Episode Transcript
[00:00:00] Speaker A: Welcome to the Independence by Design podcast where we discuss what it means to be a business owner and ways to get unstuck from the day to day so we can design a business that gives us a life of independence.
All right, everybody, we are. Here we are. Welcome to our circus. We've got a Friday afternoon. We're trying to stay focused, excited to jump in because it's milestone 19, it's the three functional leaders. And Kim, we've talked a lot about this in a lot of our podcasts and I know we've been doing a lot of these, these educational podcasts. We'll get more to guests and a lot of other different types of formats. Q4 and then into 27. But we wanted to get all these milestones done. This is milestone 19 and it's a really interesting milestone, I think, Kim, because we are now entering the the elevate phase. So we have the plan, the build the elevate, where the context behind this transition is the whole plan phase of the ownership goals. They expand knowledge on valuations and the owner's playbook is to really build that owner's playbook from the ownership seat. Then the build phase where we dove deep into the three functions, so the sustainable financials, building out that financial model because we need that to see everything. Then we went into your MO module of predictable revenue so we can then once we have that five year forecast, we need to know how are we going to get there. So we did strategic planning with the icp, the user journey and then the client acquisition cost w to tomb and how to build the systems behind the tracking to get predictable revenue. And then we spent a bunch of time talking about how to have the sustainable margins. So effectively we covered the three functions of the income statement with those three modules in the build phase. And then the next question, I think we, I think everybody wants to jump straight to this, like, who the hell is going to do these and manage these functions besides me?
And so that's why we're going to be talking about the three functional leaders. And you know, I thought a lot about this, Kim, of like, why this order?
Well, we can't put someone in charge of something if we don't know what good looks like and we don't have it. And so that's why we're, we're here talking about the three functional leaders now because we have a bunch of tools that we're going to be reviewing from the functional OS assessment that everybody can use to manage these three functional leaders. We've got the seat Description and what good looks like. We've got the leadership roadmap and how do we actually elevate these people, but a lot to cover.
We've talked a lot about these people, but we're going to do it, I think, hopefully in a little bit more succinct way. If you can manage me,
[00:02:36] Speaker B: I'll do my best.
[00:02:38] Speaker A: So how do you want to, you know, how do you want to start?
[00:02:43] Speaker B: Well, why don't we start at the beginning? How did you land on these three being the functional seats?
[00:02:50] Speaker A: I am not some leadership guru, so I think we want to make sure that we separate. What are we going to be talking about here from like, what David Kachui was on talking about recently about management Master and his leadership program or. I mean, I bet you I've got two or three dozen leadership podcasts about what does it mean to be a good leader from like a personality perspective, from like actual culture.
That is unbelievably important. I think that like, when we.
And the owner gets all the way done with all this stuff, that's all the game of business is, is people. Like, once we've got the playbook, once we understand the rules, once we understand the game and we actually have a plan, it's all going to be about the people. The people are the ones that execute it all.
So I, I know how important that is, but I. We've chosen at IBD not to master how the leadership, personality and culture thing is. So when I think about the functional leaders and how I got here, to answer your question, it was who is supposed to do what in my company?
Because I don't want to do any of it.
You know, that, that was the whole mindset. Like, we know with the family business, I mean, I didn't want to do the work and I never thought that that was a bad thing. And it sounds maybe, and I'd say it in a joking way, but we're starting. I started from that org chart and I can pull it up real quick for everybody. And that way we can, we can kind of level set us on like, what the heck. I'm talking about the.
The org chart is a way of describing this, Kim. And so I'm gonna. I'll go here.
This is how I landed on the structure of the top ownership and operation connection through math.
Thank you, Pat.
And like, he was. I was brainwashed by like, okay, I guess, like, this is exactly how the world works is double entry accounting. And we have an income statement, a balance sheet and the cash flow statement. Is the difference of the balance sheet over two periods of time. It is what it is.
Well, if that has, if that's true, then the ownership, the ownership spot up here. So we have that board, that board role, which is the owner. The owner has to determine what they want for their ownership distributions and the valuation at a point in time, in five years.
That's the only way we get the visibility of the trade offs or do we reinvest or do we take money out? There's no way to determine how to make a decision without that. People do it every day, but they're just guessing if, unless we have that, if that's the case, once we have the board role and the ownership role, then we can go to the CEO and I'm going to pull on Joel Trammel and this. So I'm answering your question and please steer me if I'm, if I'm not through deductive reasoning. It's like, okay, well if that's the owner for time, cash and wealth and they want to understand the valuation of the cash of the company, well then the CEO does what? Well, Joel Tramel wrote a book called the Chief Executive Operating System. I've interviewed, you know, I don't know how many people from private equity and ESOPs the ESOP space. Well, a CEO is responsible for that company performance.
And what do we mean by that? Well, according to Joel, it's the CEO spends 80% of their time on strategic forward thinking and forward planning. You know, the public companies are just essentially talking heads.
But in a privately held company, whether you're private equity backed or you know, a large enough ESAB, it's 80% of your time is doing the strategic planning and looking at the future and dealing with the big huge relationships. And then the other 20% is managing the people underneath you. So it's man. The CEO's job is to take that income statement and deliver the cash flow and the valuation to the, to the board or they're fired. The average CEO of a public company lasts 18 months.
It's.
[00:06:54] Speaker B: I did not know that.
[00:06:56] Speaker A: Yeah, it's a. Well, because it's brutal. It's every, it's every 90 days. The whole world judges you and if you don't deliver short term results, you're fired.
That's how ruthless the public markets are. Private equity companies, I mean they bounce around a lot too. And so that CEO is taking that income statement, that which is the operations of the company and delivering the results or they're fired. And there's three buckets of the income statement revenue, which is the revenue, all of sales on the income statement. Then there is the gross margins, and the gross margins are the gross profit GP as a percentage of the revenue. And so that's all of the delivery of the services or the product at the right margin. And then there's the cash flow of a company. And so inside of the cash flow in the income statement is just a proxy for cash flow. So we, you know, we're not going to get too much into the, the geeky details of this, but we can go, people can go back to the financial module, but on the income statement we have multiple proxies for cash flow. It could be net operating income, it could be net income, it could be normalized ebitda, but all of those are in that bucket of cash flow. So there's three KPIs of a statement.
And so where I got to this whole point that you're asking like, how did I get here? It's like, well this is how it works, right? So there are three KPIs for the income statement. The income statement is responsible by the CEO. The CEO is responsible to the board, who is responsible the shareholders for cash flow and valuation at a point in time, if not, whole thing doesn't work.
And so as I, as I landed on this over like a long period of time, I'm just like, all of the conflict, all of the I see inside of companies is because this is not clear.
Because if this is not Ryan's opinion, because it's math tied to an income statement, tied to double entry accounting, tied to the monks from the 1400s, like then this has to be true, then it's like, okay, well if this is true and how the functions of a company work and regardless of your Apple or Google who have like, let's say you have 7,000 companies underneath entities and you have a consolidated set of financials, it's the same thing. Revenue, gross profit margins and cash flow, then a lemonade stand also has that.
So here's where this becomes tricky in the smaller to mid sized companies is just because someone does not have so in the functions here, a CRO Chief Revenue Officer, their KPI, like you and I have talked about for your whole module is revenue. You have to explain to the board and the first the CEO, then on the board, if you're going to those board meetings, why the revenue is on track or off track, with a good explanation of whether you're gonna be on track or off track, that's that. And then for the margins that's the chief executive, I'm sorry, the, the chief operating officer responsible for gross profit margins.
So that's really what the COO does on tracker, off track with gross profit and margins. Why? What are you going to do about it? Reporting to the CEO. And then the CFO is responsible for the net income normalized EBITDA and managing the financials and the cash flow and they all have to work together and because it's one income statement, right? So like that's why you and I call it the six legged race. Because in the compensation plan we're hooking all these people up because the compensation is all one freaking thing. And then the CEO sits over top and the CEO should be having three phone calls essentially every day like how's it going?
And should talk to three people.
And whether you're a lemonade stand and doing a thousand dollars or your Google, this is the structure of the income statement. So then the challenge becomes how do you have a, an org chart that cascades down from this? But like anything that's a, a, anything that drifts from this is going to present problems.
I mean EOS says it perfectly right Kim? Like, I mean it's like the, you can't have two people managing one KPI, right?
Well, why is that? I mean what have you seen when, when you have more than one person managing a number, what happens?
[00:11:37] Speaker B: Well, when things are off track, you start pointing fingers and blaming other people. It becomes somebody else's responsibility that the buck has to stop somewhere.
[00:11:47] Speaker A: And why wouldn't we use the three numbers that are tied to the one income statement that are responsible for by the CEO?
Do you see how like what I'm trying to do here is like, you know, so I, I played soccer so I'm not going to jump into a football analogy because I, I'd be way out of my league right away is I know that I was the stopper.
That is my job. I'm not the sweeper, I'm not the goalie, I'm not the right, right mid, right forward.
And so like everybody needs to know their job.
I like whether I'm an or not or whether I'm introvert, extrovert, whether I'm a, whatever disc assessment or Colby or whatever is irrelevant to my job description. Like a center or a quarterback have different jobs. So I'm venturing off into the careful
[00:12:36] Speaker B: getting close.
So
[00:12:41] Speaker A: there's the culture on top of the game.
That's a long answer, but I think it's so important to be like this is not what I set out to do. It's like, this is just what I realized is the truth based on the numbers, based on the game of business.
And when I was talking to Nick Bradley, my friend from private, who was in private Equity, he's done $5 billion worth of deals. And we were going over like the, how he deals with monthly ownership meetings and monthly board meetings and annual planning. How I walked him through this, and he's like, well, duh.
I'm like, well, whatever, dude. Like, it's not well da for everybody else. Like, this is like, we have chief growth officers and customer service experience and we have, you know, so and so who's like, we have these people and these, we are, we're, we're looking at it through faces and names, people's skill sets, not the, hey, we need a center and a quarterback and we have a stopper or goalie or whatever position of the game that we're playing with the rules that we have, then obviously the person has to be a right fit behind it.
What has been your experience as you've been exposed to me and the clients that we're working with in the community as this has been flushed out? Like, what was your experience at itr? What was your experience other companies that you've been exposed to?
How do other people have this structured?
[00:14:06] Speaker B: Well, it certainly varies across the different companies that I've interacted with and then those in my own career.
I would say a commonality that I've seen across would probably be people being promoted because they were really good at what they did.
And so there was a sense of, well, they deserve a better title or they've earned a better title and that's how they end up in director roles or VP roles is because they were a good salesperson or they were a really good engineer or whatever the case may be. And so. But I feel like a lot of times people make roles that aren't necessary just to appease a players.
And to me, that's a management issue and a leadership issue, not an organizational chart thing to solve.
[00:14:54] Speaker A: I agree. And like, I think the reason I landed on this is coming from, well, if I want freedom, I need time, cash flow and wealth without me doing all the work.
And so then as we watch our clients and the, the members in IBD start doing this, well, how do you get the most amount of leverage over your time?
And that's where I talk about Dunbar's number all the time of like, we can only manage 150 relationships. And it's kind of our inner circle of five, which could be your family. And then like slightly outside of that would be the three executives that you have.
So the most amount of leverage is calling and talking to three people about three KPIs, not 17.
And so, and, and, or I think all of the drama and all of the internal conflict that is a huge time suck is because this is not clear, you know, and like, I, I've, I've joked around with my dad where like, I think most businesses start, which I have done too. So I understand the, the inception where you, you kind of start a business, you're sitting around a bonfire with a bunch of friends like, oh, I've got this really good problem that we should solve. We should all do this together with zero understanding of like, like, what's everybody going to do? You know what I mean? So it starts with this. I want to solve a problem we all want.
We're all in it together, which I absolutely adore and love that type of camaraderie. But at some point it's like, well, there's actual duties and like with. Let's take the finance function for a second.
Regardless of whether you're lemonade stand or your Google, you need to have forward forecasting and forward guidance on the, on the entire budget. Someone needs to lead the budgeting. Someone needs to talk to the bank and the CPA firm, taxes, debt, working capital, understand how to manage the entire set of financials.
And that person then needs to be managing the bank reconciliation and the monthly close, making sure that all of the numbers are going into the right buckets on the income statement and all of the balance sheets reconciled every single month. And then in order to do that, well, you need to have payables and receivables and inventory tracked every single month. And you need to make sure that your. All your collections are coming in from your vendor. So you start going back into this regardless of the size of company you're in.
[00:17:11] Speaker B: Mm.
[00:17:12] Speaker A: And that's where the biggest problem comes. Like the list of duties doesn't change per company size. The volume of those activities changes.
So you could be eliminated standing. You might have 10 clients, so maybe you have. And if you have receivables, I mean, I wouldn't do that. If you're eliminated stand like, you know what I mean? Like, you have all of those tasks in the entire financial function exist regardless of the size of the company.
[00:17:39] Speaker B: Mm.
[00:17:40] Speaker A: And that's the, the conundrum I think everybody gets into because you just, I mean, not Everybody can afford 900 grand at the top. Right. Executive. But like that does not eliminate the tasks from being done.
[00:17:54] Speaker B: Yep.
Yeah, well, and I don't think that you need to necessarily have like when I view this, I think it's based on size of business. Right. Might not have a CRO, COO and cfo, but you might have a sales leader and you might have like operations assistant and then you might have like your controller. Right. Or a fractional controller or something like that. Like it doesn't, it's just still having one person responsible for each of those channels, if you will is possible and I think in my mind anyway, still a good idea regardless of your company size. It just, it doesn't have to have that C suite title to it.
[00:18:37] Speaker A: I agree with you and I think, I think in the compensation podcast we talked a lot about like the progression of, you know, this role and we're going to talk about that a little bit in the following episodes. But the, the comment that I would have on that is, and we were on a call recently where you and I were talking about this where if someone whether, whatever title, like you said that whether it's sales manager, marketing coordinator like or controller or ops person doesn't have the title, I'm not saying that they should have the title. And I, and I think there's maybe some work that you and I can do in the IBD community where at some point we're like the title should be the title maybe but like the size of the company and the, like the revenue that they're managing would dictate maybe the, the salary and the comp. Because the job is the job. But like you need to like the size of the company dictates how complicated the job is.
Yeah, but I, I guess where I was going with that is if let's say, let's, let's take maybe the, the revenue side for a second.
If someone has a sales manager and a marketing coordinator, which I bet you if we pulled a thousand people there would be a thousand answers of what the hell those two things mean.
Which is why go check out the predictable revenue modules if you're confused about that.
If one of those people is not going to be designated as the person responsible for doing the revenue, then the owner operator is.
[00:20:06] Speaker B: Yep.
[00:20:07] Speaker A: And so someone has to take responsibility over predictable revenue. It's non negotiable because it's on the income statement. Like yeah, it goes every single month. We need to look at the income statement and see it land every single month.
And then in the five year and if someone can't explain to us where and why and how it's just missing.
[00:20:26] Speaker B: Yeah.
[00:20:27] Speaker A: And that's why, like, I got so much conviction behind this. Because it's like I get really timid when I'm like, okay, I don't want. I don't want to go all in on this idea if it's not true.
And I just don't see how this is not the case. Right. Like, we have an income statement and we're going on track, off track.
Well, who's, who's managing? It's like, okay, well, my suggestion would be, is if one of that sales manager or the marketing coordinator does not take that over, then the owner operator, who might be all of those roles, which is five. Right. The owner goal or the owner role, the CEO, and then all three functional leaders.
What you and I do in the IBD community is we make sure people put on what hat for what, what meeting they're in. So, like, even though you're all of them, it's like, okay, today I'm going to be this meeting because I'm going to have this thought process. And then I'm going to be managing the marketing coordinator and the sales manager and looking at the icp, the customer journey, client acquisition costs, but they're responsible for that if someone else is not capable of it yet. And then the question would be, is how do you mentor someone up to do that?
Because at some point you want to get that off your plate. But, like, knowing what good looks like, what the function looks like, what the roles are doing that might be helpful, or you can hire the right person using all the tools, but somehow we gotta get someone responsible for that number.
[00:21:49] Speaker B: Yeah, I think it might be a good opportunity to bring out. I don't know if you think it's too early or not, but to bring up the financial model just to show, like, why it's so important for somebody to have a name tied to each of those sections on your financials.
[00:22:05] Speaker A: Yeah, you and I were on a call. And now let's see here. Which one do I want to pull up here?
I will do.
I'm gonna do the out your projection.
Okay. So when I think about, I got your name there.
So people listening in, you can go to YouTube or Spotify, check out the video. I'll try and make sure that we're explaining it the best we can. So we have the out your tab up, and the out your tab has the budget, which is this year. And so if we actually went to the budget tab, it would be all 12 months totally broken out through the income statement, balance sheet and cash flow statement. Everything's mathematically connected together. So in the out here, all three statements we have the income statement, the balance sheet and the cash flow statement. Because where I go, Kim and I just go straight down here as I go down to the line 206 cash, which is actually cash in the bank account.
And I want to know how much cash is going to be in the bank account of the company. And every single operation, operational decision and ownership decision are tied to that, that number, every single one of them. So like there's not one that's left out. Everything ties back to cash. And, and so that's why the ownership goal has to be determined which is the distributions and the taxes, what's the debt going to be? So that's all in the balance sheet and the cash flow statement. So let's assume we hit the I believe button for a moment and say okay, like all of that planning was done to say here are the constraints, here's what our kind of cash flow and our distributions and everything need to look like. Then we go all the way up, say okay, I mean this is higher level planning. So I mean this would be higher level five year forecast. The budget would be the ground up detailed. But what I would be looking at here Kim is like okay, well there's your name here on line 16, which is total revenue, sorry for the scrolling.
Total revenue goes from 10 million to 22 million over the next five, six years.
And if we go back to then the predictable revenue module. You and I talked about our strategic planning and so this is advanced solution. So the quick narrative is, you know, equipment is garbage and it's not, it's losing essentially staying flat earth, not losing money. We're going to be diving deeper into reoccurring service number one because that's the future growth of the company. All of this was determined through all the predictable revenue material, right? So we would have determined the stages per revenue line. We would have gone through the conversion rates, the client acquisition cost as a percentage of gross profit. We'd have gone through all that stuff and then you would have gone through and said okay, here's what I think we're going to do over the next five years.
And I would want one person.
So like, you know, I think it's really interesting. I mean a board role is not as complicated as most people probably think. It's.
Tell me why it's okay. I'm like why are we on track or off Track. And then how good are your explanations?
Are you doing things about that? Are you personally growing? How is the function? I mean, like, hey, if you took, if you turned over a, if you took over a mess, like, I can't expect something that I, you know, and then that's unreasonable, right? Like, so you might know what you're doing, but the function, like the actual revenue function might need a lot of work. So that's where then I go. If I'm the ce. If I'm putting my CEO hat on right now and I'm saying, okay, well, Kim, what's our one thing this quarter?
Right, so then you're taking on, okay, well, this is what we're going to do, this one, you know, and I, you and I have to have expectations clear of what we expect.
But those expectations should be baked into the revenue.
Yeah, right. So, like I should have as the CEO. So again, this is where I'm going to zoom back out for a second. If I'm the owner, operator, I'm the owner of the whole company, but I'm the CEO who's managing Kim.
Paul is gross profit, gross margins. And then here I've got Pat, who is the finance function for net income normalized ebitda. That's the income statement.
And those are the three big buckets. So I want to be able to make sure that in our budgeting process as the CEO, that's what, what I mean by the CEO manages people, not tasks.
All of that is like, does Kim know what she's doing? Does she have the resources that are necessary? How accurate is the forecast?
And then you and I are having, you know, very tight conversations as the CEO and the CRO of how things are going. And you're responsible for the outcome, not me. Like, obviously, the CEO is ultimately responsible for the outcome, but that requires training you and firing you if you're not doing your job or, or making the judgment calls of like, am I listening to her BS or not? Is it too many excuses or is it market issues? You know, I mean, like, that's the job of the CEO, not the I need to go do territory management.
Because that's your job.
[00:27:11] Speaker B: Yeah, no, I think this paints a really good picture. And so that was for the revenue. Maybe we dive now into the why does the chief operating officer own the margins? Like, why did we end up putting that person in charge of those?
[00:27:29] Speaker A: Because I think it would have been better than the cfo.
I mean, so for language.
So revenue is sales, right? So that's income. Sales, revenue, whatever. The heck you want to call it? And this is where so many people get so confused with all the financial jargon. It's like we're talking about revenue. So revenue comes in. Kim's responsible for revenue and all of the three functions or the three milestones inside of your module.
Then we have to sell that revenue at a specific profit.
I'm sorry, we need to generate profit, which is the dollar amount, and then the gross margins is the percentage of that dollar amount over sales.
So the owner and the CEO, so the ownership group and the CEO are the ones saying, hey, for us to be in this business and to keep our capital stuck in this company, we need to generate a return for the risk that we're taking.
35%. So right here we see 35% in December 27th gross margin is not enough.
Otherwise I should go put my money somewhere else.
That's the ownership board level. And what's driven down from that then is to. Then the CEO to say, figure out how to make more money.
So then you and I, Kim, would have been. And, and the executive team, the, the CRO, COO and CFO would have done a strategic plan and figured out, okay, well, what, what do we think could make more money? And we determined that we should build out some more services instead of the product and the equipment. Right? So that whole decision went through. And then someone has to be responsible for delivery. And so regardless of the, regardless of the industry, every company has revenue, gross profit and margin and net income.
So wouldn't it be advantageous to have one person overseeing how the product and service is delivered and they're responsible for the gross margins?
So then it's like, okay, well, in this case, we got Paul as the fake character here.
How are we going to deliver those five products and services at the margin that we've determined that would impact? Like, so if it's professional services, that would probably be recruiting and training and utilization rates and, you know, billing efficiencies and bottlenecks and all that stuff that we talked about.
All of those are derivatives of $4 million and 35% margins, or 9 million 9.7 and 43% margins. And then the makeup of those products and services will dictate the blended gross margin.
And so then all of the train you. And if it's products, it's like, how are we buying the inventory? Are we getting cash with other discounts? Are we doing just in time inventory? Are we like, are we going to start manufacturing our own? Like, think about all the infinite amount of ideas that are probably possible to maintain or hold or grow the gross margin.
And so you and I had a good conversation this week with someone that we were talking about how revenue and margins go back and forth. You know, the CRO and the CEO go back and forth.
So I was giving my old example where I had my service director, you know, there was always the conflict of sales, wanted to sell under, under cost and get it done and close it. And then service was always, you know, saying no, you know, to, to different quotes. But you know, the compensation plans in the module 8 after all this fixes a lot of that conflict. But you know, what we did for pricing is the pricing and the margin mandate came down from above.
We need to have our capital get this return and we think that we need this kind of margin. Otherwise we got to figure out either get rid of a division, diversify and do a different strategic plan or sell the company.
So then that, that, that margin came from above. You had a really good pushback of like, you know, sometimes that can either be, you know, that could result. The strategy I just mentioned could result in cost plus pricing, which is not super awesome. Depending on whether you're distribute distributor professional service, sometimes you don't have a choice and as long as you can build a machine that could be very, very lucrative. Or you can do value based pricing.
And I think whether it's value based pricing or cost plus pricing will dictate who's doing the pricing.
You know, whether it's more driven from the CEO, service. And again production manager, service manager, you know, whoever's, whatever title that person is, it's still just gross profit and gross margins. But that person could hold the line on pricing and be involved in the pricing.
But there could be more upside if you're doing more value based pricing, which you were talking about, you were heavily involved in. So you want to kind of talk through like how these two the, the revenue and the ops and the margins kind of collaborate back and forth.
[00:32:15] Speaker B: Yeah. So the way I always looked at it is hearing from the production side or like the COO side, what is the bare minimum for us to hit our margins. Right. So if it's a dollar amount or it's billable hours or it's units or whatever the case may be be, I just need to know what is the lowest I can sell something for and know that we're still going to hit the margins. And then from there it was always in my job to find out what can the market bear that price and if not then we have to increase our efficiencies internally, or we have to have a conversation that we can't hit those margins or if the market can bear that price, am I still underselling myself? And the market could actually bear a higher price than that and therefore pin my pricing up higher, have higher margins, so on and so forth. So, but it was always just looking at, what can we produce this at using the margin that we need and then using that as my benchmark to say, where does that fall in line with market demand and what the market can bear?
[00:33:16] Speaker A: And that type of collaboration should make the base case better. Right? So, like, the mandate coming from above is we need to go from 35 to 43% margins over the next five years. We need to, you know, hey, team, different product pricing mix you got, you guys got to go through to figure that out. Like, that's why you're all getting paid to do that. And again, if, if we don't have those executives, whoever's the owner needs to figure this out, right? Because, like, the whole point is we need to get our return. Otherwise you need to change your goal. It's all math. So once we kind of bring that down and you get, you and the, the COO are going back and forth on that, that's productive collaboration. And if we have you guys compensated, where you both benefit for that margin growth, like, there's going to be great collaboration to the upside, not to the downside. And also, I think, you know, it's important to note is, like, in the budgeting process, this is why it's an iterative loop for the last quarter. Right. It's not just Kim does her CRO budgeting, then we go to the COO who does their budgeting. It's like, no, like you want to know based on the strategic plan, like, hey, we're marching towards this reoccurring service one, so that's going to be growing. We're going to kind of keep this flat, line this, you know, equipment sales, and that's going to then help us get that margin mix different, you know, differentiated over the coming years.
And.
But you want to make sure that we can deliver that. So are we going to have the people, are we going to have the product? And if we can't, then you and I, if I was the COO in that moment, like, you're, we're going back and forth because what I think in this kind of zooms all the way back out to the top. Kim, the reason it's so important is because the revenue was Dictated. And the margins were dictated based on the person that owns the company.
Right. So like, all of this has to be back and forth until you figure it out. Otherwise we have to figure out, do we diversify and sell one of the divisions or we sell the company or do we change our goal? That's why I go back to. It comes down to math and the efficiencies of this back and forth. And collaboration quickly unravels when you have. If you have.
If you have five people that are all involved in the revenue and no one owns it.
Me laughing.
[00:35:32] Speaker B: I'm just thinking like the comfort, like, I've seen so many times where you have like the VP of Business Development, the VP of Growth strategy and the VP of Sales.
[00:35:41] Speaker A: And it's like in the marketing coordinator and the.
[00:35:44] Speaker B: Yeah. And it's just like, so who owns your fault?
[00:35:50] Speaker A: I'm going on break.
And. Yeah, do you? I think. And we were saying earlier, like, if right here, let's say this equipment sales, like, I mean, what I was doing with our old business, we were leaning towards like, hey, we're gonna have an equipment sales manager and then we're have a manage IT sales manager, and then we need to have it either in our CRO or it's me.
[00:36:12] Speaker B: Yeah.
[00:36:12] Speaker A: And if the agency is involved and the agency is part of the client, I mean, like, so all of your module is supporting this and all of your module then is the functional OS assessment. It's like the very detailed overview of like, here's exactly the scorecard for the CRO of all of the functional stuff that they need to build out. And then there's the leadership development plan of how do we actually develop this person so that way we can get to this point.
Because, like, and I think that, you know, I was talking to a, a good friend and client of mine. I want us on this board meeting, I think a month ago. It's like, hey, when he didn't know what the person was supposed to be doing because he didn't understand this topic. Hey, give yourself some grace. Like, you weren't a salesperson, you were a tech. It's okay. But like, now that we know this, now we have a better understanding of how to hold people accountable. And that becomes uncomfortable because it like, we were on a call, it's like, okay, now what? Like, shoot. People are not the right fit.
[00:37:11] Speaker B: Oh.
[00:37:13] Speaker A: And then like, and then there's a huge series of questions of like, what do you do about that? But what's not really up for debate anymore is like, this is how it works, you know, I mean, like, okay, so unless someone can, like, I don't know, like, is there some other income statement where there's more than revenue? I don't understand. Like, it wouldn't make any sense, right? So wouldn't it be nice if like the CEO and owners are talking to one person that's managing it? And then the, the point of the functional assessment and the seat description and the leadership roadmap is I now know as the CEO, what questions I can push on you for Kim and why I should expect certain answers. So instead of all of this series of excuses and series of like avoiding of personal responsibility or whatever it is, I want to hear from you. Like, well, we got economic issues, we got this war over here. We got energy prices, we got, you know, fuel surcharges, you know, we can't get the people from the cr. I mean like, all of that makes sense. It's like, okay, cool, what do we do about it? Like, together as a team, let's overcome and buck the trend back to your old ITR and the. So the operations is responsible for margins.
Like how do we hold those and how do we train people and get products and services and make sure that we can deliver satisfactory, you know, NPS score? Like so it's not just satisfied customers, but it's the margins that we all agreed upon.
And then I'll do a quick little and then we can quit screen sharing here is that then the. The cfo. So sgna Sales General Administrative or OP X or overhead or whatever the hell you want to call it. SGA Sales General and administrative is a pretty standard word and it's a bucket where after gross profit is sgna, which is the expenses, right? So between revenue and gross profit is the cost of goods sold. So the CEO would manage the cost of goods sold to get to the gross profit and the gross margins. And then the CFO would be managing the expenses in SGA to get to net income.
And part of that for the cfo, it's got an interesting role because the CFO drives this entire financial model and plan. So they're responsible for the accuracy of the information.
They're not responsible for delivering the revenue that you as a CRO gave. But what they are responsible is building out the financial model, building out the accuracy of it, and providing guidance to the CRO, to the CEO, to the CEO and to the board of like, here's what I'm seeing, here's what's going on. Here's my financial.
Here's my financial story. And part of that budgeting process is then with you, it's like, okay, what's our client acquisition cost? All right, so, Kim, what kind of, you know, paid ads do you need? Trade shows, salespeople. So they're extracting from the CRO and the CEO what they need to do to hit the revenue at the gross margins that we've all agreed upon. So it's guiding that budget and kind of like, I think about like a Hoover vacuum of data. Put it into here, right?
It's the iterative loop saying, okay, like, I mean, I've watched Pat going, like, I need the information.
So, like, he's not telling us what he thinks the revenue is going to be. He's saying, I know I need this to build a complete financial forecast, and I know we need the client acquisition costs, or I know that we need the training expenses for the text or the onboarding. So that way it can be accurate so that we can do revenue recognition and we can do all these things. And so that's what the CFO's job is to do.
CFO's job is slightly more nuanced because they're the conduit directly to the CEO. So the CFO and the CEO have a very unique relationship because it's all about then the cash management, where we then get into the cash flow statement.
And the CEO is not just responsible for the income statement, but all the way up through cash flow provided by operating activities, because that includes working capital of payables, receivables and inventory.
Everything after that is all ownership decisions of, like, what do we do with that cash? Do we reinvest it? Do we take on debt? Do we take distributions? How are we doing with taxes? And that's where the CFO, because the CFOs got visibility over the whole thing.
The CFO is working with the CEO on the whole thing. CEO has visibility over everything. But the CEO does not determine unless they own the company to. The CEO does not determine what they do with the cash. The board does and the shareholders do. So then the CEO and the CFO would go to the quarterly board meetings, to the board and say, here's what we've got going on.
So the CEO and the CFO are then saying, okay, here's board and shareholders on track, off track, here's what we think is going on.
And they have to be able to be ready to answer every single question.
And that's why, like, if this is the structure of the financials, back to that org chart it's like, well, this is the most simple way of. When I say simple, like the most minimalistic way to have leverage over our time and outcomes of responsibilities so we can actually delegate to other people. And then as the CEO, owner, operator, they can better. Once people understand this and have this playbook, I can judge. Does Kim actually know what she's talking about or not? Does she actually have a good plan? Where do I need to help Kim? Is it more? Is it ITR economics, you know, forecasting stuff? Or is it. Do we need some sort of other tools and resources that Kim needs? Because she's trying her best and we got challenges coming on and AI is happening and people don't want to work or whatever the problems are.
We're together, we're fighting that battle instead of trying to fight each other internally.
[00:43:13] Speaker B: I think you just landed on really, the. The payoff, right. Is the payoff is being able to have the three people to collaborate with and run the operations of the business with. And from the CEO's perspective, being able to have the right time to focus on what you should be focusing on. Do you think now is a good time to pull up some of those assessments that you were referencing as we were going through the financials?
[00:43:36] Speaker A: Sure. Before I do that, though, I think let's quickly speak on a couple other roles and possibilities. Like when I say I'm convicted on this, I'm convicted that this is how the world works. Because it's just an income statement. It's math, and we're trying to get cash flow and evaluation.
Outside of that, Like, I understand that we also deal in reality. Like, you back to, okay, well, where are you at right now? And do you want this? What. What is this? Well, this is the ability to, like, even if someone gets all the way to the board spot, it's. It's a leveraged trying to think. It's like, it's like, it's a fractal. I'm super geeky, but it's like, it's a. It's a domino effect. Like, if I'm on the board, I get to talk to the CEO. So it's true. Leverage is one person I get to talk to.
Right. So, like, I get to talk to one person about how the whole thing works. And that one person has to be very accurate with their information and good explanations. Well, if you don't have the CEO, you're now the CEO. So, like, let me follow this train of thought. So it's like, okay, well, I'm both the owner and the CEO. Okay, well, now I've got three people, right? So I have three people I have to talk to.
Well, if you don't have those three people now you've got three more roles, and then you probably have four people inside of each of those functions, at least that you're reporting to you.
So now you're going, holy. No wonder you're overwhelmed. Because it's like, I'm like, if we're doing. Even if we have the clarity of all this, we're like, okay, I'm put my CEO hat on. Now I've got my. Well, now I don't have those three people, so I'm gonna. My CEO. I'm gonna have my CEO hat on and my CRO hat on. Talking to each other once a month. Well, okay, I'm talking to myself, but at least I understand the two different roles. And then when I put my CRO hat on, now I'm managing my agency, my VP of sales, and my marketing coordinator in relationship to the entire revenue function. And anything more than that, it's like, okay, well, maybe you don't have a VP of sales. So now you have four salespeople reporting to you, right? So, like, all we're doing is we're saying, like, here's the actual org chart based on the functions.
Like, you either have these people or don't. And, like, that's where, like, you could put an agency or a fractional leader or certain people in for, like, as you grow.
But anything that's not, hey, I'm on the board, and I get to ask one question to a CEO, it's just leverage over our time. So that's actually how we are. Like, the true definition of we're buying our time back by putting in service providers or people to buy our time back to own the monkeys.
And then we're just slowly getting out.
And you know what's really cool is I got a client where he decided not to hire a CEO because the three people became like, this became so it. It was functioning in the way it should say, hey, I actually kind of like the strategic. I don't need to get out of my CEO job. I mean, people have projected like, hey, IBD is all about getting out of your operations and not wanting to work. I'm like, no, it's just about understanding the game of business and then choosing where you want to spend your time with. Thought so. He was like, hey, I like strategic planning and being responsible for cultural and stuff. So, like, I'm cool being involved in this If I get to talk to three people that are actually competent and capable of doing their jobs, it was all the other crap that I explained that he was sick and tired of.
[00:46:52] Speaker B: Yep, Yep.
[00:46:55] Speaker A: The two other roles that I think are worth noting because I've had it was, I can't remember podcast. I was talking to chief people officer hr. I mean, there's a whole like, people part of this and then a CIO technology part.
Those are not very visible based on the income statement. So people. I've heard people go, okay, well, how do we deal with those executives?
The, My, my short version of that answer is the CEO is responsible for culture ultimately.
Like, so, like, I mean, the buck stops there of like, who they're, what they're willing to accept for behavior. If we're gonna, if they're gonna be implementing like the management master program that David Kachui has talked about, whatever it is, like, they're responsible for that. If they wanted more leverage over their time, they could have a chief people officer who's taking and running with that inside of the culture of the company is big enough, you know, where they're actually helping all the other executives with recruiting and, you know, culture things if it's not the CEO. So I could totally see that HR is important because it's the biggest line item in cost of goods and in overhead. So, yeah, if you wanted some more leverage over your time as the CEO and you thought someone, it's not just open enrollment health insurance and 401k, but truly people and culture management, I could totally see a, a valid argument of having the chief people officer on your executive team because they're helping the three other functions and the CEO.
[00:48:28] Speaker B: Yep.
[00:48:29] Speaker A: And then the cio, I think, is going to be more important than ever because the cio, which is where Paul is playing that role for us at ibd, needs complete lateral oversight and visibility into all the data. And how do we make more money for revenue, have higher margins and higher net income? So it's taking, like, leverage for the CEO and saying, okay, you're our AI expert that has visibility over everything for data management, data security, and how do we determine what we're going to apply automation to? Right. So then like, kind of like what the CFO works with the CRO and the COO in conjunction. The CIO would be working with all three of those executives saying, okay, what's your biggest bottleneck? Should we build a tool? Should we, you know, use robotics? Should we have AI? What, what is it going to be that I can support you and your, your function.
Those two roles exist and those are for sure the role of the CEO unless they exist in the organization.
And so back to what does the CEO pay attention to? For sure, people and technology and should be doing AI because it's. Because AI is touching everything.
Like I think people should be picking their AI project based on what the CRO, COO and CFO have chosen that their biggest bottleneck is. So it's, it's in support of the business operations, not as a project that came in and got landed in. Into everybody else.
[00:50:01] Speaker B: That makes a lot of sense. Yeah, it makes sense.
[00:50:05] Speaker A: Thoughts. Push back on it. I mean you've, I mean, no, I
[00:50:08] Speaker B: think it's a valid. I mean they're needed roles.
It's. I see them as more supportive roles than as functionally critical to the business operations. Right. And it also depends on the size of your business.
If you're talking like a huge multinational corporation, then yes, like that can't all be on the CEO to manage the technology and this and that. If you're a smaller mom and pop shop, I would still see you need somebody that still owns the three critical functions and you might not need somebody to own the technology because that might be your coo. Maybe your COO owns the technology bit because he or she is in charge of your operations and technology is a tool that he or she uses to help create efficiencies in your operations.
Do I think maybe it just is depends on the size of the company.
[00:50:56] Speaker A: Agreed. And that's why for anybody listening in, like you said, to help you with your operations, I think it's those are. And we were on a call yesterday, we were talking about growth or ops.
Thinking about the business through the three functions of the income statement has been the most liberating thing for me ever. Because then I'm not confused about what everybody's talking about all the time.
So then like you saw in that call where like I was just asking a bunch of questions, I'm like what words are we actually using here for growth and costs and margin?
You know, I mean like, okay, it's like we have revenue, we have gross, we have revenue, cost of goods, gross profit margins are gross profit as a percentage of revenue. Then we have sga, then we have expenses. And so like I was like, are we using the same words here? Because regardless of the words we're using, regardless of the industry, this is how the income statement works. And so then looking at those functions and how do we have more leverage?
To your point, it's either we don't have enough size to have individual people, but maybe you do, or an initiative, but those people would be working in collaboration to the three other functions. So that would be very important to understand who reports to who and why. I just think that the CIO role or whoever's going to be in the technology.
It's so interesting because we, like technology is just like finance. It's supporting everything else. I mean, like it's, we. So there's.
Yeah, I think I hopefully answered it back to the. Okay, what does the person do then?
And the functional OS assessment.
What you and I created was, let's talk about the CRO Fun. So we have the functional seat description. We're going to be putting this, these, I mean, there's a lot of links here that, and maybe you have, maybe you have a landing page where all of these are on. I don't know. Your call.
[00:52:46] Speaker B: They're all on the IBD operating system on the website too.
So you can put a link to like the actual modules.
They should be right there on the website.
[00:52:57] Speaker A: Okay, I trust you.
[00:52:59] Speaker B: Excellent.
[00:53:01] Speaker A: So we have the Chief Revenue Officer seat description, which is what does good look like? I think this is just helpful because it's like, what is the relationship to the CRO and the board, the outcomes that they own, which are the milestones, and then a little bit more detail on the milestones and the functions and then the KPIs that they're measured technical capabilities.
So we have this for every one of the functions, which I think is just helpful. It's not just a job description like you need 10 years in an MBA. It's like, okay, so like this is like what do you actually expect based on the player. There's a player card. Yeah. Difference between a sales manager and a CRO, some assessments.
So then what we have here is you can see for each of these functions. So this is the seat description, essentially the player card. What we've got is we've got a, we've got something called the functional OS and then the leadership readiness score.
So every, you know, like the CRO, if you're, if you're thinking about you, meaning the person listening in is thinking about, okay, I, I, I, I need to get my function, or the revenue function up to, up to speed.
The modules, the module that we went over with you, Kim, that was the, you know, the three milestones of the strategic planning, customer journey and then the systems and architecture. That's like the high level that the CEO, owner, operator needs to understand this Functional OS assessment is like the entire roadmap for the CRO. So it's a way more detailed, not just the high level. And then the leadership readiness assessment is are they capable of actually intrinsically motivated and like the competence to actually level up to become that. And so the next would be then the predictable revenue functional assessment, which is very similar to the IBD owner's roadmap, but just for the CRO. So it's like, hey, how do we want to score our revenue function?
And so we have then here nine modules and it's very detailed. Of the points one through three on each of the milestones is your ICP defined.
And what this functional OS assessment is for is you as the CRO would be able to explain all of these modules and milestones to the CEO as we're up upping our score. It's just your ability to prove what you're working on now, what, why we haven't done certain other things. And then you're just supporting your role and you're supporting the justification of on track, off track. Any thoughts about other ways you've, you, you've used or like the functional OS assessment for, for revenue?
[00:55:54] Speaker B: I mean I've been using it with varying clients to help them just see where they think that they're at versus where they actually are at. Because I'll have conversations and it'll be oh yeah, I know my IC or oh yeah, I know my target audience or oh yeah, my user journey has no gaps. And so there seems to be a lot of confidence. But then when you actually hand them this document and it's so detailed and defined and you have to like list can you do is it in like the installed being number three best in class that actually makes them stop and think like well no, I don't have best in class. I've kind of like jerry rigged the system together. But it's working for now. Right. So I think it just, it, it's a tool that's helping people be more honest with where they're really at.
[00:56:36] Speaker A: And these, this should actually be creating artifacts like so you could use it with Claude or AI or some or an service provider to send it to them. Say okay, like here's what we have for this, right? So it's not just in our head. So the function. And we've got one of those for. So we got that seat description for the cfo, CRO and coo. So the. Go back to then, well, let me go to the leadership assessment. So that's the. Just to Zoom back out. We have the seat description, which is like the player card. Like, what should you expect? And then inside of each player card, we have then the functional OS assessment that that person would be responsible for. So, okay, the CRO is like, what should I expect for Kim? And then Kim would be responsible for the functional OS assessment. So that's. I mean, we get real, real geeky here, where I love tying in the compensation plan to your ability to increase the score and the healthiness of the functional revenue.
And then there's the readiness assessment. The. The leadership readiness assessment, which is not.
Again, it's not a Colby test or disc test or anything like that. This is all associated with Kim. Kim do the job as the CF or the CRO. So right now we're looking at the cfo, which would be, okay, do they. So they. Do they have the domain knowledge? Like, do they actually know what they're talking about? And so there's a bunch of material about how they actually. What their education level is, what they understand execution quality.
Are they providing accurate, timely financials, Cross functional integrity, Are they working with the other functions?
Strategic thinking.
We got judgment and problem solving, and then communication and narrative, intrinsic drive, cultural alignment and team building, and then ownership mentality.
Those things I just listed off are in the leadership readiness assessment for all three functional leaders.
Because it's just a gut checking. Like, I mean, this. I, Like I said, I. We're not trying to be leadership gurus here. This is just like, hey, when we find someone that owns the function and is capable of answering on track or off track with good explanations, and they're capable of understanding the whole role.
These are the things that they're typically doing.
And so all of this material that you. We've gone through is to help us get to a point where the owner operator can figure out, where are we at right now with these functions?
And it's uncomfortable. It's like, oh, crap, might not have the right people.
You don't have to pull the rug out from everybody right off the bat.
Why don't you walk through. Like, okay, let's say. So I'm gonna, I'm gonna put us in a mindset of like, okay, owner operators listening in. They're like, okay, I get it.
Like, hopefully we're like, we've, you know, done the red pill in the matrix. Like, there's three functions. Regardless of the size of the company.
We have a desire to get to that outcome at some point, but we don't have those people right now. And we've Kind of got a mess between the various conundrums like we've talked about. Controller, maybe we've got a, you know, a service provider, accounting firm, all the different people.
But we want to go from here to there.
What are ways that you have succeeded in helping people that you have employed in the past or work with other clients, like, actually go from here to there. Like, you've, you've, you've done things that I think you got a good style that maybe is not as rigid as me. I don't know.
[01:00:14] Speaker B: Well, I mean, there's a lot of variables in that. Right. Because it could be you don't have the right person. It could be you have too many people. It could be you don't have enough people.
[01:00:24] Speaker A: Like, so there's a lot of can't afford it, whatever.
[01:00:27] Speaker B: Right. So there's a lot of different variables that are in there. I think some best, if we're speaking specifically to. You have the people, but they're not meeting that what good looks like, then that's just a direct conversation that needs to be had between the CEO and that person and says, this is like what we now need in this job.
And if you're willing to invest in them, functional assessment, help them get there. Right?
[01:00:54] Speaker A: Functional assessment, readiness assessment. Say, hey, this is what I mean by that.
[01:00:58] Speaker B: Yep, exactly. So if you have taken the red pill, you have somebody in the role they're not meeting, they don't get the high enough skill score, use the tools as a conversation guide. And if you want to invest in them for whatever reason, it gives you kind of the road map to do that, because it'll identify where they're at their weakest. So it'll let you know where to start their training and just move them from there. If you have somebody and you do the assessment and you're like, there's no way that they could ever do these other things that are on there, then you know, you don't have the right player, the right person on the bus. And you got to come up with some of a plan as done there.
[01:01:31] Speaker A: Because I, I've liked how you've described when you know you don't have the right person because I. And before you answer, like, what I think is a very common trait with our community is servant leaders, people trying to help people elevate. They feel very loyal to their people, that, hey, I couldn't have done this without them. They got me here.
I really, my heart really goes out to, like, how much our clients and community care about their employees.
But then they have this realization. They're like, oh, my gosh, the competency or the function or something like that is missing. And I don't know if they're going to get it. You. You've walked through how you think about that and giving that person the opportunity, but also being very clear when it's not like, how. What's your thoughts on that?
[01:02:15] Speaker B: If I know for sure that they're just never going to be the person I like, have all the skills I need them to have to fill that role, that's a very different conversation versus I'm not sure. And if I'm not sure if they could or not, then I'm willing to invest and see if I can get them if they're doing everything else well. Right. If I say Cindy Lou does everything that I've asked her to do up until today to the best of her ability, she exceeds my expectations. She's reliable, she's consistent, and now we have.
I'm asking her to do 20% more things than I've ever asked her to do. So if I'm putting more on Cindy Lou, then that's up to me to train her up to see if she can do those things or not. If I know that there's no way Cindy Lou can do this 20% more stuff that I. That my business has grown to the point that it now needs, I see that as. I'm sorry, Cindy Lou, but my business has outgrown you, and we're going to need to discuss offboarding you and onboarding somebody else. Like, there's just.
And this is why I told you yesterday, I'm like, I feel ruthless in me, but I'm here to run a business.
And in some respects, I think about it, I'm like, I'm doing Cindy Lou a disservice by keeping her on my bus, knowing that she's not in the right fit and she could be flourishing somewhere else. And instead, she's going to continually be frustrated at me asking her for that extra 20 and failing the entire time. And so that's not a good spot for her to be in. And then I'm going to be frustrated that she's failing the whole time and then still feeling bad that I got to keep her on the bus. Like, there's way too many feel, feels.
There's way too many feel feels let
[01:03:49] Speaker A: their family member go.
[01:03:50] Speaker B: Right?
Yes,
[01:03:54] Speaker A: yes.
[01:03:55] Speaker B: But. So I think it's just.
I think we can be human about it and we can do it with kindness, but I think we Also need to be direct and have open conversations. And if this might also sound really bad, Ryan, See, this is why I tell you, I don't know. I might be ruthless.
I don't want people on my team who I can't be direct and honest with.
Like, why would I want somebody working on my team that I feel like I get a tippy toe and I'm like, skating around them because I'm afraid to, like, hurt their feelings or this? And like, I'm not here to be mean. And if you think I'm being mean, you be direct and honest back with me. But, like, Kim, you're being mean right now. Like, but I just, I don't know why you need to tippy toe around people.
[01:04:38] Speaker A: You and I talked yesterday and I.
So there's two points I want to get across. Make sure we talk about. So walking on egg chills over a bear with employees. But also then once we understand this, what the transition period can be like for people that feel like a stomach ache after what you said. So the first part of the, the first part about the, the tippy toe, like, I think there's a lot of people, you're me included. When I had the business and I didn't have all this material, I just felt perpetually over a barrel with all my employees.
So you have had some interesting comments or thoughts about that. So what are your thoughts about people that feel like they're held hostage by their employees?
[01:05:20] Speaker B: I never want to be handcuffed to anyone.
And what I have found, as scary as it has to be well thought out and planned, I'm not just saying you had this realization today and so just go fire the person. That's not what I'm doing.
[01:05:34] Speaker A: Saying I'm not, not not suggested.
[01:05:37] Speaker B: It needs to be well thought out financially and to make sure things are. But there have been times where like I've seen that you identify that certain X product has a small margin and is it making isn't meeting your margins. And if you stopped producing it, you actually then could let go of this player that you've been hanging on to because you can financially afford to lose them right now. Right? Like, so there's levers in a business that you can pull so you're never actually handcuffed. You just have to decide, are you willing to slow things down so that way you can go faster? And in my mind, the answer would be yes. I don't always need to be literally growing year after year at 10%. I want to be growing in the right way. So that way I have a strong fortress. So that way I can actually maximize my performance, performance in any economic period in time. And I can only do that when I have the best of the best in my operations, in my people, so on, and in my product, the quality of my product. Like, would I want to put out a half baked quality product?
No. Well, why do I want to like handle a half baked quality employee?
[01:06:45] Speaker A: Well said. And I, and I think that everybody I have ever worked with who has the right morals, values and like, philosophy, which is why I love the community that we're building, is in that boat.
What I, I mean, what IBD and the owner's playbook is, is my way of getting to the point where it became an objective truth and not my subjective opinion. Because I felt like when I would look at someone and I could not in my own head determine whether it was me or the person in front of me, like, did I communicate wrong? Like, am I too, am I expecting things that I shouldn't expect? Am I like, you know what I mean? Like, I just didn't know if it was me or them or the company or. I just didn't know. And then so there's all this like perception of emotional volatility of the owner operator that is such a bummer to be labeled as volatile when there's all like, everybody's doing the best they can with all the gut that they've got going on. And then you feel like you're over barrel because you don't know if I fire this person, like, do I actually. Because if I don't have enough cash flow, I could actually lose a big customer. Something happens and I'm like, I don't know the impact.
So what I did is spend 15 years over engineering a perfectly clear plan so I can go, oh, now I can sit down with him.
[01:08:15] Speaker B: You're like, that's right, that's wrong. That's right.
[01:08:18] Speaker A: Right.
[01:08:19] Speaker B: I love that though.
[01:08:20] Speaker A: And it was like, hey, like, okay, so. And then like, that's why I love the budgeting process. And like that first time when I think about cranking that wheel the first time, so you have the whole playbook, you do the budgeting process and it's like, okay, now what that did for me, and I've watched it happen with some of the clients I work with individually, is this is an objective truth. Now we have a, we know how the game works. So now we can navigate the game.
But before that red pill moment, and this is what I try to do with my Clients one on one in same thing with the group is give yourself grace. Prior to today you're here, which means you made the commitment to change.
So no longer are we having to like ruminate on like how you are, didn't treat that person well or whatever. But now, so let's say it's you and you and me as a role play. It's like, okay, now Kim, sorry for all of this volatility and all this ambiguity.
I now believe I've got a clear plan.
We're going through the budgeting process. Here's what I now need.
Here's what I believe this role requires, because it's just a fact. Here's a functional assessment of the to do list that we need. Here's a seat description. I know you're not there right now, but I need that person.
And so like, can we do this together?
And like, I think that, that because I hate freaking conflict so much. And like, and I've gotten like, just like you said, you're an introvert, which I never really understood. Like, I've gotten good at it over time because I know that it's not my fault. It's an objective truth. That's why, like, you know, to circle all the way back to the beginning part of this conversation, like, if this is just truly how it works now I can let, I can give myself grace to go, okay, now I feel confident and I watch some of my clients where it's like, okay, now we, we, we now know what a CRO is supposed to do.
So now we have. The first time we've ever experienced, we've ever clarified clearly to the executive what we expect, right? And so then I think what we can do is put some guardrails on that, Kim, to say, okay, once that, that conversation, that recalibration conversation happens, there's probably a 90 to 180 day plan, so two board meetings, two quarterlies to say, okay, we're gonna give this a go.
But like there's a timeline, there's expectations. We need to, you know, stay in tight feedback loop. And then there's, then the, the owner operator can look themselves in the mirror and go, I clearly communicated, I clearly explained what the goals were, what the expectations were. And I literally gave the entire personal responsibility to the individual with expectations that were in line. It wasn't like double the growth. You know, I mean like, it was like that whole thing was laid out. Then I think it's like, then I can be ruthless like what you're saying without, I mean with, with directness. I mean, other than that, I think it's. There's so much selft talk of like, oh, maybe it's me.
[01:11:27] Speaker B: Maybe I should think that more often.
That's good.
[01:11:36] Speaker A: That's why I want.
[01:11:37] Speaker B: That's probably why Frank gets so frustrated with me.
[01:11:42] Speaker A: That's really good.
Never thought it was me.
Oh God. That's good.
Oh, that's good.
[01:11:54] Speaker B: That was funny. I agree.
[01:11:57] Speaker A: Oh, maybe I'm also marriage counselor on the side if you would like some help.
[01:12:04] Speaker B: Oh man. No, I, I do. I love this and that how it makes it very crystal clear and a concrete plan and allows people to know what the expectation should be. Because how do you know how to judge somebody if you don't know what the expectation should be Be, I think is what you're saying. So I, I love the fact that this.
With that.
[01:12:24] Speaker A: That's why this is milestone 19, right? Like in.
As we wrap up here, it's like, okay, well how do we hold our account, our executives accountable if we go back to milestone one, don't know what our ownership goals are. Milestone two, we don't know what the valuation target is and what our cash flow goals are. Milestone three, we don't have a repeatable monthly and quarterly and annual rhythm for our ownership calibration. Milestone five of then the, that would be module three of the monthly and the quarterly. In the value growth playbook, we get to the milestone 10 which is then sustainable financials. We then need a three statement model to see this because this is like that's the language of business. It's not because I love financial, it's like, well that's the objective truth. Then we need an annual budget and then we need the five year forecast.
And then once we have that five year court forecast, we then need to understand what the strategic plan is and how we're going to actually obtain that. And then we need the customer journey per product line and service line with the client acquisition cost. Then we need the systems to prove that. And then we need the margins and then we. Because the build is the plan in the build phase. That's why we were now moving into the elevate. Because I think people if, you know, when people are in our program, if they have the, the economic resources going through the videos in the program is really the base case. And that's why in the, in the velocity score they get, people get credit for learning. Because if we, even if someone just learns all this stuff, Kim, they could skip right to this milestone and if they got money they can write a check, right? But my.
And then that person could then build out that function and just do it, right? So they could hit the cheat code and just jump straight to that because then they understand the build phase and they understand their goals.
And I think that, like, that's like. I mean, if I look at, like, the common theme of my life, it's like I've jumped straight to I want to buy my time back as much as possible. That's really how we buy our time back. So I would rather sacrifice cash flow to buy my time back by finding you, Paul and Pat, and people next to me that can do the work with me and share in it so that way I don't have to do it. And so that becomes very difficult if we don't know it, though, and don't know the game.
So, like, at the bare minimum, it's learning those milestones. You could jump straight to the easy button if you got the money. But a lot of the times that you and I, regardless of whether it's a $5 million company or $50 million company that we work with, cash flow tends to be a constraint.
So then it's like, okay, we're willing to deal with the time that the cash flow constraint, unless someone's willing to hit the easy button.
[01:15:08] Speaker B: Right?
Yep.
[01:15:11] Speaker A: Lots of links for people. You'll put it in there with you and the Don Cavi team. Thank you very much.
[01:15:16] Speaker B: Yep, lots and lots of links.
[01:15:20] Speaker A: The previous episode of this of David Kachu, I think is a good one within context of this is the management mastery of, like, how do we actually build the valley and the culture.
[01:15:28] Speaker B: Culture.
[01:15:28] Speaker A: And then I think you and I are going to be talking about more about the leadership development and the road map and some of the stuff coming up. But we got a September 15th workshop coming up, right.
Budgeting Annual Planning. Highly recommend that I put that in the link below.
[01:15:47] Speaker B: Definitely it's going to be an amazing meeting. Lots of people coming and we're going to be rolling up our sleeves and getting ready for budget planning season. So we're already sliding down the back half of 2026.
[01:15:59] Speaker A: Here we go.
Alrighty. See everybody next week.
