Now, before we jump in, I have to say this to you publicly, the book that you published in 2006, called Fire Someone Today is one of my all time favorite business books. If I were to ever write a business book, this is exactly the kind of book that I would want to write because it is exactly the kind of business book that I want to read. As an entrepreneur and CEO, it is kind of low on theory in the best possible way. It's high on tactics and execution in the best possible way. So I just want to thank you for putting the time and effort to produce it because it was an excellent read that I've returned to many times over the years.
Thank you. That's great to hear, because that's exactly what I wanted a book that go right to what to do not high concept theory.
Excellent. So look, it's not every day that I interview an entrepreneur in the Bible and Ministry software business. So for the benefit of our leave of our listeners, I should say, can you just briefly explain how and why you decided to start a business in this very specific niche?
Sure, I wrote a Bible software program as a hobby project when I was a high school student. And that's basically ebooks for the Bible, right? Being able to search the Bible and look things up quickly. And I did it because I went to Christian schools and had bible school homework. And these look things up in the Bible a lot. And so a few years later, I was working at Microsoft, and I was looking for a hobby project with a friend. And we decided to rewrite that high school project of mine as a newer modern application. And it just kind of grew into a business. So we went to it thinking it'd be kind of a freeware product, something just to keep our programming skills up. And very quickly, we realized that there was a market need there. So we raised a little angel money from friends and family quit our day jobs at Microsoft, and went full time in January of 92.
So you started the business with a partner, is that correct?
Yes, my friend, Keirnan Varniga.
So that's actually kind of where I want to start. Our discussion today is this whole concept of partnerships, because you're in a unique position, in the sense that you have been an entrepreneur, and a CEO, as a partner, and you've been an entrepreneur and a CEO, in your individual capacity. So based on the lessons that you've gleaned throughout those experiences, how would you weigh the benefits of getting into business with a partner against the risks of doing so because, on one hand, it's obvious to suggest that a partner can provide emotional support the fact that two heads are often better than one each person has more bandwidth, etc. However, the data is pretty clear, and that a lot of business failures are not necessarily failures of the business, they're actually failures of the partnership at the top of the organization, so how do you based on your experience, weigh the pros and cons of getting into business with a partner, versus doing so in your individual capacity?
So many businesses are started with partners, because starting a business is, is lonely, and it's hard, and it's full of uncertainty. And having somebody to do that with is just so helpful, right? You spread the workload, you spread the emotional load you you have somebody to bounce ideas off, who's equally invested in the success of it as you are. It's a can be a great and very close relationship, and add, you know, for a lot of people, I think it wouldn't happen without a partner. I think that's the case for me without my partner, Kiernan, and then eventually, my father who joined us the third partner before we went full time, we wouldn't be here today. We needed all the people and all the contributions they made. And at the same time, as you pointed out, partnership issues can become the biggest problem in a business. A business can be successful and yet be torn apart by issues in the partnership. And I think that's why it's so important to go into it with your eyes open and with a plan for how that partnership is going to go.
And so for an entrepreneur who is unsure whether or not they should take the entrepreneurial leap with a partner, or in their sole capacity, I mean, how does somebody know if they're better suited to operate with a partner versus operating on her own? I mean, are there questions that they should be asking of themselves, different pieces of introspection that they should be engaging in? I mean, how do they know?
That's a great question. I'm not sure I know the answer to that. I think the stats are that most successful businesses start with a partnership unless they're kind of, you know, sole proprietorship kind of by yourself a job type businesses. And I think the question is, you know, can you do it without somebody to be your support and counsel? And maybe you can do that alone if you have a super supportive spouse or friend or someone who can serve that role without actually being your business partner. But I think for a lot of but it's a really valuable asset to have a partner.
Now, as it relates to the actual partnership, you're a big advocate for the ideas of partners planning for the end of the partnership at the beginning of the partnership, but something that you talked about in your book, can you just talk to us about what you meant by that? And why do you think that's so important?
I think that, you know, almost every business partnership ends. And if you plan ahead, and you know, that's coming, you can go into it the right expectations, right. So much of partnership conflict, whether it's marriage partnership, or business partnership, partnership, conflict can come from, you know, wrong expectations, right? Well, I thought partnership meant this, and you seem to think it means this. And so I think talking through those expectations up front, and part of it's just for your own, you know, mental health, right. If you go into a partnership, knowing the different ways that could go and being okay with the different outcomes, that can take a lot of stress out of it right there. And if you have agreed in advance, then you don't have conflict in the moment, right?
If you say, you know, we're going to do this business, and we are planning for an exit and to sell out on roughly a seven to 10 year timeframe, well, then nobody's going to be, you know, taken by surprise when somebody says, I think it's time to sell the company. And I think that, you know, there's 1000 questions, you can't anticipate all of them, but going into it with your expectations lined up, makes a huge difference. For me, I think that the biggest reasons that partnerships fail, my observation of talking to so many other business people and watching it is, it's either different levels of investment in the business, right. One person's working twice as hard as the other. And you get issues of resentment and disagreement.
Or it's different risk tolerances, one wants to just, you know, throw everything into the business and take the big gamble to win huge and the other wants to take the conservative safe route. And I think that that's a great example, the thing you can talk about in advance, and then of course, the exit, right? Are we going to sell out? Are we going to own this forever? Are we going to, you know, plan to give it to our children, you know, what's the expectation of what the outcome is, and you're never going to know. But if you've had those conversations, and kind of understand what each of you value, you'd be better prepared.
So if at the beginning of the partnership, business partners should discuss and plan for the end of it. In the midst of the partnership, what are some practices or some instances of good partnership hygiene that you think all sets of partners should be sure to regularly practice in order to avoid all these possible bad outcomes?
I think they're the same ones you'd have in a marriage, right? I think that there's a lot to be said, for reading marriage books to to help inform your business partnership, right? Mom and dad shouldn't argue in front of the kids, you should present a unified front to your team about what things are going on. Maybe within the partnership, you have a disagreement, but that disagreement should be something the partners work on, and then you know, present a unified story to the rest of your business, your team about what you're going to do. Lots of open conversation. In my experience, I think having lots of time that doesn't have a clock ticking, right. Whether it's social time, or just large blocks of time, or getting out of the office and being able to spend time that that is relationship building, right? If you're working from a friendship or relationship, it can be a lot more powerful than just you know, nothing but meeting about tasks and agendas.
Help us with the concept of getting into partnership with friends or family members, because in your case, you actually did both. And depending on who you ask, that can either be a fantastic idea or a terrible idea. How do you think about the possible risks and possible rewards of formalizing a business partnership with a friend or family member?
Again, I think you go into it with what's the important thing. Mean, oftentimes, even if you go into something just as a business partnership, you might develop a friendship around it or sometimes friendships turned into business partnerships. For me, knowing what the priority is right to say, in this case, what we're doing is building this business and you know, we're working together to do it, but the goal is to build this business. I think that again, having that expectation, even for yourself is helpful. In other cases, I've done let's say a small project or another thing where I do something with somebody I have a long friendship with, and I say, you know what, the most important thing here is the friendship. Right?
You know, example, this might be a real estate investment or a kind of a hobby business on the side. So I've got a couple things I've invested in and they're my guideline for myself is to only invest what I would be happy, or not happy, but willing to lose to maintain the friendship. To say, I will invest in this real estate project with you, because we're friends. And it'd be fun to do together. But I'm not going to put in so much money that it would destabilize my, my wealth and my, you know, my lifestyle if the deal went bad, like, if I'm only going to invest enough that if things got really ugly, you know, I could walk away from the investment and keep the relationship.
And I think that's a great conversation to have up front. And I've done that in a number of cases to say, you know, let's go into this with the expectation that the relationship trumps the money, and, you know, and maybe even asking somebody to put less money into something, because you want to make sure that the money doesn't get in the way. And in other cases, you say, this is a business deal. And we're going to have a, you know, you just have an expectation that our relationship is, is around the business. But what we're doing is building this business opportunity.
When there were instances of conflict within my management team, when I was running my business, I had a coach, tell me something that I'll never forget. He said, the root of all disagreements is the difference between agreements and expectations. And it was a single thought. And yet, the deeper I dug into that thought, the more it resonated with me in the sense that when I looked at conflicts within my management team, a lot of them indeed, stemmed from people having expectations of each other, that weren't based on explicit agreements. I wonder how that line of thinking digest with you and your experience?
I think that's absolutely true. Right? And that's why it's so important to get through all the expectations. And I have, at times not done that, and regretted it later. And, you know, I'm when I have done it, it's been very reassuring to say, you know what, even if I'm unhappy with how this is playing out, if I think back to the original conversations, this was one of the scenarios that we put on the table and talked about. And I think it's so helpful to do that. And I wish that I was even better at, at really exploring all of the possible outcomes to to get my expectations framed correctly, I find that almost every time I'm upset or angry with somebody, it's my own expectations that were really the problem.
That's right, that's right. And to your earlier point, that's a line of thinking that I've even applied to personal relationships, specifically, my marriage. So let's move on to nitty gritty operations. This is the stuff that you know, in your book, I absolutely love because you get down to such amazing detail. And let's let's take a trip down that lane. So let's talk about cash, you dedicate an entire chapter in your book to cash, and I noticed that you take a very particular approach to the management of cash in your business. Going so far as to set up four different cash accounts that each cover for different types of expenses. So can you just expand upon the system that you use, why you use it and what benefits it's created for you and your company?
So, that was in 2006. And I have to confess that we've, we've grown a lot as a business since then, and now I have a very experienced professional CFO. And I'm not directly managing the cash at that level anymore, although the philosophy still informs it, right. As big as we are now, right, it's the cash is still super important. And in even in the last, you know, 24 months, there's been a couple scenarios where either lack of cash or having cash, prevented us from seizing an opportunity or gave us an opportunity. So I am a huge fan of cash and cash management. So really what I talked about in that chapter on cash there I was at a business that was still you know, under $10 million a year in revenue.
And the daily cash mattered dramatically to the health of the business. And I just think of it's like stuffing cash in your wallet and stuffing cash under the mattress and putting cash in a box that you lock and keep in your mother's houses basement, right. Cash, it's hard for you to get to, so that you always have another backup reserve. And I find myself even doing that in my personal cash management now. I've got cash in places that are super liquid and easy to get to and at different levels, you know, people have that kind of investment strategy of the short and long term investments. But even there, I'm kind of always obsessed with the idea of how much cash could I put my hand so on in a very short amount of time, right?
If an amazing real estate deal came up or the thing I was wanting to buy suddenly became on the market or whatever it was, and I just, I can't say enough about the importance of having a lot of cash because it's the access to all the opportunities. And sure you want to invest it well and wisly, but the years in which we kept an excess cash balance, I was tempted at times to think that I was being irresponsible to not put that into better investment. But then when I've, the years when we had all that money deployed, and none of it available on short term, I had lots of opportunities to be reminded of why it would have been good to have liquidity.
I subscribe to the same idea as you in the sense that I prefer to have a pretty healthy cash cushion on my balance sheet both to be opportunistic, but also to be liquid to the extent that an exogenous shock presents itself, which we're all now familiar with starting in March of 2020. But to play devil's advocate, how do you think about the potential risk of having so much cash on your balance sheet that you are being unnecessarily conservative in your capital allocation strategy? How do you kind of talk yourself out of that risk?
That's tough. And I've been on, I said, I've been on both sides of it, right. We had a period where we kept a significant amount of cash for multiple years in a checking account. And I did at times feel guilty. And after four or five years in which I didn't need that cash, I felt a little stupid, that we hadn't deployed it to grow faster, or to, you know, do things. And so I went through a period of just putting all the cash to work and even, you know, using our borrowing capacity to accelerate our investment. And then I learned the other side of it and that scenario, right. Something came up, we had a hiccup in a relationship with a bank involved in somebody leaving the banks team and the new person having a different attitude.
And all of a sudden, I was in a scramble for cash, which was able to address but boy, it gave me a reminder of, you know, that undeployed cash that wasn't earning its full potential would have been really useful at that moment. But that also brings up another thing about caches. It's not always the cash that's in your checking account, although that's obviously the most accessible and helpful, it's do you know where you could put your hands on it in other scenarios, right? In my personal life, when you know, just knowing where you could go get it. The the answer to having liquidity might be that you have a friend or a family member or another asset that you could turn in, you know, you could lean on for a quick borrowing or something like that. And I have actually done that in one scenario.
I've borrowed from family members, we borrowed from the company for personal reasons, or vice versa, when we controlled both sides of that. I've even borrowed from friends. But just knowing where you could put your hands on the cash in really short notice. I once had a four to five week period in which I had to get a bunch of cash for the business in a very short time. And it was actually my friend network of other business owners and people who had sold their businesses. But it was knowing that I had a network of people who, with a high level of trust, and confidence in me that I could go and turn to on short notice. And they got a nice rate of return on that very short loan, but I had access to the cash in a very short period I needed, faster than I could have gotten through other sources.
You have any heuristics or rules of thumb that govern how much cash you want to see on your balance sheet at any given time? So some CEOs would say, I want x months of payroll in cash, I want y months of fixed operating expenses in cash, something like that? Do you have any kind of rules of thumb that govern the specific dollar amount that you'd like to see on your balance sheet at any given time?
I don't know. Like I said, I've probably got that in the hands of my CFO at the moment. In the past, I would have said, you know, two to three months of all of our expenses in cash, but it's it's almost never enough. You know, when I had that, then I want it six months.
Of course. Yeah, yeah. So let's move from capital and cash allocation to time allocation, because this is something that I struggled with, certainly in my earlier years as a CEO, and definitely in the later years, as well. I know a lot of CEOs struggle with it, which is how to best manage and allocate your time. Which is arguably your most finite resource, particularly as a CEO. So over the years, I'm sure you've done a lot of things right and a lot of things wrong in terms of managing and allocating your time. Are there any processes that you followed or tools that you've used to ensure that you're working on the right things and you're productive as opposed to simply busy?
I think I struggled with this as well. I think you're right a lot of CEOs do. I admire the ones who are hyper focused and efficient and able to get off their plate and delegate the things they shouldn't spend time on. I think there's a difference. In my observation here between kind of hired CEOs and founder CEOs, oftentimes founder CEOs are founders because they want to explore their own interests and follow their own curiosity. That was certainly the case for me. And so I do lots of things that a hired CEO would not do. And probably the the, you could argue I shouldn't do that aren't best uses of my time. But, you know, starting the company, and learning all of these things, and exploring all these ideas was kind of the motivation for me.
I just transitioned from a CEO to executive chairman, and we promoted our CFO into the CEO role. And he someone with, you know, a more traditional kind of growth and leadership resume, and he's fantastic. And I can already see the difference in, you know, just in a very short time of how he's probably a better allocator of time than I am. Because he's got a job to do and is focused on how to do that efficiently. I had a business that I started from almost nothing with a couple partners and just grew into the things that interested us that we wanted to do. I think there's value in both of those things, I probably could have switched into a more discipline time management situation earlier. But it's also kind of the nature of who you are. So still something I'm working on.
I guess it's also entirely possible that the leadership style, it's required at the top of the business is dependent upon the state of the business at any given time. So in your case, when you started your business from your kitchen table, it was absolutely appropriate for you to be doing anything and everything, talking to every customer hiring every employee. Whereas in contrast, now that the business is larger and more professionalized, acting like that, as a CEO could actually make you the bottleneck to growth. And as a result, a new leadership style at the top of the organization is required, just given where the business is today, in contrast to where it was many years ago, when you started it.
Absolutely, I think when you're inventing the company, you still don't even know what you don't know, you're, you want to have cohesion, you want to have a lot of control over everything, from the brand story to the product story. And you don't even know where it's gonna go. Where we are now with around 500 employees, and you know, 10s of 1000s of customers, you know, operational efficiency, disciplined execution, all of those things become much more important then what was important when we were still figuring out what our product line would look like, and who we're going to serve and where we're going to find new customers. So I think you're absolutely right about that.
It's so interesting, someone once told me to go through an exercise, and I'm embarrassed to share the results, but I'll do it anyways. She asked me write down a list of the three to five most important or most valuable things you could be doing with your time to grow your business. So I did that. And then on a separate piece of paper, she asked me, now write down the top five places where you actually spend your time. And in a perfect world, those five bullet points on each of those two lists should be perfectly aligned. And yet, in my case, the five things that I recognized I should be doing to grow and scale my business. None of them showed up on the top five list of where I spent my time. I suspect, I'm not alone in managing that dynamic.
Absolutely. That's a very common scenario, I think it's a good exercise to do to see where you're out of alignment.
And one of the most valuable things that I ended up doing in that regard is actually tracking my time because one of the things that I learned is that the way that you think you spend your time, intellectually is often completely different from the way that you actually spend your time. And so tracking your time in, you know, 15 3060 minute intervals. I also found to be a very valuable exercise. But time management, I think, is the nut that most CEOs are consistently trying to crack. Right. Okay, so let's move on to customers. And I'm curious, how do you know how much you should be listening to your customers? That might sound like a bit of a strange question, because on one hand, common wisdom might suggest that you should listen to them intently. For what are probably obvious reasons. But in my experience, there are also risks in kind of blindly listening to your customers. You could only make incremental product inventions, maybe you make products or services that are too specific to any given customer or a small number of customers and so on. I mean, how do you think about how much weight you should be ascribing to various customer requests?
This is one of my favorite topics, because we have a lot of conversations about this in our company, and I am, you know, I'm a product person and an idea generator. And so I want to understand the customer really well. But in a sense, I don't want to over listen to the customer. And it's so easy to say, well, the most important thing is listening to the customer. And I get that and why and you certainly do need to. But I think that listening to the customer can also be a crutch for people who don't have an innovative idea. Right. And again, it comes down to what business you're in to write some businesses aren't about innovation, they're around disciplined execution of a well known pattern, right?
I don't know how much innovation I want out of a hotel, right? I want it to be clean and well taken care of, and maintained and easy to get in and out of quickly. It might be interesting to see innovation in the hotel business, but for the most part, my expectation is operational excellence, not innovation in that space. But when you're running a software company like we are innovation is at the heart of it. And innovation can come from understanding the customer and can be informed by listening to the customer. But if you take your task list from the customer, you never invent anything dramatically new or rarely.
I think the you just hit on a key point, which is, are you trying to make an incremental improvements to your product? In which case, I think it's much more important to listen to the customers at more of a tactical level. Or are you trying to make like a transformational type of leap into a completely new product or a completely new idea? When I was typing this question up and thinking about how to ask it, I came across two quotes that I thought were really interesting. Henry Ford said, If I listened to my customers, I would have built a faster horse. And Steve Jobs said something to the effect of I'm probably misquoting this. But he said something to the effect of our job is to tell customers what they want before they know that they want it or something like that. But I think in both instances, they weren't trying to incrementally improve. In both instances, they were looking for a complete step change a massive innovation on top of what already existed. And I wonder if that's one way to think about how much you should listen to customers that depending on what it is that you're trying to do?
Absolutely, I use that Henry Ford quote all the time, because it's so powerful. It's such a good reminder. One of the other tools that I use a lot is Maslow's Hierarchy of Needs. Right? Because I think it's some level, you know, whatever you think of that as a great understanding of human nature. If you walk your product, or figure out where your product is, in that hierarchy, from physiological needs, to safety needs to love and belonging to esteem to self actualization, right? Those are our kind of universal feelings and products can help with that, right? People buy products to meet their physical needs or to feel safe, but ultimately, at some level, they start buying things, or, you know, interacting with them that helped them build their self esteem and self actualization, right. And I think that those things can help you inform. Serving the customer even better than letting the customer tell you, the next thing you should do is, you know, x.
Right. So let's move from, from customers to employees. And one of the things that I learned as a CEO at the risk of oversimplifying is that people generally do what they are incented to do. And though that platitude is easy enough to understand, crafting good incentive plans was really hard. And it wasn't hard just for me, I know, it's hard for most CEOs and entrepreneurs that I deal with. And we talked about when I say incentives, it could be anything from a company wide bonus plan to incentive plans for the sales team, maybe options or equity issuances, to members of the senior leadership team, whatever the case may be. I'm curious in your 30 plus years as an entrepreneur, what are some of the lessons that you've learned over about how to properly incent employees within your company? And what are some of the biggest mistakes that you've made in that regard, and maybe some lessons that flow from those mistakes?
So, in the big picture, I think that that research shows that incentives that are immediate, are better than ones that are long term. And there's actually been despite company's annual bonus plans and profit sharing, and stock options and things like that. There's a lot of academic research that shows that that incentives that are that are that far out actually don't change behavior. People certainly like a stock option plan that makes them a lot of money three years down the road. But there's not good data to show that it actually changes behavior. Behavior seems to be changed in much shorter time, it's kind of like, you know, if you reward or punish children for something they did a week after they did it, you know, how effective would that be as a parenting technique?
And so I'm a fan of things that are closer in. And of course, incenting a more of a daily behavior, I think that incentives make a huge difference in terms of that daily behavior. And so you know, even a stock option plan might make a huge difference in someone choosing to join your company versus another. But I think once they have the, it's a lower level incentive. But in terms of like incentivizing your sales team, we'd have a lot of experience of seeing, you know, that whether you stiff new customer acquisition, or a particular behavior or a saying a particular phrase, or transferring someone to sales, or, you know, all those things can make a huge difference. But one of the problems is people learn to game those systems very quickly, right.
And the better your incentive program is at immediate reward for the behaviors you want, the better people will get at focusing on exactly that behavior. And we we tried, you know, territory based sales, we tried to count ownership sales, we tried spiffing, new sales acquisitions. And years ago, I remember having a conversation with my Father, as we were, we're realizing that our sales team had once again figured out how to game the system. So they were winning on the incentive, but then we were hurting some other need the company had. And I said, What is the best in sales incentive program? Like at the time, we had dealers, it's like, should people have territories? Should they have named account ownership? And he's like, the best system is the next system.
Because whatever system you come up with, people will eventually figure out how to optimize for it, and you will have left out some other important element, and then you need to switch it. And I think, for me, the big takeaway is there is not a perfect incentive system incentive systems need to be constantly tweaked, because they start to work too well. And you get really good at acquiring new customers, and now you're doing a bad job of taking care of existing customers, or you get really good at maintaining existing customers. But now no one's finding new customers, and you just have to keep changing it in order to find a balance.
Yeah, if you subscribe to the idea that people do what they are incented to do, one of the things that I learned through experience is trying to think through unintended consequences of whatever incentive plan you're putting in place. So for example, very earlier, in my, in my tenure, we had a support team that was responsible for answering technical questions from customers opening and closing support tickets, etc. So of course, in all of our wisdom, we said, hey, we want that backlog to be as short and as small as possible. So let's unsent the support team based on the number of tickets that they successfully close or process. And of course, within a couple of weeks, what we witnessed was that the support team was cherry picking the easiest tickets so that they could open and close them quickly. And the hardest tickets that arguably were with our largest, most important customers that needed to be solved, most quickly, were just being completely ignored. And that's just one example of an unintended consequence that we probably should have seen before we implement that.
I agree, but I would argue that you'll never foresee them. People are incredibly creative. And there will be another unintended consequence that you missed.
That's right. That's right. Right. But to the best extent possible, you know, think through what those unintended consequences might be.
Right. And I would just add to that, also be willing to change and don't feel bad that you missed one, right? Just keep tweaking it.
Yep. Yep. So let's talk a little bit about growth now. You will know this well, when companies start out, it's not uncommon for them to say yes, to substantially everything. You know, they accept every order, they service, every customer, they meet every demand that's made of them. But as the company gets bigger, a lot of CEOs quickly realize that that strategy doesn't scale, and as I mentioned earlier, can become actually the bottleneck to growth. So in what ways have you personally and your company had to say no, as the business has scaled? And what have these experiences taught you?
We serve people who study the Bible, and that's a big, huge category that covers an awful lot of people on Earth, but has a lot of nuances to it. Right? Are we in the Bible category? Are we in the religion category? Right? If we're in the Bible category, are we in the Christian Bible category, the Jewish Bible, category two and all these different things. And what we had to do over the years was figure out kind of what is the definition of our space? Right? And we decided that we serve everyone who studies the Bible and we did decided early on that we would not be about one denomination, but we are specifically serving the Christian church.
And we're not going to take our technology to other religions, and we're not going to serve things you call outside the Christian church. But then within that category we are going to serve the Baptist and the Episcopalians, right. We're gonna be big 10 within the area we choose. And it took us a little time to figure out what the guidelines were and where we were going to draw those lines. But once we did, it became kind of empowering, right? You'd have somebody call up and say, well, if somebody asked me once, do you want to digitize and use your technology to present these, you know, Tibetan Buddhist texts? Well, no, because that's outside our category. And yes, our technology might do it well.
And it might be an interesting project. And you may have all the great connections that would help us do it. But it's outside the space that we're in. We have done a lot of things, and maybe more than we should have, because we're founder led, and I was interested in exploring a lot of spaces. And some of those have turned out to be fantastic growth areas. And some were mistakes and things we moved out of. So for me, I one of the tools I've learned is to think of the market like a you know, like a big chessboard, right, or a grid of squares. And I've even drawn this out at times, I figure out where we are in that grid. And when a new opportunity comes along, I make sure it's either in a square we're already in, or it's a conscious decision to move to an adjacent square. And I'm particularly careful about not moving more than one square away, right? If it would take a leap of two or three squares away from where we currently are. And my axis are often, you know, product type and customer type, the two axis on my grid. And so I try to define something adjacent, if I'm going to expand, but any expansion is something that I think about carefully.
It's so interesting, the the graph approach, I found that, at times, it can be hard for CEOs to strike a balance between focus and diversification. The temptation for diversification is there. And it's obvious. And sometimes folks can struggle with the potential trade off between the benefits of focus to an organization versus the size of the addressable market. Of course, the more you focus, the smaller the size of your addressable market becomes, and vice versa. But in my experience, I mean, every company is perpetually resource constrained, but small and medium sized businesses are especially resource constrained. And to the extent that you attempt to serve a different market or an adjacent market, chances are you're going to be competing with another provider who only serves that market. And you need to be confident that your product or your service can stand up to a competitor who does one thing and only that one thing. And if you're a large company that can be reasonably easy, because you've got the resources to fund it. But in a small business where you're just perpetually resource constrained, I often find that the returns to focus are greater than the returns to diversification.
I agree.
So on the continuous subject of growth, I had to make this decision a few times. I'm curious if you have you know, when companies grow as their product or service grows, or even as their team grows, they often have to make decisions between outsourcing or in housing a certain function. Maybe it's the development of a product, maybe it's a certain internal function within the organization. What have you learned over your years as an entrepreneur about the merits and the risks of both of these strategies, and for CEOs currently debating whether or not to in house or outsource a certain project or a certain internal function? What are some questions you think they should be asking themselves?
I have very much been on the insourcing side of this for a long time we we built over ball buying for a long time. And maybe even too far and in some areas. What I think is important is that you you own and do in house the things that make you who you are, right? If your business is like ours is essentially writing software and producing electronic books. We own that process. We write code, because that's what we do. You know, we outsource things that we don't do now, early on. Sometimes, owning the whole stack can be a valuable asset in its own right. We wrote our own Ecommerce system because we started our company In 1991, there were not off the shelf web systems, there was no web. And when Ecommerce came, we wrote our own Ecommerce system and did our own credit card processing.
And, you know, we did everything because you couldn't buy an off the shelf solution, there was no Shopify available or selling through Amazon at the time. And that became a real strength in some ways, right? We had interesting, we sell things in bundles, we do things that give you credit for an earlier bundle purchase against part of your current bundle purchase, we have some complexities that are very hard to use an off the shelf e commerce system for that really suited well, our business model. But we're getting to the point where, you know, maintaining a modern e commerce system is becoming expensive and difficult. And the third party solutions are getting so good, it might be time at some point to switch to a third party one.
We are already switching some of our CRM and other things to off the shelf solutions. And I think the key there is just evaluating what distinguishes you as a business. And if it's something that distinguishes you, it's something you want to own and control in house, or if it's a risk factor, right? If it would expose you to your vendor, stealing your customers or taking your business or eating all of your margins, then I want to have it in house. If it's something that doesn't distinguish, I want to put it outside. And I think it because of the internet and remote work and collaboration tools, it is easier than ever. If I was starting something from scratch now, I would outsource everything that was not the core function of the business. If it wasn't part of the definition of who we were, I would send it out.
Very interesting. Now, is there a way that you define kind of what is core to the business? I mean, certainly as it relates to your business, writing Bible software, certainly based on your definition, that's not something that you would contemplate outsourcing. But what about some gray areas? So for example, I noticed a lot of CEOs have the question of, should I outsource lead generation in my company, instead of hiring a couple of full time employees at a junior level of my sales team? I'd rather outsource that to an army of folks in a call center, especially if I have a very kind of straightforward product with a quick and easy sales cycle. I mean, I suppose one could argue that, you know, selling the product is fundamental to what the company does. But someone could also argue that, you know, every company has to sell. And this isn't necessarily a specific and unique competency, relative to my organization. So how do you think about kind of more gray areas like that?
There's lots of those gray areas, I think part of it comes down to who you are, as a company. I mean, I'm the recipient of a lot of call center lead generation businesses write through call CEOs to try to sell them products. And if I answer one of those calls, and you hear the background noise of a call center, and some person reading from a script, in a very bored monotone, I can't imagine how many of those calls convert, I guess, if you throw enough money at it, some of those calls will convert, and you know, you can buy leads for a certain published rate, because they're using somebody in a third world country to phone in and run this script. But what does that do for your brand image? What kind of customers do you get through that?
I don't know how that plays out? And again, be people running the math, but for me, you know, part of who we want to be as a company is, you know, a relationship that you're going to trust over time now, maybe for selling a transactional commodity sale, that's less important. So I want to control things that hit that brand image. I mean, you could say like, if you had a food product, right, there's a lot of food products are made by third party contract manufacturers. A a lot of people contract out their manufacturing for the product. And that can totally make sense, right? You know, this recipe or you know, this customer, but you don't know, you know, all the mechanics of running a big industrial food operation.
And that can be great and often is but also, you know, what happens if something changes in the market and one of your competitors just uses the same factories to make something similar? Or there's a crisis and you're not first in line for capacity at the factory and you can't bring your product to market? A lot of people discovered that during COVID, right when their manufacturing supply chain was interrupted. I think it's it's just a matter of balancing the the risk reward scenario, and there's not a perfect answer to it. It's different for every business.
Sure. Now, your company has obviously grown substantially organically and recently you have grown in organically. So that's something that I want to ask you about in the spirit of continuing to talk about growth. Now, in your book. I know this was many years ago, this was in 2006. So certainly you have permission to evolve your line of thinking on it, but it seems to me like you took a pretty skeptical approach to growing through acquisitions. Going so far as to title one of your chapters. In Acquisitions, The buyer is the Loser. Now fast forward many years to 2022, it looks like your company Faithlife has made three different acquisitions. Two in 2020, and one in 2021. So, in light of those two things, I'm curious to know if your stance on growth through M&A has evolved at all since then, and how do you think about it now?
Even when I wrote that, I don't think that all M&A is bad. But I think that if you want to have a default attitude, you should go into it with the the buyer is the loser as a strategy, right? If you go into it with an expectation that the buyer is the loser, it's going to force you to look harder to be more careful to be cautious about what you invest in. I think that acquisition, there's certainly lots of data to show that that can be a very fast path to growing your scope to taking competitors out of the market to growing share. But there's also lots of data that shows even at the kind of the Fortune 500, or the public company level, that a lot of acquisitions fail to create the value that they promise.
We've done, you know, over the years, I think we've done seven acquisitions, and some have been really good. And the two big ones we did last year, or in 2020, they actually were really good for us. And one of them was really kind of acquiring and retiring a competitor's product line, and merging those customers into our customer base. And it went beautifully and high level of customer satisfaction, big growth, it was an economic when another was, you know, taking something over in a space we were expanding into. And it's also gone well. But I've also seen, you know, a number of stories where the expectation for the value creation didn't happen.
Your team never really adopts the acquired business, it's always the kind of adopted product that you don't give as much attention to, or don't think about, you thought that you were going to be able to, to really scale it up. But no one's giving it enough attention. I've seen both stories. So I would not say never do an acquisition. But I would still stick to the attitude of bringing a lot of skepticism to the projections, it's fun to do deals. And it's easy to talk yourself or your team into how this deal is going to be a huge win. But there's always mystery and uncertainty and a difference from those expectations. So I still approach them cautiously.
So sounds like acquisition opportunities are guilty until proven innocent?
Yes, I think that's a good way to put it.
Pretty cool. Let's go to the personal side of being a CEO and being an entrepreneur, because this is a big part of it. I'm curious, how do you approach the idea of vulnerability as the leader of a company, some CEOs kind of, quote, let employees in, they're open about their thoughts, their feelings, their worries, their anxieties, whereas some CEOs, the complete opposite. They purposely kind of shelter their employees from these types of things to prevent them from unnecessary levels of worry, you know, where do you reside on that spectrum? And how do you think about the extent to which a CEO should be vulnerable?
I think that's a lot like personal relationships, right? For me, I run it as a set of concentric circles, right. And I don't have it drawn out, but I probably could draw it out and say, you know, these are the three people who are kind of intimate confidants and sounding boards, who I would express feelings about my emotions to or my fears or whatever else. And then there's this next circle of people who can kind of be kept up to date on, you know, risk factors for the business and things like that. And then the further you get out in those different circles, now it's all kind of, you know, the brand message and staying on point and everything else. I have friends in you know, other business leaders, I know, who would never have that inner circle, be anybody on the team, right?
That inner circle would only be friends outside the business or other advisors and I understand the logic of that. But I think there's something to, you know, depends on the tone of your business, right? We're a founder led business with a lot of people on the team who've been with us for 20 plus years. Right? Well, you know, unless you're awful cold, it's hard not to build some warm, deep personal relationships, right. Some of the people who were key confidants for me in the company, you know, I was there when they met their spouse. And you know, have known their children from birth on up. So, I like having that, those different levels of connection, and I try to be generally open with People, but I also don't want to introduce fear.
And I've also learned that no matter how transparent and open you are as a leader, people who feel a power imbalance, right their way down the corporate hierarchy, or their new employees who are unfamiliar with the company, there's almost no bridging that gap. If the power balance is too big, or the distance is too big. You can't fix that. And I've stopped trying in certain areas.
I like the idea of the concentric circles. And I'm curious to hear your thoughts on this, one of the lessons that I learned, particularly my early years as CEO, where I really didn't share much of anything with anybody. Because I mistakenly thought that the CEO should shoulder the entire burden of these types of thoughts and worries and anxieties him or herself. When I came to learn over the years in terms of how to think about who to include in those concentric circles and who to exclude, one of the guiding principles that I eventually stumbled on was share your problems with the people who are most able to help you solve them. So said another way, you know, sure, I could share my thoughts and emotions and worries and vulnerabilities with theoretically, anybody but if they have absolutely no control, or no influence, or no ability to help me in any way, I'd be certainly less willing to share. Relative to somebody who can actually play a leading role in helping me solve whatever it was that was keeping me up at night.
I think that's a great point. I'll add to that to that. One of the things that the temptation is with that concentric circles model is to have it mirror the corporate hierarchy, right, you know, the executive teams on the inside circle, and so on. And while that's going to be the natural tendency, I also kind of make a special category for people who've been around a long time. And I have people who are not on the executive team, but have been with us for a really long time, who are in that inner circle of conversation, and knowledge. And I find that valuable, particularly valuable, because I get a perspective from kind of from outside the executive meeting. I get somebody who's still on the, you know, the frontlines of the business or interacting with newer employees or customers. There's just something to people who you've known a really long time in the business, and I really value that perspective.
The other thing that I noticed, as you move outside of those concentric circles at the top and going towards lower levels of the organization, I agree that you one should be thoughtful about the extent to which, you know, they share anything and everything. I don't think that's necessarily the right answer. But the one thing that I did learn is that vulnerability, and thoughtful vulnerability is a really interesting tool to kind of humanize yourself to employees at lower levels of the organization. And by that, I mean, like I said, particularly early in my tenure, I mistakenly thought that a CEOs job was to personally bear all of these worries and uncertainties in question. But the unintended consequence of that, and I'm a little embarrassed to say is that I got a bit of feedback from my employees that I came off as almost a bit robotic in the early years. And the more I started to share questions and uncertainties and didn't always try to constantly paint an exceedingly positive picture, I found that that improved the relationship between myself and more junior employees. Because it showed them, you know, as silly as this may sound, hey, I'm also a human. And I also have things that I don't necessarily know the answer to.
I think you're right about that. And one of the ways I tried to accomplish that is through writing, sometimes. So a long blog post or a long employee email, where I have had a chance to run it past other people and make sure there's nothing inappropriate in it, but a chance to kind of humanize the story and connect with people. I wrote a blog post at the beginning of the pandemic, about the fears I had about the pandemic and also the things that gave me some reassurance in that. I actually wrote it as an employee email. And there was some vulnerability in it about my own, you know, concerns for the business and everything else. But it was also a narrative I sat down and thought through carefully. And it was so powerful that, you know, employees started asking if they could share it with family members, right. And it ended up I made a Medium post of it, and it was read by hundreds of 1000s of people. But it did so much for the relationship with the team right to to kind of do show that you know, that the attitudes they were having the fears they had about the business and their jobs and health and all that were something I share too, right. And I think those episodes of connection and humanizing and vulnerability are really important to relationship building and trust.
So cool. That's so cool. I read that post, and I agree that it was pretty amazing. Now, I'm getting even more personal, as you know, and as substantially everybody listening to this show will know, entrepreneurship, and leadership can be a long and lonely journey, and often a very tiring one. Now, you've been running this race for over 30 years, Bob, so what have you learned over that time period about managing yourself and managing your own emotions, and the highs and lows that are just part of this journey? Are there any practices or routines or habits that you've developed that have helped keep you going for 30 years?
In the early years, I was all the cliches of the workaholic, who, you know, spent too much time at the office and did nothing but work on the business. And I like working hard. And people would warn me about that when I was younger, and I would say, No, I am going to wish I'd been at the office more when I'm dead, you know, or on my deathbed. But I think that I have softened from that and seen some of the negatives about that. But one of the things that was good for me is that I was I've always looked at it as a journey, right? I never had an exit plan for the business. And that was, in some ways empowering. Because as I got a little older and wiser, I also could realize that I could work as hard as I wanted, but it was all the journey, right? There wasn't like this has to be done by Monday, or we have to hit X million dollars in sales by next year. Because this is just life, right.
And it's a part of the life that I enjoyed and put a lot of energy into. But it's also something that just keeps going right. And the business may or may not go on without me. And that attitude of just saying, this is the journey, and it's but so are the other things that take up your time, your family and your friends, and, and all of those things. And that's been helpful to me. The other thing is probably the most important is getting perspective from other people who are in the same situation, but not your business. I joined the at the time it was the Young Entrepreneurs Organization, now it's EO, The Entrepreneurs Organization. And then YPO, Young Presidents Organization, and that monthly meeting with 10 other CEOs, who are right there in the trenches doing exactly the same thing. Just meeting with peers who have the turns out the exact same problems and frustrations and fears and worries, and joys and successes that you do, but who are not in your business, that's maybe the most valuable thing I did, and what I really treasure about the journey.
Yeah, that's great. I'm a longtime member of EO myself and have experienced something similar. Now for an entrepreneur CEO, who is in the early stages of her journey. I'll ask this question on her behalf. In terms of how you have evolved as a leader, you said that you started out as the CEO working 100 hours a week, and you've learned since then the transition that you've made towards a more balanced lifestyle? Is that because you have purposely and thoughtfully made that transition yourself? Or is it because your business has gotten big enough such that it has allowed you to do that? Because if I'm playing devil's advocate, the skeptical young CEO may say, Well, that's great for a guy who's running a company with 500 employees, but my company has 20 and I need to do everything. How do you think a young CEO at the beginning of that marathon should should think about this question?
Oh, that is a great question. I'm a big fan of compound interest, right. And we all have seen a video or heard a lecture on the importance of it in finance, and I think of compound interest in life working in a similar way. So I actually advise a lot of people to not feel too bad about working really hard when they're young. Because I think it pays off down the road. Not always, but if you don't do it, it it never pays off. And I think that you don't want to you know, burn up your relationships and your marriage, you know, not know your children. But if you got 10 extra hours to put into the business that you can do without sacrificing other important stuff in your life. I think you should do it in your 20s. And I think that that investment can pay off to make things to give you more options and flexibility down the road.
I started my business when I was single and didn't have a girlfriend, and roomed with another guy who worked at the same company in a house that had no furniture, where we ate standing up in the kitchen, right and didn't have a TV. That's actually my first advice to everybody is get rid of your TV and your streaming video, right? You don't need to watch any video in your 20s. Put that time into building your business. And so I'm a fan of that kind of life phase change, right, make that investment early on, right? If you don't have a family to take care of, then you're not hurting your kids. If you go back to the office for a few more hours. Later, you should be with the kids. And so I kind of think of it as changing over time. So yes, it is different for me than somebody young. But I think that's an appropriate pattern.
Yeah, yeah, you know, I'm reminded, there's a really great book on this, it's called Peak Performance it's written by
[Cut out]
To the benefits of compound interest over the span of your entrepreneurial career, the one week we put in 100 hours, really isn't going to define the success or failure, it's more defined by essentially, what you do every day, becomes who you are. Not necessarily what you do on any given day, or any given week, or any given month. And that can either support a couple long nights at the office, or it can support not putting in those extra hours at the office, depending on how you think about the compound interest equation.
Yeah, and if you're enjoying it along the way, I think that makes a difference, too. I spent a lot of hours at the office in my 20s. That's also where I had my friend network. And we did had a lot of fun there, too. So I don't feel like I necessarily had to make an exact trade off.
Now, this year, you transition from CEO to executive chairman, you mentioned that earlier in our discussion. After more than you know, roughly 30 years at the helm of your old company, this can be you know, taking a step. And speaking a bit more broadly, letting go of the reins, so to speak, can be a very scary decision, and very scary transition for a lot of entrepreneurs and CEOs. In fact, so scary that most even most don't do it. So how did you think about making that transition? What scares you about making that transition? And let's just start there.
With a larger business, operational disciplines becoming more important, and operational discipline isn't my strength. I'm about the product, about ideas about the corporate culture about trying new things that may or may not work. And as the business gets bigger, it needs more stability, right? I remember the first time an employee mentioned something about how they used to work at this tiny company, and they just felt like it was time to join a bigger, more stable company. And I thought they were telling me they were going to quit and go work somewhere bigger and more stable. And then I realized, during the conversation, they were talking about us, we were the job that they'd come to, after the tiny company, for more stability in a bigger company.
And, like, in my head, we're still just a startup that just happens to have more people working on it. And this person was looking at us as the the stable company that they were going to go to after their their little company experience. And I don't always like that, but it is the truth, right. And at a certain point, you know, the product needs operational efficiency, and we got to be careful how much innovation we do, right? If somebody changed Microsoft Excel completely next week, an awful lot of people would be upset, right? You you want just want to see, you know, more reliability than innovation in a product that's that mature. And so going through that change, it's scary. It's been hard for me to switch into that new role in some ways, because, you know, you you get your identity wrapped up in, in being the decision maker or being in the loop on everything.
But it's also kind of liberating, right. In the short time I've already been through this transition, you know, my inbox is getting a lot thinner, and the phone rings less often and my calendar is wide open. And I realized that again, I have time to to sit and play with a product for a couple hours and think about it from a customer perspective, which I used to do a lot in the early days. And then I realized I hadn't been doing that for a long time. And that's what I'm looking forward to is that chance to kind of step back and get perspective and also to spend more time with the customers and with the team members instead of Being in the kind of the relentless grind of operational and management meetings.
Very cool. So two more questions for you, Bob. We've talked about a couple of books. And in your book, you talked about the importance of reading a lot. So I'm curious if you could create a mountain Rushmore so to speak of the three to five books that you think every entrepreneur CEO absolutely must read? Which books would you include?
Ah, that was such a hard question to think about, because the list would be hundreds. And, you know, the last one I read always has a big impact on me as well. But if I could cut it down to a shortlist, I think My Life and Work by Henry Ford. Ford, obviously, such an innovator and, you know, change agent for America's, you know, industrial manufacturing. But their that book is just full of gem after gem of how to think about your business. And, you know, in operations and management and leadership, great, great book. I don't know why it's not more appreciated as a business guide book. There's a book called the box, How the Shipping Container Made the World Smaller and the World Economy Bigger.
Yeah, I heard about this book.
Have you read it?
I have not read it. It's on the to read list.
It is a fabulous book. And you know, it's a history of the containerized cargo, right, the shipping containers we see on trucks and boats and everything else. And the lesson, I read it more than a decade ago, but I still think about it and share stories from it. And the big lesson in that book is, you know, the shipping container is one of the great ideas of all time and its impact on the world. And boy did that have enemies, right. And it was such an incredibly good idea. And in retrospect, such an obviously good idea and so superior to everything that came before it. And yet it had to fight tooth and nail for survival. And I think that is such an important message. Right? As entrepreneurs, particularly you, you have this idea that, you know, this great idea, everyone's gonna love it.
And you read The Box, and you realize that the best ideas everyone hates, and they have reasons to hate them. They're not irrational in their hatred. They're, you know, in the big picture, they were wrong, in their immediate needs they were right. And I just that the lesson of that book is so powerful to me. And it's just also a fascinating and entertaining story of, of really, truly changing the world. I mean, reshaping the world physically. And then a book I read just a couple years ago, Alchemy, the dark art and Curious Science of Creating Magic and Brands, Business and Life by Rory Sutherland. I love that book. It has everything I feel about product design and marketing, just so well articulated and laid out and explained, right?
Why do some businesses succeed with what seemed like crazy stupid ideas? Right? How, you know, it gets to that question of what when do you listen to the customer? And when do you go with your own instinct. It's full of fun anecdotes and stories. And it's just a challenge to the kind of hyper rationality that creeps into a lot of businesses and our desire to let you know, data and math inform everything, and reminds us that, you know, people are not logical as he puts it, they are psychological. And in that sense, they're they're also quite rational, but we can get so sucked into thinking of everything through a logic lens and forgetting the psychological lens.
That's great. That's great. I already had Box on my to read list, but I've got I've got two more now. So thank you for that. Last question for you. It's a bit of a strange one. But if you could scream one thing from the proverbial mountaintops, and every CEO of every small and medium sized business would hear and fully digest what you're saying, what would you say to them and why?
No question about this one. Cash is King. Right. Scream one thing from the mountaintops cash is king. I think I said in the book that if there was a if there was a book of business poetry, it would be full of odes to cash. That is the thing that we all have heard. We all know. And I don't think any of us internalize enough.
That's so great. After having read your book, I'm not at all surprised by that answer. And I say that in the most complimentary way. Bob Pritchett, it was a real treat to talk to you today. Like I said, I first read your book almost 10 years ago when I've read it so many times since then. So for anybody who hasn't checked it out this is the book for entrepreneurs and CEOs clearly written by an entrepreneur and CEO. Low on theory in the best possible way, high on applicability in the best possible way. Thanks Bob for joining us today
