Acquisitions Anonymous - #1 for business buying, selling and operating - Scaling Up - More brains, more cash, more momentum... more problems?! - Acquisitions Anonymous Episode 95

Episode Date: May 17, 2022

Bill D’Alessandro (@BillDA) and Mills Snell (@thegeneralmills) are joined by Kevin Lawrence and Brad Giles to talk about the Scaling Up methodology. We talk about:What is Scaling up? What business is it useful for? Scaling Up vs. EOS, What is the role of a CEO? How to hire a CEO?-----Thanks to our sponsors!* CloudBookkeeping offers adaptable solutions to businesses that want to focus on growth with a “client service first” approach. They offer a full suite of accounting services, including sophisticated reporting, QuickBooks software solutions, and full-service payroll options.-----* Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel.* Do you enjoy our content? Rate our show!* Follow us on Twitter @acquanon Learnings about small business acquisitions and operations.-----Show Notes:2:25 - Brad Giles & Kevin Lawrence Introduction3:48 - What is Scaling Up?6:18 - What business would benefit from the Scaling Up Framework?10:00 - What kind of home-baked systems have you seen?12:07 - The four decisions in Scaling-Up 14:25 - What are the pain points for an entrepreneur that makes a Business Owner search for an applicable system?19:25 - What is the secret weapon of Scaling Up?27:53 - What are predictable issues of Scaling?33:24 - How do I know if I’m not scaling?38:00 - The problem with autocratic leadership42:22 - How do you hire a CEO?-----Links:* Brad & Kevin’s Podcast ‘The Growth Whisperers’* Kevin's book Your oxygen mask first - The importance of CEOs* Made to Thrive - The five roles of a CEO* https://lawrenceandco.com/ * https://evolutionpartners.com.au/ -----Past guests on Acquanon include Nick Huber, Brent Beshore, Aaron Rubin, Mike Botkin, Ari Ozick, Mitchell Baldridge, Xavier Helgelsen, Mike Loftus, Steve Divitkos, Dzmitry Miranovich, Morgan Tate and more.-----Additional episodes you might enjoy:#90 Move over Elon - Here's what we'd do if we acquired Twitter#87 Yelp is not evil! Building a business using digital CAC - Featuring Johnny Robinson from OSubscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

Welcome back to another episode of Acquisitions Anonymous, the internet's number one podcast about buying and operating small businesses. Today we have a really cool episode for you guys. Today we have Brad Giles and Kevin Lawrence, and they are business operating system implementers. So they specialize in a system called Scaling Up, which is a book, but really it's a business operating system, similar if you've heard of EOS.

And on the episode today, we talk not necessarily about, one specific system, but about the importance of systems, either as you come in and take over a business after you acquire it or as you're trying to make it larger. One of the things that was really interesting to me is just how similar the issues they see across businesses are and some things you can do kind of right away to add more structure to your business, either after you take it over, or if you feel like the business just isn't doing what it says on the 10, as Brad says. and you kind of can't figure out why, but you're frustrated operating the business

and you feel like things should work better. They had a lot of good tips and using a business operating system would probably be something you should explore. So I hope you enjoy this episode with Brad Giles and Kevin Lawrence. But first, a word from our sponsor. Hey, guys, Michael here.

I want to talk to you about one of our sponsors in our never-ending quest to make Acquisitions Anonymous break-even. And that sponsor is cloudbookkeeping.com. It's actually run by my neighbor, Charlie, who's a great guy, and he has been our longest tenured sponsor, and we're super grateful for him to support the podcast.

So what Cloud Bookkeeping does, it is a set of cloud bookkeepers that if you're a small business person, help you get out of the business of doing your books and let you focus on the business of taking care of your customers. So they do all the complexities, bookkeeping, payroll,

and they come across in our very client service, first. That's their phrase, but I know that's true because I've spent time with Charlie and dug into their business. So full suite of accounting services, sophisticated reporting, quickbook software solutions, and full service payroll options. So definitely talk to Charlie if you want to get out of doing bookkeeping and outsource that to a trusted third party, and you can find them at cloudbookkeeping.com. So thanks again for sponsoring today, cloudbookkeeping.com.

Brad, Kevin, thank you for being here, guys. It's awesome to have you. We're looking forward to it today. Gidei. It's awesome to be here with you. Yeah, great. So this is a, we were saying before we got started recording, a very international episode because, you know, I'm in North Carolina, Mills and South Carolina. Kevin is coming to us from four hours east of Vancouver.

And Brad is coming from Australia. Where in Australia, Brad? I'm on the Perth side or the west side. So I'm in the same time zone as China, which is why it's late for all you guys. It's early for me. So, yeah. Probably 10% of the population live on the West. I'm on the West side, 90% on the East.

Yeah, you're a rare bird. I don't think I've ever met one of the Westerners from Australia. It's always good for an upgrade, right? That's right. That's right. So I'm excited to have both you guys on because you guys are professional. I don't want to limit you to just business coaches, but specialists in a system called Scaling Up,

which I know that several, many of our listeners, probably heard of. I know we've also got, you've also got strong opinions on EOS and probably other systems as well. So, you know, today we're going to talk a little bit about different systems for running your business. You know, we talk a lot about buying businesses, but after you buy a business, you got to run it. And it can be really helpful to have a framework. So I was hoping, you know, maybe I'll ping pong and you guys can feel free to go back and forth. But can you help all the listeners understand what is scaling up? It's a book. We know that, but it's more than that. What is scaling up? Yeah, maybe I'll start. And one of the things, you know, I actually was the

key driver of the book and did all the interviews of the 50 CEOs around the world. This is going back years. And it's just based on a framework that was initially called the Rockefeller Habits, which is something called a one-page strategic plan, a very basic strategic plan that is insanely powerful. And 10 habits that are habits that you need to have if you're going to have sustainable scale. Generally, it's a list of 10 things that when they screw up, you go, hey, we got to go work on this.

And it's how you fix your business. And it's a proactive set of disciplines to build in so your scale can continue. I mean, in simple terms, that's what it is. And it's basically, for a CEO and exec team, it's a framework to get your company and your leaders focused on the stuff that matters most and make sure you have a constant learning and improvement engine built in. So don't judge me for being a neophyte here on scaling up. I have a little bit more familiar with EOS, entrepreneurial operating system, while Mills

has read scaling up. How we understand. So is this, you know, teach me what meetings I should be having, teach me how to do KPIs, teach me how to manage my people, help me kind of get EOS who called a rhythm of business. Does scaling up have that kind of concept? Well, the thing to first to note is like EOS is an excellent system and it's a great starting point for a lot of businesses that are earlier on. But do you know, the founder of it was a scaling up coach. And so at some point he went off on, so he took, he was part of the company and a good guy.

And he was part of it when it was called Rockefeller Habits. And he's like, hey, you know, I'm going to do my own thing. So a lot of it obviously would be inspired because he was a, you know, he was very well versed and used. Rockefeller Habits. So it's the same types of things. It's just, you know, and I can't speak for that author because I wasn't involved in US, but it's, you know, his take or his iteration of it. Where scaling up was from Rockefeller Habits, the author, the initial author, Vern Hardish,

it was his take on bringing together a whole bunch of great principles to scale thing. So they are very, they're like cousins almost, you know, non-blood cousins. Yeah. Okay. Interesting. So what type of business is scaling up appropriate for, kind of size in revenue or in management team, kind of stage? You know, who benefits most from something like this? I mean to disagree with Kevin before he even says something. I love it. Of course you are.

So, I mean, I had a startup business. I've founded seven businesses, right? I had a startup business and we were using the scaling up methodology. and there was two of us in the business at one point, and we were sticking to the meeting rhythms, and we were sticking to a lot of the things. So I don't know what your answer would be Kev, but for me, I'm really thinking it's more, it's a system, and you can pick the eyes out of it. You can pick the bits that are most suitable to your size,

but it can suit any. kind of business really. You know, there's a bit of a, I guess, a bit of a thing that people say whereby, yeah, you want EOS up until you get to about $5 million and then you want to switch it over to scaling up. That might be right for some people and it might not. But, you know, I've certainly, myself had a business and work with people who've got startups who are using scaling up from the get-go.

Yeah, I mean, your point, Brad. It can scale down to smaller startups and go bigger. The rule of thumb, we find that people, like, traction has a lot of things that are notably simpler. And that's why, you know, and my rule of thumb is, you know, it's like sub 10 million. It's a great place. Once you start getting, we'll say 50 plus employees, there's tools and scaling up that are even more valuable for there. But they can both scale up and down. but as you get bigger,

you're going to need to modify and add things that scaling up has a lot more focus on. And scaling up, the focus is, you know, I'm going to say the 50 employees, 50 to 500 employees would be the core focus. But yeah,

they can both go up and down. So you guys said something. I mean, it seems like, you know, certain systems might be good for certain sizes, but you said in the pre-recording, any system is better than no system.

Yes. Maybe Brad, you were saying, even if you're two people and you have no system, you still benefit from scaling up. Absolutely. Absolutely. There was two of us. And it was so weird. There was myself and this other bloke, we'd come together into a room, into the meeting room

of a two-person company and we'd do daily huddles. And there was things like that and it synchronized us and it got us to align. So anything is better than nothing. And so many companies, they, like, it's almost like human nature. It makes us revert back to nothing. We just get busy in the day-to-day stuff. And so a system, call it what you will, if it's effective, will apply a level of discipline to a business

and any business with a level of discipline around meetings, around people decisions and a lot of those things, is going to definitely improve a business. The thing I would add is where people get in trouble is where they try and home bake a system and then they make a bloody mess. because if you haven't scaled a company 50 or 100 times, which most people haven't,

it's hard to actually know some of the subtleties of what matters and what doesn't. So when we see home-baked systems, that's trouble. So now you got to tell me about this. I'm sure you guys have both come in to small businesses with home-bake systems that weren't using any kind of structured business operating system. So I would love to hear just from each of you a story about,

you know, maybe, obviously this is Acquisitions Anonymous, so no need to mention names. Yeah. But I would love to hear a story of, you know, sort of a small business or client you came into sort of what you found and how you brought scaling up to that business specifically. Oh, gosh. So, okay, I'll tell you a crazy one. I was referred by a colleague to a guy in the Middle East in Dubai. And he had about 40 operating companies.

He was a local, an amazing man. Turned out to be one of the most amazing humans and entrepreneurs I've worked with in my life. They're in the market that was going through the roof. And everything looked all shiny and perfect on the outside. And it was like a Moroccan souk on the inside. It was absolute chaos. And this was 2005. And so we started driving one-page plans for all of his businesses and building all these disciplines.

They had nothing. And so in all, and again, notable-sized enterprises he had built. And we put structure and discipline to it. And to the point when the market fell apart in 0708, we were able to pivot beautifully, didn't have to lay people off where the market was shedding employees by the thousands

because everyone was aligned. Everyone was focused on what matters most. But at that point, they were about 10,000 employees across all these different businesses. Wow. Not scaling up. Yeah, they were.

But the wheels were falling off. And my client knew it. He knew the wheels are falling off and it needs something to pull it back together again. Or hold it tighter. That's an extreme example. But sometimes there's big businesses that they've got such a strong, compelling strategy in a strong market where they scale like crazy without all the disciplines to hold it together. Yeah.

Interesting. How much you, right? Yeah. I've got a slightly different example. In scaling up, there's this concept of the four decisions, the four things that you've got. to get right. That is, you've got to have the right people, you've got to have the right strategy, the right execution and the right cash. And so the way that I like to think about it, and I am going to circle back to the story, is what if each of those could add five to ten profit

percentage points? Okay, so you can get to like 20 percentage points net profit. So if you get the right people, A players are going to produce better than non-A players. You get the right strategy, etc, et cetera. And so there's a business that I started working with around about the time of the pandemic, about March 2020. Just kind of, we're just getting going, 20 million dollar business. And their revenues went from 20 million per annum to zero in two weeks. It was a little bit of a challenging time for the owner, as you'd imagine.

And so I said to her, I said, well, we've still got customers, we've still got a database, we've still got staff, and we've got enough cash to at least give us a few months. She didn't have any of the disciplines of scaling up in there, but I stepped in and we built a strategy. So we pivoted the business. And what that meant, focusing on those things, they're now, I'd say about a $12 million business, their gross margins have gone from about 30 to 35% to about 70%. And, you know, they are in a, they're in a moat. So they're in an area where they're not really focused,

they don't really have any major competitors. Plus, and the SaaS people would get this. We're pivoting not only to a moat, but we're also pivoting more towards software as a service. So, yeah, I think that. you've got to have the right strategy, and the right strategy can drive the right margins. Guys, I've got a question for you.

So I know that the best coaches and advisors I've worked with, they don't sell, right? You guys have a business and you have to get customers in some way, shape, or form. But I'm curious, what are the pain points that most business owners you work with? What are the pain points that they're experiencing that make them say, you know what,

no matter what, I've got to do something, X, Y, and Z are happening in my business, and I've got to make a change. What are those things? Like you've said, Kevin, you know, the wheels are falling off. Brad, you had an example of, you know, somebody whose business was drastically impacted in an acute way. What are the pain points that people are trying to fix when they put a system like scaling up or EOS into place? I'll go first. The main root cause, which we're always trying to understand, and where someone's at when they reach out and contact us. And like you said, they won't sell. The phone just rings because people know we can help. They're at a point where the CEO is like losing their mind.

The stress is getting, it's, they've generally always got growth, but it's getting crazy. And there's often been something major. Like they've had a key person that has, has been, either is a problem and is hurting their business. They don't know how to deal with it. they might have lost a key customer. Something has happened, but it's to the point where they know they're just way over their head, and they need help to figure out how to get to the next level, which is hard because all of us,

especially, you know, proud guys and proud women who are entrepreneurs, you know, they normally wait until they kind of, they really start to bang their head up against something, but which is, which is often just that it's getting to be too much and it's getting to be crazy, too crazy. probably a similar answer from a slightly different take. Imagine that your business is a box in the supermarket that you're purchasing. Well, the business isn't doing what it says on the sticker. Like, it's not, you know, I thought that I would have more time. I thought that I would make more money and I don't understand why there's no free cash in the business.

And I thought that people, like, it'd be fun to work with other people. And, you know, it's not so much some time. Yeah, so it's not, the business isn't doing what it said on the sticker, but totally agree with Kevin. Yeah, like people, I mean, people are like, I think I want to get more out of my business or out of my life. It's not really doing what I want. Yep. That was actually what led us to implement EOS at my business. The employees kept coming to me and going, I feel like this should be more organized.

Like, there should be a system here. Like, this should be working better. And I don't know how to tell you how I want it to. work, but I know it has to be better than this. And so there was this longing for something indeterminate. And that's how we found at US. Yeah. And remember, like if Kevin made the note before, Gino was originally a Rockefeller

Habits coach. And scaling up is an aggregation of the best practices. Like he's drawing from people like Jim Collins and Patrick Lanzioni and the great game of business. So, you know, everything is a really. remix, a lot of this stuff is drawn from best practices. The magic kind of happens when you get the right tool for the right size of business. Yeah, and most of the tools in both of the platforms our systems we're talking about are geared at like a EO or a YPO market or a early to midstage

company, right? They're built for that where there's great big complicated systems, which we're not a fan of it anyways, but there's no way. They will bury the kinds of companies that are, you know, unless you're over a thousand employees, but up until a thousand employees, most of the stuff out there's way too complex. Kevin, that kind of brings up a good question. I mean, I look at,

you know, and again, we're not trying to like pick a horse here, but when I contrast EOS and scaling up, to me, EOS is a little bit easier to consume. Like when I was doing sell-side M&A advisory work,

it felt easier to hand off traction because I felt like a business owner would read it. I've worked through the scaling up book. To me, it's like a workbook. It's super helpful. It's very practical. I'm like going online. The working name when I was writing it was

that Rockefeller Habits implementation guide. It is, it is a workbook. Don't read the whole damn book. It's too much. You're supposed to read it a piece at a time. But yes, I got what you're saying, yes. So to me, it can be a little bit intimidating, right?

You know, because you look at this thing and you realize, oh, my gosh, you know, there's so many more things to do in relation to my business. And, you know, most business owners are completely overwhelmed and covered up, just putting out fires. They're not stepping back to figure out why are things so flammable in my business. So if you, like, if you had to distill down, you guys work with tons of business owners, what are the kind of key, like if you had to say, hey, the secret weapon of scaling up is, what's that thing that all of a sudden when you get there, it clicks for people,

and like the entire process would be worth just this one facet? Can you distill it down that much? Yeah, and the thing is, it would apply to any planning methodology. That one-page strategic plan and getting your entire team aligned around what the company looks like in a very long term, what we're aiming for in three to five years and getting those top few goals, three or five goals for three years, one year, and every quarter at a time. That's where we start with every company. We would never leave a meeting without clear goals for the first 90 days and ideally even by key executive. Again, so that piece, because it creates clear accountability of what

people need to do, and it sets them up to self-report their own report card at the end of the quarter. That is one piece, and we always do that. That's a non-negotiable. That's a foundational piece, because that's aligning people. The second one, it's a bit into people section, but is the quarterly talent review and inspired by Brad Smart and Top Grating. We had him on the podcast a few episodes ago. It was really cool. Yeah. Peace, that methodology, most people play with it. They do not implement it to the, we are implemented with rigor to the point where it drives some people bonkers. But my conversations with CEOs, clear accountabilities at the company and executive level, top grading and talent review every 90 days. So, Brad, it looks like you're

skeptical of what Kevin's saying. Come on, you got to, you're going to, you're going to beat him up here a little bit. No, that's just my always face. I'm always skeptical of what Kevin's saying. Look, do you want to operate or do you want to scale? I think that that's an interesting, you know, that's a play on the words, and I'm not having a crack at EOS. EOS is a great system. But if you've got a, let's say you've got a plumbing business with 15 people and you've got no ambition to take it to scale it and you want it to run really efficiently, EOS could be an awesome system, right? But if you've got a plumbing business and your goal is to stitch together 50 plumbing businesses around the country or even 10, and you want to scale that up, like that a more comprehensive

and more detailed methodology might be more appropriate. You know, that's the thing. So do you want to operate the business efficiently and well? Or do you want to really dig into strategy? Do you really want to dig into the depths of people to get the kind of, to enable you to scale. I mean, it's kind of, it's in the name itself. Yeah. And the piece that I think on top of all of that, whatever system you pick, it's got to be simple, otherwise it doesn't scale. Simplicity scales.

Complexity does not. But it's the relentless execution of it. Like we've done, we take normally post-COVID, we take about 40 CEOs a year. to go spend two days with Jim Collins in his lab in Boulder. Like, magical experience. He is the number one thought leader of scaling businesses on the planet, and he is an incredibly humble, amazing human being. So we take 20 CEOs at a time around the world,

and we go and dig into it. And one of my favorite quotes from Jim, success is not innovation or anything else. It is one simple thing. Relentless execution of the boring basics that are in your hedgehog, in your company. Relentless execution, all this other hype you read about in business press, it's crap, it's not true. Can you master the basics, master the basic disciplines? And that's where no matter what platform you pick, most people will get more value out of relentless execution

than they will debating which platform. And when we go into companies that have supposedly invent any of these platforms, it could be scaling up, it could be traction, could be another one. Generally, they're running loose. They're not holding tight accountabilities on the key pieces. That's the value difference. And that's where we put our energy because it's almost like,

we're not device agnostic. We are in our system agnostic. It's just we have a bias, but the value is in the execution, not necessarily the tools. So maybe let's talk about that execution a little bit. if you were going to lay a road map, right, for, you have two business owners on the podcast, right? I own about a $20 million roofing contractor.

Bill owns a gazillion dollar e-commerce, you know, conglomerate. And you're kind of telling us, hey, look, here's what you should expect, right? Here's what the implementation and the execution around scaling up involves. And you've got to do it in a way that our eyes, you know, don't glaze over. and we just think, oh my gosh, we're going to have to hire somebody in order to do this. How do you lay out that roadmap? How do you, I know you're not selling, but how do you sell somebody on dedicating the time and energy, you know, associated with this process?

I've got to, yeah, I've got an example from myself. So when I first read Rockefeller Habits way back in 2001 and started implementing it, my business was growing at 85%. We were, all I was trying to do was find something to, keep everything together. And so I went to, you know, what I guess you might call today a coaching firm or a business development firm. And I remember at this one point, we were having real cash flow challenges. And it was consuming my every day. And so I went to this meeting with these guys and they had a standard framework and a standard path for which we had to follow. And so I went

into this meeting and they said, and this is going to show my age, despite, you know, what you can see on the video and they said, right, so today we're going to talk about sending faxes out so that you can get more leads into the business. Like we're growing at 85%. We don't need more leads. We would master that. So my point is what we needed at that point was help around managing cash, right? So what my point is, is that Bill and Mills, different businesses, right? The path might not be the same. Think about a pool table and you've got pulled balls. The angle of inclination depends on the angle of exit when we start. So one may have a terrible strategy, one may have a great strategy, but bad people. So we're going to probably fall back to the four

decisions and we're going to understand what's going on and how can we create the greatest impact immediately. Like it's got to be tailored to your individual needs because every business is different. And even two businesses in the same industry in the same city, you know, they could have completely different challenges, different balance sheets, different everything. So to pick up on what Brad's saying, first of all, it's a conversation with the CEO who calls like, what's going on? What's the issue? And we know the issues of scale are insanely predictable. And so generally, we don't sell it, as you said. It's like, what's the, we diagnose it. What's going on? What's the issue? What's the symptom? What's the root cause? We get a sense of it.

And then we say, okay. And then we just map out how we normally work together. Well, normally, we spend a day doing some research talking to your execs to figure out what the heck's actually going on we might do an assessment of the org we've got some to go in and get a sense of where things are at and then we spend time building an agenda of what we're going to cover in those first two days to kick it off and we say look and what we normally do for all the other companies

that have been successful in scaling is we talk once a month to make sure we're progressing and we're not stuck in anything and then we get together in 90 days and review how we did, hold ourselves accountable and learn, dial in some important stuff, and then set the next batch of goals. It's basic.

But the root is what's the actual issue that people have? And then we provide the discipline in a rigor to make it happen. So, Kevin, you just said something that sounds a little counterintuitive to me. You said the issues of scale are insanely predictable. And I think if you were to ask entrepreneurs,

they would go, no, no, no, my business is a unique flower and the bigger it gets, the more unique it gets, right? And if we have more scale and resources, we have ability to do more things custom and it's more unique. But you said that the issues of scale are insanely predictable. What are they? Well, Brad already touched on them.

Yeah. You often have our own strategy. You have a goal of not having a strong enough competitive advantage in the market to get the margins you need. So that's so competitive strategy. is one around people generally as most companies grow the team gets weaker that's why we're relentless around top grading because we want our like we got a company down based on chicago 750 people 72% of their people are a players that's unheard of is that real like can you trust that

abs so freaking lute i've been working with for a decade and we grind on it every quarter and we pressure test it every quarter and wow there results during COVID would, I can't even tell you. Like, you know, they went from, they doubled in size, and I think they 5xed the bottom line in COVID, like nuts. But they have an amazing team. So weaker team as it grows. Cash, cash can be an issue.

Some businesses get chokes, some don't. That can be an issue that gets people. And the other piece is clear accountability and execution. And most businesses are horrible. like generally i want if if we're all the exact team if bills the CEO and the rest of the execs i want to know for brad's top six or eight kpIs what red yellow and green looks like in terms of the ranges i want to know brad's top five accountabilities to deliver for rocks projects goals for the quarter whatever you want to call them i want to know brad's team and where we're at on it um and of course

whatever he owns on the p and l the balance sheet but most companies they don't have the level of clarity for execs to run with full autonomy. So it falls into those general categories. And the final one, the CEO is no good. Like the CEO is, is, you know, an awesome founder and they haven't grown enough to be able to lead it. The CEO's got to be a couple steps ahead. And if there are a couple steps behind, the business stops growing. Interesting. Interesting. It's pattern recognition, right? I mean, you know, Kevin, you and I, we've probably, we've been. We've been. hundreds and hundreds of business plans over the, you know, the years, you just, you see the same things enough and you begin to draw those conclusions. Okay, so what's going on here? I mean,

you know, a great coach asks the right questions and, you know, a question about a coach, can this coach take me to $100 million or whatever the revenue is that you're at? And that's predicated on, you know, have they done it before? Do they have the capability, but also, you know, have they got the pattern recognition to make that comment that Kevin made, which triggered that question? You know, it's insanely predictable. You get into a situation, you go, I've seen this. This is a rerun. I've seen this before three other times at another company. So that the thing we found in this work, and Brad and I talk about this a lot, there's actually two value streams that come for the work that we do with people. One is

expert at executing a methodology. Right. We call scaling a up, it could be traction, could be another. So the expert facilitator to run the meeting so the CEO and executive team can participate and think and don't have to run the meeting. Running those meetings well is actually quite hard, especially to cover what you need to. The second piece, as Brad talks about, I've been doing it for 30 years. I've done a couple thousand strat planning meetings and seen them through over a three, five, 10 year period.

So we can look at stuff, everything, and we're not being arrogant. we're just like, everything is so damn simple to us. One, because we're outside the business. And we've seen whatever scenario 20 times before because there, as much as you said, Bill, we all want to think that we're unique special flowers. We're not. The issues are incredibly consistent. And so, again, it's obviously we know it's way easier when you outside too.

When you're the entrepreneur team driving it, hats off to you. Right. Like, it's hard and you're in the middle of it. Of course it's easier for us to see. So I don't want to diminish the capabilities of the teams leading it. It's just, you know, we have a strategic view on the outside. There's a third bit there, Kev, very briefly. Thank you.

But it's the ability for the coach to run to the fallout, the ability for the coach in a situation to not only have a deep understanding, not only make it easier for the CEO, but is your coach, you know, going to really push you or challenge you or just not take the BS that you're going to feed them. Yeah, that's a great point, Brad, because when something comes up to letting a key person go, nobody wants to do it. And for us, we hunt people down and tell it, we hold the CEO accountable to make sure it happens.

And it's easier for us to do because we don't have to deal with the ramifications. So we go ahead, Bill, I cut you off there. You guys have touched on something, you know, you said a common issue of scale is that the CEO is not getting there. that he's behind the eight ball, he's not leading the team. You said it's hard to scale the meet it. It's hard to run the meetings. You said it's hard to make the decision to fire the person at the right time if you have to do it. So there's probably a lot of CEOs or want to be CEOs listening to this podcast.

I don't know in our audience. And a self-aware CEO is probably always asking yourself, how do I know if I'm not scaling, right? What are the telltale signs that you as CEO are not scaling? And what do you do about that? Yeah, I'll jump in here. This is the dirty little secret, right? This is the dirty little secret that occurs in EO or YPO. And sometimes, unless you've got like a level three forum, people might not even be talking about it.

And that secret is, like a lot of CEOs don't even know what their job is. They don't really know. what am I supposed to do? I know what a nurse does. I know what a carpenter does, but what does the CEO do? The five roles of a CEO, accountability, ambassador, culture, strategy, and succession planning. So yeah, you've got to know, like, what is the CEO's role and how can I scale with the business? How can I, like, what are the roles that I've got to perform, Bill? So if I'm not, if I'm the CEO and I'm not doing those things or I'm doing other things, you know, I might feel based on the scale of my business, I got to do some other things.

Maybe I'm partially an individual contributor, right? Because I got a small business. Does that mean I'm failing? So am I failing if I'm doing anything else or I'm not doing those things? Is that strict or is there some fuzziness that? No, it's a spectrum. It's not binary, right? But let's look at an example.

Let's say that you're in engineering and you don't, want to do any ambassadorial stuff or any sales stuff. And what you'd love to do as the owner and CEO of a business who runs a team is stay locked in the cupboard and kind of type away on the computer. Right. And we've worked with CEOs like that. The pride that the team will have in their leader is significantly affected. And the customer's pride and the customers trust and all of these other things are affected as one simple example. So it's not that you're failing, but it creates an opportunity for you to say, all right, well, I'm going to try to find a couple of ways to engage with customers or stuff. So I'll give you a different angle on it.

Before we start with a company, I want to check the CEO out before we take it on. Yeah. And so there's a couple things that we look for. And again, if they don't dedicate energy to their own growth, they fall behind. So a couple things I look for. Are they a learner? Do they read books and take courses on a regular basis. Learners have an advantage in this world because there's so much to know. So that's one thing we look at. Secondly, are they coachable? Will they take advice and act on it? And we have a couple tests we do up front to make sure they are coachable. Because if a CEO, if you're too insecure or arrogant, mostly insecure, to receive advice, it's a problem because no one's that smart. We all need help. Third, we often do

a 360 up front to understand how effective they are as a leader. Because a CEO's job is to build a team. And if you can't build a team that is increasingly more empowered, he ain't going to grow. It's a limit. So we have a specific set of questions that we ask that rates the ability of the CEO to build a team. That is the number one thing a CEO needs.

Now, it might take five years to do it. but many micromanager type or autocratic type CEOs can't build scale because it's all in their shoulders. Can you build strong independent leaders appropriate for your size? So again, so going back summarizing, coachable, learner, and can they build highly effective teams? And if they have that, we can help them with the rest. Kevin, you bring up a good point there. So before I owned a business, I was in the merger and acquisition world and looked at a lot of companies for sale. I used to help sellers and then I went to the buy side and I acquired.

And that kind of autocratic, that command and control style leader to me, you know, when you look at a large sample size of businesses, it almost requires that autocratic person to go from zero to something, you know. but then all the sudden that composition, that CEO, that founder has to shed their skin in a way and go, okay, the thing that it took to get me from point to point B is now actually going to hinder me. I'm going to hit a ceiling and I'm not going to be able to grow. And I've got to all of a sudden turn over a new leaf. So I've very much seen that to be true.

And a lot of our listeners are people who are either they've acquired businesses and they're operating them or they're looking to acquire and operate them. And I'm telling you, it can be really frustrating if you sit down, you're trying to buy a business, and you sit down with one owner after the other who just holds this death grip on the business, won't delegate, won't, you know, empower or, you know, provide autonomy to their people. All roads lead to them. And then you buy that business. That's not fun. We've done it. You've got an autocratic leader where people have switched off their brains and they're just doing, yes, sir, yes, ma'am all the time,

then basically you end up with a very weak team under that leader. They won't like, so from an acquisition perspective, that's a nightmare. Now, if you buy it cheap enough, you can gut the team and rebuild it, maybe it's worth it. But yeah, and with, so yes, and but if you flip it onto it the other head for that person, it's not fun because everything comes back to Rome. And that's a lot of, and so that will lead to burnout, hating your business. And, you know, it's good for you guys.

because that leads to people wanting to sell. A lot of times, that's why people tap out. I mean, if you got a business that's going to go from making a million a year and it'll make 10 million, like, why would you sell it? Right? And those people tap out because they can't usually get to that next level because they don't know how to build strong teams. And the best CEOs that scale are masters of that.

Well, we've all got our own limits. And the real job of a manager is to grow the people around. them. So a low level of performance comes where there's no accountability. A medium level of performance comes when you've got team leaders who are accountable and the team are not accountable, but then the highest level of performance comes when the leaders are coaching, not us, but the CEO, the owners, the managers are coaching and then the team is accountable to the team goals. So what we're trying to advocate is those. Those are the managers. people, if they can't come to their own epiphany and Mike Marshall, Marshall Goldsmith said that

what got you here won't get you there, if those people can't get to that understanding, they're not going to get real and true performance from their team. And that's why you guys, why we are, like, we have, I have a number of people in my team who help companies with top grading, whether it's implementing it or doing the extra interviews. And I force, it's not negotiable with my clients to use top grading or not. I will lose my crap if they hire someone at a senior level without using it. I'm not joking. Because when you have A players, all that stuff's easy.

They're automatically accountable. They don't need to be managed. They just have clear expectations in a way they roll. So as companies scale, that's where they get in trouble, is they try to work with B players, or I call toxic A players who don't fit the culture or C players. They try and work around it. it makes the CEO or the leader's job a nightmare. So it's like the best hack I know,

build a stupidly strong team just like a sports team would. And all of the, even if you're not the best manager, you'll look like a great manager because you've got a strong and powered team. And that's why I'm so thankful to Brad Smart and work he's done. Like it's, that is a,

when I did all the interviews with scaling up, eight of the 50 CEOs I interviewed specifically named top grading as a game changer. all of them said Rockefeller Habits are scaling up because that was the group I was interviewing. But eight of them said it's a game changer because it just makes your life easy. And many of these problems are people

that are just not suited for the role or suited to report to that CEO because everyone's a little, we're all a little weird. So let's take this to like it's logical conclusion, right? You're a CEO and you said a lot of CEOs, you know, they're not scaling. What got them here is not going to get them there.

We've also got, and maybe you recognize and yourself as CEO, hey, it's time for me to step aside. We've also got a lot of listeners who have ambitions to build holding companies, and so they might have bought a business. They take over a CEO on day one, their CEO for a couple years, and then their goal

is to step aside and to replace themselves as CEO. How the heck do you hire a CEO if, you know, in this case, the person doesn't know how to be a good one? So how do you hire and how you interview and hire a CEO to take over your business.

Get somebody that does. The first thing is the model that we often use, and we're doing this for a company right now, where in the next five years, four of the execs and the CEO are all retiring. Right. And so we've got to replace the four execs and the CEO. So that's challenging.

The main thing to start with, though, is when you want to bring someone in for a CEO, you ideally want them to come in to an executive, role for a few years first. Learn the business. And so what we try to set up with all of our companies, we usually want a three horse race. So it could be, you know,

your head of sales, not likely marketing, but it could be marketing. It could be ops, could be finance, could be legal, whatever it is, but in those top roles in your company, and it might be the second layer, having a few people that you're grooming and giving them the opportunity.

So, for example, if you didn't have someone at a team, you got to take one of those key seats and replace it with someone, ideally a couple that have the potential, and then work with them over a few years to do it. How transparent are you, Kevin, with that process? Like, right, it's probably a fine line. You can't say, hey, look, the keys to the kingdom are yours. You know, you're going to be in this position,

and then all of a sudden, you know, this thing is yours. There's got to be a good framework for accountability and, you know, clear goals. But how open are you to that person? It depends on the company. Every culture is different. you want to be open that there is an opportunity, not necessarily that it's yours. Because we've worked on CEO succession a number of times. The person that ends up with the role is not often the person that you think.

Like you don't know until you really start pressure testing them and giving them a shot. And the CEO is obviously a very challenging role. So letting them know that the CEO is going to step back. If it's a president's CEO, they're going to just become CEO or they're going to be chairman, whatever it is, or chairperson, letting people know that that opportunity is on the horizon and giving them a shot at it. But I would never recommend telling someone that will be your job.

It's just that you're one of the team that will be considered when it's time. So I don't have I answered the question, but the key thing is, is one, if you can, have them in a business for a number of years and then start giving them projects and pressure testing. Give an example. We had a company that was very successful and the CEO was about two notches above his executives in terms of capability.

He was an amazing CEO. We wanted to bring these guys up to one notch. So we had a few of the people in the business that were contenders, and we started coaching them and giving them additional projects that were pieces of the CEO's job to see how they did. Nine months in, there was only one person standing. And that person we know could do it if needed. So we had a succession plan. But you just watch based on how they had.

handle the tasks required in the role. Second piece, and then beyond that is using the top grading methodology for assessing. Even with our internal candidates, a top grading interview from the methodology versus the top grading scorecard and a 360. And that's what we're doing in this other company right now. We're probably going to go through about 20 or 30 candidates to get the final decisions, but we have the same methodology. Everyone knows that it's transparent.

anyone who doesn't make it to that next position gets development for their own career growth so they're not feeling like they are disappointed. But we're starting five years in advance. Bill, I'm going to try to answer your question in less than 15 minutes. 70% of the time at a really loose number, if you hire someone in to replace you as CEO, there's a good chance it won't work. invert that. If you hire someone with a three-year plan to get them to replace you as CEO in three years, 70% chance it's going to work. That's the loose metrics or the loose kind of phrase that I'd say.

So to close that out, yeah, set it three years away, find the right person, on board them really well, take them on a journey, and then a bit like a computer game, unlock little bits as they get closer, bits of responsibility as they get closer to that, where by the time three years comes around, it's a seamless transition. Awesome. Super helpful, guys. Thank you both for being here. We're running up on time, so I think we're going to wrap it there. Thanks for, thanks for being our guest today. I'd love to give each of you 15 seconds. Just tell the listeners where they can find you on the internet if they want to learn more about you. Kevin first. Yeah, Lawrenceendco.com. You can look us up for our firm to helps. Your oxygen mask first, the book about growing your

off on Amazon. Scaling up on Amazon. Thank you. Brad Giles and I'm at EvolutionPartners.com. com.com. And my book again was made to thrive.

And Kevin and I have a podcast where he speaks for 15 minutes and then I speak for one minute. No, but seriously, that's called the Growth Whisperers as well. Awesome, guys. Thanks so much for being here. This was really fun.

Thanks for having us. Thank you. It's been been good.