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Key Learnings

  • “If you want to move faster, you need to pulse faster.” It’s crucial to stay deeply connected with your team during a crisis or big strategy change.
  • Trust the Tribe. Good hiring, training, and development all mean that you can and should trust your people to get the job done.
  • Influencer Strategy. Build and nurture relationships with your core customers and/or your target audience.
  • Always play to win. Don’t play not to lose. Read more about how Wolfgang Puck used this concept to get through the pandemic.
  • Understand how the psychology of pricing strategy can affect your business. Learn more about pricing strategy psychology.

Check out the books Verne recommended with these links:

Full Transcript


David:

My name is David Nilssen. I’m the co-founder and CEO of Guidant Financial, I want to welcome you all to our webinar today. As many of you know, Guidant is focused on increasing the number of people that succeed in small business. This webinar is likely to be the first of many where we bring on thought leaders and change makers across a variety of different industries. Our hope is that there’s a lot to learn as we unpack these stories.

Today, I’m honored to have Verne Harnish with us. Verne Harnish is the founder of the Entrepreneurs’ Organization (EO), which I’ve been a member of for 16 years and has 15,000 members across 75 different countries. During that sort of start-up phase, Verne helped to not only launch the organization but chaired its top CEO training program, which was called Birthing of Giants, and is still held at MIT today. He chaired that for 15 years. He’s also the founder and CEO of Scaling Up which is a global executive education and coaching company. We’ve got about 180 partners across the six continents, which has allowed him to spend about three decades helping entrepreneurs continue to grow their businesses.

Now, he’s also an author, he’s written many different books. One is the bestseller Mastering the Rockefeller Habits which has been translated into nine different languages. And then with the editors of Fortune, he authored the Greatest Business Decisions of all Time, which Jim Collins actually wrote the foreword for. Later, he had wrote the book Scaling Up which is also referred to as Rockefeller Habits 2.0, and it’s won eight major International Book Awards, including Best General Business book.

Verne chairs the annual Scale Up summit in collaboration with Bloomberg and is on several boards, including the Rodin Clinic, Geoversity, and the Million Dollar Women’s Movement. It’s probably no surprise that he’s also a private investor and has had lots of experience investing in great businesses and great entrepreneurs.

Then finally, something that I learned about Verne is that he loves piano, tennis, and is a card-carrying member of the International Brotherhood of Magicians. And while you can’t see it, we found out earlier, we also have a very similar taste in art, apparently. So, there you go, you can see those not planned, but something fun that we discovered a few moments ago!

I’ve personally known Verne for a long time, we’ve had a chance to collaborate on many different events together. So, when we were thinking about this, kicking off this webinar series, I thought he’d be a fantastic way for us to start and he graciously accepted. Verne, thanks for being with us.

Verne:

David, always a pleasure to hang with you. And by the way, I hope your audience knows you are the Head of Global Learning for EO, which is an unbelievably powerful and important position, because that’s really what he EO is about is learning. I appreciate you hosting this for your clients as well. I know it’s a passion of yours.

David:

Yeah, definitely. And thank you. We will talk a little bit about EO. I think it’s important because we are a pretty diverse group that’s on the line today, I think it’s important to talk about, you know, the ways that people can learn from entrepreneurs, regardless of the size of the biz, what have you. We’ll talk a little bit about that later.

We have approximately 500 people that we expect to be on the webinar today. I can see people are still pouring in. I’m going to ask a poll, and we’d love if everyone here could answer the question. I’m going to go ahead and put this up here. You should see that here in a second. This will give us a baseline for who’s on the call, what audience we’re speaking to. The question is, do you already own a small business or are you interested in starting one? And you’ve got a choice here; I’m already a business owner…I’m interested in starting one…or I help people buy businesses. I want to make sure that you know we’re delivering maximum value and so we’ll just let that run.

I’m going to go ahead and close this out and share the results here just so everyone can kind of see what the audience looks like. Looks like 62 percent already have a business, 22 percent are looking to start or buy one in the future, and then finally, about 15 percent of the people in the audience, are those that actually help people do that.

As a reminder, we’re going to take live questions as we go, feel free to enter those into the questions channel. This is not a presentation; this is a conversation. Verne is a wealth of knowledge. And he and I spent a lot of time working with small business. We figured it just be fun to riff back and forth. We’re just gonna jump straight in.

Verne, for those that don’t know as much about your journey prior to EO would love to just hear how did you get started in the world of entrepreneurship? And what did that experience look like for you?

Verne:

Now, you know what, for a lot of folks, it’s accidental. But in my case, I grew up around entrepreneurs. Both my grandparents had successful companies. My grandmother really worked her fingers to the bone in the upholstery industry. And then my dad, who was a rocket engineer for Martin Marietta, he teamed up with three of his buddies, and they launched a company called Hire Electronics, and basically, it was a rocket shop. I got to watch that in the 60s and early 70s. But then he lost it all in the ‘73 recession. We never recovered. I saw the impact it had on him and our family. So that’s ultimately, really my mission and purpose behind EO is whatever we can do and Scaling Up, what I do today, whenever we can do to keep entrepreneurs from having to go through what my dad did, and their families. It’s very missional for me.

David:

Yeah, it is hard. Owning a business can be physically and mentally exhausting. And, as many people recognize when they first jump in, it’s a little bit lonely, too, because the challenges you deal with, others can’t relate with. I think it’s awesome what you’ve been able to create there. Let’s talk about EO for just a second. Because, you know, you’ve had such a profound impact both directly and indirectly on so many entrepreneurs across the world because of the work that you’ve done building EO. Can you share just a little bit just to give people a baseline for those that aren’t familiar, what is EO, why does it exist?


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Verne:

It was actually launched the evening that I hosted Steve Jobs for his first public speech after being fired from Apple. I had Michael Dell and Mark Cuban and Kevin Harrington, a lot of that young entrepreneurs in their 20s, there was about 1,200, I pulled together in Los Angeles, and we had a party that night. Steve stayed, and he just stood over in the corner. I recalled a friend of mine, Joe Mancuzo’s line: “It’s okay to be independent, but no reason to be alone.” I turned to a buddy of mine, Greg Stem and I said, “Hey, Greg, there needs to be an organization for Steve.”

That was the night, we were all under 30 at the time, Young Entrepreneurs Organization (YEO) was birthed. I passed the hat, and it took me about a year to get the funds raised, to get our 501:C3 status and all that other stuff. So, we launched it in ‘87. But that was the beginning.

It really is a place for entrepreneurs that have gotten over the million-dollar mark that we have the accelerator program to help entrepreneurs get there. It’s a place that’s anchored by this thing called Forum, that allows you, at the end of the day, to have a handful of close friends. We had Sara Blakely on. You hosted her last week for our GLC. Sara, when she was just getting spanked started, she joined Forum with ten dudes, as she said, and she is still with them, even though she became one of the youngest self-made billionaires in the history of our planet. So, it’s been this place of support and education, which you’re driving many up.

David:

You actually brought up something a second ago, that was something I wanted to touch on. EO has this qualifier, which is that you have to do, I think, a million dollars in sales, or have taken in two and a half million dollars in venture financing in order to qualify. So, many of the people that are on the line wouldn’t actually qualify for that. But you brought up the concept of Accelerator, which is a program inside of EO to help people that are maybe below that threshold to continue to grow and scale their business and eventually join in the future. It’s a fantastic program and one that’s definitely worth taking a peek at for people that haven’t had a chance.

Verne:

For sure.

David:

I want to transition away from EO for a second and just talk about your book; Mastering the Rockefeller Habits, that I think came out in 2000. Is that right?

Verne:

Yeah. 2002, but we had copies out 2001 so.

David:

Okay. So, tell us a little bit about the book and really the thesis for that. What do you hoping people take away from it?

Verne:

Well, as you know, there’s tons of information on how to start a business. I think an incubator on almost every corner in every major city, and I’ve got an MBA that is supposed to teach how to run a big company. But when I launched EO, there wasn’t any parenting manual for how to kind of grow up a business, how to scale it up. That’s really why I launched that executive program in partnership with Inc. and MIT back in ‘91. It was a chance over the next decade, and we moved about a thousand pretty significant entrepreneurs through that program that allowed me to kind of test ideas and see what worked and what didn’t work.

I was visiting one of the students, John Anderson, who had a Hayward dealership in Detroit. His wife said, “Have you read Titan?” which was the biography of John D. Rockefeller. I hadn’t. So, I read it. I’m like, this aligns. His practices and disciplines aligned with what we had independently discovered, were behind some of the more successful scale ups. That resulted in really 2002. That book was the curriculum that we had been teaching for the previous decade at Verne and Giants. Then 12 years later, we had a chance to kind of work it out with about 50,000 companies around the globe. And we updated it, and we’ve got it updated here to 2020 numbers.

David:

So, what are one or two of the things that you hope people take away from that book or would assert are some of the most important concepts?

Verne:

The fundamentals were really based on three disciplines. And we like to say, hey, the business that you’re running or want to start isn’t going to where you want it to go, it’s usually one of three reasons.

One, you’ve working on too many priorities, or you’ve got the wrong priority.

Number two, it’s really not rooted in the right data, both quantitative as well as qualitative, you’re not hanging enough with the customers.

And number three, you might have all that data, but if you don’t get in the room, at least with yourself, and look at it (hopefully there you’ve got a partner), you can talk about it, that meeting rhythm and so on reverse. I mean, get in a room daily as Nathan, the guys at Airbnb did when they got in a crisis, about the right information. Intel is what wins markets. Then based on that, decide, alright, what do I have to do today, this week, in the next quarter, maybe the next 10 years? It’s one of those three priorities – data or meeting rhythm.

David:

Verne, unfortunately, as you’re talking about this, I’m thinking to myself, yeah, we’ve struggled with all three of those at times in our business. Once we got one figured out, we sort of reinvented again. So that’s a common thing that people struggle with.

Verne:

Large companies do. We hosted Nate, one of the co-founders of Airbnb, just before they were getting ready to go public. They lost a billion dollars in bookings, right? The beginning of the pandemic. The first thing Nate and the senior team did was go into a daily huddle, same thing Steve Jobs did when he needed to come back and save his baby, Apple. It’s fundamental.

I was just coaching a company on in Oakland, California, a couple hours ago, that if you want to move faster, you need to pulse faster. That was the first thing we suggested in the pandemic: you really need to up your amount of communication, especially now that your workers are remote. They want to hear from you. And they want to know what you’re thinking.

David:

It’s so true. You know, sharing, it’s a personal experience from that with a pandemic, we did something very similar. We went to a daily huddle as an all company, eventually, we ended up moving to twice a week. Now we’re continuing with a weekly call, which was a more typical thing.

We use the framework from Bain to respond to the crisis. It starts with protecting your team. Part of that is just proactively communicating with them. Because if you don’t, they fill in the blanks, they tell stories, they start to create a little bit more chaos. We were able to focus people much faster by lowering the amount of time in between the conversations we were having.

Verne:

Even if you just have one other employee, like Mark Zuckerberg and Sheryl Sandberg, they sit down every Friday and have a conversation. You think you’re having those conversations informally. But if you don’t set a time to talk and communicate every week, then all of a sudden the weeks go by, and you’re working on the wrong priorities, you don’t have the right data, and you didn’t talk about it.

David:

Awesome. Well, just a reminder for the group here. I see questions that are coming in, those are going to be fed to me, so we’ll continue to hit some of those. But Verne, let’s talk about today. Interesting environment obviously, always changing. What is adaptability in a pandemic look like? What do business owners need to be doing?

Verne:

Maybe a simple way to summarize it is: run sprints instead of marathons.

I mean, literally in the depths of the crisis, we really got focused around, alright, what is the most important thing we need to do in the next hour? I’m just gonna get this one thing done. And then I’m gonna take a break. And then I’m gonna decide the next hour, what do I need to do next when I’ve gotten new information. And so, when things are changing that quickly, it really means you’ve got to remain agile.

We call it the Agile Scale. If anyone that’s tech companies know about Scrum or Agile, you set a sprint for the week, maybe two weeks, and then you kind of stand up and look around and say, all right, how did that work out? What do we need to do next? That’s the kind of the key is you really shorten your timeframes.

David:

What about right now? Thankfully, there’s a lot of people that are starting to transition as we’re coming out of COVID. Though, the vaccine is being distributed faster or people are starting to feel more optimistic. But there are still lots of businesses that are struggling and are dealing with fewer resources than they’ve ever had. So, how do I think about scaling growing my business when I have fewer resources than I had before the pandemic?

Verne:

That’s why a little bit of focus around process is important. As we scale up early on, we’re so focused around “I want to get my sales working, and my marketing working, and my operations working and my IT” and those things. But, the organization in the world experiences your company through a set of processes.

We’ve got an acronym called LEAD, which is, hey, start by just listing all the stuff you’ve got, including all the recurring expenses you’ve got on your Amex card, which we did.

Then decide E, what can we eliminate? What are the stupid things that we’re all doing? And remember, this works like your hallway closet or your garage. You cleaned it out and give it six months, it’s junked up again. So, you’d have to get a bigger closet, or clean it out. That’s what you can do when you’ve got less resources – make them more productive.

There are things that you can automate (A), which we’ll come back to that in a moment.

Then finally, you come down to the D, which is delegate. All right, can I find somebody on the planet that’s willing to take this little piece and handle it for us? That way you can access more remote talent that you don’t have to have on full time. It also gives you flexibility as the organization flexes. I’ve got a lot of flex time, helping folks that help us drive our company, including our 190 coaching partners.

David:

Now flex time.

Verne:

Yeah.

David:

Meaning part time resources that are…? Or, how would you define flex time for you?

Verne:

Well, in other words, I might just need Joon Yi, who designs our slides for two hours this week. So, she’s not full time on my payroll. Because almost all of our team is that way, they were able to stretch and contract, as we had activities, construct, and contract over this crazy pandemic period.

That makes you anti-fragile instead of resilient. Everybody talks about being resilient. If I hear that term one more time, I’m gonna throw up in my mouth! We don’t want to be resilient, which means you have to push through the pain and work hard. No, you want to benefit from the chaos. A lot of that is how you structure and your work. Those are the opportunities through technology for all of us as small businesses to be able to do moving forward.

A lot of the millennials, you know, want a great life as well as work. You’re able to do a lot of flex activities with them. My CMO is part time because she’s also a musician. But I got her out of Zillow because she was hired to work in 80-hour weeks. There was no way we could have gone from 2,000 to 18,000 paid folks that attended our summits in 2020 without her efforts. But because it was flex time, I couldn’t afford her full time. But I had her expertise full time.

David:

We’ve had similar experiences with Guidant. We’ve got lots of people that work with us that are a little bit more flexible in terms of the amount of time that they’re investing with us and that benefit of being able to have some of that other quality of life aspect is something that people really value. I think a lot of times small businesses say well, I can’t afford that person, or I can’t afford that function, when there’s lots of different ways to consider that.

Verne:

Yeah.

David:

You talk about enterprise. Oh, by the way, great book for anyone that has not read it, The Concept of Anti-Fragile is definitely one that I would recommend. Earlier somebody asked about the name of the book title we talked about, which is Mastering the Rockefeller Habits. Definitely check that out. But that’s…

Verne:

That’s the old, David. I’d really encourage people to skip and go right to Scaling Up, Rockefeller Habits 2.0. Though the first book is still applicable, the new book is much more comprehensive, for sure.

David:

Inside of Scaling Up, there’s a lot of great frameworks around strategic planning. I want to talk about that for a second.

Because planning in an environment that is always changing, which we’ve been experiencing for a while and even on this webinar, I’m sure there’s some people that are in places like Texas and Florida and others that are like me in Seattle where the restrictions are very different. So, how do you think about strategic planning any time where there’s a lot of uncertainty?

Verne:

An analogy I’d use is climbing Everest. What’s important is to keep your eye on the prize. That’s why even in a pandemic, you still want to have a clear, big, very audacious goal. Where do we plan to take this thing in the next five to 25 year? And as they’ve always said, we always overestimate what we can get done in the short time, we always underestimate what we can get done over a decade. So, keep your eye on the prize.

This is temporary as that last pandemic was. But then, the storm has hit Everest. The most important thing is then to get focused on making sure we’ve taken the right next step. Keep focused on the long term, and then do micro adjustments. Whatever you do, just don’t step off the mountain. Some of you have to step up, some had to step down, but you have to keep moving. That’s why I was literally like, alright, what do I have to do this next hour?

Celebrate that and then see what happens next. You really have to take it that way, like finding your way off of Everest.

David:

Don’t fall off the mountain. That’s great advice.

Verne:

Make sure the next step is right.

David:

I want to take a question from the audience. What are some of the smartest moves that you’ve seen businesses make in the midst of this pandemic? What have you seen that people have done that really you think played out well?

Verne:

It ties back to the question you just asked me, which is Margaret Heffernan said it right at the very beginning of this pandemic, when we hosted her. “Be ambitious.”

If there was one article, I’ve encouraged everybody to read, it was Wolfgang Puck, the restaurant owner. I mean, here, restaurants were really hit hard, as you know, almost more than anyone else, in addition to retail. This Harvard Business Review (HBR) article is about him, and his decision to say, “Alright, we’re gonna decide to grow in the pandemic.” And the moves that they made were some of the best I’ve seen of any company. And again, they’re in the restaurant business. So just get that HBR article, read it, and have that play to win mentality versus playing not to lose – which always is a losing strategy that Wolfgang Puck brought to the marketplace.

David:

Let’s talk about the other side of that. Forget the pandemic, let’s just talk about business in general here. Regardless of whether there’s a pandemic or not, there are common mistakes that people make as business owners that impair their ability or their growth potential. What are some of the things that you’ve seen are just common errors that people make when they’re operating a business?

Verne:

I think the first is pricing. We talked about how marketing is the most important function if you want to scale. Ed Roberts, who was our senior sponsor at MIT, did all of that original research. He found with start-ups, those that scale further, faster, had somebody dedicated to marketing.

When I launched YEO, I called Regis McKenna, who was coaching Steve Jobs with marketing, and said “Regis, I want to build the world’s largest entrepreneurship organization, will you help me”? And he said, “All right.” The first thing he said was, “You’ve got to set aside one hour a week for marketing, separate from sales, even if it’s with yourself.” It was me and a young guy, Rich Moran, that he assigned to me from his team.

Number two, get focused around the four P’s of marketing; product, price, place and promotion. Look, in the beginning, we tend to price low so we can just get in the marketplace. But the problem is we forget to lose that strategy. We forget that pricing is not logical because we’re dealing with people. It’s a psychological decision.

I’ll just share one quick story. I am a big fan of Dr. Robert Cialdini, the godfather of influence – his book is called Influence: The Psychology of Persuasion. In fact, we’re hosting him here in a couple of days and his new book comes out here in about a month. He’s updated its significance.

They did an experiment with a restaurant. They had a wine list. Almost all the wine lists are listed from least expensive to the most expensive. He said, “All you have to do is reverse the order of the list.”

The revenue jumped 26 percent, on average. You didn’t change a wine, you didn’t change your price, and you just changed the order. If you anchor it with a really expensive bottle of wine, revenue pops like 250 percent.

A friend, Adrian Wall, has a very simple strategy. It’s called a Taste of New York, in Shanghai. If anyone’s from the New York area, everybody knows Joe’s Pizza. I mean, their lines are always 24/7 out the door. So, Adrian convinces this iconic family to let him open up the Joe’s Pizza on the other side of the planet. I saw him just before the pandemic, and he heard me talking about this list. He said, “Verne, you got to come down to Joe’s Pizza and grab a slice of something.”


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Verne:

He takes me down and he shows me the menu. He said, “We always had it listed from vegan, least expensive, to meat lovers’, the most expensive. All we did was reverse the order of the list. Didn’t change the slice, didn’t change the price, and revenue jumped not the 26 percent, but he got a 15 percent bump.”

That’s how important it is to really get pricing right the psychology with it. One equivalent story. Ann Marie’s an EO member. She is the soap making queen. One of the things we talked about brand is owning a word or two. So, if you need to make your own soap, Anne Marie is the queen of that. She had a Kickstarter campaign that she was launching. Like all Kickstarter campaign crowdfunding campaigns, she was starting with least expensive, like $1, if you want to support me, $5 for the T shirt. Then she had this $300 tier with an all you could ever want in soap making kit.

She heard Cialdini speaking at our event, it was on a Tuesday, she calls her team back and says “Alright, I want you to reverse the list. I want you to put at the top some $2,500 package, like I’ll come out and make soap with you.”

In 24 hours, she sold out the entire campaign, including all of those $300 packages, following that precise psychology that Cialdini had shared.

One last thing for those of you that are in business to business: it’s really the power of good, better, best. We even did that in the pandemic. We had a price $295. But we said look, if you’re really hurting, it’s $95. By the way, the $295 got nothing more or less than the folks who paid $95. Then we had “if you would love to gift the world with seats,” a $995 offer. There was a 10 times difference in price for the same event, the same 90 minutes.

I was blown away how a third of my revenue came from each one of those price points. And how many people paid the $295, that didn’t need to, but people are fair.

There’s an HBR article called Good, Better, Best Pricing. You and I were talking about Michael Dell. He was, as I mentioned there, one of those early meetings came to all those early YEO events. He switched to a good, better, best pricing model. It’s mentioned in this article that his revenue jumped 300 percent. Just up in your game around the psychology of pricing, I think is one of the most important things and one of the biggest mistakes that companies make.

David:

You know, it’s funny, when you talked about pricing a few minutes ago, I thought you were going to share a little bit about maybe pricing models and ways to think about it. But actually, you’re just talking about simple psychology, right? It’s funny, the example that comes to mind for me is the local car wash down the road that I go to. They have the standard wash, the works, the works plus, and the works premium.

Verne:

Yeah.

David:

The incremental cost to them to deliver one or the other is probably very, very small. Yet I’m willing to pay 3 times the standard wash to get the premium because it feels good. It’s delivering a better value, and I’m willing to pay for it.

Verne:

That was Starbucks’ brilliance. They recognize it wasn’t an expensive cup of coffee. You were giving yourself a gift every day. And that’s why it’s $4 or more. Pricing has been the key to their success.

Let me recommend one book. Everyone get your Kindle out. It’s easy. Herman Simon’s Beat the Crisis. You can download for like $10 off the Kindle and go to chapter six. Read the whole book but go to chapter six. It’s Seven Pricing Strategies with real examples like I gave that you can use. Herman is the pricing guru. Read his HBR article and read that little book, Beat the Crisis. Then his latest book is Confessions of a Pricing Man. Take a look at that as well. Up your game in pricing.

David:

When you said pricing a minute ago, it reminded me of the conversation you and I had months ago around your four P’s for scaling forward. Pricing was one of them. But I think the others were pivot, process, and people. Could you maybe share a little bit about them? I think these are important components for everyone listening or maybe start with people because that’s what I think we can all relate to so.

Verne:

Yeah.

David:

How do you think about that in terms of scaling forward?

Verne:

It goes back to the key thing that Regis McKenna taught Steve Jobs and intelligent and tech and me, I’m a student at Wichita State University where I’m launching the precursor to YEO. It’s all about relationships. He said, “You take out a piece of paper, and write down the 25 people, the influencers, that you need to get involved with YEO if you’re going to get it to scale.”

By the way, the number one on my list was President Ronald Reagan, when I launched in ‘87. I’m like, I want him to be the first president to ever say the word entrepreneur. And he did. I got invited to the White House to meet him and George Bush.

Number two on the list was Steve Jobs. As I mentioned, I ended up putting together that first public speech, and Michael Del and Inc. magazine, which ended up partnering with us, the MIT program adventure.

That’s the key thing, and the people side. Right at the beginning of this crisis and I think forever, for most of the companies in your world, that list is about one hundred. There’s probably one hundred key customers, reference clients, media personality, and the local trade journal and your trade association. There’s usually about one hundred people. You want to do is make that list, and you want to make sure that you put their names and their company names in Google Alerts.

By the way, if you don’t know what Google Alerts is, google Google Alerts!

Greg Brennaman is one of those people on my list. Every time something pops about Greg, like it did with Michael Dell. I sent an email to Michael yesterday, just to congratulate him on the Forbes piece. Google does all the work for you. It says, hey, Greg Brennaman was just mentioned in this article, you have a reason to reach out to them, and continue to further that relationship.

Most importantly is for you to identify what are the best customers, particularly those that are healthy and have cash right now. Give all the bad customers to your competition. You have to be laser focused on the ideal customers you want. We have a list of right of over 500. I would rather have 500 raving fans than 50,000, particularly in a crisis. That’s who we leaned on. That’s what you want to do; your customer list, the influencer list, the key brands that you can bolt onto yours that you’re carrying, and your retail store, whatever, and nurture those relationships.

David:

I love it. A thing that stands out for me too, a lot of small businesses use social media as a way to broadcast but not necessarily listen and engage, right? And so, I’m bringing it down to social media but you’re talking about it in a broader context, which is just be intentional about who you spend time with, and where you’re investing sort of the energy that you have to help propel the business forward.

Verne:

Yeah. In fact, I wanted to actually be precise. I’m in the middle of writing a few new books, but the main one is going to be around what should the CEO, the leader of the business, really spend most of their week doing? It really comes down to this: not the number of minutes, but the number of hours, that you’re actually connecting with that list of key customers, employees, those that are remote and other.

Me specifically, I have to report out to my peer coach, I have to have had a conversation with at least one key influencer every day. So, after this call, I consider you one of those key people, David, so I’m honored to spend time with you. But I’ve got a call with Kevin Oaks here at 4 o’clock eastern. It’s a key conversation that’s important for our business. And that’s the most important thing I think every leader should be doing every day; one key influencer.

David:

Fantastic. What about pivot? Pivot was one of your four.

Verne:

Yeah. The short answer is, you’ve got to stick to your knitting. You know, there’s a tendency to want to chase the next shiny object. Hey, that’s hot, I’m going to go jump into that space. It’s a quick way to get your head handed to you. It’s really rooting yourself in alright, what are we really good at? How can we use those capabilities to maybe serve a slightly different customer or a slightly different need or job to be done for the existing customers we have.

Right at the beginning of the pandemic, one of the EO guys, his company out of Philadelphia, they make shutters for homes. That’s their business. But they recognize that the core competencies they had around cutting wood and plastic, and those things could be quickly pivoted, and they built a huge business building a lot of the shields that people needed to install first in hospitals and nursing homes, and others, and it was crazy. Besides contracts they were getting out of New York cities, and Philly was essentially next door. Now he’s back doing the shutters, which is good. But I think he’s kept part of that business going. So, that’s really the idea of how you can take what it is you’re good at already and move it into the new space that you’ve identified.

David:

Yeah. It’s funny, one of the things that makes me think of back years and years ago, I used to do a presentation on starting a small business and things that people should be really thinking about. The power of focus was one of those themes. I remember showing this picture, and I’m gonna butcher it, but it’s directionally correct, which was a picture of a restaurant I saw one time, and it said something like sushi, pizza, and barbecue. I thought, I’m not sure they know what business they’re in. It just was a great reminder for me that we buy based on a certain level of expertise oftentimes and that was a great example for me of one that help.

Verne:

David, if you don’t mind, I’ve got to share one of the early stories of EO.

One of the founding board members is Neil Balter. Neal founded California Closets and everybody that’s at least in the US knows that brand. Sold it to William Sonoma when he was 29 years old for $12 million. He was one of the superstars among all of us young entrepreneurs. He thought he had the magic touch. He hooks up with Kevin Harrington, the infomercial king, one of the founding board members, and they do this flexible dog bleach commercial, that lost about 20 percent of his wealth.

Then he decided to hook up with some friends in Vancouver. They came up with this french fries vending machine that was going to be the next huge hit. Then it almost burnt down a university in British Columbia. That lost another 20 percent of his wealth.

He finally woke up and he goes, wait a second, I should stick to my knitting. We like to say Neil went back in the closet – he went back in the closet business. He scaled a firm to the same revenue as California Closet. But at the time, it had 1,200 employees, he did it with 12 employees, it just exited at about two years ago.

I wrote him up and Frank Carney with Pizza Hut and the late Wayne Zango with Blockbuster and all that in my very first article I ever wrote for Fortune, called Grow Where You’re Planted. People really do underestimate how much knowledge and wisdom you gain over time in an industry and how important that is for you to be able to continue to scale.

That’s the biggest mistake I see serial entrepreneurs make, thinking they got the magic touch and can move into other industries.

David:

A lot you learn over a period of time and easier to put it to use elsewhere versus try and reinvent it or relearn all together.

Verne:

Yeah, we all have those expensive, practical MBAs as well.

David:

Exactly. The last P was process.

Verne:

Yeah. We sat down and said, you literally make a list and you say, over the next two weeks, keep track of everything that gives you energy, and everything that makes you tired. Because at the end, another acronym for CEO is Chief Energy Officer. Your job first is to keep your energy up, and number two is to keep the energy up of the rest of your team. Nothing drains your energy more than having to do something that wears you out. Like for me, it’s putting PowerPoint presentations together. So, I found a designer, Joon Yi. I love that I can just send her ideas, I need a slide that does this, and it comes back, magically.

So, that’s what you want to do with process is set out and find what are all the things that are wearing us out? Do we really need to do that? Use that E as “eliminate.” Usually about 25 percent of the work that everybody is doing is not needed to be done by anyone. It just sneaks into those hallway closets and garages.

One interesting stat. These big bloated Fortune 500 companies, their average revenue per employee is about a half a million dollars. Whereas the average revenue per employee of us mere mortals is about a fourth of that, $126,000. And it’s mainly because we are sloppy. This is a chance for you to clean up the place, do some spring cleaning here, both of your finances as well as your processes.

David:

Yeah, I think that’s great. I do think that’s an important exercise. Anyone that’s listening today, if you haven’t done this before, it’s what am I spending time on that I love? What am I spending time on that I don’t love? What am I spending time on that I shouldn’t? And what am I not doing as a result, right? If you can sort of do that inventory, super helpful exercise. Because there are, as Verne pointed out, gig economy, there’s global talent, there’s flexible talent, there’s lots of different ways to tap into other resources to offload things or delegate the things that you don’t love doing.

Verne:

Yeah.

David:

If that’s something that’s of interest, feel free to reach out to us. Happy to point you to some resources.

Verne:

By the way, one of those resources is Paul Acre. He’s got a book out, you can download for free called Banish Sloppiness. So just start there.

David:

By the way, if you haven’t already noticed, most of the business leaders that I spend time with are avid readers. One of the questions that came up is what are some of the books that you think are a must read today? You’ve dropped a few of them along the way. But if there’s, two or three that you think everyone should read, what would come up for you?

Verne:

I do have my favorite top five of all time. As you know, leaders are readers. Not all readers are leaders. And I would say the number one business book of all time, which is a parable, is Eli Goldratt’s The Goal.

David:

The Goal, yeah.

Verne:

It is the classic. In essence, it talks about if you have limited time, resources, energy, finances, you must apply it to the constraint, not the weakness. It’s not weakness and strength, it’s to the constraint. What’s in your way of moving forward? And if you don’t remove that constraint or deal with it, all your other activities are away. So, I’d read that one.

Number two is Patrick Lencioni’s Five Dysfunctions of a Team. If you have two or three team members, you already can start to have some dysfunction. It’s like dysfunctional family is a redundant, you know term. Read that book. That’s another parable. It’s very quick to read. And then everybody talks about Jim Collins’ books. Great by Choice, he deals with companies from the start up through scale up. If nothing else, read his chapter called Return on Luck. He was the only guy that measured luck. We all know whether we just were lucky to be born in the right place at the right time. Fifty percent of that success is luck. But what he found out is great companies have slightly more bad luck.

I’d call those my top three; The Goal, Five Dysfunctions of a Team, and then Great by Choice.

David:

All great books. Theory of Constraints, is similar to The Goal and one that I really enjoyed as well.

Can you tell me a little bit about today? What excites you about small business right now?

Verne:

Well, first, I just want to thank everybody for tuning in. You are the first responders of the global economy. It’s not the Fortune 500 companies that are going to lead us out of this thing. They never did, they did not in the 2008. It’s these mid-market, no name firms that are going to be the ones that do all the job creation and all the innovation that’s necessary to pull us out of this particular tailspin. So thank you to you, first responders of the economy.

The second is, and I tie this in what I think is the biggest opportunity is. I just saw a post a few minutes ago; 61 percent of business owners plan to exit. When I lecture to young people right now, I suggest buy, don’t build. Grow through acquisition. It’s so much easier to start at one than try to get from zero to one. Then just fix it and begin to build from there through acquisition.


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Verne:

That’s what John Ratliff, my partner, EO and YEO member that runs our global coaching organization, did. He was in the call center business. I consider those as sweatshops in the information age. He scaled that to 650 employees through 24 by side acquisitions. Buy little call centers of 10 or 15 employees and putting them together into a cohesive system.

You’re gonna see a lot of businesses change hands here over this decade. That’s really the opportunity.

David:

You know, it’s interesting that you bring that up. Obviously, in our business, we’re helping people to finance businesses, generally, when they’re first taking physical ownership. And that could be starting one from scratch, I’m buying up into a franchise, or I’m buying an existing business or franchise.

And over the years, we’ve been predominantly – I shouldn’t say predominant, but 60 percent of them – have been new business starts, whether it’s a franchise or an entrepreneurial start-up. What we’ve seen over the past year and a half or two is a dramatic shift towards resets or people that are buying existing businesses, just what you’re alluding to. So, I think that sound and it looks like there’s a trend moving in that direction.

Verne:

But I also consider if somebody buys a franchise, they’re not buying, they’re not building because they’re coming with a system, the success rates are much higher with the franchise, as you know, than starting from scratch. I think the same thing with buying any business. So, I think it’s that the thing that’s exciting.

David:

Yeah, that’s a fair point. It’s coming with an established business sort of system, right? So that’s a little bit different. And actually, to drive that point home, we’ve seen about a 50 percent drop off in terms of entrepreneurial start-ups in that. So that makes total sense.

Verne:

Yeah.

David:

What about trends? What do you think has changed forever about business? As we go forward, now, whether it’s somebody already has a business or they’re looking to buy one, what do you think has shifted or has changed? Or I’ll say, has shifted about business in general?

Verne:

I think first, it is much harder to make a sale. We’ve been pulling our database of 154,000 in sales right now is the number one topic. Not to take anything away from companies over the last 12 years. But we really had wind to our back, in some sense of you just showed up, there was like all the business you could handle as long as you can deliver on it. But now because people have been through what they’ve just been through, I don’t know about you, but I’m being much more careful about every purchase that I’m making. Whether I want to commit to that recurring revenue to my Amex card or to our ACH payment that I’m going to have to then just strip back out in the next two years.

So, your ability to really up your game in the sales and marketing side of the business, I think is the future. I think all sales are complex. We really love Jeff Thull’s book Mastering the Complex Sale.

I think the second thing is just the ability to leverage technology. I love we hosted the head of HR for Southwest Airlines, Sherry, right in the middle of the crisis. She got on and she shared how look, even Southwest, one of the most progressive companies on the planet, had been talking for a decade about moving their call center workers to work from home. Then when the pandemic hit Arizona, which is where they have one of their major call centers, said it was not an essential business, they had to pivot to folks working from home in about a week.

The only way you’re going to do that is by really upping your game with technology. We’re a small company from a staff perspective, because everything else is outsourced, as I shared. We really made a push over this last 12 months to introduce new technologies like Atlassian’s Confluence, a chance for us to have this kind of common place where the knowledge in the people’s heads because when you have employees, when they go home at night, they’re taking a big part of your value.

Thank goodness we did, because one of my long standing 13-year employees, she decided to retire. Her husband retired, she said you know what, you retired, I want to retire, we have enough money and thank goodness she had had most of what she does uploaded into this kind of common Wikipedia that anyone in our company can access to figure out alright, where are our ISPN numbers that we need for this new book we’re writing? So that’s where I think that the future is, is the utilization of technology.

David:

For sure, yeah. You bring up actually a really important piece, too, that I think is a trend that people just need to be willing to embrace. Over the years, there have been people – and I think I might have fallen in this category – that said 10 years ago, “Nope, we all work in an office, that’s the way it goes.”

It’s management by site, not management by objective. The pandemic forced a shift. We actually did the same thing in, a few weeks’ period of time, we made the decision to go full remote. At that point, we decided, everyone’s on the same playing field. Now, there’s no subcultures being created. We’re all working the same way. We’re gonna stay that way. So now we’ve moved from a centralized environment to a completely decentralized environment, opening us up to new talent pools, but it is forcing us to work differently. I think that’s something people have to be aware of is that I think the pandemic shifted the perspective on flexible and remote work.

Verne:

And it leads to the third major trend. What we really figured out this pandemic is nobody needs to be managed. You know, we don’t need managers. And that’s one of the things that happens as you scale, you start to add this layer of management, and about 30 percent of your payroll goes to that group. You’ve got a chance really to clean that out and realize that it’s my phone that really manages me, right? That’s my manager, I need some coaching. But I sure don’t need all of this overhead. That’s expensive. We’ve got a real people who don’t have it and don’t have in the first place, because they’re new and just starting up, don’t add it. That’s the new trend.

David:

I’m glad you explained that at first. When you said don’t need managers, I heard the record scratch right at that moment. So, appreciate that.

Verne:

There’s no such thing as a leaderless team, is it? Our buddy Ron, he scaled a 1,500 private security guard team with eight leaders, and nobody in between.

David:

Yeah.

Verne:

Because those security guards, they didn’t need area managers, district managers, regional managers, they just needed to support each other.

David:

Yeah. Wouldn’t you agree with me that that works when people have done the hard work to define the processes and the systems or the expectations?

Verne:

Yeah. And it comes back to training and development. That’s why it is so critical. That was the founding principles of EO and YEO. And why David does what he does. It comes down to education. It’s why I like to point out that the big thing Steve Jobs learned in the wilderness years, when he was away for a decade, was the power of just having one priority. When he was at Pixar, all they had to do is get Toy Story right. He thought that was so freeing, versus having all this stuff. So, when he got back to Apple, he said, you know, we’re gonna do the same thing. We’re gonna get out of all the stuff we’ve been doing; handheld scanners and printers and all that. We’re just gonna make a great computer. And then he started doing what Pixar did, a hit every two years; iPod, iPhone, iPad.

Then he knew he was going to die. He really knew the end was near. He had one project left. This is really the measure of a leader is how does the business run when you’re not there, right? With this remote work, it really has proved who’s got great leadership and who doesn’t. Because you’re not there, and you can’t see them as you said. So, Steve had one project left, and it was Apple University. It wasn’t a product, it wasn’t a service, it was Apple University. He knew it had to be more than just Tim Cook, who really got the Apple way.

I gotta tell you, I bet against him. I thought for sure that company was going to collapse after he passed away. But we’ve seen the rest is history. The largest market Cap Company on the planet. It comes back down to training, development, and technology platform that lets everybody learn from each other. I just wanted to tell an interesting story.

The other word that makes me throw up in my mouth is the word “expert.” And that’s present company included!

I was at a friend’s place in Tampa this weekend, and she had some problems with her air conditioning. She takes it into the dealer, the experts. They said this is going to cost three grand to fix. I’m like, look, I was a mechanic back in high school. Can I look? What did I do? I found a YouTube video that was contributed by the tribe, right? It said, “Look, if you’re having this problem, click the link in the navigator. Here’s probably the solution.” And I repaired it for about $76. To me, that is where we are in the 21st century. It was experts that used to tell us which restaurant we should visit. Later on, we found out they were just being paid under the table. Today, we just trust the crowd, TripAdvisor, and we trust that everywhere now.

You’ve got to have that kind of ability to rely on the collective intelligence of all of your people in order to make decisions, not just the experts. That’s another significant trend I think that’s exposed itself, particularly here on the pandemic.

David:

I want to ask you one last question, as we’re getting towards the end here. But we had a question from one of our people in the audience. They asked, “What is the best B2B marketing strategy for fast growth?”

I know, you talked about one, which is the influencer strategy, are there others that you think are really important for B2B companies to consider?

Verne:

No, there isn’t. There’s not even a close second. It’s the influencer strategy. I’ll tell you a final story.

Sam Goodner, early EO member, he and Carolina were the first wedding couple that came out of the Birthing of Giants program throughout Austin. Sam had a company called Catapult, he was a Microsoft solution provider. Every year he went to the big conference that Microsoft does, now it’s in Vegas every year. Before that conference, he’d take a piece of paper out, and he would make a list of what are the top 100 people he wanted to connect with at that conference of 65,000.

Then he would do two things, he was very thoughtful about it. Many of them were people inside Microsoft. He’d arranged their private limo, airport transfer to their hotel there and back. Then he would throw this event that was the place to be.

That’s where he nurtured 100 relationships out of the 65,000.

Now, you would suspect that Microsoft should be objective in choosing who ought to get all these awards and their pictures on the big screens. And you would think that they’re going to be objective about who they’re going to give leads to. No, they’re human beings. Because he had built relationships with them, because I would go every other year as one of the speakers for them, he won more awards for being a Microsoft solution provider I think everyone else combined.

The leads that he got, most importantly, he consciously nurtured a relationship with China Saw. He waited for them to come clear across the planet to that conference. That’s who we ended up exiting the company to for gazillion dollars. So, all of his lead gen, all that was around nurturing the right relationships.

It’s word of mouth that all of us need to rely on, because we can’t have the $100m marketing budgets that major companies have. If you think about it, Apple’s never had really a major marketing budget, it’s word of mouth. Just do a great job for the customer and nurture those relationships.

David:

That’s awesome. Well, we’ll stop there. Verne, I just want to say I really appreciate you accepting the invitation to be on here. Always have appreciated your passion for businesses in general and supporting entrepreneurs. Thank you for making the time to be on here.

Verne:

You got it, David, anytime. Thank you. Thank you for all you’ve given me.

David:

Appreciate that.

I made a note here, and I want to share. I think for me, I always think about pricing strategy is changing the price. I think one of the big sort of ahas was just the sequence can actually have a profound impact on our business in general. So, really cool insight there.

Now, if you have not already, I highly recommend that you check out Scaling Up, which is the latest book that Verne has written, some really great takeaways there that are important for every entrepreneur. And frankly, any executive could learn from that. Do check that out and if you want to learn more about Verne or the work that he does, you can always visit scalingup.com. It’s a great place to get some information, lots of free information available for entrepreneurs.

What I can tell you for sure is that no matter where you are in your journey, there’s always a lot to learn. We certainly want to be helpful in that particular venture and really appreciate you being a part of this.


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