Transcript
Speaker: It's one thing to help your business grow, but you yourself have to grow too. What's that mindset? What's that toolkit? We'll find out on the next episode of The Market That Moves America. Welcome to The Market That Moves America, a podcast from the National Center for the Middle Market, which will educate you about the challenges facing mid -sized companies and help you take advantage of new opportunities.
Speaker: Today's podcast is about what leaders need to do so that they grow as much as they want their companies to grow. I'm Tom Stewart. I'm the executive director of the National Center for the Middle Market at the Ohio State University Fisher College of Business. We're the nation's leading research outfits studying the mid -sized companies that account for a third of private sector employment, a third of private sector GDP, and the lion's share of economic growth.
Speaker: It is indeed the market that moves America. The National Center for the Middle Market is a partnership between Ohio State and Chubb, Grant Thornton LLP, and Cisco Systems. I've got a special guest with me today, Daniel Marcos, who is the co -founder and CEO of the Growth Institute, which is an Austin, Texas -based coaching and consulting group that works with the leaders of fast -growing companies. Daniel, great to have you here on the market that moves America.
Speaker: Tom, thank you very much. Super excited to be here. Let me just begin and sort of put a little meat on the table for our conversation. In all our research with middle market companies, their leaders tell us that their number one objective is growth.
Speaker: It seems like a no -brainer, but not necessarily because there can be other objectives. A company might want to maximize profits, for example. Or the number one goal might be to set a company up for sale. Or the number one goal could be longevity, making sure that the company can be safely passed on to a daughter or a son. But growth is far and away the biggest goal. And Daniel, I don't imagine that's a big surprise to you.
Speaker: It's not. It's very common. But let me say that growing is a decision. All the CEOs we've coached in the last 10 years or so, they tell us, I remember the day we decided to scale. I remember the day we decided to grow.
Speaker: Why growth is important? The human being has a necessity of growing. If you stop growing, you die. And with companies and mid -markets, we're the same. But as you mentioned, you could be focused on growing profitability. You could be focused on growing stability.
Speaker: not necessarily with business growth. As an example, I'm coaching a client this year that we started the year with a lot of debt in the company. And the whole focus is, hey, we're not that worried about top -line growth. We're more worried about lowering debt and just finish the year in a much more comfortable position so we could decide to grow again next year.
Speaker: So as long as you're improving something, the body feels that you're growing, you're getting better.
Speaker: And that will allow you to feel that pressure or growth or excitement that you want to have on business. You said something interesting there. You said many things interesting there. But one thing that I noticed was you talked about growing and you talked about scaling. You talked about growth is a decision, the decision to grow, the decision to scale. And as I was listening to that, I thought, you know,
Speaker: Growing and scaling are subtly different. I mean, you can sort of grow in a blobby kind of a way, but scaling implies that you're building a structure, that you're growing like a building being constructed, not like a blob expanding. Can you talk a little bit about scaling? So for me, when people say, hey, what's the difference of growing and scaling?
Speaker: And for me, growing is, hey, I grew 3%, 4%, but my expenses grew similarly. For me, scaling is that you're growing way above the market. And the measurement that I do is, are you growing at least twice as fast as the market? So if the market is growing 10 % in your industry, you're growing 20%.
Speaker: And then there's real scale in the operation, that your expenses and operation is not growing as fast as your sales. And that's when you really begin having a scaling impact, let's say, in your company.
Speaker: So if I'm growing 20 % and my costs are growing 12%, that's good. That's correct. Right. Otherwise, I'm just getting bigger. This means I'm getting stronger as well. That's correct. That's correct. I hear a lot of entrepreneurs say, hey, when I was doing $1 million, I was having a profit of, let's say, $300 ,000. Now I'm doing $5 million, and I have no profit, or I'm doing $100 ,000 profit, right?
Speaker: So for me, scaling, it's an intelligent way of growth and a way that really makes sense growing. You know, this gets to this theme about growing as an individual, because again, I'm thinking about what you've just said. There is something in the
Speaker: entrepreneurial mindset that says, let me just get big. Let me take every order that comes in. Let me just grab it and grab it and grab it, and I'll take care of these other things later. I'm caricaturing it, but there's a certain impetuosity and a certain lack of structure, shall we say, in the entrepreneurial impulse
Speaker: And it seems to me that this scaling impulse is almost like growing up a little bit as your company grows. Yeah. So first, let me just say one thing before I come up with this. But if you want to go fast, you have to go alone. If you want to go far, you have to go with a team.
Speaker: And usually, whenever you're scaling, we focus on growing our team. But we believe that the bottleneck in the company is always at the top. If you see any bottle, usually the bottleneck's at the top. So the leader is the one that is the bottleneck on the growth of the business. So if you want to grow, let's say, your company 20%, you have to grow your mindset
Speaker: and you're learning at least 20 % before you grow your company. Einstein used to say that if you create a problem at the same level of mindset that you are, you cannot fix it because that's why you create it. You have to elevate your mindset and your knowledge to be able to fix that problem.
Speaker: So as an entrepreneur, let's say if I have a mindset of $10 million, my company is going to be around $10 million. I cannot grow it to 20 and keep my mindset at 10 or my learning at 10 or my rituals or my tools. I have to be able to elevate first my mindset and tools to be able to then be able to grow my company.
Speaker: Talk a little bit about the tools piece. I can easily imagine, hey, I can double my ambition, but increasing the leverage and power of my tools. If you're imagining some of the, from your experience in the 10 years of coaching that you've been doing, what are the biggest tools that fast -growing CEOs,
Speaker: don't have that they need to grab. So I became an entrepreneur 20 years ago. And I've been a coach for the last 10. Got it. And when I realized when I became an entrepreneur, I was very young. And we did a company in the internet time. And we raised $70 million and grew like crazy. And I realized that I had no idea what it was to be a CEO and really lead a company.
Speaker: So I begin reading and I figure out that every problem or opportunity that I have in business, someone else already had it and wrote a methodology or a book or some guidance on how to overcome that or how to go through that. So I became a reader and I've been reading probably a book a week for the last 20 years. That's just my habit and I know if I stop doing that I'm going to die.
Speaker: For me, scaling up, it's a CEO model or a CEO system. So when I go to a company, I ask them, hey, show me your systems. And they show me their accounting system and their quality control system and their customer support system. And I say, great, show me your CEO system. And they say, what do you mean? And they're like, yeah, how do you run a CEO? How do you take decisions? Like, how do you communicate with your team?
Speaker: or stop growing. But here's the most important thing that I learned. And here we come back to learn my mentor and scaling up.
Speaker: And they say, well, and they kind of rumble, but without a really cool answer or a really straight answer. For me, scaling up is a set of tools and communication rhythms and things that teach you how to be a CEO and how to run a company. So for me, scaling up is a framework
Speaker: for scaling a company, and then you have to add all the tools that go on top. But if you don't have that framework and that CEO system running, it's very, very difficult to scale. What are the key elements of that? So I really divide scaling up in two things. So scaling up has the four decisions, right? People, strategy, execution, and cash. People, strategy, execution, and cash. Right. So you have to take those four decisions right to be able to scale your company.
Speaker: But if you want to nail it down, like having a view from 30 ,000 feet, the system allow you to do two things. First is to have a very clear and simple strategy written in a one page plan. It obligates you to write your strategy simple and clear in one page. So you and everyone else could read it and understand it. And then it gives you a set of
Speaker: tools or rhythms and disciplines for you to communicate to your team the discipline or the strategy and for your team to help you execute that strategy correctly. And of course, if you don't have the right team, then that's never going to happen. But
Speaker: it will obligate you to sit down and do the work that you have to do to clarify your strategy and write it in a format that is simple for everyone else to read and understand. Usually the strategy stays in the mind of the CEO or the management team, but it's never written and put in a format that everyone could read it. And you know what's interesting, Daniel, as you think about this,
Speaker: Again, going back to my beginning entrepreneur, my stereotype of that beginning entrepreneur, she or he has a great idea, has an investor, has a cool product, has a bunch of active people around. But a lot of that beginning work is about creating options.
Speaker: People say, your business plan never survives the first meeting with a customer. But this transition to CEO begins with
Speaker: It includes a certain amount of closing off options. I mean, because when you've written down a strategy, there's the stuff that's on that page, and then there's the stuff that's not on that page. And that's the stuff that you're no longer saying, why not to? You're saying no to. And we're no longer saying, let's try it. We're saying, we've got a meeting. Let's think it through.
Speaker: So there's a study that we were at in Harvard the other day that more companies die for the excess of opportunity and for lack of opportunity.
Speaker: The world has around $85 trillion of GDP. So once you cross the one million mark and you kind of understand business, then everything's an opportunity. And everyone, your community comes to you and you're like the guy that understands business. So they come to you with ideas and they want to partner with you and they ask you to invest in their business. So the most important thing that you have to do as a CEO, as a leader when a company is scaling
Speaker: is to be able to focus the team in what really matters and keep them on the strategy. Which also means, in a way, learning your own strengths and weaknesses and where everybody gets tempted by something and can be swayed away by something. So there's a lot of self -discovery involved.
Speaker: Yes, and there's one thing in the scaling of methodology that you have to meet with your team every quarter to really run the strategy. And if in the middle of the quarter, I get an idea, I just can't execute it because my team, they have their plan for the quarter and their folks on it and they're doing it. So if I come and say, I want to do this, they don't say no immediately. They just said, okay, let's discuss in the quarterly meeting. And if we have time on the quarterly meeting, we'll discuss and agree it.
Speaker: But today we're executing, we have a plan and we're gonna follow it. If something very important comes up, then you're able to break it. But most of the small distractions, that system or that process will obligate you to think about them and let them go until the end of the quarter. So part of what you're talking about there is a process that helps keep me
Speaker: on the straight and narrow, but there may also be some sort of truth -teller, right? It might be a spouse. It might be your number two. It might be you're an investor. It might be yourself. It might be a coach, but it might be the face in the mirror. How do you—how important is it to have that truth -teller?
Speaker: I think it's extremely important. I have it in mentors. I have it in my forum with EO and with YPO. And I have it with my employees. Whenever we're meeting on the quarterly, I bring all my ideas on the 20 things that we have to do or I want to do. And they say, well, let's convince us, prove us, bring data. And we dedicate two days every quarter just to think.
Speaker: And that's when we realize if things are that important or not, or they're the strategic to do for the business. I once wrote into the job description of somebody who was working for me that part of her job was to tell me the truth. And I wrote it about me. And I wrote it on the job description because in our review process, it would then come up.
Speaker: I mean, she was the kind of person who was going to tell me the truth anyway, but this was a way that, you know, we're going through the job and there was your job discovery. I was going to have to say, you know, what hard truths have you not been telling me? Because I will fool myself. I'm really good at fooling myself. And I wanted to create a structure so that I couldn't. So a mentor told me the other day, he said, Daniel,
Speaker: You could never take an important decision when you're excited or when you're depressed. Never. Both sides are very, very dangerous. And usually time and talking with someone like this person that will always tell you the truth will obligate you to spend some time and express it in a different way or have to wait a week or so to be able to take a better decision. 100%.
Speaker: I love this discussion and I love where we're going. I'd like to bring it down a little bit to a somewhat narrower horizon. Right now, in the summer of 2019, we're looking at an economic landscape that is uncertain. We've had this
Speaker: expansion that's been going on for 10 years, it hasn't been too hot, it hasn't been too cold, people are feeling a little anxious and things are feeling less certain. In this kind of environment, of an uncertain environment, what should a leader be watching for in terms of managing his or her own ideas and impulses in this sort of like what -if environment?
Speaker: So the first thing that I tell people is you need to have cash to start. Whenever you get uncertainty, if you have, and I always recommend six months of fixed expenses in the bank,
Speaker: that will allow you to have a colder mind and be able to think. That goes to that cash point, right? As long as you're, if your wallet's full, you can relax a little bit. That's correct. Usually, when you have cash in the bank, you have options. If you don't have cash in the bank, you don't have options.
Speaker: So now that things are uncertain, when I'm coaching my clients and they come and they're having all this debate in their mind and doing something or not doing it, I said, do you have the cash to be able to have that mindset? And usually the question, the answer is no, I don't have it. Cash gives you options and gives you peace of mind and time.
Speaker: That's something I've been asking all my clients to have. Stack cash today. Just in case things go bad or not, you have it. If things continue to go well and you get an opportunity, you're going to have the cash to do it. But if things go bad, then you have the cash to be able to think things through and be more confident. And things may go bad for someone else and you might have the cash to take advantage of it too.
Speaker: And I'll give you a side note. As an example, I've been an entrepreneur for 20 years. This is really my third one that I'm running and operating. My first one was a great success. My second one was a failure. And when my second business got in trouble, my family life got in trouble because I had no difference of my money and my business money.
Speaker: Now when I was going to be entrepreneur for the third time, my wife said, ah, wait, wait, wait. For you to be entrepreneur, I want at least six months of cash in the house, in an account that you cannot touch. And today we have like three years. So if my business goes into stress, my family life, my personal life will not go into that stress.
Speaker: And knowing that I have that and my kids will continue going to school and all that, my peace of mind and less aggressive enough to take decisions has helped me to see things clearer and with more strategically, let's say. So if there's two things that I would ask in today's world is have cash in your bank, for your company and for yourself.
Speaker: Now that the market could be going down or it's a little bit uncertain, I tell people that it's a great opportunity. And I always tell this in an example in a forest. The forest gets burned every now and then. And it's very important for that to happen for all the weeds to be burned and get out. And the big trees, the strong trees will stay there.
Speaker: So it's really important to have these cycles that when the economy is not that great, it's going to clean out the companies and the companies that are not good or making noise and not really adding value. And the ones that really have a great product and great management and are adding value to the economy will stay and will stay stronger than before.
Speaker: You know, it's interesting. When we started the National Center for the Middle Market, we had data about how mid -sized companies fared during the financial crisis. And the biggest companies were the least likely to go bankrupt, the smallest companies the most likely to go bankrupt. In the middle, the middle market did very well, almost as well as the big companies. But what was interesting is that the middle market companies that survived
Speaker: actually added jobs between 2008 and 2010 when everybody else was shedding them because they had cash, they were not being whipsawed around by the stock market because they were mostly private, and they took advantage of that clearing out to expand.
Speaker: And they had to see. So what's interesting, Daniel, we're sort of out of time, and I wish we could continue this forever. But I think we're hearing a couple of themes, right? The theme, first of all, the growth is a decision. And that growth is not just growth, but orderly scaled growth is a decision that means that you've got to build
Speaker: a mental structure in order to do it, a framework about your key priorities. And you mentioned strategy, people, execution, and cash as the four pillars of that structure. And that when you've done that, you've got your strategy that tells you where to grow and your people that are going to give you the ideas and the inspiration and the relationships and the team that helps you, that keeps you in line and leverages you.
Speaker: And the process is not too much, but enough process to make sure you're executing in the cache to make sure that, you know, your butt's covered in case the wind changes.
Speaker: Cash gives you options and gives you peace of mind. Cash gives you options and strategy gives you choices, and it's an interesting combination. This has been fabulous. Daniel Marcos is the co -founder and CEO of the Growth Institute. You can learn more about him at his website, which is danielmarcos .co and not .com.
Speaker: And you can learn more about us at our website, middlemarketcenter .org. Thank you very much for listening to The Market That Moves America. Never miss a new episode. Subscribe to the podcast on iTunes, Stitcher, Google Play, or wherever fine podcasts are found. Or as I said, you can subscribe and learn more about us at our website, middlemarketcenter .org.
