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The 40-Hour Work Year with Scott Fritz

The 40-Hour Work Year with Scott Fritz

Today, I am honored to be speaking with Scott Fritz, the founder of Growth Connect, a business coaching and exit planning service that specializes in transforming businesses into assets.  

He’s also the author of The Forty Hour Work Year, chronicling his entrepreneurial journey that led him to become a passive investor in his own business.  

In this interview, Scott shares where most property management entrepreneurs go wrong when it comes to managing their business for the outcome that we all want, which is profit and freedom.

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Topics covered:

  • (01:00) – Background
      • (01:12) – Scott walks us through his entrepreneurial journey.
        • (01:36) – Scott’s aspirations and activities after he exited his business.
  • (03:23) – Mindset
      • (04:01) – Scott discusses how his mindset has changed over time.
        • (04:54) – The influences on Scott’s mindset that helped him evolve his personal philosophy.
  • (06:12) – Ownership Paradox
      • (06:27) – Scott explains the paradox concept and its negative effect on business profitability.
        • (07:54) – Advice on how owners can get past the paradox.
  • (08:54) – 80%
      • (09:33) – Scott explains how to accept the inherent challenges of leveraging other people’s talent.
        • (10:35) – Some of the mistakes Scott experienced making this work.
          • (12:00) – The biggest stumbling block he experienced.
  • (13:10) – The Transition
    • (14:51) – Standard Operating Procedure – SOP
      • (15:29) – Running an SOP and getting value from it.
        • (16:15) – Using time and motion studies to systemize a business.
        • (16:55) – Benefits of a properly run SOP.
          • (17:32) – Zero Defect Payrolls.
    • (19:13) – The Decision Matrix
      • (20:10) – Scott gives a practical example of the decision matrix in action.
      • (21:35) – The relationship between the Decision Matrix and the Decision Filter.
        • (21:57) – Company level.
        • (22:48) – Owners and shareholders.
        • (23:12) – Employees.
        • (23:39) – The kind of dysfunction Scott sees in these areas.
    • (25:04) – Discussing corporate culture infrastructure and staying true to yourself.
    • (26:58) – How Scott thinks about mission, vision, values in relation to the lifespan of a business.
      • (29:32) – The aspect of ‘vision’ that Scott thinks will resonate with and motivate employees.
        • (29:41) – The Vision Milestone.
    • (31:13) – Forecasting
      • (31:34) – The utility of using the worst-case scenario perspective when forecasting.
    • (35:08) – Five Key Metrics
      • (35:40) – Scott explains why having too many metrics causes problems within a business.
        • (37:37) – Discussing supporting metrics.
    • (39:25) – Implementing Systems
      • (39:42) – How Scott’s personal coaching engagements work.

Rapid-fire Questions:

(41:30) – Are entrepreneurs born or bred?

Resources mentioned:

The 40 Hour Work Year

Where to learn more:

If you want to get in touch with Scott or hire his services, head over to his website, GrowthConnect.com.  You can also pick up a copy of his book, The 40 Hour Work Year, to dive deeper into the material we discussed today on the show.

Transcript:

Jordan: 0:00:00.8 Welcome closers, today we have another episode of The Profitable Property Management Podcast coming at you. This is Season Three on profit.

0:00:07.0 I’m your host Jordan Muela, and every week I interview world class property management entrepreneurs and industry experts who share actionable insights to help you grow your property management empire.

0:00:17.5 Whether you manage 100 units or 1000, this broadcast is designed to help you see the big picture and to get to the next level.

0:00:24.0 Today, I am honoured to be speaking with Scott Fritz, the founder of Growth Connect, a business coaching and exit planning service that specializes in transforming businesses into assets.

0:00:36.0 He’s also the author of The Forty Hour Work Year, chronicling his entrepreneurial journey that led him to become a passive investor in his own business.

0:00:44.9 In this interview, Scott shares where most property management entrepreneurs go wrong when it comes to managing their business for the outcome that we all want, which is profit and freedom.

0:00:55.4 Welcome to the show Scott.

Scott: 0:00:59.2 Hey thanks a lot Jordan, great to be here.

Jordan: 0:01:00.2 I appreciate you coming on, and I just want to kind of get a little bit of context on your industry background as an entrepreneur.

What is the industry and the business that you cut your teeth on in becoming an entrepreneur?

Scott: 0:01:12.5 Yeah, great question. I started a professional employer organization back in 1997. Basically, it’s an outsourced HR payroll benefits company.

0:01:22.3 And I took that from zero, grew it to $170 million. We were in 42 states and we sold. And I sold it in 2007.

Jordan: 0:01:30.8 Got it. So that was roughly a ten year run? Am I hearing that right?

Scott: 0:01:33.9 Yep. Ten years and three months.

Jordan: 0:01:36.9 Ten years, three months, you exit out of the business. Did you know what you wanted to do when you exited?

What was the gap between exiting and doing what you’re doing now in terms of coaching, author, etc.?

Scott: 0:01:48.8 Yeah. I was helping a couple of other fellow entrepreneurs exit their businesses already when I sold. So I kind of was in the vein of coaching and consulting, if you would.

0:02:00.4 And I was doing these talks. I used to call it transition, position, acquisition – was the talk I’d do to entrepreneurial groups.

0:02:06.1 And people kept asking me, “Well when’s the book coming out? When’s the book coming out?”

0:02:09.1 I was like, “I don’t want to write a book. That’s painful.”

0:02:12.5 But eventually I said, you know, it’s a bucket list, everybody’s got a book in it. So I wrote the book, 40 Hour Work Year.

0:02:18.4 It came out 2010. 0:02:19.0 [Inaudible] gap. There was about a two year area there. 0:02:22.6 And then the book came out. I went from three exit clients to 15 coaching clients in like eight months. 0:02:29.2 And boom, there I was. I was coaching.

Jordan: 0:02:31.8 Alright. So The 40 Hour Work Year. If I’m doing my math right, that’s technically 8 hours less than Tim Ferriss promises via The 4 Hour Work Week. You’ve got him beat a bit.

Scott: 0:02:46.0 Yeah, I think it actually works out to exactly a week. It’s a week shorter.

Jordan: 0:02:50.8 Yeah. I love it.

So let’s kind of go through some of the concepts in the book. I’ve been through the book, it is inspiring, and it really kind of gets at the nut of what we all want as entrepreneurs that are freedom minded.

0:03:04.3 We’re looking to have more time for our other pursuits. 0:03:08.3 Most entrepreneurs, even if you love the hustle, even if you love the grind, you want more freedom. More margin.

Whether that be to invest in making the next business, or to invest in time with family, we’re all in pursuit of freedom. 0:03:20.9 That’s really what I view this book as being about, in large part.

0:03:23.9 You start off the book talking about mindset. I find that to be such a common theme amongst high-level entrepreneurs.

There are lower level entrepreneurs that are kind of struggling and that the concept of mindset comes up and it feels a little squishy. 0:03:38.0 Maybe a little bit like hype or fluff. But you start your book there.

And specifically, you talk about your focus filter where you really – in the book you talked about how you got to the point where you were prioritizing these three statements: Enjoy life, make money and do deals.

0:03:54.9 Talk to me about how your mindset has changed over time in running this business, being on this journey.

Scott: 0:04:01.1 Yeah, that’s where I ended up. So, “Enjoy life, make money, do deals” is how I’ve been living my life from a business 0:04:07.5 [Inaudible] standpoint. Since 2004. So going on 14 years.

0:04:11.9 Unfortunately, for me though, like a lot of entrepreneurs, which you just mentioned, I started out with, “Do deals, make money, enjoy life”. 0:04:18.7 So, totally backwards.

I’m a deal junkie. We were talking earlier, I do a lot of angel investing. That’s how I feed my addiction to deals.

0:04:26.9 But, unfortunately, in the beginning I wasn’t making a lot of money and I sure was not enjoying life. So that was the kick off. That was about two to three years of the first ten years of the business.

0:04:35.6 It then moved to, “Make money, do deals, enjoy life”. 0:04:39.6 So enjoy life was still third but now I was only doing deals that made me and the company the margin we set out to grow the business.

0:04:45.9 And then finally, the final four years I was, “Enjoy life, make money, do deals”. Which was living the 40 hour work year. So, that’s where it came from.

Jordan: 0:04:54.9 Natural progress over time, that makes sense. Was this something that you were – a conclusion that you would say you were circumstantially forced into?

Or did you have a coach at the time? Were you a part of any entrepreneurial organizations? How did that awareness develop for you?

Scott: 0:05:07.9 Yeah, great question. So, I was part of YEO, Young Entrepreneurs Organization, at the time. It’s now called EO. They dropped the Y in 2007 when people like me started getting grey and bald.

0:05:17.9 But, you know, what really came about in this – and I do talk about this in the book is, I hadn’t solidified it into those three words until about probably five years into the business.

0:05:30.6 And I realize that the more I did things I enjoyed – this is like common sense if you think about it – the more money I made and the more time I had to do deals.

0:05:38.0 So, it only made sense to flip the thing and go backwards on it instead of just doing deals for deal’s sake, hoping you make money thinking that eventually you might enjoy life.

Jordan: 0:05:49.0 Yeah. I mean, the deals, particularly for the subset of entrepreneurs, which is pretty wide, that can get attracted to the shiny squirrel thing. Deals can be so sexy. They can suck up so much time.

And the truth is, you don’t make any money on the deal until A: it was the right deal. And, you take it all the way home.

0:06:07.7 And at the point that you’re down that path, you’ve just created more inertia that you have to sustain and support.

0:06:12.4 One of the things that you talked about in the book is the ownership paradox, which I thought was fascinating.

0:06:19.4 It’s something you can easily intuit when you describe it, but at the same time, for a lot of us, we’re not optimizing for it. 0:06:24.8 Can you just describe what that is briefly?

Scott: 0:06:27.6 Sure. And I saw that diagram at a conference I was at back in 2000 and it really, at the time, it really rocked my world and helped me change my mindset about my business.

0:06:39.9 The basic concept is that, and most owners don’t believe this, that’s why I call it a paradox, the more the owner is in the business, in the business, the less valuable it is.

Not only from a purchaser’s standpoint, but just from an actual running profitability, systemized, what I call profit machine or ATM type standpoint.

0:07:00.0 So, the owner, a real owner, an entrepreneur, should be working on the business. Which is micro Gerber, E-Myth. I mean that’s where I 0:07:06.8 [Inaudible] before I even started my business.

0:07:10.0 But, you know, as owners of business, we get stuck in a lot of the ‘in the business’ stuff and it’s tied to ego, it’s tied to trust issues, it’s tied to incompetency, both with our people and ourselves.

0:07:22.3 And once we finally get our head around it and say, “Wait a minute, this thing, if I set it up correctly and I get out of working ‘in’ the the business, the people I’ve hired are going to be free to go do the things they should do and do them to the best of their ability.”

Jordan: 0:07:38.3 So, let’s dig in. Why? It’s not a complicated thought, what you just described. And yet, there is so much resistance.

You identify in the book at one point, you describe yourself as a control freak. Right? Which most of small business owners are.

Scott: Absolutely.

Jordan: 0:07:54.6 How do you get over the hump?

Scott: 0:08:00.2 So, and I really caution people, because I don’t want them to get to the point I did. I talk about in the book what I call, Mirror Moment. Which is where I basically – my body was physically breaking down.

I had a nervous breakdown, panic attack, whatever you want to call it. Passed out in my car. 0:08:15.2 Fortunately, I was parked when it happened.

0:08:18.5 And that moment, I realized that doing the same thing – again, the definition of insanity – doing more of the same thing every day was not going to make my business better, was not going to make me a better entrepreneur, and it sure the heck wasn’t going to get me enjoying life.

0:08:31.1 So for me, it was that brick wall of my body saying, “Knock it off going on 90+ hours a week, non stop, you know, you’re not eating right, you’re not taking care of yourself, I’m going to shut you down if you don’t make a change.”

0:08:43.6 And so that was the pivotal moment where I started to say, “Enough’s enough,” which I talk about in the book.

I went out and hired a sales person two weeks later, hired another one about a month later, never looked back, never had that happen again.

Jordan: 0:08:54.8 So one of the things that you talk about in the book is coming to terms with the idea that other people are not going to do the job as well as you.

Because there really is a pull, and the natural and emotional tension, and your way of resolving that was to basically say, “It’s true. And it’s ok.”

0:09:14.2 Walk me through getting to that conclusion on getting out of the business and putting people in a pretty high level of management.

0:09:24.5 I mean, you weren’t just saying that somebody else is going to be less good than you and it’s ok on lower level positions. You were doing that all the way up the food chain.

Scott: 0:09:33.2 Yeah, correct. And quite honestly, this is probably the number one thing I get emailed back about, or I get phone calls when I do one of my presentations.

Is what I call, The 80% Rule. 0:09:43.8 And the concept is, you as an entrepreneur have to be ok with 80%. And that is the biggest issue.

0:09:50.7 If you in your mind cannot say, “I’m ok with somebody being 80% of me,” I’m not sure you can totally – well, I know you can’t have the 40 hour work year, but I don’t even know if you can transition to the 40 hour work month.

0:10:03.4 Because, you’re going to always be in there meddling, you’re going to be second guessing. And really, it’s a lot of trust. It’s really the T word. Is what we’re talking about here.

0:10:11.1 I mean, if you find that – and in the book I say, find somebody who’s 70% of you, train the final 10%, which I mean, train them in your culture and the way you think things should be done the best. And be ok with 80%. Kick them out of the nest and let them go.

0:10:26.4 Now, you still coach them. You’re still there for them. But you’re not doing it, you’re coaching them to do it. Which is how you transition out of your business. 0:10:33.1

Jordan: 0:10:35.5 So, in your situation, when you actually went about that, as an idea or concept it sounds great.

But talk to me about some of the hiccups and the mistakes and the boo boos that you experienced in walking through that.

Scott: 0:10:49.3 Sure. And it gets – it becomes more difficult as you spread out across the organization.

0:10:53.7 So, the first person I went to replace myself with was my main role in the business, in the business, which, I was the sales manger, sales director.

0:11:02.4 So I was overseeing the sales team. 0:11:02.6 So I went out and I took the number two guy at paycheques 0:11:06.9, not the number two guy nationally, but the number two guy in the midwest, and he became my sales manager.

0:11:11.4 His name was Jeff. I would say he was 72-75% of me. I trained the final 10% and let him go.

0:11:19.8 And which is interesting, four years after we sold the company he was still the sales manger for the company. So, it validates to me that obviously I had the right person in there.

0:11:30.8 When you move up to the next level, which would be an executive – now he was an executive, but when you move up to, say, the CEO level, which I was a CEO. I wanted to replace myself as the CEO.

0:11:41.3 Fortunately for us, we had an individual in the company and he’d already been in the company, so we handed over the reigns of CEO and President.

0:11:49.3 He had already been with the company six years. 0:11:52.1 Now, we still, in that mindset, had to say, “Ok, Seth’s going to make some decisions that are probably – and do some things that are probably not exactly as I’d do them, but he’s a strong” — and Seth was a strong 85-90% of me. We were very aligned.

0:12:00.3 We did have our differences, but – that’s a case where that person, if you don’t have them internally, that’s probably the biggest stumbling block I face with entrepreneurial companies. 0:12:16.3 Is finding that replacement of you as the CEO or President of your organization.

Jordan: 0:12:21.6 Did you pursue the option or the possibility of hiring a professional CEO from outside the company?

Scott: 0:12:26.8 Absolutely yeah. So, we did this in all our high level positions. Basically director and 0:12:30.9 [Inaudible]. It was an open interview.

So we post the job just like a normal company would. It’s open to anybody in the company to apply for. Internally. 0:12:38.6 And then we had our external search.

0:12:39.7 Now, again, we were an HR company, so we had a lot of these things set up probably better than a lot of, you know, just a regular tech company or something would.

0:12:47.3 But it was an open interview, so Seth went against three other candidates for CEO and President. 0:12:52.7 Got down to him and one other and in the end I think we made the right decision. We picked Seth.

Jordan: 0:13:00.8 And he stayed on. Presumably he was a success.

Scott: 0:13:03.3 Yep. Again, another example – he had a two year employment contract, which was part of the deal of the sale and he stayed on another two years. So he was there four years as well.

Jordan: 0:13:10.0 Got it. So what we’re talking about here is what you called, The Transition.

First is the awareness that the business is actually suffering as a result of me having my hands in everything. 0:13:19.8 Then is the actual plan to make that transition.

And it’s something that happened in stages over time. What you’re not advocating is just overnight saying, “Hey team, I’m checking out. We’re going to make this the quickest path there.”

0:13:32.3 There was a lot of structure in place. You identify eight specific areas within the business and I’d like to talk through those because this really puts some more meat on the bones of this.

0:13:42.0 The first – I kind of view these areas as really just some undergirding of the business that should happen regardless of whether or not you choose to hire a CEO. Fair to say?

Scott: 0:13:53.2 Absolutely. You make a great point, Jordan. Everything in the book, and when I do a presentation I make this very clear, I am not telling people to go sell your business. I am not even telling people to go live 40 hour work years.

0:14:03.6 What I am saying is, if you follow the systems and filters and processes that I use, I believe you will necessarily, number one, enjoy life more, and number two, make more money.

0:14:14.4 And number three, in my case, do deals. Whatever that true passion is, you’ll have more time to go after that. 0:14:19.6 That’s the whole point.

Jordan: 0:14:21.7 Got it. So you’re appealing to the burnout and the stress that we can all relate to, to open a pretty necessary conversation regardless of whether or not you want to exit the business.

Scott: 0:14:31.4 Correct. Exit is just one outcome. You could have an evergreen business, you could go buy other companies, you can hand it over to your kids, a legacy business.

0:14:40.2 That’s not – the end is not the ultimate goal in the beginning. Right? I always say to view the end in mind, but the goal is to get yourself out of the ‘in the business’ stuff.

Jordan: 0:14:51.8 So, in order to make that transition you had to start playing a bigger game. A bigger game meaning that taking a pay cut to be able to afford to bring somebody else on, the revenue needing to go up to support that long term, and then infrastructure.

0:15:04.8 And the first one of those infrastructure items being the SOP. The Standard Operating Procedure. And this is one of those things, that again, it’s so obvious and folks even do it, and then it becomes a dusty document.

0:15:18.5 Or a document stored somewhere inside a spreadsheet or an excel file. How do you go from the concept to actually running off of an SOP? Getting value from it?

Scott: 0:15:29.8 Yeah. So I say in the book, this is the most onerous thing that I have ever done as an entrepreneur. And I still, to this day, say this was, like, just painful.

Especially as an entrepreneur, because – I always say if you really want to put entrepreneurs to sleep, talk about systems and talk about training, and they’ll all go immediately to their device and pretend you’re not even there. 0:15:51.8 Because it’s so boring.

But the whole point is, if you get your SOP’s, or once you get your SOP’s in place, your systems, standard operating procedures, you can have more time and you will have more time to go do the creative, fun building stuff.

0:16:04.8 So, it’s a necessary, not evil, but it’s a necessary thing you must do in your business so that your people can be trained and aligned with where you want to take them.

0:16:15.1 So the first step, and I tell it in the book – and now there’s some great tools out there now and I always recommend a couple of them out there – but what we did back then is, like, you know, Henry Ford time motion studies.

0:16:24.0 15 minute intervals, people took logbooks into their workplace. 15 minutes every hour they would log what they did.

0:16:30.5 Gather that over a two week period, sit down with the executive team, pull the best practices out. Usually five to ten.

0:16:37.3 Write those, document those, go back in, plug them in. Do it again.

0:16:42.5 So this took us a little less than nine months to totally get the business systemized from beginning to end.

Jordan: 0:16:50.2 Wow. Nine months of documentation. Describe the end state for me.

Scott: 0:16:55.9 Well, the end state was we could bring in somebody, let’s just say a payroll coordinator for example, who typically, once on boarded, was taking around five weeks to get fully up to speed where we could hand over a new client list to them.

You know, they were shadowing people to get up to speed. 0:17:10.5 Once the SOP’s were in place, about ten days. Ten business days. That person went from day one to handling a regular sized account. Not even a small account.

0:17:21.2 With really no hiccups, or little errors compared to what was happening before, even at five weeks.

Jordan: 0:17:25.8 On boarding, ramp time, what are some of the other benefits? Number of errors?

Scott: 0:17:32.0 Yeah, so we had this thing called, “Zero Defect Payrolls.” I mean, our payroll error rate went from, I don’t know, probably like 12%, which sounds kind of high, but not in reality when you’re running thousands and thousands of cheques, down to under 2%.

0:17:45.5 That was kind of the norm, which again, you got to 0:17:46.4 [Inaudible] the time here. We were still in the fax machine, calling days. This was not – online payroll just started taking off when we sold the company.

0:17:54.9 So you know, this was not – a lot of the things that the customer-client could alleviate from an error standpoint were still out there when we ran the business.

0:18:05.5 The scale? I mean, scale and technology. I mean, when we have the systems in place? You can now go plug technology in to take over a lot of those operations.

0:18:14.0 Before you do that, as Gerber talks about in his book, you’re hiring people to run a business, you’re not hiring people to run a system.

0:18:21.8 So, until the system’s in place, you’re pretty much winging it in a lot of cases, which is no way to grow a business.

Jordan: 0:18:28.0 Sure, yeah. And it is self-fulfilling, right? In the absence of a system, it is challenging to hire. The losing an employee is incredibly painful.

Scott: 0:18:38.7 And to your point, what are some of the other benefits? I found this out really early on and fortunately I paid attention.

The top A players, the real quality people? Guess what kind of company they want to work for? A company that has systems and training.

I mean, we’ve all been there. I know I was many times. I went and worked for these companies before I started my own.

You know, systems were average and training was nothing or almost non-existent.

0:19:07.0 And it’s very frustrating as an employee, to go in and not be comfortable and know what the heck you’re supposed to do every day.

Jordan: 0:19:13.0 Well, so by contrast though, it’s also uncomfortable to assume that you’re being hired into a matching where your judgement is not needed or valued. Talk to me about step two, of The Decision Matrix.

Scott: 0:19:24.5 Yeah, so decision matrix, and great point – the decision matrix – so behind the decision matrix, every single one of those line items has a system. It has an SOP written out behind it.

0:19:34.9 So the beauty of this decision matrix is not only does it make sure everybody’s aligned, but it’s who has to touch what in the company.

0:19:41.2 As my daughter used to say, you know, “Get out of my sandbox”.

You know, like why are you in there messing around? It’s not your area.

0:19:46.7 What it also does then is, as you grow people and develop people and create what I call intrapreneurs, which is entrepreneurs, you can show them how moving across a decision matrix — they’re taking on more and more of a decision making role in the company.

0:20:00.5 Which, of course, ultimately the goal was, that Karen and myself, my business partner, can move out of having to make those decisions and let the team run the company without us.

Jordan: 0:20:10.6 So, give me a practical example of a judgement call that would be determined by this decision matrix.

Scott: 0:20:17.5 Yeah, I mean, the classic one is budgets. So, as far as spending.

So, we started the company, I think the last one I show in the book was our final one, I think it says $10,000 dollars. 0:20:28.2 So up to $10,000 dollars – under $10,000 dollars didn’t need approval.

0:20:32.7 Obviously we started the company it was much lower than that. It was like $500 dollars. 0:20:35.2 But this gives people actual budget spending authority. An intrapreneurial mindset.

0:20:40.3 So what I’m getting at is, “Hey, your total payroll budget for the year for your department is $400,000 dollars. If you are under that $400,000 dollars and you were hitting the key metrics” — which I’m sure we’re going to talk about next, “you have budget authority for that $400,000. I’m not going to tell you who to hire. I’m not going to tell you what to pay them. I’m not going to tell you how to pay them.”

0:21:02.6 Now we had guidelines for all that and systems as far as, you know, what their job position paid, but I’m letting the department head take on that decision making process inside the company, in their own department.

0:21:14.3 And so, spending, same thing. When I use the $10,000 dollar example. 0:21:17.6 If they needed to go out and buy a couple new desktops for the department and they were under in that case, you know, $10,000 dollars, which they would have been, they had total authority to go out and buy and purchase that equipment within the budget.

0:21:30.6 They didn’t need to get sign off approval by the CEO or the COO of the company.

Jordan: 0:21:35.7 Got it. So, that’s the decision matrix, the decision filter is related. Talk to me about the interplay between those two concepts.

Scott: 0:21:48.2 So yeah, the decision filter. So this is the key way, I believe, any company can develop intrapreneurs in the business.

So, it’s company, owners, employees. In that owner.

0:21:57.4 And so, the company concept is, is this in alignment with our mission, vision, values and our top five priorities for the year?

0:22:04.9 So, if you can say yes to that when you’re making a decision in your business, you’re necessarily driving your company towards your end goal.

0:22:12.6 Now, here’s the tricky part. I meet clients all – entrepreneurs all the time — “Tell me about your mission, vision, values.”

“Oh yeah, we got them.”

And then I say, “Well what are they?”

And they look at me like a deer in the headlights. Because they don’t know them, they’re not living them. 0:22:23.8 They’re on a poster somewhere or a screen saver.

That’s not what I’m talking about. I’m talking about mission, vision, values that are exemplified throughout your business on a daily basis. 0:22:34.0 Top five. Are you creating a top five, what I call, Strategic Focus Plan for the coming year?

All of your top five have owners, measurable wins, and action steps to how you’re going to hit those top five over the next twelve months. 0:22:45.9 So that covers the company.

0:22:48.6 Owners, shareholders, stakeholders. Is this decision we’re going to make increase owner wealth, shareholder wealth, and is it within our risk tolerance for the business and personally?

A lot of entrepreneurs, myself included, jump off these cliffs not really taking into account the risk that we’re taking. Financially, health wise, relationship-wise. You’ve got to make sure you’re within your risk tolerance.

0:23:12.9 And third is employees. And it’s not because employees are third, but if there is no company and there’s no owners, at least in my experience, there’s not many employees.

0:23:21.2 So employees is this, do we have the team, talent and budget to execute on this choice we’re going to make?

And, most importantly, are they in alignment with how we run our business? So our mission, vision, and values. Are they aligned with our corporate culture?

So you’re kind of 360 completing the loop with your employees.

Jordan: 0:23:39.4 Got it. So what do you typically see that you’re saying company owners, employees, what do you typically see when you go into a business? Or what does dysfunction look like in this area?

Scott: 0:23:49.4 Yeah, so again, if they have their mission, vision, values, they have the top five, and again, I’m not exaggerating this, that’s less than 5% of the companies I see. 0:23:57.8 Less than 5%. I talk about that as well.

0:24:02.1 The biggest issue companies have with the decision filter is number three. And that’s where I always got screwed up because I thought everybody was like me.

0:24:09.2 And everybody would do it like me. Back to the 80% rule again. 0:24:12.3 So I threw a lot of good people under the bus and burned through a lot of cash. Because we had not trained the people right. They did not have the talents and mindset, which was the cultural mindset, to go out and execute. 0:24:24.4 We were putting the cart way before the horse.

Jordan: 0:24:28.6 Got it. So this relates to the entirety of the concept of the people plan. When we think about culture in the business, this is another area where it tends to be a little fluffy.

0:24:40.8 And who wouldn’t like to create somewhere – who wouldn’t like to have hardworking, motivated employees.

0:24:46.4 I think that’s where the lightbulb goes off. 0:24:49.2 But, in terms of all that investment and the infrastructure, we see companies like Google or Amazon, Silicon Valley companies that have the beer fridge and pingpong, etc.

25:04 I mean, what is your concept of the cultural infrastructure that is actually value add as opposed to just either lip service or basically just moving compensation into perks?

Scott: 0:25:14.7 Yeah. This is where I would say lifestyle plays the biggest role in this than the actual, you know, concept of this.

0:25:22.0 So, I have clients who have all that stuff. They do the fun stuff, the ping pong table, the basketball hoops, all that.

0:25:27.4 That was not our culture. So what I’m saying here, is you need to be true to your culture. 0:25:31.7 Ok.

So we were a very type A, feed the tigers, whip the horses, shoot the dogs type of culture. I mean, this was like really, really go get them type thing. 0:25:41.1 This was a rocket ride. Ok?

0:25:43.3 Not to say Google and Facebook and all those guys haven’t been a rocket ride either, but our culture was not one of, “Ok, let’s go get some therapy docs. We know you’re not feeling that good today.”

0:25:53.9 I mean, we didn’t have that. 0:25:55.2 So, people that like the hard driving, you know, grow a pair type culture fit really well with us.

0:26:02.7 So, my story there is more unique probably than a lot of other people’s from a standpoint of the way we drove the business.

0:26:09.6 And that goes a lot to my character and just how I am as a person. I’m not saying it’s the only way that you should run a business. Obviously, it’s not.

There’s tons of very successful companies that do it differently. 0:26:20.4 But that’s very more unique to my story, as it were. So, I don’t know if that covers it.

Jordan: 0:26:25.1 That’s a fair caveat. At the end of the day, when you read a book you shouldn’t – I’ve seen a lot of disasters that came from applying somebody else’s playbook to your circumstance. 0:26:34.2 Without the context in which it came from.

Scott: 0:26:37.7 Absolutely. Yep. And we’re back to mission, vision, values again. If you sit down and create your mission, vision, values with your team, and you really know yourself, you’re going to stay out of that trouble.

0:26:45.6 0:26:46.9 But if you just go, “Hey, I read this cool thing in Entrepreneur Magazine. Let’s start having beer pong Fridays” and it doesn’t fit your culture, you’re in for a disaster. You’ve got to be true to yourself.

Jordan: 0:26:58.7 Sure. I mean, how do you think about mission, vision, values in relation to the lifespan of the business?

When you start another business, if you – let’s say somebody came up with a concept and you decided you wanted to ditch the 0:27:11.8 [Inaudible] thing and go back into full-time into the operational role of actually running a business, what kind of assumptions do you think should be made of the longevity of the business?

0:27:22.7 I’ve heard people say, “Don’t start a business you wouldn’t run for a decade.”

Because I think that’s a corollary to mission, vision, values. Just the thought of the permanence and what you’re committing to building. How do you think about all of that?

Scott: 0:27:36.5 Yeah, it’s an interesting thought. I hadn’t thought about the span. But, Karen and I, we wrote our business plan, we had in our business plan to build it for ten years and sell it. And that was actually in the business plan.

0:27:49.1 And amazingly, we sold it in ten years and three months. So we missed it by three months.

Jordan: 0:27:54.7 Wow.

Scott: 0:27:55.6 Most entrepreneurs I meet do not have that clear goal from the standpoint of the actual end date. But again, begin with the end in mind.

Whatever that is, if you’re not comfortable going ten years out, what’s called a BHAG, a big, hairy, audacious goal, something like that.

0:28:10.9 You know, somebody early on, I’d say, “Look, let’s look at a three year, and then maybe a five year and then a ten year.”

0:28:16.3 But my first question to anybody I meet is, “What is your ultimate goal of this business? Are you going to sell it? Do you want to acquire other companies and leave it as a legacy? Do you want to create an evergreen business?”

Kind of what we talked about before. 0:28:28.4 But I think, you know, the brain is an amazing thing. When you tell it where you want it to take you, I can’t say it any clearer than that. Intention, you’ve probably had speakers on about this – the whole concept of having an intentional purpose to where you’re going and where your company is going, is maybe the most valuable thing you can do. 0:28:48.3.

0:28:50.3 Because, I’ll tell you right now, if you as the owner don’t know what that is, good luck with your team knowing what it is.

0:28:56.1 People get very frustrated. I go and work with these companies, and I’m talking, you know, 80, 90 million dollar companies, hundreds of employees. I mean, big companies.

0:29:04.2 And I’ll ask them, what’s your biggest frustration with the ownership? “We don’t know what the vision is. We don’t know where they want to go.” It’s very frustrating.

0:29:11.7 I mean, we as humans, if we just know, you know, uncertainty is very unsettling for most people. So, you know, anyways.

Jordan: 0:29:20.5 So, from an employee perspective, when you say vision, put some more meat on that.

0:29:23.8 Because, as an entrepreneur, the vision could be money. Right? But is revenue enough for an employee to feel like, “Oh, I know where we’re going because it’s 100 million dollars.”

0:29:32.3 I mean, what do you think is the – what aspect of vision resonates with an employee that causes it to have the intended effect in your mind?

Scott: 0:29:41.8 Again, I’m back to the culture of your company again. Everyone is different. So I create – when I do this exercise with companies, I create what’s called, The Vision Milestone.

0:29:50.8 Because what I believe is exactly what you said. Some fluffy statement is not going to be something to drive towards.

0:29:56.2 So the Vision Milestone is something very concrete. So I’ll give you an example. 0:29:59.8 I work with this printing company, they were about a 3 million dollar business, they wanted to be a 10 million dollar business.

0:30:05.7 Now, they did not want to say 10 million dollars by 2018, because we built this back in 2013.

They knew that if they did 40,000 transactions in a year, they got to that run rate, they’d be doing a ten million dollar runway.

0:30:19.6 So, their vision milestone was 40×2018, which meant 40,000 transactions. 0:30:27.4 So, the vision – I say this with the clients – it must be a rallying cry for the entire company.

0:30:32.5 So the sales guys might get behind the sales 0:30:34.6 [Inaudible] of course. But you need to pull in the ops people, the customer service people, the financial office people. Everybody.

0:30:41.3 So their thing as 40,000 transactions as an example. That brought everybody on to the same aligned playing field to hit their goal. The owner’s goal of becoming a ten million dollar company.

Jordan: 0:30:50.6 Got it. But the equivalent could be managing 5000 doors or having x number of tenants.

Scott: 0:30:55.5 Correct. Correct. The way I met you. I mean, that was Tim. That was him. 10,000 by 2025. 10,000 doors by 2025. That was his vision milestone. Yep.

Jordan: 0:31:06.5 Got it. And that’s obviously something people can relate to quite a bit more than just a raw economic number.

0:31:13.9 Forecasting is obviously somewhat related to this. In the book you talk about – you describe yourself as a worst case scenario kind of guy when it comes to forecasting. Which I thought was interesting.

0:31:23.6 I don’t sense you as being a worst case scenario kind of guy in terms of optimism, etc. What is the utility of taking that worst-case scenario perspective with forecasting?

Scott: 0:31:34.3 Well, and you know this – I don’t know you that well, but I can tell you’re a sales person as well. Here’s the deal: sales people, if they’re one thing, they’re optimistic. Right?

Jordan: Always.

Scott: 0:31:46.6 If you’re not optimistic, you’re going to get beat down and you’re going to give up.

So, I know that about myself. I know that when I speak to others, though, in my company, who did not have that, to your point, that attitude, that, you know, go get ’em aggressive attitude, I need to be thinking, “Ok, what will be the worst case scenario if we just hit plan?”

Let’s say, from a forecasting standpoint. 0:32:07.1 So I talk about this thing in the book called, Sales Math, which I learned – that was Karen’s term, my business partner.

0:32:13.5 I’d go to Karen, I’d say, “Karen, next month’s going to be awesome, we’re going to do eight million.” She’d look at me and say, “Is that the real number or is that sales math?”

0:32:22.4 Because she wasn’t a sales person and she knew that.

Jordan: 0:32:27.2 I’m getting that that term was coined by a non-sales person.

Scott: 0:32:31.6 Correct, correct. Absolutely. So I’d go to them – I talk about this in the book – so I go to the end of the year, we’re doing our plan, I get my sales team together, I go, “Guys!” You know, I take everybody’s individual plan, “What are we going to do next year?”

0:32:41.3 Put it all together. Alright, they as a group said we’re going to do 30 million. I apply my sales math factor, which is .7 times 30 million, we go create our forecast off 21 million. Which keeps us out of trouble.

Jordan: Got it.

Scott: 0:32:54.8 And we were always within .69 to .71 of the optimistic number. So it’s a 70/30 rule. I could have called it that. I call it sales math, and give kudos to Karen. She came up with that term.

Jordan: 0:33:07.0 Yeah, I like that. So this is basically just like the CFO leash on the optimism that comes from the 0:33:13.9 [Inaudible] of the business.

Scott: 0:33:13.9 Correct. If you’re using the hats, it’s the black hat of the hats conversation.

Jordan: 0:33:18.4 Got it. Makes sense. So, early in the book you talk about going and having a meeting with your business partner where you both put a number down on the table in terms of the kind of pay cut you would be willing to accept in order to potentially transition yourselves out of the business in some sense.

0:33:38.4 When you had that conversation, the way that you couch it in the book is that you weren’t sure if your partner was necessarily going to be on board with that.

0:33:47.2 So, when you walked into that conversation, what were you expecting when you broached the subject of trying to exit the business? Either financially or by having more freedom?

Scott: 0:34:00.7 Good question. So I don’t want to go through the whole story because we don’t have that much time, but the basic concept was, I was going to move – we were going to move somewhere away from Michigan. I could either sell the company, Karen could buy me out, or I thought we could transition out of the business.

0:34:16.3 To transition out of the business, I wasn’t going to fly back to Michigan every week to keep running the business.

0:34:21.7 So, I needed to get comfortable with what was my nut that we needed to live on as a family, on a monthly basis, over the course of the year, so that worst case scenario, this thing doesn’t work, I’m just making what I’m making based on the pay cut I’d have to take to do all these improvements in the company, could I do that without also getting stuck.

0:34:39.9 Now I’m getting paid less and I’m still on a plane once a week. 0:34:41.5 So that was the whole thing. I knew Karen well enough, we talk 0:34:45.0 [Inaudible]. I knew we could come to a number.

0:34:46.9 I wasn’t confident it was going to be the same number that I had, but I was willing to negotiate that. In reality, what it was going to be is – if the number wasn’t big enough to take as a pay cut we just would have had to bring the timeline out longer.

Jordan: 0:35:01.6 Got it. Slow it down. That makes sense. But certainly a difficult conversation to have.

Scott: Oh yeah, very.

Jordan: 0:35:08.9 You also talk in the book about the concept of having five key metrics. As a part of – after having that conversation, making the transition, committing to moving out, knowing that your people needed to be more empowered, but they also needed to be accountable.

0:35:24.3 Metrics are attractive. It provides the sense of control, but too many metrics and there’s no way of wrangling them or deriving meaning.

0:35:33.6 I’d love to hear you just get up on a soapbox about the five key metrics concept and why more than that starts to spin out of control.

Scott: 0:35:40.7 Yeah, I was just on the phone with a new client out in Kansas City today. They’re a financial services company.

0:35:46.4 And they’re currently tracking 18 metrics. And they know it’s not good. That’s putting it mildly.

0:35:55.1 And so, the whole conversation was around, “Let’s get you to your five key metrics with your one critical metric” as I would say.

0:36:02.3 So you have your one critical that really measures 80% of your business. 0:36:07.7 The other four supporting and they get you to 95% of your business.

0:36:11.6 I don’t believe you need more than five key metrics to measure 95% of how your business is performing.

0:36:18.0 And if you as an owner, entrepreneur, have a pulse on 95% of your business – kind of back to the 80% rule again – you’ve got a really good hold on your business.

0:36:25.8 I mean, I don’t know how many entrepreneurs you talk to, but most entrepreneurs can barely tell me what their sales were last quarter, much less three of four key metrics. Right?

0:36:36.0 But when you know these, and you drive these, and people ask me, “Scott did you have local input management?” 0:36:40.8 Meaning, did I share numbers with all the employees.

I said, “No, but I had open metric management.”

0:36:46.0 Everybody in the company knew the metrics. Everybody was bonused and their performance increases were based on hitting the metrics.

0:36:53.8 We were very metrics-focused because, just like the concept of a dashboard in a car, if your car is doing a billion things every minute to run, but you only need to see what’s on the dashboard. The speedometer, tachometer, fuel gauge.

0:37:05.5 That’s what metrics give you. You don’t have to dig down deep. I mean, again, when we sold, we had 23 companies in 42 states.

It was a financial, not nightmare, but it was a big, huge operation. 0:37:20.7 But I could – from those core key numbers, gather my five key metrics and have a very intelligent conversation with any department about how they could impact that metric and/or what they needed to do to get back on track to be in compliance with the metric.

Jordan: 0:37:37.4 So, the reason this resonates for me is for a couple of different scenarios. I think about working with third-party vendors.

First focus is they’re trying to do marketing, for example. They’re paying for a pay per click campaign or a SEO campaign and a lot of times, what comes back is like a ten page report with a bunch of charts that have no meaning.

0:37:57.7 But what I know is that the more numbers there are, the less priority that you put on any of them. 0:38:02.5 And the less invested you are in understanding them.

0:38:08.0 Would the scenario that you’re describing be something along the lines of, if one of those five has a red flag scenario, that is when you do the due diligence to look at the ten other related numbers that you’re not looking at day to day?

Scott: 0:38:21.6 Correct. Yeah. You’re always going to have supporting numbers and people go, “Oh five metrics, you don’t understand my business.”

I say, “Look, you’re going to have other metrics by department.”

Like my sales department has their own metrics. 0:38:32.0 They were unique to the sales department. 0:38:34.5 I’m not saying it’s five and that’s it. You know?

I’m saying there’s five key metrics for the company to be aligned around. 0:38:40.6 And to your point, if one’s an outlier, you then look in, dig a little deeper into the other key metrics, and/or other financial statements to see what the problem is. 0:38:49.4 If it’s not already apparent.

You know, once you really get strong – and again, it took me time to get these right. It’s like a perfect recipe that I talk about in the book – to really get those metrics right.

0:38:59.3 When you get them really good, and tight, and you see one varying up or down, you pretty much know what’s going on. 0:39:07.6 You have a pretty good feel. I mean, not right away.

0:39:10.2 When you really start tracking these, probably over three to six quarters, you’ll have a good feel of what’s going on.

0:39:16.3 It’s like I said, like a recipe. You take a bite out of that cookie, tastes a little weird, you know it needed a little more vanilla, a little less sugar. I mean, it’s the exact same thing with the metric.

Jordan: 0:39:25.0 Yep. So for folks that want to find out more about how to implement some of these systems and put this stuff in place, obviously they can find your book online.

What does a potential consulting engagement with you look like? Do you do – does your organization do ongoing consulting? How does all that work?

Scott: 0:39:42.7 Yeah. So I do business coaching and I do either one on one. I can do phone coaching or I do group strategy planning.

Or, I have a program called, The Intrapreneurial Development Program. It’s a one-year program. It’s quarterly for one year. Spend a full day with your next inline, your executive team.

And we build, I build intrapreneurs inside your business. 0:40:03.4 It is just me, I’m not overseeing ten other coaches or even want to go down that path. You get me if you hire me and if there’s a fit, I only stack up 0:40:13.5 [Inaudible].

If there’s a fit between us, and there’s good rapport and your goals, let’s say, lofty enough to get me excited, those are the kind of people I work with.

0:40:23.3 And I’m not saying that to be snooty, what I’m saying is, I don’t – it’s not as big a deal to me where you are today. The big deal is where do you want to be tomorrow.

0:40:33.8 So, I work with some small companies, but they want to be big. That’s what I call hyper-growth. That gets me excited. That gets me on a plane. That gets me want to achieve their goals.

If you’re at five mil and you want to go to 5.5 in ten years, I’m not your guy. 0:40:49.3 Or, if you want to exit. If you want to exit, I do exit planning as well.

If you want to exit, obviously I’m very interested in that. I’ve done that. I’ve done it multiple times in my 0:40:56.4 [Inaudible] deals.

That gets me excited too, because that’s where you can really go to the next stage of the book, which we don’t have time for today, which is the position part of the book. 0:41:06.6 Which is how to position your company for a maximum return exit.

Jordan: 0:41:11.8 Guys, if you want to get some more information about this process and everything that Scott has described, you can find the book on Amazon.com or probably in your local bookstore. But you can also check out Scott’s website at GrowthConnect.com.

Scott, before I let you go, I have one final question that I like to ask every guest. I’m guessing that you have an opinion on this. 0:41:30.4 In your opinion, are entrepreneurs born or bred?

Scott: 0:41:37.7 That’s funny because I put that in my book. I think there’s entrepreneurial genes in all of us. So I will have to say they’re born.

However, most people don’t act on them, so there’s your bred part. The genes are there, the thoughts are there. I’m always amazed, especially when I go in – I’ve done things at schools, high schools, junior highs, colleges – the entrepreneurial spirit is in everyone.

0:42:01.5 It’s just, are they going to go act on it. That’s my ultimate answer to that.

Jordan: 0:42:04.3 It’s pretty optimistic and charitable of you. I like it. Scott, I appreciate you coming on the show.

Guys, if you want to get in touch, reach out, check out the book. It’s worth your while. Thanks again for coming on Scott.

Scott: Hey my pleasure, thanks Jordan.

 

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