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, here everybody, we are going to be jumping into the five year leadership Roadmap.
This is going to be a shorter podcast because we actually have a hard cut off, so it's not going to be as much off the rails. And I will.
Kim, you will give me that face for it. Keep us focused.
So, Kim, we're going to be thinking. I want to be thinking through this in real time with you because I was creating this tool right before we jumped on and it's the tool for this milestone 20, which is the five year roadmap of how do we actually build out these three functions. We talked a lot about the three functions in the last episode. We have talked a lot about the three functions, why they should exist ad nauseam throughout a lot of different episodes and different material and we keep getting the question of like, how do we actually get there? And I, that's what I want to try and solve through here. I don't have a magic bullet for this, but I have lots of thoughts that I want us to unpack. Like you to actually like, let's go through this, let's go through the tool.
So people listening in will be reading the stuff out.
But you can also, I think what we can do is we can put the PDF Kim, in the show notes.
Yeah. So just talking about the actual way to get the, the functions in the right spot. So I'll start it like this is, we're coming at this from like we believe that we want someone or everybody should have someone individual own the number, just like EOS says. Right. It's like if we have more than one person owning that number, we have all of the conflict. And if it's not one of our employees or a service provider, it has to be the owner operator.
[00:01:57] Speaker B: Yep.
[00:01:58] Speaker A: So any thoughts about that? Because I know you've been, you know, we had the training yesterday. We've heard a lot of people discussing this. But what would be your thoughts on what the, what we're trying to accomplish with the five year leadership Roadmap and what some of the takeaways are from the people on the call yesterday?
[00:02:12] Speaker B: I think my main takeaway is just the human nature struggle that goes on because obviously these are up and running in progress businesses and they have relationships with people that are in their businesses and they have people they would Want to own the number, but they struggle with, are they the right person, can they get there? So I think I really like your approach that we're going to be going over today where it focuses on the business targets, the numbers and the process more so than the whole.
[00:02:46] Speaker A: And we're coming at it from the, the perspective of like we believe the world, the world is more organized. If one person owns these three numbers, there's three buckets of the income statement, you know, all that stuff. And I think the question is, how do we get from here to there? And what are the, what are the costs that could be involved? What is the combination? I keep thinking about this like a jigsaw puzzle. Like it's internal people. Then there's service providers like fractional leaders, there are mentors and consultants, there are peer groups, there are recruiters. I mean, there's all these different combinations to get from here to there. But I think there's a thoughtful way that we can think about those trade offs and how we evolve it over time.
[00:03:26] Speaker B: Yeah.
[00:03:27] Speaker A: And that's when I think about the evolution over time, which is why I always have to think about that, the path in a relationship to five years. Because just because we can't get what we want today doesn't mean we can't move that direction. And what I like is being able to see the evolution kind of like with the owner scorecard of time, cash from walls. Like, hey, I can't get what I want exactly right now, but if I move and use my trade offs, I can see that progression over the next handful years. And then I think that gets us a little bit more excited. Like, hey, it's okay to, to deal with less than perfect today.
[00:03:57] Speaker B: Yep.
[00:04:00] Speaker A: What?
Okay, should we just. Let's just pull this up.
All right, Sorry. Everybody listening. We just rolled and switched.
We switched views and we just did a cartwheel, a cartwhee, whatever it is.
Okay, what we're looking at here, Kim. And like, and like I said, this is, this has been new as I've been building out this training module and milestone. And what we're looking at here is, you know, we've talked about the company.
So the company slash CEO page, right? So the CEO who's responsible for all of operations and the owner operator. So this is a little bit more detailed owner scorecard for all intents and purposes. And then what we're able to do is then look at the CRO function and what's the five year roadmap for the CRO with the CEO function and the Five year roadmap and then what's the CFO function and the five year roadmap?
So let's just start with this, the quick overview on the company page. I don't want to spend too much time on here Kim, but I think it's important going okay, well what are we, what is the company going to be doing over the next five years? Right? Because like when I think about why this is so important. Well if we look over here in 2030, so this is Advanced Solutions that the case study that all the training's built off of, we want to go from 10 million in revenue to 20. We're going from roughly 1.5 in EBITDA to 3 million over the next five years, 53 employees to 80.
So the infrastructure will be bigger in five years.
So we can afford more payroll, we can afford more people and for more things. The question is how do we go from here to there.
And when I look at this next bucket here is what is the allowed to what are the costs and what are the benchmarks of what we should be measuring?
So we have revenue per person 189,000 to 255 or 250000 the three seats as a share of gross profit. So 6.8 to 7.8. So you can see kind of like client acquisition costs that we're like we have a guardrail of how much we can spend on these functions. But like I was like constantly beating the drum up yesterday is that does not mean these tasks or these roles can be avoided.
[00:06:32] Speaker B: Right.
[00:06:33] Speaker A: So that's like the biggest challenge I think is this it kind of like with client. I mean I think this is so similar of a mindset of client acquisition costs. Like just because we're smaller does not mean that we should not have client acquisition costs where we use our paid ad and our paid ads and our salespeople or whatever as a percentage of gross profit.
Right. So that, that, that the ratio is what allows us to see what the dollar amount is. But the ratio is the guardrail.
So then gross profit per person here it. So that's different than the, the revenue per person. So the gross profit per person is growing which means we have more leverage. So that's where that throughput in module 6 is really coming into play. And then EBITDA as a shareholder of revenue per employee. So it's staying around that 15%. So this section right here is the guard rails effectively say okay as the company grows in relationship to the five year plan, the dot, the dollar Amounts grow, which allows us to have a bigger infrastructure and pay for that bigger infrastructure. But stay within some of these guardrails. And you can see here the red versus the green. That's when we're going as slightly outside of those guardrails. But that's okay if we're going to invest ahead if we wanted to. Right, because you can always hit the, you know, the cheat button and go hire these people. But if it's 250 per person, that's 750 grand on the top, which sure, if you can afford that. But then you're, what's your trade off? Is all we're trying to identify. And then this section here, Kim, is who owns it by year.
And I think this is where it's like we're really highlighting someone has to own it.
[00:08:18] Speaker B: Yep.
[00:08:20] Speaker A: Jack Stack. I just absolutely love how black and white it was. It's like the income statement. Someone has should have a picture of their face next to every GL code.
What we're saying here is the top level KPI. Someone should have a picture of their face.
And so it's either who runs. So in this example it's the CEO who runs the company, the whole company. It's the owner operator, you, you for first four years and then in our advanced solutions they hire a CEO in year five.
So but that doesn't mean the CEO job is not there.
And then how is the seat covered in.
There's a bunch of other stuff in here, but I don't want to elaborate too much on the CEO one because I want to spend time on the CRO one and then we can actually get more into the line items here.
So what we're doing is we are double clicking in and we see then the revenue. So the first section is the actual company goals. So the revenue is going from 10 million to 200 grand. And then we have the growth rate right here and there's a higher growth rate. It picks up because in our case study we have some acquisitions going on and we're, we're actually growing the reoccurring services because of the plan that we've had, which is why we're able to grow the revenue per employee.
But that's kind of the top level saying okay, well what's the size of the machine and how is that growing?
And then right here is what the sales team is paid.
So we're, we're at least just seeing like just mental math. And that's why I like just was I was working on some of the numbers like, what do we want to see all at once,
[00:10:00] Speaker B: right?
[00:10:00] Speaker A: Like, this is not. This is not perfect. You know, it's not prescribed perfectly, Kim. But it's like, okay, well, if I'm gonna make a decision of. At the end of the day, I want to go from.
Let's see here.
All right, so Don Cavi, pause for a second.
I don't have the cost in here. You see how it. What's the seat cost?
[00:10:26] Speaker B: Yeah, well, it didn't cost because you were the sales manager.
And you're owning it.
[00:10:46] Speaker A: So essentially there's no cost because. No, like, I. We're owning it.
[00:10:49] Speaker B: Right? You're already there and are an existing expense.
[00:10:59] Speaker A: I don't like how it's perfectly done.
[00:11:01] Speaker B: We'll.
[00:11:01] Speaker A: We'll use it for now.
All right, so d. We're going back in.
So when we look here, Cam, like, the question is, when I look at everything at once, it's like, okay, what's the company gonna be doing? What are kind of the guardrails of, like, as the. As the ratios status, you know, what are the ratios? And then how much is it going to cost? And how much can I afford? That's really what everybody's trying to ask, like, how much can I afford for someone to own the seat? And, like, I have to do it unless someone. Unless someone else is going to. So what we're showing here in the CRO is that how involved are you and the. You. And this is Advanced Solutions. Who is the owner? Operator. So the owner and CEO. So when I say operator, I'm referring to the CEO.
They're running it. So we can see in. In 20, in the year one and year two, they're still running. So they have the seat of the CRO.
But what we can see here is on the second line is how is the seat covered? It's this owner plus the sales manager. So essentially they're. The owner's doing it. The owner is the CRO, but the sales managers are primary resource, so they're not expecting the sales manager to be the CRO. I think that's the biggest takeaway here is that they're not expecting to see the sales manager to be the CRO.
The owner operator is responsible. So what is the CRO? Go check out the. You know, Kim will put in the description, the seat description, the podcast show notes. So we have full understanding of the functional assessment and the seat assessment. Like, this is what the owner is deciding to manage, which is why the. The sales manager is not that person.
And then what we have here is essentially. And we got your name there is in year three, I'm hired.
We hire someone from the outside.
So there's a recruiting fee here. So there's one time recruiting fee of six hundred or sixty thousand dollars and then we've got two hundred grand as the base pay. Okay. So and then when you can see how involved you are then as the owner operator changes from running it to checking in monthly to advising to out because then they've got the CEO. Yeah. So like we're just seeing this ability to like see how the growth of the company and the cash for the company will support the different evolutions. And the whole time we're able to see like the different guardrails of the the sales team as a share of revenue. So is it staying within 6% if that's what's right for you? I'm just saying like hey, there's a dollar amount of maybe the sales team or all of client acquisition cost or maybe we want to take that leadership role as a percentage of revenue or gross profit.
It's the goal is to see how the machine grows and how our resource bucket will be able to grow to afford this 200 grand.
Yep.
Questions or as you think about the listeners thinking in right now, what. What questions do you think they might have as we're going through this? Just to frame this up because I want to go through a couple of the other functions too.
[00:14:03] Speaker B: Yeah, I think. Well, because I'm sure there's people just listening in and not watching, I think it'll be worthwhile for you to access the PDF that we'll put into the show notes because it really does a good job visually representing the financial impact as well as the alleviation on your time over the next five years if you were to choose to hire for this particular role.
I know like you've done this and plugged this into the three statement model which I think you showed. You did that the first time you ever showed it to me and was like mind blown because you could see the financial impact. If I decide to hire so and so for $200,000 in year two of my plan, how does that then trickle down through the rest all the way through year five? And what do my financials look like? So I think this just extrapolates that out of the financial model and gives you a more clear time allocation impact as well as the dollars tied together
[00:15:02] Speaker A: and up on the company page like you had said, you know, for the. So this is part of the scorecard, the owner scorecard which is their distribution target right here is that cash flow. So you can actually see their distributions are growing because the company's growing. So the distributions to shareholders while their salary is the CEO is growing, growing and then disappears because they hire the CEO.
[00:15:26] Speaker B: Yeah.
[00:15:27] Speaker A: So to your point, the question is like well when I hire Kim, can I still make my money? Well, the question is yes. Well the answer is yes. If we've done the work and we like yeah, well when we hire Kim, look at that. I actually have more money still.
So that's always the question is like, is as the company grows in size, what will our cash flow be?
But the whole time one person should own it.
That's what we're saying. It's like, it's like the duties of the CRO. So back to the functional OS assessment have to be done. We have to have the custom, you know, we have to have a strategic plan with our icp. We have to have our stages with conversion rates to the, you know, the target revenue per month, the client acquisition cost with the systems and forecasting. Otherwise we don't just. You have it or you don't.
[00:16:16] Speaker B: Yep.
[00:16:17] Speaker A: And it's okay to not have all of it if we expect it to not be done.
I guess is my point. Like when I look here go like well you plus the sales manager just means like okay, we what are our expectations?
[00:16:31] Speaker B: Right.
[00:16:31] Speaker A: It's probably sell more.
We can grow and afford the next thing.
And let me show so like here we have this hired from the outside and that we show the pay here and how that changes and we show then how the person owning it changes. We show how like the sales.
So over here what the team has paid again is the benchmark that we chose for the all all around payroll as a relationship to the revenue.
Whatever benchmark people want to see it as just to show the relationship of the different as the machine grows. But I think what's interesting is we look to going to jump to the CFO page because I think the CFO world is a lot more familiar with fractional CFOs.
Because I want to, I want to spend some time not only just explaining what the logic that we had here because everybody's roadmap will be different. But I think Kim, if you can help us unpack some of the thoughts or questions to ask around like fractional versus coach versus Mentor versus elevating someone internally is worth a discussion here within context of this. Like that's what I want to do is have the conversation that you and I have Been having with the group in the community as well as on the podcast. Now, with context of like, as you know, I'm pretty opinionated about fractional firms and different advisors, but I think inside of this context we can show how it can really work, I think.
[00:18:06] Speaker B: All right, so question, staying in this context, then into that to that point, how does this visual aid help someone? Say, I'm an owner and I'm like, I don't know what path to go down? Do I hire a full time CFO employee? Do I hire a fractional? Like, how would this visual aid help me in that decision tree?
[00:18:27] Speaker A: I would first ask myself, what can I afford?
You know, like, what can I afford in relationship to how big the company is? Whether you're a $1 million company or a $10 million company or $100 million company is going to.
And then so what's appropriate show that I should have for that team. So let's just use the CFO here then is where I'm coming at this from is I think it's worth being an absolute absolutist, if that's even a word, like, I want someone to own this.
I don't want to.
Or if you're going like, if the owner's going to like, I think the owner operator will probably choose one or two of the functional hats. If you don't have enough people, but like, you can't do the CEO and all three of functional hats and just have a bunch of service providers or minions at your company, you're gonna like lose your mind. Like, that's why everybody ends up being burnt out. So I'm coming at this from the lens of I want to offload this KPI to someone who actually knows what the heck they're doing as fast as possible.
So then the question would be, how do I do that? And I don't have a, I don't have a secret sauce for anybody or a secret recipe or solution, whatever the hell it is. I think there's probably a lot of different combinations that we. I like, I would try a lot of combinations until I win.
Could be, you know, it could be promote the person. Like, I think that our community disproportionately would default to trying to elevate the internal person. Yeah, I'm also a humongous advocate of like leveling people up, giving them pay opportunity, you know, strategic thinking and personal growth opportunity. I think that human beings like that. I think our community also believes that.
And then I think through our program, we're helping people with that possibility, to make that, to increase the possibility. That's a good outcome.
Am I, did I answer your question?
[00:20:36] Speaker B: I think so.
Well, yes. And they said you would start the decision tree with the mindset that you want somebody else to own this and what will it take to get us there.
But then we did venture down into. There are a lot of different options. I think we can sit there for a second though and just emphasize I love the idea of giving existing talent and opportunity to grow their skill set. That does not necessarily mean though that I think that this person has the potential to take over the CRO seat. It could be for the next three years I invest in Sally and I get her from a sales manager up to like a director of sales type skill level. So I'm still owning the seat while she's taking some of the task management off of my plate as I, as I grow her skills up. But I think it's all right to say I believe Sally's going to tap out at the director level. So over that three year journey I'm grooming her knowing I'm going to replace her and myself in year four.
Right. Like, and I think that's fine because what I've done in that scenario is when the business has outgrown sales Sally's skills and need something greater than a director.
I've now invested three years of growth and education into Sally. So that way she now goes and gets a job at a director level instead of a sales manager level that she would have had had I let her go at year one instead of year three. Right. So I think it's just a thought exercise of going through what do I want for. Back to your point, what do I want for my time, my cash, my wealth. And then once I have that established, it's really going to dictate the whole I need in the seat and how fast.
[00:22:16] Speaker A: So let's take that and, and like I've got the CRO page up now and I'm going to scribble in some of those ideas to see how would we see that. And like, because all we're, all I'm trying to do is like how do we shuffle around the data to get more clarity? Right. Because I love your like hura to what you just said. But then like how do we understand like the trade offs of what the alternatives are and like when and how we should make those decision trees if she can't level up and should we hire, you know, like how do we actually go through those? So like what we have Here, down here in the.
Is the function built out and is the person ready? So that's the functional OS score. So I'm going to scribble this out right now because the advanced solutions, we didn't have the sample numbers. So what we're trying to say is like, let's take that, let's take that example. All right, Sally, here's what the functional OS assessment is. Here's what the leadership readiness assessment is. Here's what the actual seat description is.
Let's try this. She might say, I don't want this, but I'm willing to help you. Like, I've watched, I've actually had clients, Kim, were like, that conversation happens and then it's like, you know what? I like I don't know if that's for me, which is a very mature thing for someone to say. So it's not always the case. But I've watched that happen, which is that gives me a super.
I'm very bullish on the, on people. Then it's like, okay, but then if that's Sally, the sales manager, like, I will be leveled up like you and I will help you. And then can I be involved in the recruiting?
I have a client, his name's Kyle. And like he, his controller was involved in the CFO recruiting.
Like, so she was involved like actually in the interview processes with the recruiter and me and Kyle.
[00:23:57] Speaker B: That's awesome.
[00:23:58] Speaker A: She's like, oh, I would like some input. I'm like, because I would love to have a selection on who I'm going to work for.
[00:24:04] Speaker B: They're like, that's my next boss.
[00:24:06] Speaker A: Yeah, like, but how cool is that, right? Like, cool on Kyle's part, cool on her part, cool on the whole situation. But like, you know, using your, using your example specifically, how could we look at that in this five year roadmap?
The first line of thought process, one person needs to own this.
Okay, so it's going to be me and Sal, like you and Sally. Okay, great.
So here, what we would have then is that we would have that function score where right here. I'm going to cross this up. But we would have like an 8, you know, a 60 out of, you know, 60. And then there might be an NA because we don't have the person. So the function. Like me and like you and Sally need to keep working on building out the function while we're growing so we have a more mature revenue function.
And then here is where you're saying, like, hey, then we hire the recruiter. We're Going through this stuff and then, then she might be involved in the recruiter.
Okay, great. Well, let's go down to then the CFO to think about how that could be. That that same exact situation could be handled a little bit differently.
So here, actually, I don't. This is. I'm going to scratch this off. So let's say first year, who owns the cash flow? They say. We say a fractional firm.
Okay, so it would actually be Pat here, which is. Pat's a fractional CFO in this example.
[00:25:21] Speaker B: Right.
[00:25:21] Speaker A: Because everybody's heard Pat us talk about him a lot and he's been on the show.
So Pat, when he, like when our old firm, like we owned the seat, our CFOs owned the seat. Very, very different than a lot of other firms.
Obviously, I don't do that anymore. But, like, I think any fractional firm, so like, that's my first line of defense here, is like, if we're going to hire a fractional leader, they should actually have the freaking job description.
[00:25:48] Speaker B: Yeah, right.
[00:25:49] Speaker A: Like, I've, I've, I've alluded to many times that a lot of firms, they lie about, I mean, maybe not intentionally, but they hire the people that are lower, like a controller, double the hourly rate, and call them a cfo because that's the only way the math works. I don't begrudge them for that. But that's what happens most of the times. Like, well, if we, if we have to all agree first, like, this is exactly what the CRO, co, and CFO do, okay? Therefore, this is what you do. This is now the number you own.
And if you can't do that, we're not doing this. Otherwise, you're just a bookkeeping company. Right? And I think that is why I get so freaking upset, because so much of that garbage is going on there in John Swing, who's on the show as a banker, he's like, different between probable and possible. Is it possible to find a fractional firm that owns it? Absolutely. Is it probable? Just not. It's just not right now. And so that's my little caveat of the generalizations that I do make. Like, it is absolutely possible to find a firm that owns it because they're capable of doing it. And then this works in that relationship, right? So in this example, we would have a fractional CFO that owns it, and then they would be overseeing the bank, the CPA firm, the controller, the bookkeeping, and all that stuff, even though they're just not. They're just a 1099.
The biggest F up is when we think that's who we hired and they're not.
[00:27:15] Speaker B: Right.
[00:27:15] Speaker A: Because then all of the balls drop and then the technical discrepancy, like the, the asymmetry of understanding the owner thinks it's getting done and then only realizes it's not when it's a total catastrophe.
And that's where my heartburn really comes into. So I, I want this. I, I want to be very clear, I want this. And I think that this is one of the best options for middle market, lower market companies.
But the negative ramification of when it's set up the wrong way with the wrong expectations is so disastrous. And that's what I usually see.
Thoughts or comments or pushback on this idea?
[00:27:55] Speaker B: Well, I think you have created guardrails to help businesses in this situation not run into that by creating the functional seat assessment. By creating, creating the, like the seat description. By creating the assessment for the person themselves. Right. Like showing them this is what it should look like they would be. That gives them now a benchmark to know is my fractional CFO firm, partnership relationship, whatever you want to call it, are they giving me an 81 out of an 81 across both of these scorecards? And if they're not, then they're not meeting expectations. So I think if businesses, these business owners have that scorecard, that assessment to validate the performance of the firm, then you help minimize that negative impact.
[00:28:43] Speaker A: Yeah, I love it. I want to modify one thing that you said because I think that if a fractional CFO firm is coming in to oversee and own that number, then the chances that there's a built out mature function is very small.
So then what happens is we shouldn't expect the functional OS assessment to be very high.
We should expect it to be very low because it's just the nature of where we're at in that journey.
So the scorecard, I'm sorry, the, the functional OS assessment is what should align the fractional leader, whether it's any one of these leaders and the expectations of the owner operator who's hiring him, saying, I know that we're not perfect right now. I know that we have to go from cash to accrual. I know that we have to separate our chart of accounts. I know that we're going to eat for six to 12 months and the owner shouldn't expect something that they, that they, that. Because there's a lot of times that the fractional leader will also be set up for failure because the owner doesn't know any of this stuff. So we have to level both people up, get, get them aligned and then we have the highest probability of success.
Then.
So here's where I was going to go. So I'd say that the functional OS assessment score, I'm, I would expect to be lower. But everybody on the same page with what we should be working on next and then we're integrating that into then like an EOS system to say, okay, now the, the, and the fractional firm, the cf, the fractional leader, I should say will own the seat, sit on the L10s, do the quarterlies. The owner should pay that person to do that because you're not paying 250 down here. I'm showing that like it might be 80 to 90 grand. It could be anywhere between 5 and 10 grand a month. I think anywhere more than 7,500 for a fractional CFO that's not doing bookkeeping. Stuff like that is too much because it should be one to two days a week.
[00:30:37] Speaker B: Yeah.
[00:30:38] Speaker A: And then they still need to do then, but then like how much is the CFO and then what's really bookkeeping versus like you know, billing and contract and invoicing and HR absolutely has to be broken down. But let's assume it's just the CFO services here. We said, hey, we got 84 grand, the person's owning it. But what we absolutely should expect, Kim, is that is the person ready? Damn well better be an 81 out of 81. Yeah, that's where I think we can, we can look at the seat description. We say, okay, the seat description is all checked and the person's capable of doing this. Yeah, the function might not be ready, but that's why we're hiring them is to actually elevate everything. And then you can see here, then what we can do is, you know, what we show here is that the person hired the fractional leader, I mean may or may not be possible in your contract. I'm not going to get involved in that discussion. I mean if the person's a solopreneur, you know, and it's a 1099, maybe they just come on full time because the work grows. Because the whole point is that workload will grow, which will require then a full time person which then has a, the ability, we have the ability to pay the person.
What's your thoughts? I mean does this, does this help maybe settle a little bit of the discussions we've been having about, around the fractional firm?
[00:31:59] Speaker B: I think so. And I think it also helps with the long term view, because I feel like a lot of people when they real, like on our call, there were aha moments of people realizing, all right, you're right, one person needs to own each of these KPIs.
And I think there's a tendency to want it right away.
Right?
I mean, you're a business owner, you're like, you're a go getter. And so when you see something's broken, you want to fix it right away and you're just like, nope, let's get this done. And I think this helps to show people why it is actually helpful to make sure you're methodical about this. So that way you don't erode your margins, you don't run out of cash, and you can still make sure you're hitting your owner's goals while moving towards what best in class looks like.
[00:32:45] Speaker A: Let's remind me, I won't name the name our mutual and dear friend client who was talking about, if we have this all set up, the CEO doesn't really have a job.
That whole conversation. Let's come back to that. Because where the, the context comes from. Your comment is the owner has to set the goals for their cash flow evaluation because that brings context to what the operations has to accomplish over the next five years. That will then require and provide light what will have to happen for the functions over the next five years. You see, it's just like keep double clicking in. And then we're like, okay, well like this just has to be what it is.
And then we have a constraint of time and money. And so ideally we can find a firm. And I keep saying firm, but ideally we have a fractional leader. There's again the discussion. If you can find the person that's got the actual qualifications and actually capable of doing the job, sits on and owns the seat in the L10s. And like that's what I, that's my requirement of a, of a fractional leader.
Working with someone that's a fractional leader on their own. You could probably charge, you know, 150 bucks an hour is 360 grand or 300 grand a year. So 3, 300 versus if they're underneath a firm, it's it like now all of a sudden it's probably 250 to 300 grand or 200. 250 to 300 bucks an hour.
[00:34:11] Speaker B: Yeah.
[00:34:12] Speaker A: Those are just the economics that are just a reality. And if they're not, the firm's not making any money or they're selling you someone that's not qualified.
Yep.
So I think here in the to to look at it just this entire roadmap on the COO side from a different lens.
So we pro. We were developing someone for the CRO, developing them and then we ended up hiring someone third outside.
So let's assume that that person was. Yeah, hire hired someone outside and then the fractional CFO was on and then we hired them full time. Well, I think the operations is really interesting and this is where remind me I want to because I know we got 10 minutes or less here is quickly talk about the CEO as we wrap up like that story I was talking about. And then inside of the coo fractional integrators and my little disdain for some of the squishiness around that.
So for the coo just to highlight where I think there's just so many different combinations but the combinations should be in relationship to this five year roadmap. So who owns a gross margin here? I say you until there's a person where I say Paul. And I say you because so many of the people specifically in IBD and our ideal client profile, their owner operators. So many people really, really understand the operations like they were the technician, they were the doer, they were the professional. And like so people intimately understand the operations. And so I show here that how the seat is covered is them plus like a VP of ops or something like that. And I think this is where a coach or mentoring might be even more possible than having a fractional leader. Yep. Because the owner operator knows this so intimately, they essentially need some help of the doing while they're elevating and maybe some mentoring and some training could be part of the process here. And so what I show here is this person was promoted from inside, but the way that they were able to be promoted from inside is because we have the functional OS assessment, we have the leadership readiness assessment that they're using to guide these conversations. So for three years there's this development plan and then they're promoted.
And so then you can see down here in the salaries where the salaries go from 175 to 225 over the course of the next handful years plus some backfilling of the job that the other person is. So then we're promoting that person and backfilling them as we're growing. But mentorship and coaching could be applied here versus fractional leadership on the finance and or tag teaming until we hire a third party.
Yep.
All of those could be one option for one role. And you just try A bunch of things and tell like what becomes the relentless pursuit is someone has to own this KPI besides me and we have to do it in relationship to the guard rails of the economics of the owner's goals, the size of the company, how much we can afford.
Yeah, we could go all the way and say I want to hit the easy button and then hire 750 grand of salary at the top.
The biggest issue and I think this kind of ties into the CEO comments is like let's take, let's take the COO for a second. Say we want to just hit an easy button, have someone run all of our operations. And when I say operations, that's not revenue, that's not finance, that's gross margins. And people get one of, one of our calls. Like I want them to run the day to day.
Does that mean like, like day to day sales, day to day finance or day to day ops? Oh, so if the operations, if you went and straight and hired this person, what if you don't have a company big enough to utilize that person the whole time?
[00:38:02] Speaker B: Right.
[00:38:04] Speaker A: Then that person with their huge paycheck should be expected. That 50% or 70% of their job is like minuscule work that they have to learn how to delegate over the next. So like that person's job would be to delegate that stuff over these five or these three years.
Or like a CFO who, like I, I've given my example. Or like the CFO that I used to, you know, One of the CFOs I hired at our old firm.
I don't close the books.
Well, okay, you and your high tower can go find a job somewhere else. Like you got to go in there and you got to do bank reps, you know, maybe have to log into QuickBooks so someone could be qualified. Like this is Pat hobby, right? Like he's, he's a ninja. Because like he can sit down and talk to a banker, an investment bank or a buyer and then he can go into the QuickBooks and reconcile, reconcile the bank account and like it's not below him.
And but like, so we look at a pie chart of Pat and this is really, I think we go back into utilization rates and, and of people we would say okay, as we're growing, we could then you look at Pat's utilization in the task to say okay, that CFO is, we're now growing, so we can still. Now it's time to hire this accounting manager. Now it's time to hire a controller, full time controller. So like we're Hiring behind the people as they're growing. So my, my only kind of word of caution is if you hire someone ahead, it can't be below them to do the stuff that is required because it's a smaller company.
[00:39:32] Speaker B: Y. I agree and I think that's a very common, very common practice. I mean I feel like that pretty much describes like my career at itr, right. Starting off growing and then they just kept back when like 80% of my time became more strategy and less selling than it was time to hire another salesperson. Right. So it's just kept like backfilling the roles.
[00:39:56] Speaker A: And I think that like when I look at what is, what does all this mean is like every single year we should be able to look at the size of the company, the org chart, the infrastructure, and how we're going to categorize what's done inside that function.
Like how like we still need accounts payable, receivable, billing, we still need bank reconciliation and closing the books and controller level work. And like it's just the volume grows.
So then we have to build out our org chart accordingly. And that's what we're trying to do is manage the entire function inside of that thought process as we're growing into our plan and as I'm kind of wrapping up here, our, our client on the call had said, well, you know, with all with three functions like this, like the CEO really doesn't have a hard job.
And I said this in two ways. And I want you to think about the audience as they're hearing this is in and challenge or unpack it. Is I at the 20 million our family business? I would agree with that. Like if we were just sitting at 20 million, I'm like, yeah, like hiring a CEO to manage three people qualified to run those functions is not a ton of work. I mean it's work, don't get me wrong. But it that the CEO should be spending 80% of their time on strategy and planning and forward thinking in the big stuff. And then 20% of their time essentially just working throughout stuff, no tasks and managing these three people, managing these three people and managing the four in the future. But if the goal is to just stay steady, not a lot to think about. But if the goal is to go from 10 million to 20 million, to diversify your products and services, to do some acquisitions, to right size the company to do a bunch of strategic planning, like that's a lot of work.
So like the goal will dictate the level of effort from the CEO as well as the level of effort from the functions as well as then what is the right structure? And that's why I love going like we have to reverse engineer from the five year plan to say, what is this?
What's the income statement, the balance sheet and the cash flow statement going to look like in year five. But let's just take the income statement, say, okay, well at 20 million we're going to have 80 employees.
What's the sales and marketing department look like?
Does it require a whole CRO or should we, does the five year mark actually just look like a $90,000 fractional leader?
It's okay, right? Like we just have to think about it and say like the tasks are going to be in proportion to the size and then we're just trying to back into how we're going to grow into that org chart for five years out. And we're just starting with the leadership teams saying okay, like here's what we think needs to be done. And it could be internal development, internal promotion, it could be mentoring, coaching, fractional leader, combination of all of those. And I think the relentless pursuit of I don't want to do this and I shouldn't do this is what's going to allow us to just beat our head against the wall because we've got clients that you and I know and work with. It sucks, man. Like you're going through it like you had to fire a second firm and you're like, God, I have to tell them all over again what to do or I might pay a recruiter 70 grand. And I don't know if it's going to be the right person. And there's all the tools that we're using to help people are also going to help them choose the right person. But I know we are at our timeline because you got a hard stop. Any final thoughts or think like, you know, think something to think about as it relates to this milestone that you want to leave the listeners with.
[00:43:44] Speaker B: I think a final summation thought would be to use the tools, right? This is not a unique issue. This is a common thing across all the different businesses, especially when you come to the realization that one person does need to own the number and you don't have that person right now. So to use all the tools, use the assessments, use the seat disclosure descriptions, use this visual roadmap that, that we were walking through here today. Because these tools are going to give you the what good looks like and how that looks in terms of impacting your ownership goals when you consider your time, your cash and your wealth.
[00:44:21] Speaker A: This is objective stuff. That's what we're trying to do. This is objective stuff. Like, it's not.
I think we can take a lot of the confusion, which I think creates the lack of confidence and it creates anxiety in the decision making. It's like, no, this is pretty straightforward.
A lot of hard decisions inside of this, but we don't have to be confused about how the game actually works and what the tasks actually are. And so then the point of this milestone was to elaborate on last milestone, to say there's a. There's a path that you can look at through the constraint of the cost, what you can afford and what the overhead is going to be and what the infrastructure is going to be. So you can make those decisions between coach, mentor, internal promotion, external hire in context, and then you can have a list of what's. What's your personal preference. Promote from within and how long are we willing to give people. And like, you know, they start to then go back to the leadership and the management.
[00:45:13] Speaker B: Yep, I agree.
[00:45:14] Speaker A: You gotta run. We'll put the links below. All right, everybody, I'll see you next week.
[00:45:18] Speaker B: All right, sounds good. Thank you.
It.
