556: From Broke to $100M+ in SaaS – Dan Martell (Best of Foundr) [VIDEO]

Summary

The Foundr Podcast with Nathan Chan - Episode 556: From Broke to $100M+ in SaaS – Dan Martell

In Episode 556 of The Foundr Podcast with Nathan Chan, host Nathan Chan interviews Dan Martell, a serial entrepreneur, angel investor, and SaaS growth expert. This episode delves deep into Dan's tumultuous journey from a troubled youth to building and scaling multiple successful SaaS companies. Throughout the conversation, Dan shares invaluable insights on entrepreneurship, time management, overcoming burnout, and effective leadership strategies.

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Introduction: Dan Martell’s Remarkable Journey

Dan Martell kicks off the conversation with a compelling personal story that highlights his early struggles and the pivotal moments that set him on the path to entrepreneurship.

• Personal Turmoil and Discovery of Coding [00:00 – 00:23]:

  “So I got a crazy story. Group home, foster home, crisis center, high speed chases, prison. I ended up in rehab. [...] Within 20 minutes, I got the computer to say, hello, world.”
  – Dan Martell [00:00]

Dan recounts his challenging youth, including stints in group homes and rehab. A serendipitous encounter with an old computer and a Java programming book ignited his passion for coding, laying the foundation for his future in tech.

Nathan Chan’s Introduction [00:19 – 00:23]:

Nathan briefly introduces Dan as a seasoned entrepreneur who has built and sold multiple tech companies, raised millions in funding, and now dedicates his time to coaching SaaS founders.

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Early Entrepreneurial Ventures and First Successes

Dan’s Initial Foray into Entrepreneurship [01:14 – 02:55]:

Dan shares his first ventures in software development and entrepreneurship, highlighting the lessons learned from early failures and successes.

• First Paid Project [02:55]:

  “The first thing I ever made money on was actually this app I built. [...] It was the first business that I actually launched.”
  – Dan Martell [02:55]

Dan discusses his first revenue-generating project: a CD burning tool he sold to friends for $20. This early success was followed by his first company, Maritime Vacation, a vacation rental website created for his father. Despite its eventual failure due to competition, this venture was crucial in teaching Dan about the value of building something people wanted and the importance of marketing.

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Transition into SaaS and Building Successful Companies

Founding Spheric Technologies [07:43 – 10:49]:

Dan outlines his transition into the SaaS industry, detailing the challenges and triumphs of building Spheric Technologies.

• SaaS Origins and Growth [08:02]:

  “The first, I mean I built a bunch of SaaS tools with my company Spheric, [...] And then we literally grew about 150% every year for four years.”
  – Dan Martell [08:02]

Spheric Technologies specialized in enterprise portal portlets, integrating with major ERP systems like Oracle and SAP. Under Dan’s leadership, the company approached nearly $1 million in its first year and experienced exponential growth, ultimately leading to its acquisition in 2008. This success underscored the scalability and potential of SaaS businesses.

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The Buyback Principle and Buyback Loop Framework

Introduction to the Buyback Principle [14:07 – 16:38]:

Dan introduces his groundbreaking framework, the Buyback Loop, which is central to his coaching methodology for SaaS founders.

• Buyback Principle [16:38]:

  “You don’t hire people to grow your business. You hire people to buy back your time.”
  – Dan Martell [16:38]

The Buyback Principle emphasizes hiring strategically to reclaim time for founders, allowing them to focus on high-leverage activities. Dan breaks down the Buyback Loop into three stages: Audit, Transfer, and Fill.

1. Audit:

   • Conduct a time and energy audit to identify tasks that drain or energize.
   • Categorize tasks based on cost using a dollar-sign system.

2. Transfer:

   • Delegate low-cost tasks ($1 sign) to free up time immediately.

3. Fill:

   • Invest the reclaimed time into activities that maximize productivity and business growth, such as strategy, skill development, and mindset improvement.

• Notable Quote on Framework [17:03]:

  “The Buyback Loop's based on a principle called the buyback principle, which states you don’t hire people to grow your business. You hire people to buy back your time.”
  – Dan Martell [17:03]

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Overcoming Burnout and Achieving Work-Life Integration

Dan’s Personal Experience with Burnout [16:38 – 22:16]:

Dan candidly shares his battle with burnout during the growth phase of Spheric Technologies, detailing the personal costs of neglecting work-life balance.

• Impact of Burnout [16:38]:

  “I just allowed my work to absorb me, to become me. [...] I had to go see a therapist because I was having anxiety attacks.”
  – Dan Martell [16:38]

This period of intense work led to the collapse of his engagement and significant personal distress. Recognizing the unsustainable pace, Dan sought therapy and developed strategies to prevent burnout, which he now teaches to other entrepreneurs.

Work-Life Integration Strategies [14:07 – 16:38]:

Dan outlines his approach to integrating work and personal life through:

1. Vision:

   • Long-term visioning (25 years) to align daily actions with overarching goals.
   • Creating a 10x vision map to visualize life across four dimensions.

2. Rhythm:

   • Establishing a consistent weekly and monthly schedule aligned with 12-month goals.
   • Blocking time for personal and professional activities to ensure intentional living.

• Quote on Vision [14:07]:

  “Without a clear vision, it makes it really hard to make decisions today.”
  – Dan Martell [14:07]

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Leadership and the 131 Method

The 131 Method Introduction [30:48 – 35:04]:

Dan introduces the 131 Method, a powerful tool for enhancing leadership and decision-making within organizations.

• Defining the 131 Method [30:48]:

  “The 131 rule gives a tool where any problem that a direct report brings into your world, you ask them to come with one clear problem.”
  – Dan Martell [30:48]

Components of the 131 Method:

1. Define the Problem:

   • Encourage direct reports to present a single, clear problem rather than multiple issues.

2. Three Viable Options:

   • Ask for three potential solutions to the defined problem.

3. One Recommendation:

   • Request one recommended course of action from the three options.

This method empowers employees to think critically and make decisions independently, reducing bottlenecks at the executive level and fostering a culture of accountability.

• Notable Example [34:47]:

  “When you start to build this in your culture and you teach it to people, you'll get so much more leverage because you're pushing decision making down to the front line.”
  – Dan Martell [34:47]

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Scaling SaaS Businesses with Venture Capital

Operating Under Different Capital Structures [22:16 – 26:36]:

Dan discusses the nuances of scaling SaaS businesses, particularly the differences between bootstrapped and venture-backed companies.

• Buyback Rate Adjustment [22:40]:

  “The only thing that changes for a venture backed company is I tell them to add a zero to it. [...] your buyback rate is now $125.”
  – Dan Martell [22:40]

For venture-backed companies, Dan advises increasing the buyback rate by an order of magnitude, reflecting the additional capital and resources available. This adjustment allows companies to be more aggressive in scaling while maintaining strategic control over their operations.

Leverage Through the Four Cs [22:40 – 26:36]:

Dan expands on the concept of leverage, inspired by mentor Naval Ravikant, outlining the Four Cs as key drivers of scalable businesses:

1. Content:

   • Creating valuable content that can reach millions without additional time investment.

2. Code:

   • Utilizing software, automation, and AI to enhance productivity and scalability.

3. Capital:

   • Leveraging raised capital to accelerate growth and seize opportunities.

4. Collaboration:

   • Building effective teams by delegating and purchasing time to focus on high-leverage activities.

• Insight on Leverage [22:40]:

  “Everybody has the same amount of time. [...] it's the multiplier of leverage.”
  – Dan Martell [22:40]

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Conclusion: Empowering Entrepreneurs for Sustainable Growth

Throughout the episode, Dan Martell emphasizes the importance of strategic time management, leveraging resources effectively, and maintaining a balanced approach to personal and professional life. His frameworks, such as the Buyback Loop and the 131 Method, provide actionable strategies for SaaS founders to scale their businesses without succumbing to burnout.

• Final Thoughts on Scaling and Personal Growth [27:22 – 37:45]:

  “If you understand your buyback rate shouldn't be spent on editing videos or publishing on social media at scale, you can find people that are as capable and honestly better at those things.”
  – Dan Martell [27:22]

Dan advocates for focusing on core competencies and investing reclaimed time into areas that drive significant business growth and personal fulfillment. His journey from adversity to success serves as an inspiring blueprint for entrepreneurs aiming to build resilient and thriving SaaS companies.

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Key Takeaways:

1. Embrace Strategic Delegation:

   • Utilize frameworks like the Buyback Loop to delegate effectively and reclaim time for high-impact activities.

2. Prioritize Work-Life Integration:

   • Develop a clear long-term vision and align daily actions to prevent burnout and ensure sustainable growth.

3. Empower Your Team with the 131 Method:

   • Foster a culture of accountability and independent problem-solving to enhance organizational efficiency.

4. Leverage the Four Cs for Scalability:

   • Focus on content, code, capital, and collaboration to maximize leverage and drive business expansion.

5. Adapt to Capital Structures:

   • Adjust strategies based on whether your company is bootstrapped or venture-backed to optimally utilize available resources.

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Dan Martell's insights provide a comprehensive guide for SaaS entrepreneurs aiming to scale their businesses effectively while maintaining personal well-being. His emphasis on strategic time management, empowerment, and leverage serves as a valuable resource for founders navigating the complexities of the entrepreneurial journey.

Transcript

[Dan Martell]

So I got a crazy story. Group home, foster home, crisis center, high speed chases, prison. I ended up in rehab. At the end of that program, I was cleaning out one of the cabins. In one of the rooms was an old computer and a yellow book on java programming. Within 20 minutes, I got the computer to say, hello, world. He's a serial entrepreneur, angel investor, and SaaS growth expert.

[Nathan Chan]

He's built and sold multiple tech companies, raised millions in funding, and now coaches.

[Dan Martell]

SaaS founders on scaling fast. His book Buy Back youk Time, teaches entrepreneurs how to reclaim their time and scale smarter. Dan Martell. Once I started to get a taste of success, I was so scared of losing it that I just allowed my work to absorb me. I felt like there was an elephant on my chest. I had to go see a therapist because I was having anxiety attacks. People don't understand that the game they're playing is not the business model, it's themselves. Richard Branson had a rocket ship blow up. His $50,100,000 problems don't even register on his radar because he's become the person who can deal with a higher quality problem. Hear the stories, learn the proof methods, and accelerate your growth and future through entrepreneurship. Welcome to the Founder podcast with Nathan Chan.

[Nathan Chan]

All right, so the first question that I ask everyone that comes on is how did you get your job, AKA how did you find yourself doing the work you're doing today?

[Dan Martell]

So I got a crazy story. I, I'll give you the short version because, you know, I want to get into the, the meat of our combo. But so what I do today is kind of software. So I run the largest coaching organization for software CEOs. But I've been coding since I was 17. But the way I got into software development is I actually got in a lot of trouble as a kid. Like Sons of Anarchy type style. Like legit group home, foster home, crisis center, high speed chases, prison. And I ended up in rehab and it saved my life. At 16, 17, I went through a program for 11 months that literally allowed me to build my self worth and rebuild the trust with my parents that I'd lost. And at the end of that program, I was helping Rick, this maintenance guy, clean out one of the cabins. It was built on an old church camp that they donated to this place. And in one of the rooms in this cabin was an old 486 computer and a yellow book on Java programming. And I opened the book and something spoke to me. I don't know why, but I just like followed chapter one. Booted up the computer. And within 20 minutes, I got the computer to say, hello, world. And I thought, so whatever reason, I thought I was like a computer genius. But that's literally how I started, you know, growing up with entrepreneurial air quote tendencies and then becoming obsessed and addicted, honestly, to writing code and software. And I haven't looked back.

[Nathan Chan]

Did you say what happened next? Like, what was your first business?

[Dan Martell]

Well, this is always a fun question, right? I always ask people, like, how many projects or domains did they buy versus their business? Because, like, those are two different things. So the first thing I ever made money on was actually this app I built. This is 97. So I come out of rehab and I discover this little thing called the Internet, which obviously turned out to be kind of a big thing. Perfect timing. And I built a CD burning tool that my friends would pay me 20 bucks. Because the problem with it, if you had a CD burner back in the day, some people are like, what's a CD burner? Is that they would sit on my computer to build their playlist, because you could put like 150, 200 songs on a CD. So I built this tool. They would download, it would synchronize with my file drive on my computer from all my MP3s I downloaded off Napster in Limewire and Kazam and all these different tools. And then they could build their playlist. And then they gave me 20 bucks and then I would burn them a CD. And that was like the first, like, thing I built on my computer that I actually got paid to do. But my first company was probably at 1819, like not too long after I built a vacation rental website for my dad. Initially, I kind of lied to my dad. My dad was like, hey, I need this webpage for. Cause he kept getting calls. He had a cottage he would rent out. And he asked me, he goes like, can you build me a webpage? And then I went online and I wanted to learn this new programming language called Cold Fusion. So I told him that to build a webpage it was gonna cost 600 bucks. And he's like, why is it gonna cost 600 bucks to host a webpage of my cottage? And I was like, it's just what it costs. The, the truth was, is I wanted to rent a server on this site called 1&11and1.com. And I needed that specific one that would run the Cold Fusion software. And so I took my dad's money and his project and built this vacation rental site, no different than VRBO, almost identical in concept. In 1998, 99. And. And that was the first business that I actually launched. We called it Maritimevacation ca. And the way I got customers was kind of nutty. Story is. And I didn't know anything about marketing or honestly making money on the Internet at all. I was just a software guy. And I told my buddy Dave about this idea I built. You know, the software that lets you create like, a listings page for your cottage, your bed and breakfast, and our area that we grew up in in Canada. And he goes, hey, there's this magazine that the government prints. It's like the tourism magazine. And on the back of the magazine is a listing of, like, all the bed and breakfasts and cottages for rent in the province. So I bet those people would want to pay you for one of your pages you could build with that thing you built. And I literally sat there in, like, awe, immediately ran to my computer, got this magazine, put paid my little brother, he was like four years younger than me, to add all of the contact information, the addresses into a Microsoft access database. And I paid him like three bucks an hour, and then created a form letter in Microsoft Word and literally sent out to people a blanket, like sales. You would probably call it direct mail, but it was just like this page that said, like, a maritime vacation. If you're looking to build a website for your bed and breakfast, fill out this application, which had all the details. Send us $30 and three photos of your listing that we'll scan in and put on your. On your page. And if you want the photos back, add an extra $5 and we'll. We'll ship them back after. And I sent out like, hundreds of these. And I remember, like, maybe seven days after my dad came home and he, like, checked the mail and there was like, a stack of envelopes, and he just looks at me because, you know, obviously I grew up in a pretty. I was a little mischievous. And he just, he just literally asked me, like, what did you do? And I was like, holy moly. And we started opening up these letters because, you know, this is 99, 98 people. People had no problem sending 30 bucks in the mail in cash, but they were full of cash. And that was the first time I kind of made Internet on the money from somebody that didn't know me. And I, I kind of joke. That was the day that I went pro. Like, you know, there's like, the day that you finally, like, quote, unquote, make it for me. I. That was 18 with maritime vacation, even though it completely failed because a Competitor [e-mail] kind of came in and absolutely crushed me. It was an incredible experience. I learned a lot about entrepreneurship and just building a thing that was valuable to other people and marketing it and that was a fun experience.

[Nathan Chan]

You've been typically known as kind of like the SaaS guy. So I'd love to know, you know, you have a really large SaaS Academy and you know, some of some, some of my friends have joined it and like, you know, spoke very, very highly of it. I'm curious, what was your first SaaS business and how did you fall into SaaS?

[Dan Martell]

Yeah, you know, SaaS was one of those things I think growing up in a world with a lot of chaos that the predictability of it just spoke to me. So back when I started we just called it like asp, like application service provider. Like we would host the application, there were hosted services. We didn't even call it that. I mean it's gone through this evolution of like I would say hosted solutions to web based products, to subscription to cloud to. Now SaaS is kind of the thing we call the category. Um, the, the first, I mean I built a bunch of SaaS tools with my company Spheric, which was like the next company that. Well actually no, I did a hosting company that failed. I, I failed for seven years. Okay. Enthusiastically. This is what's. What people I think don't know is like I didn't side hustle these things. I was all in. Like I would sit there and code 12, 14 hours a day. I would, you know, whatever I had to do. And so like I did the hosting company and that, and that failed because we had a bank as a customer. I almost got sued. So did I got way over my skis on that one. And then my third company was a company called Spheric Technologies and we built enterprise portal portlets, they were called. So this is back when intranets. I'm dating myself, some people are like, what is that? Well, it was big companies started customizing the homepage experience for their employees. Right? You open up the browser and the default page would be their intranet. But then intranets got smart and those were called portals. I built SaaS products for Fortune 500 companies to integrate with their ERP systems. We're talking Siebel, Oracle, SAP, you know, BEA web lot, like all these different enterprise solutions. We built these subscription software tools that people would install inside their companies but pay us for them in 2004. So that company, I mean when I started it, I hired a business coach. He was an E. Myth certified coach named Bob. And yeah, he was the reason why I finally had success in business and that company sphere. We almost did a million in our first year, just shy. And then we literally grew about 150% every year for four years. And I just, I went with it and eventually we got acquired in early 2008 and that was, that was my first kind of successful entrepreneurship experience. And it laid the foundation for a lot of things afterwards.

[Nathan Chan]

So I have to ask the question, you started many other companies since Clarity FM, Flowtown, and then yeah, you started your SaaS Academy and you kind of gone full circle now and you really give back. How come you haven't started another SaaS business? Like, because, you know, some say, and I'd like to hear your take that, like in terms of wealth creation. Building a SaaS companies is one of the best tools out there.

[Dan Martell]

Yeah. So I mean, in. Well, yes. So what's interesting is, is in the book I actually talk about what I call the three levels of trades. Level one is employee, right? Where you trade your time for money, which, you know, you can make a lot of money. The highest paid employee in the world makes over 100 million a year. And that's Tim Cook of Apple. So it's not even like there's no good or bad, it just is, you know, people trade their time essentially for money. And then when you go to level two, which is entrepreneurship, that's when you start to learn how to trade money for time. Right? You hire an employee to buy back your time to then reinvest it in, you know, things that make you more money. And then level three is money for money. And that's where you learn the skill to invest in opportunities that have your money working for you. And I just got lucky that when I was 27, I read rich dad, poor dad, and you know, I kind of started to understand the, the quadrant he talks about and kind of the investor element. And I just started investing my money. So what people don't realize is I have a portfolio, a pretty substantial portfolio of SaaS companies I've invested in. And that's kind of what I do day to day. So I have SaaS Academy, which is the largest coaching organization for SaaS CEOs in the world. We have, I mean, over a thousand active clients. We've coached, I think 4,000 people at this point. And then I have High Speed Ventures. And High Speed Ventures is my kind of personal family office where, you know, we'll evaluate buying companies, will we've invest we invest in companies now we're considering putting together a fund to actually invest in some of our earlier stage companies that we coach. So yeah, I kind of a while ago decided to ask myself, and it's why I wrote this book is, you know, what would my perfect week look like? What kind of work would I be doing? What's important to me at this stage of my career? You know, what do I, what do I want my life to stand for? And I just like to me, I'd rather support CEOs of SaaS companies and either through coaching or investing and then you know, just work, you know, because I have two young kids, like have a little bit more, I wouldn't say worth, like, like work life integration. That's kind of what I'm optimizing for. So I think that especially doing a venture backed company is completely different. A lot of my clients I coach are bootstrapped. So I think that. But again, I now hire CEOs to run companies. So I'm not, I don't need again, it's the whole buying back your time. At some point you go, look, I love being a CEO, but I don't want to be the CEO of this company. I can just hire somebody to run it.

[Nathan Chan]

Yeah, no, you mentioned work life integration. I like that term a lot introduced.

[Dan Martell]

You know, the way I do it is I think there's three things you need to kind of like integrate work and your life into like a rhythm. First thing you need is a vision. And you know, and I actually cover this in the book because I realize when people are trying to understand the value of their time and buying it back and then what do I do with the newfound time? Without a clear vision, it makes it really hard to make decisions today. So I always, you know, coach my clients to like look out at least 25 years. And in the book I call it the 10 10x vision map. So once you understand on like these four dimensions, I share what our life looks like, then you work backwards to, you know, what would be the next 12 months. Directionally accurate decisions, Both the quality of life, how you want to show up as a parent, how you want to show up as a leader, how you the empire you want to build over the next 12 months. And then you then come to the weak cadence. Cause I think that's like, if somebody says something's important to me, I just ask them to see their calendar because usually they will, whether they like it or not. Where they allocate their time is a clear indication to what's important to somebody. So to me, I always start with the rhythm in my calendar that's aligned with the 12 month goals. Personal, professional, that's aligned with the 10x vision map so that I can be super intentional about today. So when it comes to work life integration, because I have that long term view and short term view, I make decisions on a weekly monthly basis when you know what's important to you and you actually add to your calendar, you like insert it as block time, you know. Again, I teach this in the perfect week framework. You realize there's a whole lot of extra time to do other stuff and then you don't get to a place where you're having to fix things. The reason why I got so intentional is because there was a point in my career where I was, I was moving forward really fast, but then I'd have to slow down to fix what I call emotional shrapnel. Right. You have to apologize to somebody for missing something or you got to, you know, you got to go to the gym because you put on 15 pounds because you were traveling too much or whatever it is. So like, what I've decided is if I can be more intentional today, aligned with my goals, I can actually get more time long term back because I'm not spending time fixing those things that I'm creating emotional shrapnel around because I'm kind of measuring twice and cutting once, if that makes sense.

[Nathan Chan]

In the book you talk about how to scale your business fast. You help entrepreneurs build, like scale a business fast without avoiding burnout. I'm curious, have you experienced burnout? Is that, you know, and I'd love to hear how you've worked through it and some of the things that perhaps, perhaps you help like, you know, guide your founders to experience, like not experience burnout. Because I think it's a, it's, it's easy to get it fall into that.

[Dan Martell]

I really appreciate the question. Question, Nathan, because that was my reality. 24 to 28 when I was building my company, Spheric Technologies, I only had one gear and it was all in. I didn't know any different. And because I'd failed prior, I was so scared to do it again that once I started to get a taste of success or momentum, I was so scared of losing it that I just allowed my work to absorb me, to become me. My identity, everything, my relationships, what I valued. And you know, I was engaged to a woman that for the most part put up with it. I mean, it was kind of, when I look at how I Showed up in that relationship. It's absolutely embarrassing. And what happened was, is, you know, towards the, you know, two and a half years I was into this relationship with this woman. We got engaged. I was, you know, we ended up buying a house together. And, you know, one Sunday, because I worked every day Saturday, Sundays, but Sundays I was usually home by noon. And she told me, you got to be home by 11:30. We've got to go. My friend's having a birthday party. And I went to the office and, you know, I look up, I was in the zone, I was getting stuff done. And it's 1:30 and I. I'm like, oh, no. So I like, jump in my car, this old Volkswagen Jetta, and rush home, pull into her driveway, and I run in the house and I found her in tears in the kitchen, and she's just beside herself and can't even breathe. She's just, you know, and she just looks at me and she goes, I can't do this anymore. And she takes her ring off and she drops it on the counter and walks past me and goes. And lives with her parents. And that was, that was the last day, seven weeks before our wedding. And it was so such a shot to my self worth and my identity because, like, you know, as entrepreneurs, we say we're doing it for our families, right? We're doing it for our future. And, you know, it's a sacrifice today for that future. And I just totally had it backwards. So when you talk about, like, anxiety, I mean, I got to a place where I felt like there was a elephant on my chest. I had to go see a therapist because I was having anxiety attacks. And he made me walk around with a rock in my pocket and would squeeze it. I mean, it's just, you know, and what I love about the work I get to do today, that was the moment that I realized I had to find a different way to build. I think, like, if I didn't go through that, I would never have written the book. I would have never found the tools to build the kind of companies I have in the way I have. And this is where I find a lot of entrepreneurs right when they eventually come into my world. You know, people that have adrenal fatigue, they have. Their body literally says, I don't want to do this anymore. And you don't seem like you're going to slow down. So boom. And they just drop it. So the short answer of how I help them is this framework called the Buyback Loop. And the Buyback Loop's based On a principle called the buyback principle, which states you don't hire people to grow your business. You hire people to buy back your time. So it's a calendar over capacity problem. And to do that, you need to figure out what your buyback rate is. How much can I afford to pay other people to do things so that I could? And this is where the loop comes in. The buyback loop is audit, transfer, fill. When I hit the pain line, I need to immediately go to an audit, what I call a time and energy audit. And we walk through their calendar and we figure out all the things that take energy from them, all the things that give them energy, all the things that are low cost to pay somebody else to do, and then all the things that would cost a lot. So I use a $4 sign symbols. $1 sign is low cost, $4 high. Then we take all the stuff that's red and $1 sign task and we put it into a bucket, and that is the person we're gonna hire next. So first is audit, then transfer. And we have a system that I teach people on how to get things off your plate in a way that you still feel in control, but that you no longer own those outcomes. And then the third step is to fill. And if you don't fill properly, then you actually don't create the momentum in the loop to go to the next stage. Right. Most people don't get this. Right. Filling is one of three things. Filling is a decision to invest in either doing the thing that you do best that makes you money. So if you have, if you buy back 10 hours a week and you're a designer and you're getting paid a hundred dollars an hour and your buyback rates only like $12. Yeah. Go do more design work. Right. But if that's maximize, then you got to go look at, you know, where's the biggest leveraged opportunity. And I usually look at it through skills. You, you know, these are things like strategy or know how or acquiring knowledge. Right. The other one is beliefs. A lot of entrepreneurs are stuck where they're at because they have a. A belief about the world that just simply isn't true. So they need to do some mindset work. That's my favorite part that I help founders with. And then the other one is character traits. Right. You could be incredibly skilled, have a great, you know, view on the world, but are not consistent. Character trait. And you'll never create momentum. Right. So that's the fill part. If you do that, then you get to go up the buyback loop to the next, you know, opportunity or pain line. Because the whole point is I want to teach people how to build a company they don't grow to hate.

[Nathan Chan]

So you said that a lot of the SAS founders you coach often bootstrapped. What about the ones that raised, have raised money or significant money. Is it possible to operate with the kind of frequency that you speak of if you've got pressures from VCs and you've raised a truck ton of money and there's a lot hanging on your shoulder?

[Dan Martell]

Yeah. So here's the only thing that changes so. So 70 of my clients are bootstrapped, 30% are venture backed. When you figure out what your buyback rate is, let's say it's $12.50. The only thing that changes for a venture backed company is I, I tell them to add a zero to it. And the reason why you add a zero is because what an investor is giving you capital to do today is they're buying a future outcome. So, so there's this bet they're making and it's high risk. So that's why you add a zero. And it sounds crazy. So you're saying like my buyback rate is now $125. Yep. But the reason why is because you're able to be a little bit wasteful today with the anticipation that those decisions are the right decisions for the future. But nothing changes in regards to, and this is actually where I learned this strategy was moving to Silicon Valley after I sold my first company that was successful and meeting these early 20 year old entrepreneurs that were building, you know, 50 $100 million companies. People like Naval Ravikant. Right. So Naval taught me the idea of leverage. Everybody has the same amount of time. It's a constant. And certain people have a higher ability to create an output. Okay. Elon Musk's output is on another level, but his time is the same. So what's the difference? Well, the difference is the multiplier of leverage. And there's only four ways to create leverage. They're called the four Cs. The first one is content. What we're doing now, 100 million people could watch this and it wouldn't take any extra time for them to do that from us. So huge leveraging content. Playbooks is another example. Creating a repeatable, documented system. The second C is code, software, automation, AI. Right. Huge leverage. It's why SaaS, businesses in general have such high multiples is because they help companies get more productivity out of their teams. Do more with less People, et cetera. Like, there's a reason why they're, they're valuable assets to build. So that's, that's code. Third is capital, which we all know, right? Like we raise capital. And this is why the buyback rate goes up. If you have capital, it's because I'm looking for leverage, right? But in regards to the decision structure and the sequencing and the filtering and what you should do with the free time, everything stays the same. You just get to move faster because you have that capital. The 4C is collaboration. And it's the, it's literally the premise of my book. It's regardless of what business you're in, when you start to grow, you're deploying dollars to acquire like employees, time or contractors. And that's the collaboration C. And most people just do it in the wrong order. So instead of like buying back time out of their calendar by hiring people to grab those buckets of thing that drain their energy, that's very little cost to get off their plate. They sometimes make the mistake of hiring like COOs and chief product officers and VPs of sales when they're a small team of seven. And it's like as a CEO, how about you start with not doing your laundry and not cleaning your apartment and not managing your inbox and, you know, not spending all day long, you know, doing customer support. Now, I don't disagree that there's value in some of these things. Like, customer support has a ton of product innovation. But what I coach my clients on is pay somebody to process the emails to find the customer innovation, and you can collaborate with them. And that's way more leverage than you literally spending four hours a day doing customer support emails.

[Nathan Chan]

So really the main premise of your book is kind of like how to, how to find leverage and optimize your time.

[Dan Martell]

It's funny because people, you know, people go, oh, buy back your time. It's about productivity. Well, it is, but it's more than that. People go, oh, it's about scaling a business. Yep, 100%. But it'll also help you be a better creator. It'll help you be a better artist, It'll help you be a better team member. I just don't want them doing stuff that somebody else should be doing because their time and their creativity at the scale of their business. If you understand your buyback rate shouldn't be spent on editing videos or publishing on social media at scale, like, you can definitely find people that are as capable and honestly better at those things so that you can go Focus on creating opportunities that are better and, or taking the time to recharge and go spend it with people so you can do it for a decade and not burn out after three.

[Nathan Chan]

Yeah, that's cool. I respect that a lot, man. So love to switch gears a little bit and talk about building a SaaS business. Do you think out of all online businesses, E Com, you know, services, agency, lead gen, online education, like SaaS is the hardest?

[Dan Martell]

Here's what I've learned. All businesses are hard. You know, you think about the Internet, right? Well, the Internet made things 100 times easier for people to like, source information and communicate, et cetera. And I think a lot of people thought like, oh, we're gonna have a resurgence of like a hundred times more entrepreneurs. And the data actually doesn't show that. The data shows that there's still the same amount of entrepreneurs per capita. What's changed with technology and innovation is that they're, the wealth creation is just more distributed towards the top because the tooling and capabilities of certain entrepreneurs, they have more leverage. Kind of what we're talking about, the four Cs. So the reason why I don't think SaaS is harder is because I think the hardest part in any business is the conversation the CEO has with themselves. It's the real estate between their ears. It's the capability of an individual to grow through the challenges to become a person who can deal with higher level problems. You know, one of my mentors, this guy Roger, he says to me, he goes, and a long time ago he taught me this, he goes, you want to increase the level of problems. He calls them factors of ten. You know, like when you start off a ten dollar problem is kind of a thing, right? And maybe for some people, like I never found that was a $10, but maybe it's $100 problem, right? Your cell phone bill's like overage is $100 and you're like, oh no. And you like reach out to the company and you freak out and you tell them they got to give you a refund or whatever, you're going to cancel and you threaten them. I mean eventually, hopefully you get to where thousand dollar problems start showing up. Like $10 problems, right? And if you're Richard Branson who had the privilege of spending time with, and I write about in the book, the, the time I was hanging out with him at his house in Switzerland, he had just had a rocket ship blow up. So he's having like $100 million problem day. His 50,000, $100,000 problems don't even register on his radar because he's become the person who can deal with a higher quality problem. And I think that's. If you said, like, is it a business model is hard. No, what's hard is that people don't understand that the game they're playing is not the business model, it's themselves. Right. Are there certain industries that have higher gross margins? Are there certain industries that have easier ways to get distribution? Are there certain businesses that have more elegant reoccurring models like sas, where, you know, the, the, the reoccurring nature of it makes it easier to operate because there's predictability, for sure. But the truth is, is, like, at scale, all companies are valued similarly. Like, multiples will be like, okay, well, this one's a 6x on EBITDA. This one's a 10x on EBITDA. Like, but I mean, at that level, like, they're relatively the same. So I, Yeah, I just, I don't know if they're harder because I, I've seen friends struggle just as much starting a lawn care company as they, they have building a software product.

[Nathan Chan]

Um, you talk about problems. Can you talk us through the 131 method?

[Dan Martell]

This is easily one of my favorite things to teach people because I think it has the highest impact for least amount of effort. Like, we think about minimum effective dose. As a leader, this tool can transform somebody if they truly apply it. The way it works is most business owners and entrepreneurs, and usually it's around 12 employees, where they start to feel the pain, right? Where they wake up and, you know, they, they, you know, they have like a list of projects they want to work on, and their inbox has a couple hundred emails they have to get back to. And, and they start their day and next thing you know, they're on a meeting after meeting after meeting trying to tell people what to do, check that it got it done, and tell them what to do next. Right. And the problem with that is that at about 12 employees, your day starts to look like Groundhog Day, where you spend the whole day, for the most part, trying to get people doing the right thing in their work and then putting out fires. And then pretty much like once if you have kids, you put, you know, you feed the kids, you put them to bed, or once you get, you know, finished dinner, you then go back to work, just actually start on the projects you said you would do in the morning that you didn't get to and reply to all the emails that are urgent that, you know, if you don't get back to. They're gonna be upset. The 131 rule gives a tool where any problem that a direct report brings into your world, you ask them to come with one clear problem. Okay? That's the one, one clear problem. Because people will come to you with multiple. You know, you're like, what? I Literally, even when I'm coaching clients and they're explaining to me their scenario, I go, so define the challenge. Give me the specific problem. Because right now you talked about. I'm counting three, maybe four in what you just said. And they're like, well, here's the problem we need to solve. Okay, let's. Let's get that clear. Okay, perfect. Then what you ask somebody to then do is say, what are your three viable options? So the three viable options are, you know, well, we could invest in this software and do this. We could hire this consultant that can do this, or we can decide to, you know, shut this down and do this instead. Right? So three viable options. And then the other one. So it's one three. One is. What's the one recommendation they have? You know, out of those three, I'm recommending two. I probably use this, like, just today, probably eight, nine times on calls. Eight, nine times on slack. Like, I continuously remind people, like, you know, once time I had a HR director come to me and he's like, you know, I got a problem. I was like, what's the issue? He's like, I gotta hire 12 people in the next quarter. And I go, cool. I don't know how to do that. I go, well, that sounds like a fun challenge. He's like, yeah, but I don't know how to do it. And I go, okay. And he's, like, looking at me to give him the answer. And I go, here's the challenge. I know why you came to me, and I appreciate, and I understand the frustration. But, like, if I give you the answer, I'm technically doing your job. And Steve Jobs said it best. He said, the easy thing is to hire somebody and tell them what to do. The hard thing is to hire somebody and have them tell you what to do. So what I said to him is, like, go do the one three one. Do you have it? And he's like, no. And I'm like, cool, how much time do you need? He's like, give me a couple days. I said, perfect. When you're ready, call me. I'll be available the next day. He texts me, I'm good. He didn't need me. He knew exactly once he did the research. The obvious solution was the one he picked, so he didn't even have to do one three one with me. And that's the beauty of the 131 is that over time, when you build this in your culture and you teach it to people, you'll get so much more leverage because you're pushing decision making down to the front line. Right. Whereas as you grow, if you don't do this, everything keeps bubbling up to the top. And that's why they call it a bottleneck, because it's at the top and it's the founder, it's the entrepreneur, it's the CEO. And you want to push things down and be owned by people. I mean, 90% of the time somebody presents me their one three one and their recommendation, it's of course, that is the obvious solution. Do that. Right. So then, then I only get presented the really fun stuff.

[Nathan Chan]

Yeah. Wow. That's gold. That. That is gold. Thank you for sharing, man. I have to ask though, then your one on ones must be pretty short with your direct reports or how like you used to have. What are you doing when you're coaching if they're not bringing problems? Right. Like more feedback.

[Dan Martell]

Yeah. So I have a very structured approach. For me, what I've learned a long time ago is so there's like the business sequencing problems and like those kind of things. What I like to do in my one on ones is two things. One, I want to get. Well, probably. Three, I want to get clear that they understand the vision. Right. Because I think as a CEO, there's three things we do. Vision, people, and money. So in my one on ones, I make sure I'm always communicating 16 months, 18 months into the future. So I'll just take some time to share that. I'll ask them for their perspective. Where are we going? If we can get alignment, you know, begin with the end in mind on where we're going, then I want to talk about their specific areas of opportunity. And these are, again, these are not strategic. These are, you know, what characters, traits are you working on? What skills are you working on, you know, based on where we're going, where, who do you need to become to get us there? And then I always talk about their personal and professional goals because I learned a long time ago, you know, especially as I coach, it's fun for me to, to, to work with like incredibly talented CEOs, but see these patterns emerge. And that's why I wanted to write a book about this. And things like they're frustrated with Their team, because their team doesn't show up the way they do to solve the problem. Right. They always feel like they're always pulling everybody up the mountain and, like, trying to get them to follow their vision. And it just feels like they're. There's just a lot of weight on their shoulders to carry. And what I usually tell them is, do you have clarity on your direct reports, personal goals in their life? Right? And they're like, yeah, I know what they want. I'm like, okay, let me be clear. Do you. Do you know exactly where they want to be in five years? Like, can you describe to me where your direct report in five years, what their life looks like to the same degree that you could explain to me what their life looks like today? Because today you could tell me what their title is, how much they can make made, what are their responsibilities and other things. Can you tell me the same thing in five years? And they're like, no, okay, perfect. Can you tell me in 12 months what that looks like? And they're like, well, I kind of know some things. It's like, okay, if the direct report doesn't. If you don't know what their goals are personally and professionally, and you haven't explained to them how your business is going to support them in doing that, then you will always feel like you're trying to pull people up a mountain.

[Nathan Chan]

Amazing. Well, thank you so much, Dan. Really appreciate your time.

[Dan Martell]

It's an honor. Thanks, Nathan.

[Nathan Chan]

All right, so if you love this episode, make sure to check out my interview with Alex Hormozi on how he scales companies from zero straight to $2 million a month in less than a year.

[Dan Martell]

People are like, how have you achieved it? Like, there's five years of my life that disappeared. In fact, I lost all the money, which I talk about in the book. I had all the gyms. I did the turnarounds, and then I had $0 five years later because of mistakes that I made. But the things that I was gaining was not the money. It was the skills. It was the character traits and the beliefs.