Now, before we jump in, I just want to send you on behalf of both myself and our listeners a heartfelt thank you. And I'm thanking you not just for your time today, but because you are somebody who has dedicated your personal and professional life to helping entrepreneurs and CEOs navigate what is an incredibly difficult journey, and you probably aren't thanked enough for those efforts. So on behalf of both myself and everybody listening to this, thank you for contributing to improving our personal and professional lives.
Well, Steve Oh, my, that is so heartfelt. And, yeah, it's a very mission kind of filled purpose I've got around this, it'll be 40 years next year, you know, just doing this one thing.
And I hope you know that it has a big impact on on myself and many others that you don't see. And what I hope to do today is try to extend that impact, even if it's just by a little bit to ask you a few questions about a number of different topics. And where I wanted to start, Verne is the issue of compensation for a few reasons. Number one, you have a new book coming out called Scaling Up Compensation, which I'm interested to learn more about. Number two, of course, every entrepreneur and CEO listening to this will, you know, count compensation is an issue that is near and dear to their hearts. So before we dive in to some specific questions, can I ask you to please just briefly summarize the five core principles that you outlined in this new book?
Yeah, and Stephen, books out, came out July 2. And as you know, it's a hot topic right now, given all that's going on, and trying to attract and retain retain talent, it's literally crazy out there. So we pulled together these five design principles really based on two fundamentals. First, that your comp needs to be reinforcing what it is that the customer wants. And number two, you just want to get it right and out of sight. You know, it's your largest expense in many cases, and sadly, can often end up being a downer inside the organization. Creating all of this drama, instead of getting you have some kind of a strategic advantage. So we outlined five. The first is like strategy, it needs to be different than everyone else in your industry. Number two, it's about fairness, not sameness. And that's I think, one of the reasons why Google made the decision they did a few months ago to look at paying people less that chose to remain working remote than those coming in the office. Number three, but we really want to be careful, be easy on the individual carrots, number four, but let's gamify the gains, let's really have some fun, and take advantage of some psychology we understand about people. And then last we called it Sharing is caring. And that's really where you look at the broader profit sharing and even equity sharing plans or components of a good comp plan.
That's great. And so jumping into a few follow up questions for you one, of the things that you just mentioned, these are the individual carrots. And as a former CEO, myself, I remember in crafting my own compensation plans, I very often found it difficult to strike a balance between kind of three primary buckets, which is company goals, departmental goals and individual goals. The reason why it would sometimes be challenging is because sometimes they would be in conflict with each other, sometimes they would present unintended or unanticipated consequences. And sometimes incentives or outcomes fell outside of the control of any of any given group. So this is all to say that striking a balance between company level departmental level and individual level goals was was pretty challenging in in the process of putting this book together, what did the research reveal about the best ways for CEOs to strike a balance between these three, you know, quote, buckets of incentive strategies?
Well, you know, part of it is we keep trying like pricing, to use logic like this. And the challenge was setting pricing and I consider compensation pricing internally, is they're dealing with people. And one of the things we've learned a guy won a Nobel Prize three years ago for this is that, that people are not logical, they're psychological. And so the techniques that we look at are more psychological in their approach and less about this trying to be logical about individual team and company. And by the way, I want to go back to really none of that matters. Because all of those goals should be pointed to one thing and that is, Hey, what is it the customer wants? And as long as your individual team and company wide comp systems support what it is ultimately the customer desires, and some examples that we'll share, I think will highlight that, then you're going to be fine with your compensation system. So don't get so internally focused. That's the problem. You've got to stay externally focused with these sets of decisions.
And what are some examples of customer centric goals that tie together company departmental and individual incentive schemes?
Yeah, so I think about many movers down in Brisbane, Australia, you know, they're not Facebook, Google, they're moving furniture. And so let's start with the customer, what is the number one thing a customer wants? Number two would be hate, just get it there on time. But even ahead of that is, I don't want to see a scratch, I don't want to see it get, I want that furniture to arrive in exactly the condition that you picked it up. And so almost everyone in that industry has insurance, you know, so cover any of these kinds of damages. And we work hard to train people and make sure they know how to pack and they're diligent, and there's all this kind of drama. And so the founder down there said, hey, I'm spending about 3% of revenue on this insurance. Why am I paying the insurance company? Why don't I pay you guys the movers per job. And so here's the deal, whatever the revenue was, for that job, 3% set aside.
And if there's any damage at all, it comes out of that 3%. But if not, it's distributed to that team, not across the company, but to that team that together had to make that move successful. And what's interesting, and by the way, this will add about 1000 Australian dollars per quarter. So 4000 a year, enough to differentiate, you get a fee attractive to folks who will move furniture for you. And as a result, way before the customer has to pay attention to it, or even the boss has to react. It's the peers that are actually tending to each other, helping to cross train. And by the way, if somebody's just not getting it, they'll be like an immune system and kick them out sooner than what the boss has to decide. And so it's a self regulating system where everyone is aligned around, not what it is they want to achieve as workers, but ultimately what it is the customer wants. And so it solves about a half a dozen kind of management issues, while keeping everyone aligned around again, the thing that matters most to the customer, don't damage the furniture.
Now, in a business like that, I would imagine that the customer preferences are relatively uniform in nature, as you correctly point out, you want it to be delivered on time you want it to be delivered free of scratches, etc. If we go to a more kind of multivariable situation, if you will, I'll bring it back to my business and running a software company where we had large customers, small customers. We had customers using product A, customers using product B. That created a lot more variables, then, let's say a handful that you would contemplate in the context of a moving company, when you've got a customer base that is not uniform in its characteristics and might not be uniform in terms of what it needs or wants from you as as a company. How do you decide which customers to listen to? How do you balance the 10 to 20 to 50 things that 10 given customers will ask you for? Said another way, how do you distill hundreds to 1000s of customer requests into kind of the most important thing or the most important things around which to base the compensation system?
Well, Steve that then really leads to strategy. And that's why the compensation strategy needs to align with the company's strategy. And this is where we'll turn to Francis Frey at Harbor. And her book Uncommon Service that you've described precisely the challenge, you know, customers want more, and they want to pay less. And so there's the train wreck. And so what she teaches, and we do as well, but if there's a list of 10, or 10,000 demands by the customer, you have to pick the three. And you have to know the one that matters most. And then on a scale of zero to five, you've got to be a 10 on those three, and then you have to be willing to not even allow not even pay attention to the rest. She says it really more clearly. You've got to be willing to upset kind of 93% of the marketplace, but you're so loved by the seven that they'll put up with all the other abuse you're willing to put on it.
So let's let's take Apple, the highest market cap company on the planet. Probably one of the most abusive companies also on the planet, making decisions that aren't necessarily what customers want from, we're not gonna have a phone jack to the connector that we've got to. They didn't mess up in the size screen that was needed. What's moving up is security, as the number one concern and the fact they had that security outage. I don't think Steve Jobs would have ever allowed that to happen rest his soul. And so there's a complex set of desires that all customers have, no matter what the market is whether customers Oracle. But Oracle got really clear that look, the number one thing we need our database to do is allow your apps to run twice as fast on our databases, anyone else's database. Yeah, there's 100 other things that might matter. But that was the one that they can the company on and their brand promise on and then therefore, that's what you need to deliver on. Now, how that goes back and ties in with compensation is another piece of the puzzle. But first, you have to figure out, if you want to convince somebody to buy your product or service over someone else, the godfather of influence, Cialdini said, You got to give them three reasons three, trump's two or four or list of 10. So that's where we start with strategy.
Yeah, and like so many things, it comes down to issues of prioritization and focus. And that's something that we'll get to in a little bit. One thing that I wanted to pick up on is this concept that you mentioned, of fairness, not sameness in a compensation scheme. And I went back to a 2010 blog article that you wrote, specific to compensation. And in that blog article, you said that, when it came to star performers within a business CEO should simply be willing to do whatever it takes to keep them going, as far as to suggest that CEO should be willing to customize their compensation packages based on the individual requests of a star performer. And I know that of the CEOs listening to this, if they're anything like me, they're gonna see two potential issues that I'd love for you to speak to. The first issue is that, even though in my experience, compensation is technically supposed to be confidential is supposed to be confidential. Inevitably, I found that word would always get out amongst the employees. And of course, the fear among CEOs is that if I give Person X exactly what they want, then 10 minutes later, person Y is going to be coming into my office with her own list of demands. So that's issue number one. And potential issue number two is one of the ways that I've always thought about really effective compensation plans is this issue of simplicity? If you start to customize plans individual to specific employees, how do you avoid creating an overly complicated plan that has a large administrative burden? I know that's an extremely long and probably too verbose question. But those the two issues that I suspect are in the minds of the listeners, can you speak to those?
Yes, and that is precisely what we address the in that chapter, we've got a very detailed case study telemedicine clinic to TMC out of Barcelona 450, really highly professional radiologists in that firm, plus all kinds of other technology workers. They have a big tech platform that allows them to do remote radiology, from Australia, taking care of hospitals in Europe at night. And the analogy that I use in and here's why it's fairness, not sameness. The same person in the same job isn't, it's not fair that they would be paid the same if they are tremendously more productive. As the research is very clear. There's certain in almost every position, one employee can outperform another in the same role by a factor of three to 110 to one. And as Bill Gates famously said, one great programmer can replace 10,000 other programmers.
Which is why it's important first, when it comes to a base salary, to have very wide bands. You've got to be able to and you can publish it, because that's the first thing Alex said is, hey, if somebody found my payroll in the scrap bin, I'd be challenged to try to justify it to anyone if it was printed on the cover of The Wall Street Journal or Financial Times. And so that's what you're trying to address because this the word does get out. And so you start with very wide bands, and then they were clear, there were five measurable things in each one of their positions that you could do. They could allow you to get paid as much as twice or more than somebody else in the same position. Now, let me use let me use an analogy. And we actually think you ought to run your company more like sports teams instead of families, a lot of people talk about the family atmosphere.
But I don't know about you, I wouldn't wish my family dynamic on anyone. Just watch billions or successions. And the term dysfunctional family is a redundant term. And so we really prefer the professional sports team model. You know, what their scoreboards and? And does every quarterback in the NFL get paid the same? No. Nor does every right tackle or field goal kicker? And are is all that data available publicly? You bet. But the industry is also through data analytics gotten very clear that for instance, the quarterback efficiency rating is a pretty good accurate measure. Plus a few other stats of why Patrick Mahomes, at least coming off the last two seasons deserve to be paid the most of really any quarterback out there. And it has a lot to do with the stats they're able to achieve. And then obviously, we measure the success of the defense by how much they can plunge a quarterbacks efficiency rating.
And so it does demand for you to get clear, not what are the 20,000 statistics, but what we call the Moneyball stat. You know what they figured out in baseball, measuring everything that didn't matter and compensating based on it. When Billy Beane came along, he finally figured out, you know what matters, you know, on base percentage. And he was actually able to recruit folks at a lot lower compensation, because he had that insight before everybody else did. We also know the left tackle is the, you know, critical position. And thus, all of the movies that we've seen around that critical position, second highest paid generally, on a sports team unless you have a left handed quarterback. So sports gets it, it's as transparent there is any industry and we can accomplish the same if we'll give it some real thought.
So what I'm hearing is utilizing metrics, and specifically, that small handful of metrics that truly matters to take the subjectivity. And perhaps as a result, the emotion out of individualized compensation schemes, is that a fair assessment?
It is. And it also provides a clear path, because there are really three effects, that financial incentives should provide Steve. First, what we call the selection effect, I want to use my compensation system to be attractive. And I think it's interesting Harley Davidson this year, decided they're going to award all 4500 of their employees equity. Look, holding on to blue collar workers is the hugely difficult right now. And so you've got the selection effect, then you have what's called the inflammation effect. And that's what we're talking about here, the compensation system, should I point to, hey, what is it we really need you to accomplish and do whether it's the quarterback efficiency rating, or whatever, the least effective is what we call the motivation effect. That is, I'm going to get people to try harder. And almost all comp plans fail, or last about a day and a half, if you give a bonus. Look, if you've hired right, you've hired motivated people, what you want to do is make sure the comp system isn't demotivated. And that's what ends up happening. If you're not clear how to delineate how you can move up within a pay band, doing five things for instance.
You mentioned hiring and that's actually a subject that I want to dive a little bit deeper into with you and specifically around a one hire in particular. So the background on this is that many CEOs and entrepreneurs, I find don't actually like the role that they play within their businesses on a day to day basis, and would prefer to be much less involved in the day to day details and would certainly favor a more kind of strategically oriented role. And this is a difficult problem to diagnose, right, because this is a symptom, and behind that symptom could be dozens of potential problems. It could be lack of systems, lack of data, lack of Team bench strength, whatever the case may be. In some instances, though, CEOs know deep down in their bones that a number to hire something like a COO or a president could take a lot off of their plate and create a lot more discretionary time for them. So intellectually, academically, it seems to make a lot of sense. But what I find really interesting is that many CEOs have a really hard time making that hire, potentially it's because they fear losing control. Maybe it's because they fear making a hiring mistake, whatever the case may be. In dealing with countless CEOs in your experience, what advice or what counsel would you give to a CEO currently struggling willing to make a a number two or a right hand hire like this? And, in your opinion more broadly, why does this seem to be such a hard hire for CEOs and entrepreneurs to make?
Yeah, well, first an interesting stat Steve, 76% of the companies just in the United States only have one employee, and it's the entrepreneur. And I would suggest many of those companies are overstaffed. That's just a joke. But serious one. And we like to kid but the MIT program I founded back in 91. Still running today, they let the old man come back and teach and we call EMP, is you know, most entrepreneurs generally don't like people. Their ideal job would be a company with no employees or customers, you know, interrupting their grand visions that they've got. So it really is a tough thing to get over because the entrepreneur is so talented in so many areas, that it's hard for them to let go, as you described. So there's the affliction. Now, we deal with companies that finally at least said, Hey, I'm gonna have to get some things off my plate like bookkeeping, usually the first one that you delegate. So let's get to this number two.
And this is one of the reasons why Brad Feld, one of my first students who went on to do Tech Stars, they require co founders or you having a partner before you're even allowed in the program. And if you think about Steve Jobs, and Steve Wozniak and the Google boys, and I can just go down the list and, and Bill Gates and Wozniak. And the three co founders of Airbnb, those tend to be and Norm Wasserman did the research at Harvard, those kind of multiple founders have much greater success than a single founder, because they can split the duties up day one. Now, let's say you're not there. And you need to bring in this number two, this is where our research is definitive. This is not a person you can hire in, you can head hunt to end. And that's why because they fail 90% of the time, and all you have to do is bring in the wrong person and get burnt. And you never want to do it again.
And now your stuck. So I literally have done this three times in the last week, we sit down with an entrepreneur. And we make a list of 25 people that they have worked with in the past, that they already have got up to forming, storming, norming phase. They know what they're getting into, they get along and the whole bit. And in one case, it was a former employee who had left, joined a competitor, and had moved up in that competitor organization that's actually larger than this guy's company. But he knows he's not happy over there because of the bureaucracy that it's built. And he's got a chance now to come back. It's the first phone call he's making. And I hear it's going to turn out. In a woman entrepreneurs situation, it's actually a customer of hers, who they've had a long standing relationship, they enjoy working with each other. This woman is particularly impressive from an operation standpoint.
And so that's who she's bringing over. Sometimes it's somebody inside the organization that has grown up with you, they can move into that role. Now, the only exception somebody put in my face was what about the Google boys? Because then the Google boys did the same thing. They didn't really want to run Google. They wanted to bring in somebody to do that. And so they brought in Eric Schmidt. And so I looked into it and I I found out that they had put Eric on the board, Steve, for a year. And a year in Google's like dog years, and every other company. So they could really test drive, whether this old guy would get a technology, new technology world? could they get along? Could they fight without killing each other? And it was that year long test drive that allowed them then to have the confidence to put him in that CEO role. And so that's why it's important to make a list of folks that you already have this kind of lengthy experience with. And that's where you're going to have a lot more success than we've got a competitor suggests you can just call a headhunter, and that is suicidal in 90% of the cases.
So when it comes to hiring a president or CEO or similar type of hire, when you speak of the lack of success and external hires and the success fees of the internal hires, what is it about the internal hires that makes it work? Is it their experience in the relevant industry? Is it their experience and familiarity with the underlying company and its business model? Or is it More relationship oriented in the sense that the entrepreneur and this person have a lot of experience working together, even if their experience was completely outside of the context of that particular company and industry?
Yeah, Steve, it's absolutely the latter. Because if I didn't want to imply it's an inside hire, but it's a relational hire, relationship hire, because again, it could be a customer that's going to come on over. Or somebody worked with at a previous, you're in a major company together, scaled up, you decided to leave to start this firm, and you literally recruit from that same inside that same major company that you left, because it's somebody that you had a chance to work with. And so it is the latter, it's the relationship side. And those things just take time, you need the honeymoon period, and then realize that the honeymoon ends, and you don't want to be a year down and find out that you've made a disastrous mistake. So that's why you got to get this right. The other thing I want to emphasize is, one of my favorite students is Randy Aiman.
He built a company called ABL cables out of Baltimore. And I love his title, he was founder and head of customer service. So the really the first part of your question was brilliant. And that is for the entrepreneur, they got to figure out we have this tool called the phase tool function accountability chart, they need to figure out what are the functions they wanted to be accountable for. It doesn't mean you have to be head of the company. And it has nothing to do with title, Steve Jobs was CEO, but he was not the head of the company. It was clear Tim Cook was, he may made all the decisions. The only function Steve chaired was marketing. So Randy, brought in a CEO, CFO, COO, VP sales filled every other position, but customer service. And that allowed him to take a year off essentially and hide out in what we call the studio, every CEO needs a studio to really do their strategy design work.
And he built this amazing technology platform for his industry, saved his company's millions, but a $2 billion company came along and said, Randy, it's going to save us 10s of millions. Bought his company for a gazillion dollars. And what's interesting, Steve, he's one of the few entrepreneurs that have survived the Fortune Global 500. Today, if you look up LinkedIn, Randy Amon, you're gonna see that his senior vice president of customer experience for a $40 billion global company. So to thine own self, be true, know what you're good at what your strength is, and then go backfill everything else around you. And by the way, a strength doesn't mean you're good at it. See this is the mistake. The strength is only that which as Marcus Buckingham said, gives you strength gives you energy. At the end of the day, you're the chief energy officer. And it starts with what are the things that give you energy and wear you out. And then you want to bring in this kind of strange set of idiot savant who gets strength out of the weirdest things inside your organization. And if you can put that strange 18 together, then it's powerful.
So interesting. And I know, particularly as it relates to smaller businesses, and in particularly as it relates to making this type of hire, or any senior hire, I should say, I find that a lot of CEOs find themselves trapped in what I would describe as circular logic. They say something to the effect of, well, you mentioned financing examples. So we'll use a finance oriented leadership role. But this could apply for any any leadership role, they'll say something to the effect of, hey, on one hand, it's clear that my business would benefit from having a world class CFO. But on the other hand, at our current levels of profitability, it's clear that we can't afford to hire a world class CFO. And then of course, the result is that the firm stays at its current level of profitability, because it doesn't have a world class, CFO in place, and on and on and on the logic goes. So for a CEO who is currently in a similar situation, how do you advise that they kind of extricate themselves from this type of circular logic? How do they put a pin in it?
Yeah, well, first, you have to realize you don't have to hire him full time. So [inaudible] mind Bill Becker BDI when he was about 5 million in revenue, he realized you know, I need something a little bit better than the bookkeeper I've got, but I don't need a full time CFO. So he literally brought one of those, you know, rent to CFOs on for a day, a week. And then when he hit literally 10 million, it was two days, 15 million in three days, 20 million in four days and by 25 million, she was on full time. And so my mentor, the late friend, Joe Berra, was the you know, counting genius and he was That CFO for Bill Leer of Learjet. He said, Look, you can have my brain full time, I'll be thinking bill about the business, but I only got a day a week to give you. And so you can have me for that kind of a deal. And by the way, if you've got some equity kickers, and it makes it a little bit even easier, you know, for you to cut those deals. But I was mentored by somebody who did this for 75 Different companies, and I saw it with my formate Bill Becker.
It's interesting that in the previous question, you brought up the Google example, and how Eric Schmidt was given, I guess what I can loosely describe as a trial period before joining as the CEO of the company. And as it relates to this most recent question, you know, something like a fractional CFO effectively amounts to a trial period. How do you how do you think about CEOs kind of setting up trial periods for lack of a better way to put it for making senior leadership team hires?
Well, first, this is why intact teams scale further faster. One of my early clients, Rick Kay, with OTG software, he and three other guys were inside a major company, and they chose to lead together, to start day one. And that allowed them to, you know, in a decade go public, you know, ultimately sell for over a billion to EMC analysis software suite inside Michael Dell's company. Because you really do have to get folks at that senior level that know how to fight without killing each other, that truly are healthy. But that's why the top grading interview process is the one that we so push in, in making these critical decisions. And it's the only interview process that's been validated by Northwestern University and others to be 90% plus accurate. Again, you haven't picked the right person out of a lineup, it doesn't mean you picked somebody bad. But you likely left somebody better on the table, because we're really bad at interviewing, especially people, selecting people that are a little strange, but actually might be the right, again I use this term loosely idiot savant, that you need. And so there's a lot behind that question. And that's why assessment centers and the top grading process are all critical in making sure that you make this right decision. And if it's going to be as critical as the Google boys hiring Eric Schmidt, yeah, get them on the board. And let's test driving for a while.
Yeah, yeah. The top grading hiring process is one that I used for substantially every senior leadership team hire that I made, and I'm a huge advocate for it. So for folks listening, we'll link to that in the show notes. And also be sure to check out our upcoming podcast episode with Randy Street, who is the co author of that book. Let's go on to an entirely different topic that I like to refer to as managing yourself. And I've often said that an entrepreneurs ability to manage their own psychology or more broadly, their ability to just manage themselves is just as important as if not more important than their ability to manage their own business. And you are an entrepreneur and CEO yourself. So I'm curious what habits or rituals or routines or practices have you integrated personally into your own life to ensure that you are running this marathon at a sustainable pace for yourself?
Yeah, Steve, it's a great question. I'm just on stage at the big EO Regional Conference out west last week in Lake Tahoe, what a beautiful place. And I mentioned it when I launched this executive program, I brought over Dr. Berry Drive, who was the psychiatrist to Harvard Business School. And he would come in the room with, you know, 60 entrepreneurs. And he would draw three circles on the board and it would be self family and work. And he said, Look, here's what happens. As an entrepreneur, you put it all into the work. And if you have anything left in the in the tank at all, you're going to give it not to the whole family, but to the children, if you've got children. And the spouse will be somewhat left behind which creates a whole nother set of issues and who gets last his self.
And as a result over time self begins to resent both work and family and there's the train wreck that happens. So it's what drove me in the new book to put together this one page personal plan. Look, hey, we put a plan together for work. Let's do one for ourselves, and the personal side of our business and do To get right to what that comes down to the most important box on that tool is your ongoing rituals. And I use the term ritual more than routine. You can, I learned at this ashram in India with Sri Sri Ravi Shankar that you can turn brushing your teeth from a routine into a ritual from, you know, I love ironing my shirts, and it's ritualistic for me. And what it really comes down is to this. We hosted Susan day, but might recognize that, you know, amazing guru at one of our early virtual summits in the middle of the pandemic.
And we as prepped for her to come on, we had a phone call, and she said, Hey, Vern, you need to know first of all, every one of you has PTSD. You've all been shell shocked by this, what's happened to the pandemic and you all are suffering from this. I said, No, I think, um, you know, it was been tough, but we're pushing through it. And she goes, let me ask you three questions. And Steve, she did. And I'm like, I failed all three of them. She said, No, you got PTSD. And I'm like, Alright, so what do I do about it, I gotta run my company, I can't like just go take off to the desert and hum for a while. And she said, Really, what you can do is just one simple thing. And we shared that thing with our audience. And I shared it again on stage last week. She said, Pick three times a day, for 15 minutes.
That's it. 315 minute periods, we're talking about a restroom break, and do a little something for yourself a guilty pleasure. And I knew exactly what it was. And so I started doing it, and I still do it. One is I love to play a game of solitaire with real cards, not on my phone or anything like that. And Steve, I let myself cheat. I'd make sure that I win, and it's okay, okay, I don't have to be critical of myself. I have another guilty pleasure. You know, I read a zillion books. But I also read People Magazine every week, religiously, don't you tell anybody. And so I'll just pop it open. And you know, take just take some fun reads. And then number three, I am working on a musical right now. And I've got a keyboard in my office. And so I'll just go over and play a little bit of piano. And it's crazy. That permission to go crank really hard for 90 minutes, and then take a break has been powerful.
In addition, I absolutely meditate every day, something I learned from Sri Sri Ravi Shankar at OS ROM, and that that routine, four minute to body exercise, as a way to kind of keep the body moving and healthy. There's a few of those rituals every day, because that's what it is. It's what you do more or less of every day that determines your personal and company success.
Yeah, so great. I use personally, meditation, journaling, and exercise is kind of my three indulgences, if I can use that word.
Yeah, you know, this week, at our virtual Summit, we've got Eric Partaker, who built this really crazy chain of Mexican restaurants in the UK. And now he's got a little book out called Three Alarms. And it's him setting three alarms on his phone, and the three little rituals around his health, and around his exercise and the light that he's found equally, it's just that simple.
So one of the things that you mentioned, as it relates to family work itself reminded me of something that I've talked about before, which is the idea of kind of codifying your core values as a person. And then regularly evaluating the extent to which you actually live those values, as opposed to simply espousing them. And you also mentioned the tool that you created, which I really love called the one page personal plan. So can you talk about first, what is the one page personal plan? And second, why is something like this an important exercise for entrepreneurs to go through? Because some entrepreneurs listening to this may say, Hey, I'm too busy for that kind of stuff?
Yeah, yeah. Well, as everyone knows, it's not the plan. It's the planning that is what's important, the conversations and the talk time and thought time in the writing, you know, you're journaling. And so having to write it out is really what's powerful. So the personal plan was just based on the same four people strategy, execution cash, but we renamed relationships, your achievements with those relationships, your rituals with those relationships, and then for cash, it's your wealth, and it's not as much the money that you want to earn. We all have our number, but it's how are you going to invest that wealth in the rituals that further the relationships that because at the end of day, the only KPI of life that matters is the number of people you've touched, you've helped along the way, and the depth of relationships you've got with a few. So again, it's detailed in the book, we actually make it available for free, online, so no one even has to buy the book.
But that was the idea behind the personal plan. And it really again comes down to the most important box actually, is your long term rituals. It's that handful of things. For example, we have a client where he and his spouse have committed they've done it now for over a quarter century to go to one major sporting event a year, even when they were so down and out, didn't have two nickels to rub together. They found a way to maintain that ritual you know, it's the date night it's my daddy daughter date with my daughter, Jade, it's the boys only trip. The girls only trip, the family vacation or the reunion once every five years on my mother, rest her souls side. These rituals, if you don't put them in your calendar first, then all of a sudden, the years gone by end years have gone by. And you missed these valuable moments. But once you put them in your calendar, then it's crazy how life just kind of molds around it.
The other one that's been important for me and look, you can't do this in the beginning when you're launching. But it's quick as you can I shut it all down at about six o'clock, Friday. And I really don't crank back up until Sunday evening, as I'm preparing for our Monday set of meetings. And Saturday for me is fator day, it's when I can let go of all of my routines and rituals, I can eat whatever I want, I drink whatever I want, I don't open up the computer at all, or look at my phone. I just have fun that day. I think I must have been Jewish in a previous life. And like to take off that Sabbath day, just to have fun. And that has been rejuvenating every week. And then the simple things every day. And then obviously, these these annual rituals, the combination of those is what keeps you healthy.
Yeah, so great. I mean, you ultimately become what you do every day. And it is the accumulation of small things that dictates how you live your life and who you become as opposed to a small number of large things, which I think a lot of people don't necessarily appreciate and understand and I love the maxim that rituals or routines will set you free. And that's true in life and in business, as I know you know well.
by the way, the single most important thing to make all that happen, Steve, is what I learned from Marshall Goldsmith, and he you know, he was the coach that Whovear Jolie who I hosted. Recently, the CEO that turned around BestBuy. And the first thing the board recommended is that Whovear get a coach. And so they got they brought him in Marshall Goldsmith. And the one thing Marshall requires all CEOs to do, and we do as well. And that is to get a peer coach, not a mentor, not advisor, you need all those two, but a peer, who will be your accountability partner, that person for me, Sebastian Ross, my co author of scaling up compensation. And we have similar lives, families, children, companies, educators.
And what we do this, we decide what are the five things we're going to do more of, less of, or different, to be a better father to be a better, you know, family member to be a better leader. And then we have to report that out each other. Every night. We're supposed to have a phone call, but we never get that to work. I was on the phone with him today. But it's crazy. When I said hey, I really want to spend 15 minutes playing the way Quinn wants to play back when he was six. I can either choose to lie to Sebastian, but why is easier just to do it and then report out what it is that I did. What's the Who's the one influencer that I reached out today? By Name, and it's crazy. I've never had anything else help keep me on the straight and narrow and improve my rituals, then the importance of having a peer coach.
So interesting. I know I use my EO forum as accountability partners, but the cadence of monthly is something that I think is worth me rethinking the daily cadence. So that is a really, really interesting concept.
So it does suggest that you meet weekly so when I was in Barcelona, and I'm looking at trying to get back there. Sebastian and I then every Friday and I tried to always be back wherever I was traveling the world by Friday, and we go to Carlitos, we had a standing reservations and I'd get a nice glass Ribera del Duero and we wouldn't even talk about any of the personal stuff on our list, it was just our time to connect. And that was the bow on the relationship that really tied it up.
So great. So great. There are a number of other things that I do want to cover with you, Vern, so this won't be my strongest segue ever. But I'm just gonna dive right into it. I read a recent interview of yours. And you were asked what advice you might give to your 20 year old self. And I was really interested by your response, you responded by saying that you would buy versus build because it would be a faster and more efficient way of scaling? So I guess A, can you tell us a bit more about what you meant by this? And B, is this advice or experience share only relevant to entrepreneurs looking to start something from scratch? Or is this wisdom that can also be applied by CEOs who are currently running businesses who have made it beyond the you know, zero to one phase?
Yes, Steve, well, first of all, thank you for reminding me what my answer was. That's appreciated, and it is absolutely the ladder. And the reason is, because look, the market makes you look smart, or makes you look stupid, don't fight the whims of the market. And right now, like the significant trend, particularly the United States and other parts of the planet is the baby boom, has about 3 million companies, pretty significant companies, they need to exit. They don't have any family members that want to take it over. And it is hard to get from zero to one, so much easier for you to be able to acquire it and then add some 21st century, you know, management principles or leadership principles to it. So my partner who runs our global coaching organization, John Ratliff, that's what he did, he took seven years to kind of scratch his way up to a million in revenue and his first call center. And then he wised up and he ended up growing 3,000% over the next seven years through 24 by side acquisitions of you no call center from Baby Boomers who were ready to exit. And it didn't cost them a penny of his own money. He used all that to do it and an owner financing. And that's what he was able to turn around and sell for a gazillion dollars to a $2 billion firm. So I'm getting ready to lecture at my own alma mater. And that'll be my key message to those students. I would go buy something and have that base from which to expand.
So interesting. I mean, I was particularly intrigued by your answer, because for selfish reasons, because of course, that's actually how I began my entrepreneurial journey. Instead of founding something from scratch. I had bought a software company that it existed for 20 years and was founded by a father and a son combination. The father was 72 years of age and looking to exit, but at the time, the company was not of a sufficient size to attract interest from traditional sources like private equity, or maybe competitive strategic acquirers. So I was fortunate enough to be able to buy a business that had gone well beyond the zero to one phase, and instead, focus on making an already great company and even better version of itself. As opposed to starting a business from scratch, which as you correctly point out, is just an absolutely incredibly difficult thing to do with extremely high failure rates.
And by the way, Steve, you are a true founder. You found it. And you found the company to buy it. That's what we always kidded George Native. You know, George taught for me every year at that MIT program still comes back and does it. And he founded Boston Chicken, but he found it, it was already running by a couple of entrepreneurs that had started it there in Boston. And he knew that he could take it big. And so we essentially bought it from them.
So as we look to conclude here, Vern, you talked a little bit about business owners who may be looking to exit, you mentioned specifically the baby boomer generation. I'm interested to get your view on business owners who may be at a crossroads, and the crossroads that I'm referencing is do I invest more in my current business as it is or do I potentially take a step back? And taking a step back could take numerous forms, it could be changing the role, it could be selling the business, it could be bringing in an outside partner, whatever the case may be. But an interesting juxtaposition, I mean, many of your pursuits, Gazelles, Rockefeller habits, EO they all revolve around the idea of growing or improving or investing more in one's business. But as you know, depending on a number of different circumstances, that might not always be the best thing to do. So for example, a business owner might see an industry problem or disruption on the horizon and they are not willing or able to invest the time and money to address it. Or the time founders become tired or risk averse, and is really feeling the weight of the illiquidity of their personal net worth, and investment in the company or whatever the case may be. But in situations like this, CEOs don't always know the best thing to do. So for CEOs currently at a similar inflection point, and that inflection point is do I invest more and grow my business? Or would I be better off basically doing the opposite? What counsel would you give them? Or what questions do you think they should ask of themselves to get clarity on this issue?
I think the only question they should ask themselves is which scaling up coach, would you recommend, come in and help us with this decision? It's Steve, you can't see this stuff yourself, this is where you need. I just brought on a new coach, who's gonna help me go to the whole next level. And that's why it's important. There's no successful athlete or anyone in any other field that's made it without having multiple coaches. And the key thing that you want to look at is realize that scaling up you know, people think that's just the top line, but you may want to scale up your reach, you may want to scale up your own free time. You want to scale off the bottom line. I mean, it is a big difference if you're on a $10 million company, netting a million or it's running 10 million, it's running 30 million. John Ratliff, the average profitability in the call center industry he was in was 4%.
He took that to 21.8%, that really is the metric of a highly successful privately held company, or three to five times industry average profitability. And so if you're going to work 80 hour weeks, let's take a bunch to the bottom line, and you know what's interesting, then all of a sudden, your energy comes back, and all sudden your enthusiasm and then there's the danger point. And that's probably one that I want to end on here is it's counterintuitive. You need to actually consider exiting at the moment, you're most excited about the business. But entrepreneurs have a tendency to do the opposite. Hey, why whatever exit now it's making so much money? And they ride it until the point where it's not and they've lost interest, or they missed the pivot that was critical in the industry. You have to realize that if you're planning to exit at the point when you're most excited about it, that'll come across.
And that's when you're going to get the absolute highest valuation for the business. And so that's when you need to make the decision and, you know, worst cases, and that's what's happened to Ted Leonsis, one of the founding board members now the billionaire owner, the sports teams out of DC [inaudible], Ted sold his company early on to Harris communications, he was in his 20s, for 5 million, they blew it up, and he bought it back for a million. And then turn it into Red Gate, which he then exited into AOL. So you know, you don't always buy it back. So I would generally suggest you exit sooner than later. And at the point when you're most excited.
So interesting, in a really unique lens through which to view that question, very last question for you. Before we let you go, you are, as you alluded to, earlier on discussion in the habit of recommending business books, and I've come across and read many of your recommendations over the years. So I'm curious, besides the ones that you have written, what are the three to five books that you would put on your personal Mount Rushmore of books that every entrepreneur and CEO must read?
Yeah, well, I do the top five business books every year. It's one of the things I did that column for fortune for many years. But I do have what I think are the five Mount Rushmore and number one clearly, is the late Eli Goldrats book called, The Goal. It is a parable, one of the first books to be written that way, is a business book. And it really addresses the number one focus that you must have in your business. And that is on the constraint, not the weakness, it's not about strength or weakness. It's the constraint. If you can first identify the constraint between your ears and address that the constraint in your business model, and ultimately understand what is the constraint in your industry. And if you can fix that or get control over that, man, you will crush the competition and dominate that industry. So clearly The Goal, then kind of in the next for my favorite Jim Collins book is the one that has been least read and that is Great by Choice, I think because he got so gamed by Circuit City and all of that, that he got a little set aside, but his book Great by Choice was the one he really wrote for us mere mortals.
And particularly Chapter on return on luck is classic, I think of Aubrey Daniels, Bringing Out the Best in People and what is more important than as a leader to do that with both your team and your family. And then luck. Everything's about influence. And so Dr. Robert Cialdini, and he just updated after decades, his classic book called Influence, is a must. And he just add a seventh influence for you to pay attention to. And so I'm going to call it at that. But I have my favorite this year. So if I add a fifth, it would be this latest, The Heart of Business by Whovear Jolie and his turnaround at Best Buy. Steve, it's been a long time since I've literally highlighted almost every single page and every single line in a book. It's brilliant.
Well, amazing. I will be sure to check out most of those recommendations as will most of our listeners, I'm sure and I will link to all of those in the show notes. Vern, you've been very generous with your time today. So thank you very much. And again, thank you for dedicating your time and your energy to improving the personal and professional lives of entrepreneurs and CEOs. As you know, it is a difficult and sometimes lonely journey and help from people like you makes the journey that much easier. So thank you so much.
You bet. And Steve, thank you for the thoughtful questions.
