that are behind and if you're good at hiring, we can, we can chat about even that. But he said there was nothing to do before he exited.

[Guest Entrepreneur]

But this is also like part of the point, right? Once you've built inertia and you have a repeatable model if you're a systems thinker, because not, not everyone is a systems thinker, but businesses are just big systems, right?

[Podcast Host]

They should be. We can talk about most important mental models and I'm sure that's definitely one

[Guest Entrepreneur]

of them, but 100% and so yeah, a similar thing for me, you know, towards the end of my time, you know, at sweat, I was really running almost the whole company in about five meetings a month. Like. Yeah, yes, those are the bits and bobs outside of that and very, very, you know, small part, but like 90 plus percent of the influence and decisions that I would either wield or make pretty much were concentrated into, you know, five like primary meetings. And I'd argue too that in a general sense that should probably be the goal for most people in management anyway. And when I say that, I don't mean necessarily going home at lunchtime. Yeah, but in a general sense you want to build redundancy, like self redundancy in some regards. Like you want things to mostly be able to happen without you, whether that's through policy or process or systems, whatever it may be. And I argue culture is the biggest amplifier for good decisions. But like, realistically that should be the goal. The goal shouldn't be that things are dependent on you, even if you're the CEO, founder, owner. I'd argue that the best leverage is leveraging yourself out of the business and that makes the asset most sellable to.

[Podcast Host]

I agree. I, I was earlier on in my career as part of a company where the founder was an incredible, an incredibly strong entrepreneur. But there was always a ceiling and he was closing him. It was the company's doing 11 million and he was, he was personally closing 6 million of that 11 million himself.

[Guest Entrepreneur]

It was a right limiter, it was a big value.

[Podcast Host]

And I was part of the. Early on in my career I joined that company they had hired me on and I saw him go through the process of hiring all these incredible executives, prepping for the exit. Finally sold the private equity. But even after the sale, I, I looked at that company a couple weeks ago and they're completely. They went bankrupt. It was a traditional case of pump and dump. Yeah, basically. And, and it was like it was a significant multiplier on that exit. I think they sold for just over 90 and you know, fast forward whatever, 10 plus years and there's nothing left of that. And there's, you know, all these, all these creditors are trying to get their money back.

[Guest Entrepreneur]

It's like most of the COVID businesses in general as well. Right.

[Podcast Host]

You know, but the point is he did a, he did a sort of a quick job of trying to remove himself from the business, but it wasn't obviously a successful job long term, but it was, it was candidly enough for somebody to buy it.

[Guest Entrepreneur]

I was going to say it depends on what the objective is. You know, like if you're trying to build something that is enduring, you know, and sustainable, whether you're selling it or not. Yeah, but if you're trying to build something enduring and sustainable, then yeah, building a culture that is non reliant and founder agnostic or even CEO and executive team agnostic is, is hard. Like that's hard. But I'd argue that would probably be the right thing. But you know, if your goal is really like, oh, I've got a timeline here, one or two years, this, this industry market's about to peak, like, you know, let's liquidate. If that's your goal, then it's not as relevant.

[Podcast Host]

But, but for the, the people that acquired it was.

[Guest Entrepreneur]

Yeah. Different problem for them. And you know, it's, it's interesting, right, because like you can make heaps of money doing that if you understand the cycle and, or the psychology of like, you know, VC, private equity, etc. Etc. Because that's all, it's all a game and respectfully, a bit of a fugazi. It's a game of musical chairs really. And even what's going on now in the AI space, you know, we'll look back on this in 10, 20 years time and go, oh, okay, yeah, cool. It was like 150 players. These two survived, everyone else died. But that's also just the nature of the beast, you know, that that's part of the game and it's also part of capitalism. Right. You know, there's enough money to go around to get a whole bunch of people to have a crack at solving a particular problem. And obviously there'll be a few winners

[Podcast Host]

and even for them, I'm sure they bet on 10 different companies and.

[Guest Entrepreneur]

Absolutely.

[Podcast Host]

Yeah, yeah, you're not, you're not spending that kind of money and just in one bet.

[Guest Entrepreneur]

No, no, no, no, not at all. And if anything, you know, especially the VC game, it's all pretty much like probabilistic. It's a very different game to. Yeah, private equity. Like private equity and vc.

[Podcast Host]

Private equity. Sorry, you're the, the people that acquired. No, you're buyer strategic.

[Guest Entrepreneur]

Yeah, we're strategic. Which again, you know, that is a great competitor for the PEs and whatever in that space anyway. But like the actual investing game for private equity and VC is like fundamentally different. But again, like these are things that as well. I really just didn't understand the first time going through this. I was a complete rookie and you're kind of like, it's sort of like you're in the middle of like a storm in the ocean. You just kind of go on with, with the waves. Right. But if you really know what's going on and I absolutely had no idea, we just get a surfboard out and you know what you go. But for most people much more like me, the first time they go through that sale process, it can be a quite violent experience and a very like emotionally exhausting and crush, soul crushing.

[Podcast Host]

One was yours?

[Guest Entrepreneur]

Oh, massively. Yeah. We. So the, the long and short of it was I. You had, you got infatuated with the idea, you know, of like selling businesses after spending a lot of time, you know, in, in the States and being in Australia. And that's a very different, yeah, quite eye opening experience. And so yeah, we went through that process and as I said, first time around we tried to sell, got rejected by 120 plus, you know, different, different firms and funds.

[Podcast Host]

Yeah.

[Guest Entrepreneur]

In a coup, had one person who ended up, you know, wanting to buy the company. Literally got paperwork signed, everything executed all the way right to the end. Was sort of 36 hours out from like literally getting the first 50 mil US cash payment at the bank account and they pulled out. Right. And so, and it's just to be clear this is because I was much younger and hopefully less wise than I am now. But you know, I'd told the entire company that we'd sold. You know, we, we'd recruited into this because part of this was also a primary like capital injection to, to grow company as well as a lot of secondary coming off. So we'd opened the new office interstate, recruited so 30 or 40 people. They pulled out of the deal, obviously didn't get any of the money. Spent sort of nearly $11 million getting the company prepped, you know, for the deal. And then a few weeks later, Covid hit. So this, all, this all happened, you know, like at the same time. So they pull out from what I'm able to understand and what I've been able to like sort of deduce from what had gone down. So the guy who was running the deal, it was, he'd just been promoted to managing director and this was the first deal that he was going to be the guy like making the decision on which the whole way throughout the process there was some, you can see he was sort of struggling with some of that. And then we got literally right all the way to the end. And then as we're kind of going through like the network and capital adjustments they start and the other like do the final Pricing for the actual transaction to, you know, complete. Yeah. In legal terms, some of the numbers, like, weren't adding up between, like, financials they'd been given by one of the big four, which was representing us, and then, like, other financials who provided them as he thought that was like there was something going on there, when in reality it was just they were looking at different, you know, different fact sheets. So that kind of like at the very last minute freaked him out. And then whole deal was pulled out from underneath me, which again. Yeah. Because later going. We went back to market later and sold the company and whatever. Which was. Which was positive. But again, I'd argue that that experience taught me a lot more than actually,

[Podcast Host]

I was gonna say, like, what's the lesson there for founders? Because there's more there. So you sold for 400.

[Scott Clary]

Yeah.

[Podcast Host]

And that was still like a great multiple. I think that was 100 million in revenue.

[Guest Entrepreneur]

Yeah, we're doing about 100 and. God, it's five years, 120. Top line. Yeah. I think at the time, give or take, but transparently, like, realistically, and I say this with great humility and reflection now, that the business probably shouldn't have been bought in the way that it did in the structure that it did, you know, at the particular time. And again, I say that being able to very honestly reflect on what was going on in that, like, kind of post covert environment, this particular industry in space, capital markets, all this sort of stuff, all these, you know, movements at the same time effectively created what I would now refer to as a very frothy, you know, like, investment space. And in Australia, I can't remember exactly what the stat is, but it's some crazy thing. But from the three years post Covid, out of every, like, hundred dollars that was publicly listed on the Australian Stock Exchange, 85 cents out of every dollar is gone because of the prices of all the companies that listed have gone down by 85%. Some of them are dead now. And I think specifically in the fitness space as well, because a lot of this stuff was like, oh, we're locked down. We've got to, like, stay indoors. Well, at home, fitness became the most popular thing overnight. And so this was a lot of the success we were having. Not that this makes me happy, but it wasn't real success. Like, that was an inflated success because

[Podcast Host]

of what was happening in there.

[Guest Entrepreneur]

Absolutely. And so then obviously there was a huge normalization effect and sort of 2022 and 2023, which I was already kind of long gone by this point. But nonetheless, yeah, not, not the best asset to buy at that particular point in time.

[Scott Clary]

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[Podcast Host]

how to show up.

[Scott Clary]

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[Podcast Host]

Cary okay, so let's, let's go into lessons from both of those transactions so people can understand. So the first, the first one, it didn't work out. You learned more from that than you probably did from the successful one. Y. What was the lesson, the takeaway for somebody that is actually looking to sell their company, going through the process for the first time that you had to deal with.

[Guest Entrepreneur]

Yeah, so I think. Yeah, no, but I think, I think you need to understand the game you're playing. Right. And what I mean by that is that, yeah, when you're selling a business or raising money or selling and raising, or public listing, public listing and raising, there's all these different, you know, variables, you know, of the experience you can have. It's super important to understand, like what it actually is that you're selling. Right. And so if you're, if you're a startup early on and you go into eventual capital firms, try to raise money, well, you're selling yourself, I'm a great founder, I'm going to make you heaps of money. There's a good chance that this wins and this idea is a reasonable idea in this market. It's big and we can do some stuff. Right. But if that's, you know, you're super early on, if you're at the opposite end of the spectrum and you're like, oh, hey, like we're a business that does. And I call it 10 mil, you know, EBITDA, I want to start a private equity firm. Okay, cool. Well, you're selling the future cash flow of the business, which means the proposition of you being there is probably actually less interesting. So you want to be able to sell the asset as if I'm not going to be here. It's not dependent on me.

[Podcast Host]

Right.

[Guest Entrepreneur]

Because if it is dependent on you, you're going to get massively discounted. Whereas if you're doing venture raising, you want it to be dependent on you and you. And you want the venture capital funds to be invested in you. Right. And I'm not saying that there's one rule for, you know, all types of deals or whatever, but like, smart way

[Podcast Host]

to think about it for sure.

[Guest Entrepreneur]

It's a really important thing to understand. And I often. So I actually refer to this whole thing as like endgame theory and I position it as end game theory because I don't think that all of the ends of this game are actually exits. Like, I actually think for a lot of founders, the end is just you not working there and it becomes an asset that you hold and you have an employed CEO or GM MT or whatever it is that you know, you want to have. Because ultimately for all founders, and we're sorry, maybe I should condition this for most Founders, ultimately you want to make money, Right. But making money in deal exits is actually very different in reality to what, you know, the headlines, you know, state, you know, a friend of mine who sold his business for 600 million, you know, deal value, got 300 million cash up front and got not zero, but close to zero of the remaining part because of, you know, deal structures and whatever. Yeah. I have another friend, you know, who's sold their business for $25 million and ended up getting 5. Yeah. And so, like, if you come back to the first principle that, you know, the goal here is to make money. An exit is an option, it's not the option. And I think this is saying that again, societally, you know, entrepreneurs, we like fantasize and you know, about what this looks like. But again, you're like, things in our mind, they're not necessarily as good as in reality as what they actually end up being. So I think. But yeah, overarching, to answer your question, in short, the overarching insight really is I think you need to know what game you're playing and, or what you're selling if you actually intend on getting a good outcome, both psychologically and financially.

[Podcast Host]

Now, this may seem like a silly question because you ended up selling for 400 million, but are you happy you sold?

[Guest Entrepreneur]

Yeah, I think, I think the, the conflating variables at the time, it was the right choice, you know, for, for me at that time, both personally and for the, for the business as an asset. I think, I think like looking at other businesses, you know, I've either started or ones I've invested in now. Like, this is another company that I actually founded during my time that I was working at Sweat, which is, it's so funny, I always refer to it as like the boring business. It's going to make me heaps of money, which is we basically broke a driving lessons. Right. And so like in Australia, you know, just in Australia alone, yeah, we'll do about 35 million, you know, of, of lessons this year. And it's really interesting because when I look at that company, I've got some other investors in that. I'm like, I'd probably consider buying you out and I might stay in because I look at that, I'm like, oh, like a lot of people go, oh, there's driverless cars coming, blah, blah, blah. I won't go into the reasoning, there's a long reasoning here, but I'm not really worried about any of that for this particular business. And so when I look at this company, I'm like oh wow. Marketplace hard to penetrate, hard to compete with incredibly resilient, boring industry with low competition, low technological sophistication, incredibly high margins, great cash flow. What? Like what? Unless I was going to sell that for an eye watering multiple, financially it just doesn't make a lot of sense. There is no incentive for me to sell. But if you'd have asked me five years ago, I'd be like, oh no, build and sell, make money and yeah, let's go.

[Podcast Host]

So do you think most founders would be better off holding the asset like you mentioned before, and hiring somebody to take it over completely? Like walk me through the math because I, I've, I know stories like this where people have this great, great exit on well then exit in air quotes. I say I should put great in air quotes. They have an exit. It's looks good. They can talk about the numbers with their friends and they can, maybe they'll even get a, you know, a Forbes article written about them. But like how much money do they actually walk away with? Even if you look at, I don't know her Moses exact numbers, but I'm pretty sure that most of his money he was taking distributions while he was still actually building his gym company versus what he actually got after he sold it.

[Guest Entrepreneur]

Yeah, yeah, no, yeah, it's, it's super interesting. Like I've definitely offended a few people going through this before unintentionally. But you know, the way I, the way I look at this is if you were to do almost like a P L esque version of your exit, right, to assess it like a post exit analysis if you will, for most people, and again countries, tax rates, all this sort of stuff. If you sell a business for let's call it 24, 25 million bucks, you're going to wave goodbye to 30% of that straight off the top because you're going to pay, say for example in Australia, subject to most of the rules, you pay about 25% capital gains tax, call it another 5% in fees, lawyers, accountants, this, that the other and whatever. And then let's assume that the business actually has enough working capital to run itself. So there's no working capital adjustments either, which a lot of the time founders have actually sucked all the working capital out of the business. So then they end up having to put money in that comes out of the dealer. Do it. But let's keep it simple, right? 24 million bucks, 30% gone. So you've gone from 24 to 16. Normally I then say, well most people, at least in My experience, most people then go, oh, well, I'll spend 5 million of that. I'll buy a car, I'll give my parents some money, I'll buy myself a house for a couple million bucks, whatever it looks like. But let's just call it, you spend 5 million bucks one way or the other. So you end up with, you know, call it $11 million, which I have often said. I'm like, firstly, you're in the top, like 0.1% of founders. If you achieve that, and that's an incredible achievement. Right. But most people think that selling at 25 means that then you're like on private jets and yachts off the coast of the med Italy for the summer each year. But when you look at 11 mil liquid for me, and also pretty much everyone that I ever spoken to that has achieved an exit with meaningful liquid capital on the other side, almost all of them have the same experience. And then it's like, oh my God, yes, I've exited. Holy shit, I do not want to lose that money. Yeah, right. And so with 11 million bucks, you know, you're two or three bad choices away from nothing. So then most people, and that's if you are reasonably responsible and you're a reasonably good investor, most people are going, oh, well, I want to invest this. Yeah, call it $10 million. I want to invest this to fund my life. And you go, okay, well firstly, the predominant like return on investments people get from things like stocks and property and whatnot is actually in capital growth. Which means if you want to get that to spend it, you have to then sell it. It's not cash. Then if you were investing, let's just call it all in bonds, and you're making a 5% net yield. You're making half a million dollars a year on the 10 mil pre tax because that'll get income taxed. So if you lose half of that income tax, you end up with a quarter mil a year. Not a lot of money to live on. Which again, just to be clear, it

[Podcast Host]

is, but it isn't at the same time.

[Guest Entrepreneur]

I'm not poking a stick at that point. Yeah, for a lot of people that would be life changing itself. Ignore the 25 million. Even getting a quarter million dollars a year on repeat, doing no work, you know, would be life changing. But I think the fantasy that that 25 million means, yeah, you're on your own jets or yachts, or you've got like 10 cars and a massive like mansion that's not necessarily real. And to be clear, that Might not be the goal for some people. And if it's not, that's also great. If you're super happy living on 50 grand a year, that's amazing. But we're not talking about that. We're talking about people who want to sell the business. Right. And so the reality is that you know, from 25 mil you end up getting not actually a huge amount of your real financial freedom. Just to put this into perspective, especially

[Podcast Host]

in a major U.S. city, New York, Miami, L.A.S.F. what is $250,000 is I don't even think considered.

[Guest Entrepreneur]

No, you'd be. Technically you'd be in the top few percent, but that's not. Again, the issue is that it's the top few percent of wealth statement is not represented in lifestyle by what people think the top few percent of lifestyle is. And just going back to that too, like if you've sold a business to 25 million, let's just say you were doing like a boring service based business, changing tires on cars, for example, you're going to sell that for maybe five times EBITDA multiple. And if you're making $5 million a year, EBITDA with, you know, with a nice translation to free cash flow, I can't imagine any world where I'd be selling that for 25 mil pre tax, pre blah blah blah, to then end up with a little bit of income. And again, maybe the industry is in an interesting cycle, blah blah blah. Maybe you want to get out, maybe you want to retire. Sure. And there's other variables as reasons why you. But generally speaking to me that maths is not super inspiring relative to well, I could just have the 5 million cash a year.

[Podcast Host]

I agree with that. That makes assumption no investors, no partners.

[Guest Entrepreneur]

Yeah, yeah, sorry. Well, not only that, yeah if you were selling at 25, it assumes you earn 100% which a lot of the time is not true. Firstly and number two, it also assumes that you've got no debt because debt is also normally like a exit adjustment for value. Three, it also assumes that the deal is you sign, you get 25 mil cash liquid. I have not actually seen a deal of that side. Well, yeah, there's no. Yeah script for script rollover so into into you know, public equity or you know, some sort of like vendor financing or contingent income. So like a lot of the deals you see, not all, but a lot of the dealers are like, oh, we'll pay you $100, I'll give you 30 bucks in cash today. You know, I'll give you 30 bucks In a year or two, which is effectively vendor finance. And you have to do really well when the business grows. XYZ, I'll give you another 30 bucks. But the reality is a lot of the people that are doing these deals and pricing them and structuring that way, they're like, oh, well, if I'm going to give you the contingent income, the extra 30 bucks for performing against these KPIs, well, I'm going to make 100, so that's okay. But then on the off chance that we don't make that, I want downside protection and I get a 30% discount on your business, you know, and so like, again, coming back to the point, before knowing what you're selling and like, what the game actually is a lot of money, especially in private equity. A huge amount of the money that these guys make is through financial engineering. And the engineering happens at the deal level. But that's traditionally, it's a little, it's a bit like black box, slash opaque, you know, to people who are not in that industry or game. And a lot of people lose a lot of money as a result of that, but they're very unconscious about it on the way in, which is not their fault. Like, how the hell do you know, you know that?

[Podcast Host]

Well, I mean, you, you, you have good people around you hopefully. But I mean, like you said before, you, you had a company that was doing about 120 million and you still didn't have people. Well, you had some people, obviously to help you structure a deal, but you still said you felt like you were flying mostly blind.

[Guest Entrepreneur]

Well, but this is part of the interesting aspect of like having good advisors. Right. You know, I had a great legal team, really good at law. You had a great finance team and accounting team, really great at finance and accounting. I had a great person doing tax. Really great at tax. But was there anyone who was actually saying, well, hold on, for you, as the guy who's about to actually make money, does this actually make sense? I can tell you the lawyer will say, legally, this makes sense and is normal. The tax person will say, legally, this is the right tax structure. But like, who's actually saying, well, hold on, no, dude, like for you as an individual and shareholder, like, is this actually a good idea? And that advice, the concept of this advice almost doesn't exist because even if you go to a wealth fund, you know, to work with wealth managers, respectfully, I'm painting a very broad brushstroke.

[Podcast Host]

Did it?

[Guest Entrepreneur]

Yeah, but like, respectfully, they don't actually give A shit about what return you get that entire industry. And I'm just, I'm super clear to someone convincing me otherwise. But the entire industry is based on, well, if the value of your investments go up, we get paid. The value of your investments go down, we get paid, you lose money, but either way we get paid. Yeah. And so like a lot of the advisory industry is about if you do a shit deal as a lawyer, I get paid as a tax person. If you do a shit deal tax wise and you lose all this money in tax, guess what? I still get paid. Yeah. And so like a lot of the industry is not actually shareholder or founder friendly and it's not designed to be.

[Podcast Host]

It's interesting. That's scary for a first time founder. I think that as people are listening to this, they're trying to figure out now, okay, so who do I talk to about my first transaction, my business going well? Is it about maybe just self advocacy? Maybe. Maybe it's maybe. And not to bring up another meta cognitive insight or mental model, but is there a framework that you use to evaluate how to navigate, I mean, even your own goals as a founder as opposed to outsourcing that decision to somebody else?

[Guest Entrepreneur]

Yeah, like honestly, the way I've often thought about this, and this is, this is actually an overarching insight about business in general. I think it's not that complicated. I think most aspects of business are not that complicated. But people don't want to actually spend the time thinking and reflecting. You know, they want the answer. Which comes back to a point we're talking about earlier. They're not actually interested in generating the skill. So like, for example, it's like, oh, what's a, what's a really sophisticated framework you can use to think about exits? It's like, well, well, what do you want to achieve? Like what in your life? What do you want? You know, it's like, are you seeking to retire and you need like a lump of cash? Are you seeking to like liquidate an asset so you can kind of get some money and then go again, you're like, where are you at? And based on that, like, what actually are your goals? Number one, get really refined about that. And not just like, I want to sell for 100 million. It's like, no, like actually think about it. You know, I do an exercise a lot of people that I work with called the personal P L which is put me together, your personal P L based on your current lifestyle, and then put me five or 10 years into the future and then design me the best possible life you think you could live, like, within reason. The best possible version of your life. Let's figure out how much that costs, and then we use that as the foundation to actually calibrate whether or not deals and whatnot make sense. Because if it doesn't actually serve your life, which, to be clear, the overarching question is, how does this serve me? Right. If it doesn't actually serve your life, what's the point? Yeah. And then all of the other. Once you've gotten really kind of structured around what that looks like, all of the other stuff becomes easy. It's like, oh, a whole bunch of people have come with me. I've got three offers in my business. It's like, okay, well, does it help you achieve that goal? Yes or no?

[Podcast Host]

You just frame all decisions through that 100.

[Guest Entrepreneur]

But most people don't do this at the front, which, to be clear, I wasn't super sharp about that. I was like, so, yeah, almost, you know, deer in headlights. Because, like, as a. I was like, in my early to mid-20s, you know, when we first started going through this, you know, deal exit process, even if you see $50 million cash, you know, presented to you, it's like, whoa. Right. And. And I was very fortunate, you know, early on. Like, I made a lot of money, you know, on. From your distributions, you know, really early on. Like, by the time I was 22, 23, I'd already taken nearly 30 million bucks out of the business. Yeah. And so I've been very, very fortunate. That's not. Not the common experience. A lot of founders don't make money early on. They have to make it on the exit, if that makes sense, especially these sort of tech startups and whatnot. But. And I had no idea. I had no focus, you know, going into that deal other than let's sell the business.

[Podcast Host]

Was there. Was there an event or an inflection point that forced you to think differently?

[Guest Entrepreneur]

Yeah, it was the. The first transaction failing because. Because I'd spent so much of the company's capital getting ready for the deal,

[Podcast Host]

and that was a slap to the face.

[Guest Entrepreneur]

Oh, huge slap. And also, like, very humbling in a really good way. And, yeah, this is also at a time where I was like, you know, my living costs are going up, you know, like, a whole bunch of other things were going on, you know, kind of in the background outside of work. And then I was like, oh, shit, actually, if I keep running this way, that actually won't work. Yeah. And so this is another really interesting insight about a lot of founders, and I'd argue also a lot of like influencer founders specifically, you know, that they're not necessarily always very conscious business people. They're great promoters and marketers and maybe even sometimes good product people, but they're not great business people, you know. And the difference between that is that they're not like financially literate and, or financially conscious. And so for all these people, they build great businesses for two, three, four, five years, but then they get to that point where it's matured a bit, it's slowed down, they can't really sell it, they have no real exit, it's not making much bottom line, and they get this really stuck position. And that happens to quite a lot of people. Yeah, I've been there with other businesses too, but it's hard. It's simple, but it's hard.

[Podcast Host]

I want to change gears a little bit. When we first started speaking, I hope this isn't too much of a stretch, but I think you'll understand where I'm going with this. So when we first started speaking, we were talking about where to get advice from and you were describing the perfect person to get advice from. There's through lines between the person that you look for to get advice from and somebody who you'd want to hire to work for you. Yeah, a lot of the personality traits you were describing because even before we pressed record, we were thinking, you know, what should we chat about? And you're like, well, let's talk about culture and hiring and delegation and finding a players. And you know, everyone says they want an A player, but they don't know what that actually means. But when you are actually describing who to look for from. For advice, you were actually in my mind describing somebody who is like an A player personality. But you've obviously figured out how to do that from an advice perspective. Somebody who's like a mentor or somebody who's sort of succeeded. The other thing that you like to speak about, which I think is very valid and we should speak about it, is how to find that person to bring into your company. Like, what is it we can talk about? You take whatever way you want. You want to talk about a player and hiring good talent or culture or both, because I think they are.

[Guest Entrepreneur]

Yeah.

[Podcast Host]

One of the same.

[Guest Entrepreneur]

Well, yeah, I don't think you can hire good people without having a really clear understanding of what your culture is. Yeah, sure. And, and, and this has all been a really. I think you're interesting, like, you know, topic of debate. Again, there's so many of these, like books on culture and all these podcasts and whatever on culture. There's so much of them. And I'm like. And the cut through for all these people is I'm like, well, define for me what culture is in one sentence. And if you can't, then you don't know what it is. Right? And I would do better. I would define it one word. Culture is just your standards. That's it. It's just standards for how you work. It's your standards for how you behave, it's your standards for your goals, all these things, but it's the confluence of your standards universally in your organization. Right? And part of the reason why I think that you can't really recruit good people, or maybe I would rephrase that as like the right good people, you know, for your business, if you don't have a clear understanding of your culture, is that the whole interview process is like speed dating. And what you're trying to do to some of the points before around advice and mentoring and whatnot is you're trying to say, well, have you done what I want you to do, if that is findable, if those people exist? Like, have you done the thing that I want you to do? And if you have, it's all about, do I think you have the right behavior and attitude to fit in here? If you can't perfectly screen for have you done the precise thing I want you to do for whatever reason? Because sometimes this thing hasn't been done before or those people aren't available where you live or whatever country you're in, well, then you got to put specificity to the side and you've got to hire broadly and generally. And you go, okay, well, what are the raw skills that I need you to do this? And so as soon as you've screened for the raw skills and capabilities, then it's all back to behavior and attitude. You're effectively trying to personality map to the business, right? And the simplest example of this is computer scientists who works in the government doing whatever it is that they do. A computer scientist that works in the gigantic corporate doing what they do, and then a computer scientist who's like a CTO co founder for a startup company. They're three quite different people. So even if they all program in, I don't know, Objective C or Ruby or whatever it may be, it doesn't matter, right? Because they're completely, behaviorally, they're completely different people. And more often than not, on average, they would fail if they moved to one of the alternate options. And so when you are screening for things like behavior and attitude and you're trying to find an A player, presuming that they've either done what you want to do or they've got the right raw skills to do it all that screening is really like pressure testing, like relative to the standards that we have. Like is this relationship here like actually going to work? And it's no different to your intimate relationship, but you would reframe it as values. It's like you can have all the likes and interests and commonalities with the other person, but if you're not compatible at a values level, like you fundamentally see the world in a similar way and you value similar things, well, the relationship is doomed from the start. Yeah. And so to your point before around like recruiting A grade players, I think that's a bit of a fugazi, you

[Podcast Host]

know, like there's like it doesn't exist the way that people think it exists.

[Guest Entrepreneur]

Yeah. And for a few basic reasons, like one, and you said this before, which is really great frame, I said the best. The best. The best A grade players are probably working for themselves, right? Not all of them, but let's assume that.

[Podcast Host]

I've always thought that the best person you can hire is an entrepreneur that for whatever reason the season of the life that they're in right now is not conducive.

[Guest Entrepreneur]

Yeah. Entrepreneurship, marriage, kids, whatever.

[Podcast Host]

I want an entrepreneur that needs a paycheck because he just had a kid. Like that's who I want. But it's hard to find those people, of course.

[Guest Entrepreneur]

And then you know, outside of the entrepreneurs there might be other like really, really good people. And yeah, I like to not always, but very often rationalize my numbers. Right. So let's just say that an A grade player in theory or a conceptual level is out of 100 people that you could work with. You know, from a capability wise, however you measure that in one specific field, there are at least one, if not two standard deviations above the norm. Right. So purely based that, they're 85 to 95% of people in that 100 are not a grade players like immediately from the start. Which means that if you're interviewing for however many roles, you're gonna have to interview thousands of people just to find a handful of them. Right. So mathematically you can already see that the likelihood of you achieving that is low. Right. Then when you layer on another concept of that so called, well, the best players are probably going to get incentivized the best and or There'll be more people wanting them, which means there's going to be a concentration of capital and other like non capital benefits for those people. So where does for example like the best tech talent will not, sorry, not the best, but a lot of the best tech talent residual in San Francisco and they're paid an eye watering amount of money. So if you assume that not all but a huge portion of the A grade players are incentivized by money and other like non financial benefits, they're going to get the majority of that in certain parts of the world, in certain companies. So if you're a, a small to medium sized business making 10 to 25 million bucks a year, the likelihood that you've ever met one is low. That you can afford them is even lower. Again, and that's the right stage of their life. That you can afford them, you've met them and they want to work for you is very, very, very low. Now does that mean that you can't. It really is. Right, but does that mean that you can't get like really good people to work for you? No, it doesn't. But it's just the idea of like A grade players, like on a qualitative and quantitative level is actually very unreasonable. Instead you just want good enough people. They don't need to be the best. And I would argue the best validator of that idea is that when you're small and everyone who's had a rapidly growing business can relate to this, when you're small, you recruit these three people. Oh man, they're so good. They're so much better than the last people we have for these roles. Oh, this is going to be great. And then the business, three X's in size and 12 months later you're like, you bring in a new person, like, oh, they're so much better than those three people. And so there's this idea of relativity. You're like from a skill set, a competency level and also relevance to the size of the business, you could be a great engineer at a $5 million a year business and put the same person into $105 million a year business and they could be terrible. Right? And so I think again, you know, and this is, you know, society at large, like we want to like simplify, you know, and be reductive, you know, with our ideas because we don't want to actually think through at a conceptual level what matters. It's like, well, what's an A grade player? Someone ideally who has relevant skill. If they don't have the relevant skill. They have incredibly good raw skills and capacity to think and they are beautifully aligned culturally. That's what an A grade player is. It doesn't need to be anything else outside of that if you wanted to make it actually understandable and usable on a day to day basis.

[Scott Clary]

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let me get the pronunciation right because

[Scott Clary]

they told me that like five times.

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[Podcast Host]

The the thing that I see people being concerned with in not pursuing this unicorn mythical A grade player is that it degrades the, the culture and the quality of the business and then it, it turns these again mythical A grade people away from the business. And it, it there's a quote or a saying. It's like you know, A, A grade people attract more A grade but then like B grade will only hire C grade. Like something along those.

[Guest Entrepreneur]

Yeah. A grade is big, right? As recruit. C grade is. Yeah.

[Podcast Host]

Is there any validity to that?

[Guest Entrepreneur]

I think so. But again without, you know. Yeah, without like shunning orthodoxy here a little bit too much, you know, I think. What? Well, let's get rid of abc, right. And let's say experienced leaders will recruit better than inexperienced leaders. So regardless of whether you're an A, B, C grade or whatever, it's like recruiting is a skill. Leading and managing is a skill. And if you're good at those things, you'll probably recruit better people. If you're not good at those things, you probably won't recruit not good people. But then I would also go so far as to say it's like even if you're a good leader, manager, a grader, whatever it may be, if the organization is not incredibly clear on the culture, how do you recruit good people in general? Any level. And just to be clear, this is something you see in small to medium sized businesses because they're not, they haven't like codified, you know what they're like organizational culture is so then when they go to recruit people, anyone's a match.

[Podcast Host]

Yeah.

[Guest Entrepreneur]

Right. And it's kind of like young people on the dating scene. It's like earlier you've Got to date different people. You've got to kind of go, what? How do I want to live my life? And like, who do I get along with? Well, you kind of got to go through that process. Right. But the issue is that founders and the good founder entrepreneurs, they'll sit in hundreds of interviews, they'll recruit lots of people, this, that, the other, and they'll fail at that a lot. But then they expect that they can recruit a junior person, train them up, and that person who's never recruited a person in their life is going to do a good job at recruiting the next.

[Podcast Host]

I was just listening to an interview with Brian Chesky and he says he still focuses all of his energy and time on recruitment. And I think he made a point and he said if there's a person he's talking to a C suite, he says if there's a person who you feel like you can recruit without my help, they're not good enough. So he sees recruitment as the most important.

[Guest Entrepreneur]

It's a little bit like, it's a bit like product though.

[Scott Clary]

Yeah.

[Guest Entrepreneur]

Like, and I, this is, I laugh at this all the time. I found I was like, oh, you know, yeah, spent so much time working in product, I just want to recruit someone so they can come and take it off my hands. I'm like, why the hell do you think the business is successful? Yeah, like you, you see and understand things in this particular arena that other people don't. And what you think you can employ a person, like there's these sorts of ideas that they just make no sense, you know, when you shine a light on it. But they're these like ideologies that a lot of people want to, you know, run their business behind. And again, you know, as a founder, you can't do everything, think.

[Podcast Host]

No.

[Guest Entrepreneur]

Right. Like people try. Yeah, that's an impossibility. But I think the people thing is a, is a really, really big deal and one that's very often misunderstood. A lot of the time employees will fail, you know, in inverted commas and then they get, you know, terminated and managed out. I'm like, well, if you did like an analysis of that, like a post exit analysis, do you think that person was right to begin with? So if you go all the way back to like when you recruited them, were they a good choice then? And maybe they were, then the next question is like, were they onboarded and actually like set up to success to succeed, you know, well, at the very beginning and then if not, it's like, well, are we surprised? Seven, eight, Nine months later, they've been terminated or we've. Or they've exited. Like, is that a surprise? And a lot of the time, not all the time, but the majority of the time, people go, oh, yeah, look, I mean, I probably shouldn't have recruited them. They weren't the right person. Or they go, oh, you know what? I really didn't actually, like, manage them. Well.

[Podcast Host]

No. Because we get so excited after we find the right person. And then because at least something that I'm aware of for myself. I can't speak for everybody, but sometimes I get so excited hiring somebody because they're so competent. And I'm like, oh, they're hired. They're competent.

[Scott Clary]

Great.

[Podcast Host]

Go do your thing. I want. I don't want to micro. I don't want to micromanage. You don't hire a great person to micromanage. But there's a difference between micromanaging and being overbearing versus onboarding them properly.

[Guest Entrepreneur]

Totally. And also, too, I think, like, micromanagement is a. Is a. Is a broad term. So, like, for me, I'm like, I am fanatical about detail, like, unfairly in lots of scenarios.

[Podcast Host]

I think most good founders are, to be honest.

[Guest Entrepreneur]

Well, yeah, but this is what I was about to say. I was like, but there's certain areas where you have to be. And so, yes, you might not want to be overbearing from, like, a management perspective and, you know, you know, be. Be literally peeping over their shoulder at their screen for eight hours a day. But I think you're like, what? You know, on product stuff, customer stuff, you know, brand positioning stuff, whatever it may be. So there's certain things. It's like, you can't really get worried about upsetting people with detail and micromanagement. Like, if you want to win, you've got to win. Yeah. And, like, when you look at a lot of the, you know, what society would call a lot of the best founders, like, what do you reckon, like, Elon Musk is, like, arms length in the detail? No, the dude's literally on the production floor. Like Steve Jobs. Same thing. Bill Gates, not as publicized. Same thing. Jeff Bezos. Same thing.

[Podcast Host]

This is why, actually, I think they get a bad rap because they are so into, like, Elon will learn everything about things that he knows nothing about just so he can have an educated conversation with the person who's responsible, which

[Guest Entrepreneur]

again, and maybe not everyone is blessed with the intellectual faculty that you. That he has. But I think in a general sense, for most of what small to medium sized business is doing, which is respectfully nowhere near as complicated as building rockets to send them into space. But for most of what small to medium sized businesses are doing, I think people can, they can learn all of that and at least learn enough to like, have a reasonable conversation. You know, performance, marketing, branding, content, some basic finance stuff. Like, I think that's all the majority of the population can at least understand the fundamentals of that. Enough to have a conversation. Yeah. With the people that they work with. And I think if not respectfully, you potentially being a little bit lazy.

[Podcast Host]

I agree with that. I think that all the biz, like, again, my, my side of the business is the sales, marketing, a little bit of product, less technical. Even though I was running companies that were technical, so I have to understand a bit of it. But from my experience, personal and with like the people that were my peers on the sales and marketing side, the companies that were successful were led by founders who learned all these skills at at least a rudimentary level, especially sales, which is very important. All the companies that I ever saw being successful were founder, company, like founder companies. And the founders started off selling the product. They understood how to develop demand, build a pipeline, close a deal, and then they took that and then they hired. Once they had too much demand and they couldn't jump on the calls or speak to all the customers, then they hired somebody to help with that part of the business. But what they didn't do was say, I'm a technical founder, I'm a product founder, I know nothing about sales. Let me go hire a VP of sales and then just figure it out.

[Guest Entrepreneur]

But entrepreneurship is kind of, you know, in one way, shape or form is really this idea of like ultimate accountability.

[Podcast Host]

Yes.

[Guest Entrepreneur]

And if you just, just to make it get reductive, if you're a sole solo founder, even more so. Yeah. Because a lot of the time, you know, you have like a product or tech guy and a marketing or sales guy, and then they'll, you know, be friends. Or you have like an operator and a product person, whatever. There's a few different, you know, combinations there. But if you are a solo founder, you kind of got to understand a little bit about all of it. And if, and also too, I would argue that not even just like getting to a point where like, okay, cool, checkbox, like, I understand this thing, that's fine. But you still need to have some, like, persistent degree of curiosity about all areas of the business over time. And also argue too, to your point before, like, you know, we get excited to recruit a person. If you become not at all curious about an area of the business because you recruited someone to manage it, no matter how good that person is, one way or another they're going to end up off piste because you're not in the detail enough to like maintain alignment. You know, like. And I think it's like maintaining alignment thing is huge too because you can get really good people who are smart, hard working and all that sort of stuff. But if you haven't been like Autopilot

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[Guest Entrepreneur]

Really clear about where you're going and why. Then you end up. Everyone ends up running off in slightly different directions. Right.

[Podcast Host]

I want to, I want to speak about some of the mental models that have been most useful to you. And I think this will be a great way to just like close it out with some strong ways to think. So are there certain ones in particular frameworks? I mean, whether or not you want to speak about like first principles thinking like you, you pick the ones that have been the most useful to you on your journey. Because I think the goal of this podcast, we've gone into a few different things, but ultimately I want to leave people with how do they actually think through problems? Because that will probably be much more beneficial and useful to them.

[Guest Entrepreneur]

No, no, totally. Yeah. Look, there's an unlimited amount of things here, the ones for me that I find myself using the most often. So like this idea of like inversion, like the inversion principle, I reckon I would use that five plus times a day easily. And when I, when I'm referring to that, I mean something along the lines of, so a lot of the time in teams, we'll talk about like, hey, is this the right decision? Right? We'll go, okay, well, yes, I think it is. Okay. Why is that the right decision? Oh, I think it's the right decision because of these things. And it's all, it's all about, well, I think this is right. So I'll convince you it's right. Right. Which leaves you then incredibly vulnerable to, well, how could it go wrong? Right. And so all of the time I will invert, you know, those conversations. If someone goes, hey, this is the right thing. And I'm like, well, what would need to be true if this was definitely wrong?

[Podcast Host]

Right.

[Guest Entrepreneur]

And I. And so I will reverse reason. Yeah. With a lot of these topics because I think again, coming back to the point before, and you know, failure makes everything really clear. I think if you position this decision immediately into failure and then try to like, solve back from it, that makes things, you know, a lot easier from a problem solving perspective. So I think that's one thing I think the second thing, like, along that line too, is there's this idea that a lot of people make, like, decisions, agnostic of commercial logic and reasons. It's like, oh, is this, Is this campaign a good idea? You know, is this brand activation a good idea? And we go, yeah, this is a cool idea. It'll be great. I'm like, okay, but like, but what are we getting from this? And so I refer to this as like the car principle, the car framework, which is really basic. It's just the cost, the assumptions and the return. Right.

[Podcast Host]

I like that argument.

[Guest Entrepreneur]

Yeah. Something I came up with ages ago. I think I came up with it, I don't know, but like a long time ago. And so I will very often say to people that I work with, they present me a great idea. I'm like, okay, well, convince me, like, like, what's this going to cost? What are you assuming is going to happen? And then based off of that, what's actually going to be the return on the other side? And coming back to a point that we were talking about earlier around judgment, my job or a manager's job or an executive's job is then to look at that kind of car proposition, if you will, from a particular employee and go, okay, well, three really basic questions, like, one, do I think that those costs are reasonable and right, yes or no? Two, do I think the assumptions, they've put a reasonable one right, yes or no, and three, based off of the assumption, the cost, do I actually think that this return is likely to generate. So it's a really simple, like, reductive way, both for really junior, like, young employees right at the beginning of their career, all the way up to executives. You can have varying degrees of sophistication for how you present it. But at a conceptual level, to me, that's probably one of the best models to get teams to adopt. Because what's the issue with a lot of junior employees? Everyone goes, oh, they have no commercial acumen, blah, blah, blah. I'm like, well, how the hell do you think they get that? That, like, teach them, you know. And so for me, this is really good. And yeah, I think these two things in combination. So, you know, I'll get, you know, people to. We use this framework called the 1-3-1 framework. You know, show me the idea that you've got. Give me three different solutions or like, you know, potential outcomes here and then recommend one to me. But when you're recommending it to me, recommend it to me. Showing the cost, the assumptions of the return, and then when you come to me, I'll try to prove to you that you're wrong, which is inversion. And so this creates a. Culturally it's a really good idea, but pragmatically it creates a decision making environment that's effectively based on. Well, I explored multiple options. I think I found the best one. The best one is based off of these cost assumptions and returns. Now your job is to try to convince me it's wrong. And if we can't say that one of the other three options is better and we can't convince you that the cost assumptions, returns are silly, well then we should just do this thing. Right. And so it makes this decision making velocity, feedback loop and your education piece like ingrained to the way a company operates as opposed to I'm big dog, I want this option. Yeah, no one really learns from that. And also too then when it fails, I go, oh, well, you gave me a shitty recommendation. So it ends up being culturally bad. But if you, I think if you do things this way with inversion 1, 3, 1 and yeah, the CAR principles, the decision making becomes very rigorous and it's incredibly valuable for employees from an educational standpoint.

[Podcast Host]

It also removes emotion.

[Guest Entrepreneur]

So. Yeah, yeah, sorry, yeah, I mean I start from the position of no motion, but yeah, no, I think.

[Podcast Host]

No, I didn't mean to. Yeah, I didn't mean to say that you've left that part out. I think that it's just an important piece of it because I think that how every time you speak about a principle, I'm thinking about, okay, so why don't people use this already? Because a lot of what you teach is very logical and pragmatic, which is

[Guest Entrepreneur]

hard for a lot of people. Right. Like as in it's easy. And this comes back to the point before, around your knowledge and skill. I can say this, hey, here is this knowledge. Right. And you can even take that away and put it in a document and then give it to an employee. Right. But there is skill to using the knowledge and then actually make decisions. And the skill normally gets, becomes redundant because of bias. Yeah. And emotion. Right. And yeah, it's always been a fascinating thing to me. I mean I am the way I am and you know that that is me. But that sort of stuff from a decision making point of view was never really like a huge meaningful blocker to me. Awareness was a bigger blocker. But, but the emotional stuff, not so much. But yeah, with a lot of people I've worked with, it's, it's a, it's a really good point. You raised that sometimes they find it hard to be objective, or at least as objective as, you know, we ever think we're.

[Podcast Host]

I noticed it this morning. I pointed something out and somebo took offense to it because it was a personal skill that they had built. And I said that the execution of said skill was not entirely appropriate for what we were trying to accomplish for a client. And for me it was such a, there was such an obvious error. But I realized that the error and the communication of me pointing out the error, it was like a video edit that we did. We screwed something up. And I realized that by pointing out the error, the, the person, the editor didn't see the, the error. They saw me questioning their, their skill set.

[Guest Entrepreneur]

Yeah.

[Podcast Host]

Which is with that emotion.

[Guest Entrepreneur]

Yeah. Which is fascinating. Right. And, and I actually have found that normally the really skilled experience people, not always, but normally the people who are really skilled in experience. Yeah. They can often actually take to feedback more emotionally than someone who's a beginner because the beginner, if the, sorry, if they're, you know, self aware that they're a beginner, you know, they normally go, okay, well I'm a beginner, you're not a beginner. Thanks for the feedback. Right. Whereas if someone who's like super experienced, you say, I'll go away and do this thing. And you go, oh, actually, yeah, now that's wrong. And they're like, oh, well, well, it's not actually. Yeah. And. Or you know, you have, you have like emotional responses, which to be clear, I'd argue that. And I've always argued this business is actually relatively straightforward, simple, mathematic in most cases, not all. Yeah. Brand, product, there's this some kind of nuance and qualitative stuff. But the thing that makes it really complicated, there's actually people both inside the business and outside the business. Just to be clear, when I say that I'm not talking about the customers because that's a skill set to work with that. But I think internally getting 10, 50, 100, 150 people of different personalities, backgrounds, values and beliefs to align on a goal, work on that, respectfully provide feedback and receive it with best intent. These sorts of ideas, they're actually really bloody hard.

[Podcast Host]

What would be one mental model that you are currently applying to yourself, not your business, at this stage in your life?

[Guest Entrepreneur]

So something I touched on before in a few different ways was this idea that you have frailty or fragility of the situation that you're in. And I think one of the things that I try to reflect on all the time is that the better I get, however you receive that. So knowledge, skills, results, whatever it may be, the better that I get, I have to match that with an increase in humility. Because the more you learn about things, it's really easy to fall into this thing of like, oh, well, I know now, and I'm experienced, right. And so I've often tried to sit with this, like, concept and idea of, like, you know, be like a perpetual learner, but a perpetual beginner, you know, more specifically. And that's something that I've. I've gone through sort of multiple different ways with my car. Like, I really understand this topic now, but I'm like. But I don't want to think that and feel that because it makes me blind to the obvious stuff. And when you're early on at something, the stupid is obvious to you because you're learning, like, oh, why the hell do we do that? And people go, huh, yeah, actually, you know, and I never, ever want to lose that. And so, yeah, for me, I'm. I'm spending a lot of, like, conscious time and effort trying to bring myself back to, like, yeah, always try to be a beginner.

[Podcast Host]

First of all, where can people connect with you?

[Guest Entrepreneur]

Yeah, find me online. LinkedIn and LinkedIn and Instagram. Love to kind of connect with anyone that, yeah, is a keen to chat business. I just. I just love this stuff, man.

[Podcast Host]

So, no, I appreciate it. You're fun to chat with. What's. What's next for you? What do you want to work on? Is. Is it just building another 17 businesses or.

[Guest Entrepreneur]

No? Yeah, look, I've learned heaps from that. But no, I. I think for me now I'm. I'm in the transitional phase of my career from being a founder operator, you know, to an operator investor, you know, and so I'm operating a few businesses at the moment, but I'm also investing in a whole lot. And I would have thought that, you know, over the next five or 10 years, if I'm kind of. That I probably end up being almost exclusively an investor is where I would like to end up.

[Podcast Host]

Wildly different skill set.

[Guest Entrepreneur]

Oh, honestly? Yeah. Yeah. Talk about going back to being a beginner. You know, you make a bit of money from an exit and you're like, oh, cool, like, I'll invest that whole. Hold on. What the hell is this? Yeah, yeah. And it's like, it's a completely different world, but. But it's one I'm really passionate about. And I hope that bringing the founder operator aspect, you know, Gives me some sort of advantage, you know, at that, other to people who are just professional investors, basically.

[Podcast Host]

I will hope that when you figure out that craft, you come back and do another episode.

[Guest Entrepreneur]

Yeah, we'll be back.

[Podcast Host]

Yeah, I appreciate you so much. Last thing I like to end with, you could go back and tell your 20 year old self the most important piece of advice you've learned. What would that be?

[Guest Entrepreneur]

Yeah, honestly, care less about what other people think. Yeah, I think especially in my early 20s, I was so convinced that I didn't care what other people thought, you know, and then by my mid to late 20s, I was like, ah, actually no, I really care what people think. And then you get to my 30s, I'm like, okay, I'm starting to get a hold of what I care care, you know, about other people's thoughts and how I separate my own self assessment, you know, relative to that. But yeah, I think like, you know, to me, I think I would have done lots of other stuff faster and I think I would have done lots of other stuff better, you know, if I was actually just focused on that stuff, you know, not focused on how other people might, you know, consider or look at that. And again, you know, different in every country, for every person, every life. But for me, I definitely feel like that's something that like held me back from a lot of decisions. Not from, from making the decisions, but from making them quickly. Yeah. And I think speed is the game of entrepreneurship.