0:00

All right, this is a guest masterclass with our

0:02

buddy Andrew Wilkinson. We're inviting him on because if

0:04

your world class is something I want to learn

0:07

from you. In fact, I had emailed Andrew a

0:09

while back being like, Hey, I have this company.

0:11

It's working. We had scaled into the

0:13

tens of millions in revenue, but I just didn't

0:15

want to run it anymore. I was tired.

0:18

I wasn't the right guy for it. I was half

0:20

in half out and I was just fantasizing about selling

0:22

it or the day where I wouldn't be running it

0:24

anymore. And he's like, dude, you need to hire

0:26

a CEO. And to me, that

0:28

always felt like something that's easier said than done. Hire a

0:30

CEO, just find somebody to take over my baby, but

0:32

he's done it. This guy's got 40 companies. He's

0:35

got CEOs that run them. He doesn't have to run any of them

0:37

day to day. The portfolio is worth $500 million.

0:40

So if there's anybody to learn from, it's Andrew on this. And

0:42

so he comes in and he shares, uh,

0:44

how are you interviews them? Who is he looking

0:47

for? How does he structure the compensation? And

0:49

so we go into step by step, how to

0:51

hire a great CEO for your business. It worked

0:53

for me for for Andrew. I hope it works

0:55

for you. Enjoy this guest masterclass with

0:57

Andrew. I feel like I can

0:59

rule the world. I know I could be what

1:02

I want to put my

1:04

all in it like days off. Okay.

1:07

We asked Andrew Wilkinson to come on and

1:09

do one specific thing, which is teach us

1:11

how to hire CEOs. He

1:14

owns Andrew. You own what 40 companies now,

1:16

the total portfolio is worth almost $500 million.

1:20

And yet you're a pretty chill guy. Whenever

1:22

I text you your answer, you're always having fun. You're

1:24

not stressed out, overloaded, overworked. Like every

1:26

other CEO I know who's a CEO of one

1:29

company, but you have 40. And so

1:31

I think the way you've been able to do that is

1:33

by hiring great CEOs for all your companies and it's actually

1:35

worked. Me and Sam want to learn this from you. So

1:38

you're here today to teach us that. How'd

1:40

you even realize that you needed to hire CEOs?

1:43

Yeah. So I would say it's

1:45

not that it's less, it's not less

1:47

stressful. It's just different, right? So

1:50

I just have different problems. So someone

1:52

running a company might be putting

1:55

out a fire that's burning that day.

1:58

I put out fires that burn over the course of the day. a

2:00

month or two and they're bigger fires. And

2:02

then someone else might spend a lot of

2:04

time dealing with company politics. I

2:07

end up dealing with CEO

2:09

comp packages. So I want to say to

2:11

begin with, this is not necessarily a greener

2:13

pasture. It's just a different pasture. And I

2:16

think you really only want to oversee CEOs

2:18

if that's your skill set, if you're drawn

2:20

to being super, super high level and hands

2:22

off, which some people, let's be real, they're

2:25

not. They're like, they want to be Jiro

2:27

from Jiro Dreams of Sushi. They don't want

2:29

to be the guy who starts Chipotle. They

2:32

want to be on the line. They want

2:34

to be making food. And so

2:36

it ultimately comes down to your personality. And

2:39

for me, my personality has always been,

2:41

I'm incredibly lazy. So from the

2:43

time that my mom told me to wash

2:46

the dishes, I was furious. I

2:48

was always trying to find ways to pay

2:51

my brothers to do it, find systems

2:53

to wash the dishes more effectively. So

2:55

I had to do less work. And

2:58

so I always joke that I'm Teflon

3:00

for tasks. And if you

3:02

start delegating in your company, which most great

3:04

entrepreneurs do, you ultimately

3:06

reach this point where you ask yourself,

3:08

was there anything else I can delegate?

3:11

And that final level of delegation,

3:13

that final level of abstraction, that's

3:15

hiring a CEO, that's hiring one to

3:17

hire 10. They go

3:19

and they run the entire company and you

3:22

just talk to them quarterly, sometimes annually, and

3:24

there's some CEOs I have that I haven't

3:26

even talked to in two or three years.

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3:53

have something between 30 or 40 companies.

3:56

Do you have 30 or 40 CEOs

3:58

reporting to you? No, the way that we do. it

4:00

now. So it's crazy. At first it

4:02

was like five companies. So I had

4:04

five direct reports that

4:06

are CEOs. No big deal. And then over

4:08

time as we've scaled up, we've had to

4:10

form operating groups. And so we have these

4:12

operating groups and they have their own CEOs

4:14

who report into us. So for example, all

4:16

of our digital services businesses are run by

4:19

a guy named Pradeep. I meet

4:21

with Pradeep biweekly, monthly,

4:23

whenever I need to. And he

4:25

oversees a group of like six companies. Even

4:28

if you're not going to end up with that kind

4:30

of portfolio, 40 company structure, I've had this with you,

4:32

which is I think a more common problem. I remember

4:35

emailing you saying, Hey, I have this

4:37

business. It's working. So

4:39

I can't, there's no, there's no reason to shut

4:41

it down. However, I don't want to keep working

4:43

on it. I liked it at the beginning. I

4:45

don't love it now. I want to go

4:47

on and do new things. How do I do this? Do

4:49

I have to sell this? Like, should I just sell the

4:51

company? Do I, can I hire CEO? And if so, where

4:53

the heck am I going to find somebody who I could

4:55

trust to do this? So even on a one company level,

4:57

I think that's where most founders are going to be that,

5:00

you know, step one is abstract

5:02

yourself out of a single company. So let's start with

5:04

that. You said something. You're like, it's pretty common. Everyone

5:07

loves their business in year one. What's

5:09

your exact quote? So yeah, every time I

5:11

talk to a young founder, they're like, I'm

5:13

going to run this till the day I

5:15

die. It doesn't matter what the business is.

5:17

They think they're going to be, you know,

5:19

they're like Mark Zuckerberg for 20, 30 years.

5:21

And then you talk to them in year

5:23

seven or eight and almost all of them

5:25

are just like, how do I escape this

5:27

hellish waking nightmare? Like, I'm going to run

5:29

this till I'm 28 till the day I'm

5:31

28. Totally. So, and

5:37

it's really interesting because people

5:39

generally think about it in a

5:41

very binary way. They're like, okay,

5:43

there's two doors, door one, keep

5:45

running my company, door two, sell,

5:47

get rich, and live on Mojito

5:49

Island. Right. But there's

5:51

actually a door three and door three

5:54

is hiring a CEO. Right. So you're,

5:56

you're in a marathon and

5:58

you can either ditch the marathon. marathon or

6:00

keep running it, well, it turns out that

6:02

you can actually incentivize someone else to keep

6:05

running the marathon on your behalf. And

6:07

I mean, this just goes back to what I

6:09

was talking about before, right? So there's all these

6:11

different levels of delegation. And we all understand, at

6:14

least if you're a good entrepreneur, that if you

6:16

don't like accounting, you just hire an accountant. Well,

6:18

if you don't like running your company, door three

6:20

is you just hire a CEO. So

6:24

my story on this is I started

6:26

Metalab, which is a design agency, about 20

6:28

years ago I feel very old

6:30

to say that, but about 20 years ago. And

6:33

I ran it as CEO for almost 10 years.

6:36

And I had a great exec team. I was able

6:38

to delegate quite a bit of it. I was running

6:40

other companies at the same time. But ultimately,

6:42

the buck stopped with me. And

6:44

for the first three to five years,

6:46

it was really exciting. I was learning

6:49

new skills all the time. I was

6:51

scrappily sending the invoices and negotiating deals

6:53

with clients. And I was flying all

6:55

over the world. And it was

6:58

all new and exciting. At

7:00

a certain point, after year eight,

7:02

year nine, I didn't want to

7:04

fly to San Francisco anymore. I didn't want

7:06

to have to shake hands and kiss babies

7:08

and do that. And I remember Chris, my

7:11

now business partner, and at the time CFO

7:13

would come to me and be like, dude,

7:15

you've got to fly to San Francisco. Every

7:17

time you go down there, you close a

7:19

million dollars of new projects. But I didn't

7:21

really want to do it because A, I

7:23

was exhausted. It wasn't new anymore. I

7:26

didn't want to travel. It didn't suit my

7:28

lifestyle. But also, I was already rich. I

7:30

was already making enough money. And so the

7:33

business was starting to plateau because I wasn't

7:35

willing to go that extra mile. I was

7:37

just saying, you know what? We'll just do

7:39

whatever comes in. I'll do a

7:41

San Francisco trip once a quarter. And

7:44

we'll close what we close because I don't

7:46

want to do that. Well, the beautiful thing

7:48

was there were young scrappy people who, to

7:51

them, the idea of flying to San Francisco

7:53

and taking a client out for a steak

7:55

dinner was a dream come true. They'd never

7:57

done that before. And so... For

8:00

me, I was looking at it and going, okay, running

8:03

a five person agency versus a 50

8:05

person agency It's a very different

8:07

job and it was a job that I sucked

8:09

at, you know, I really to this day Love

8:12

running five person companies. I love running, you

8:14

know, I can get to about 15 people

8:17

comfortably But I wasn't enjoying it

8:19

when we're 50 people and

8:21

I read every book about management I

8:23

did courses and I just

8:25

kind of whipped myself. Why am

8:27

I not a great manager? Why can I not

8:29

be like Peter Drucker? reincarnate and

8:32

so I would always just fantasize

8:34

about selling and I

8:36

kept trying to sell the business and

8:38

then we'd be like right at the

8:40

last month and then the the buyer

8:42

would change the terms or Something

8:45

would go wrong in the business. And so I

8:47

was kind of starting to lose it. I didn't

8:49

want to be running my company I wanted

8:51

out but I couldn't sell it and

8:53

so around that time I ended up reading

8:55

a book about Warren Buffett and I

8:58

found out about door three and Here

9:00

we are. I started hiring CEOs I made a

9:02

ton of mistakes which I'll talk about but it's

9:04

it's enabled me to create tiny which I never

9:06

would have done before I'd probably still be either

9:09

miserably running my business or I would have

9:11

sold for you know A much smaller amount

9:13

of money it will get into like the

9:15

actual tactics really quick though The green pasture thing you

9:18

don't it's always grass is always green on the other

9:20

side and like you and I joke where you're like

9:23

Well, I don't want to say what you said But you'll

9:26

just like to be teasing about Roting a

9:28

small company and how that could be way more fun and

9:30

being the CEO of a small company For

9:32

a long period of time versus trying to

9:34

like go big what's the grass is always

9:36

greener for you Well,

9:39

I mean I think I there's a great

9:42

Bob Seger quote, which is I wish I

9:44

didn't know now what I didn't know then

9:47

Right. So for me, I I think think

9:49

about it like this I might have given

9:52

this example before but imagine if you love

9:54

chopping wood, right? You just do it because

9:56

it's fun. You're in your backyard chopping wood

9:59

and then your neighbor Another pokes his head over the fence

10:01

and says, hey, dude, can I get a cord of

10:03

wood? I'll pay you for it. And you

10:05

realize, oh my God, this is a business. I've taken

10:07

my passion and I've created a business.

10:09

And now I'm selling wood door to door. I'm

10:12

working with my five best friends. It's a blast,

10:14

right? I'm suddenly making money. I can afford to

10:16

go to the bar. Life is good.

10:19

And then you flash forward 20 years

10:21

and you wake up and you're a

10:23

lumber magnate. You own five sawmills and

10:25

all you do every day is you

10:27

sit in a little air conditioned box,

10:29

looking down at the floor. You

10:32

have all these robots working for you and all

10:34

these hundreds of employees. And most of your time

10:36

is spent doing Excel, right? I

10:39

think that is the sadness of

10:41

building a large business and delegating. Your

10:43

hands are not on the tools anymore.

10:46

And so for me, what's

10:48

been sad about building the machine is

10:51

I've built the machine that's freed me to do

10:53

what I want. But the irony

10:55

is I end up doing things I don't

10:57

want as a result because ultimately I was

10:59

a designer. I love putting on

11:02

headphones and being in Photoshop and designing websites

11:04

and writing. And so for me, it's been

11:06

searching where do I get the flow state

11:08

that I used to get running a five

11:11

person company? Let's role play

11:13

it here. So I have a company, I

11:15

wanna hire a CEO. I've realized I can

11:17

do this third door. And

11:19

I'm like, you know what? That's the right move. I should hire

11:21

a CEO. Well, where the

11:23

heck am I gonna find a CEO that I could

11:25

trust that's gonna not only not ruin it, but

11:28

actually hopefully grow the business in some way. What's step one?

11:32

So step one, you have to really

11:34

assess is your business big enough? Is

11:37

this the right thing? Is this the right

11:39

time? So ultimately you wanna ask, does

11:42

your business have product market fit and can

11:44

it actually afford a CEO? Is

11:47

this a corner store where

11:49

it's kind of an owner operator kind of

11:51

business where you just kind of have to

11:53

run it. And if you leave all the

11:56

profit gets eaten up by somebody else, or

11:58

is this something that's really scalable? So

12:00

I generally, as a rule of thumb,

12:02

will say, you probably shouldn't hire a

12:04

CEO until your business is doing $300,000

12:07

or so of profit. And

12:09

if it is, that means that you

12:12

can swap yourself out and you can

12:14

afford to hire someone a reasonable base

12:16

salary, and then you can incentivize them to

12:18

grow the business. And so one of the really

12:21

interesting things that people kind of obsess over is

12:23

they say, well, a CEO could cost $500,000. My

12:25

business is only doing $3

12:30

million and $300,000 of profit. And

12:32

what they kind of miss is

12:34

that generally a CEO has

12:36

paid a base salary, but most of

12:38

their comp comes from bonuses. And the

12:41

bonuses are based on the business growing.

12:43

And so it's one of those things where it's like, if your

12:45

business is doing 300k of profit, you

12:48

can basically take 200 or 300k of that, invest

12:50

it in the base salary for the CEO. And

12:52

then all of their

12:54

additional comp will come from the growth of

12:56

the business. And so you've aligned them with

12:58

your goals. So first thing

13:00

is my business big enough? So you said

13:02

two criteria, product market fit, meaning we

13:05

know what the hell we're doing. We're not in the figure

13:07

it out, figure out the product, figure out the market, figure

13:10

out what is the offering and changing

13:12

that every three weeks because it's not

13:14

working. You have a reasonable continuous cycle

13:16

of supply and demand for what you're

13:18

doing. And then you said profit around $300,000 as

13:20

the kind of... That's the minimum bar? I

13:23

would say so in there. I mean, occasionally you

13:25

can... Let's say you've got a friend who's super

13:28

scrappy, who wants to sink their teeth into something

13:30

and you've got a small business that's like a...

13:32

I always call them like an ember. It's not

13:34

really a fire yet, it's an ember and someone

13:36

needs to come blow on it. You could do

13:38

that, but I think there's a lot more risk

13:41

there. You really want a machine that's

13:43

operating. You want a car that can drive on

13:45

the road before you put

13:47

someone in. And then the other

13:49

question is, can you make someone

13:51

rich? Because ultimately, people who

13:54

are good, great exceptional CEOs,

13:56

they're looking for opportunity and

13:58

upside. And by nature... The

14:00

fact that they're a hired gun CEO

14:02

tells me they're not necessarily an entrepreneur.

14:04

They don't want to take total risk.

14:06

They want a nice salary. They want

14:08

bonuses. They're not necessarily willing to risk

14:11

it all, but often they want to know they can

14:13

get rich in a CEO way.

14:15

So they can make single digit millions

14:17

for the first time ever if everything

14:20

plays out. Or maybe they can get a big

14:22

payout if the business sells or gets to a

14:24

large scale or whatever it is. But

14:26

ultimately you want to know that you can make

14:29

someone wealthy with it. And so

14:31

we'll do the exact comp stuff in a minute. But the

14:33

second question you have, so first was, is the business big

14:35

enough to be a product market fit? Then

14:38

you also said to me once, are you willing to walk away?

14:40

I think there's a mental side of it too. Are

14:42

you ready to hire a CEO? Yeah.

14:45

And that's really hard. I mean, do you...

14:48

I remember I got to the point where I

14:50

fantasized about giving the keys away to someone else.

14:53

And when I finally did, I was

14:55

elated. But there's a

14:57

lot of people who aren't like that. I can think

14:59

of one of my friends, to him, his business is

15:02

his baby. And when people mess

15:04

with his baby, he gets really angry and

15:06

he doesn't like it. And so

15:08

you need to be willing to walk away and effectively

15:10

look at it this way. As

15:12

entrepreneurs, we're all birthing these

15:14

business babies and now you're

15:17

giving them to a foster

15:19

parent. Can you tolerate that? Can

15:21

you cope with that someone else parenting your child?

15:24

Because that's really what it is. And

15:26

not only that, but you have to be disciplined

15:28

for it to work. You need to either be

15:30

all in or all out. You have to empower

15:32

this person. You can't be sitting there looking over

15:35

their shoulder. So I think those are the two

15:37

fundamental questions to this. Is

15:39

your business big enough or are you willing to walk away? But

15:42

when you're accepting the... When you're

15:44

saying, all right, I'm going to walk away, is

15:46

it I'm walking away because this person is going

15:48

to make everything greater than I could? Or are

15:51

you walking away thinking to yourself, I

15:53

know it's not going to be as good with

15:55

me in it, but it could be 80% as

15:58

good and I won't have to worry about it. Well,

16:01

let me put it this way. Let's say

16:03

that you're an exceptional product person. You'll know

16:05

the product won't be quite as good because

16:08

generally people who are good at marketing and

16:10

sales and operations and finance are just not

16:12

as good at product. So you're going to

16:14

sacrifice on the product side a little bit,

16:16

but you're going to know the business itself

16:19

will be so much healthier and grow, at

16:21

least from a financial measure. I

16:23

found that going from being a checked

16:25

out founder operating your business reluctantly to

16:28

somebody who's highly incentivized for growth, who's excited

16:31

to do it, almost always

16:33

the business doubles in the first year.

16:35

I've been astounded by how much I

16:37

had been holding back my business. Yeah,

16:39

that's a great question. Great answer. That

16:41

seems pretty consistent with what I've heard. A

16:44

founder the other day was telling me after

16:46

maybe eight, nine years of running his business,

16:48

he hires a CEO, he plans to

16:50

stick, hey, I'm here. I'm available for the next

16:52

year transition. He's like, yeah, they haven't

16:55

called in a little while. We beat our

16:57

numbers, which I wasn't able to do the last three years.

17:01

Everything seems to be going really well. Turns out they

17:03

didn't need me as much. He's like, little hit to the

17:05

ego, but also, wait, isn't this exactly what I wanted? He

17:08

was pleasantly surprised on the

17:10

upside from there. So let's talk

17:12

about finding the right person. How do you

17:15

actually find a great CEO? What are

17:17

you looking for? Generally

17:19

I like to find someone who's run

17:22

a same or similar business that's double

17:24

the size. So let's say

17:26

I have an e-commerce brand selling

17:28

candles. Well, I don't necessarily need

17:30

to go find a CEO who's

17:33

run a candle business before, but

17:35

I want to find someone who's

17:37

sold a similar product online. I

17:40

will generally think about who are my competitors

17:42

or what companies do I

17:44

admire. And then I'll go

17:46

on LinkedIn and I'll just look

17:48

for president, COO, sometimes CEO, but usually

17:51

I will recruit a number two.

17:53

And It's that person

17:55

who's been eagerly awaiting getting knighted

17:57

as the CEO And they haven't

17:59

stepped in. The up yet. I. Find

18:01

those are wonderful people to delegate the business

18:03

to ah and then separately recruiters and that's

18:06

a topic we can dig into. People have

18:08

a lot of opinions. I had a lot

18:10

of opinions about Ah recruiters that I've actually

18:12

changed over time, but yeah, you gotta! I

18:15

find like broadening the spectrum with recruiters to

18:17

be really helpful. Where. The to fix

18:19

our to tie Burke my old roommate and

18:21

so when I used to recruit and I

18:23

know use them as well. You also use

18:26

like crazy amounts of odd reference sectors. So.

18:29

Here's what we do. so we by the

18:31

business and as were buying the business we

18:33

start asking the class as soon as we

18:35

know we're going to buy the business or

18:38

were going to delegates we we hire recruiter

18:40

immediately know recruiters really pissed me off before

18:42

it was like Realtors where I'm going like

18:44

then why am I paying this guy a

18:47

one hundred thousand dollars to open a door

18:49

for me? I can just go on you

18:51

know like zillow and find the today die

18:54

house I want to buy. And here's this

18:56

middleman charging lot of money and I kind

18:58

of felt. Like why would I pay some

19:00

guy to gone linked in and message a bunch

19:02

people from yeah can do that myself. But I

19:04

realize that. I'm distracted.

19:07

And when I need to hire someone

19:09

I will often just dylan linked in

19:11

or whatever for ten minutes of text

19:13

a bunch of my friends all trains

19:15

think of people that I have like

19:17

in an apple node the my be

19:19

a good Ceo, a knuckling bride and

19:21

so. Basically. As come

19:24

around and recruiters, there's some really exceptional

19:26

recruiters like Thai Burke from Certs Partners

19:28

who Sam introduced me to. He's one

19:30

of my favorite. We also really like

19:32

Mad Hollingsworth from a line in one

19:34

of the Wii U's recruiter is just

19:36

to broaden the spectrum. So even if

19:38

I'm gonna go on linked in myself

19:40

and look for someone, I might end

19:42

up bringing the person to the table

19:45

who end up hiring. We now have

19:47

somebody who's. Reaching.

19:49

Out to people I never would have spoken to. and

19:52

then they're also handling a lot of

19:54

the administrative work of pushing the process

19:56

along the during the initial interview and

19:58

one really fast I didn't contemplate before

20:00

is a recruiter saves you an insane

20:02

amount of time. Let's say that you

20:04

have 10 candidates for CEO and every

20:06

single one of those candidates you're going

20:08

to have to do a zoom with

20:10

and that'll take 30 minutes to an

20:12

hour. Well, I think we all know

20:14

we, you've all had that experience where

20:16

you interview someone and in the first

20:18

30 seconds, you know, they're a

20:20

dingus, right? And then you're just desperately thinking

20:22

like, okay, how can I get off the

20:25

phone as quickly as possible, not waste time,

20:27

but not have this person think I'm a

20:29

total asshole. And so now I

20:31

have the recruiter do that call and I

20:33

get them to record the zoom. And

20:36

then I just watched the first couple minutes.

20:38

And if I'm vibing with the person, then

20:40

I'll move them on to the next stage.

20:43

So if you think about from that perspective,

20:45

your time is highly valuable and you've just

20:47

saved 10 hours of time. What is that

20:49

worth? I think a lot. And then in

20:52

some instances, we've actually hired people

20:54

that we brought in. That's fine.

20:56

And I just pay the recruiter anyway.

20:58

But in other instances, they brought people

21:00

in that we never would have found.

21:03

So the guy that runs AeroPress, Gerard

21:05

Meyer, we found him via tie. And he

21:07

was a guy where he had

21:09

run SodaStream US and he just wasn't on

21:11

my radar whatsoever. And he's one of our

21:14

best CEOs. So I kind

21:16

of look at the recruiters as a

21:18

time saving mechanism. They broad note the

21:20

people you look at, but ultimately

21:23

it's just like a tax I pay to have

21:25

someone else be incentivized to push everything along. And

21:27

so I'm actually a big fan of recruiters now,

21:30

but you've got to use the right people. I

21:32

find there's a lot of terrible recruiting firms and

21:34

we've used a lot of really bad ones over

21:36

the years. Hey,

21:39

let's take a quick break to tell you about

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it out. Listen to D2C Pod wherever you

22:17

get your podcasts. And

22:20

the recruiting firm, what do they run you? So

22:23

usually it's a percentage of first year salary. I

22:25

think it's about 20%. So when you're hiring

22:29

a CEO, and you've got

22:31

total comp of 300 grand, 500 grand, it can

22:33

be expensive. But

22:36

I think it's worth paying for if you can find the

22:38

right partner on it. And

22:40

you mentioned looking for a number two

22:43

who's run a similar size or similar

22:45

industry company. Here's

22:47

what I take that to mean. You tell me what

22:49

I missed. So let's say you're the candle company. You

22:52

don't need somebody who's run a candle company to exercise,

22:54

but maybe you want ecommerce. You

22:56

want it maybe where Facebook was

22:58

their primary sales channel. Maybe

23:01

you want something like candles, like maybe selling to

23:03

a similar customer base or a

23:06

one-time purchase product, not something that's

23:09

a totally different kind of buying psychology.

23:11

Is that right? Just first on that

23:13

part? Yeah, you want someone

23:15

who understands roughly how the customer thinks

23:17

and then also the channels by which

23:20

that product is sold. So one

23:22

fascinating thing I'll add to is when

23:25

I'm interviewing them, I always

23:27

ask myself, what is this

23:29

person's hammer? So there's that great

23:31

quote, to a man with a hammer, everything

23:33

looks like a nail. And

23:35

what I've seen with CEOs

23:38

is their hammer is either

23:40

marketing, sales, operations, or finance.

23:42

Or products. They

23:46

go to one of those things and to

23:48

the product person, we release the most beautiful

23:50

product in the world. And if you build

23:52

it, they will come to the sales person.

23:55

It's let's build a 50-person enterprise sales

23:57

team. To the marketing people, we're going to

23:59

spend spend a million dollars a month on

24:01

Facebook ads. So you want to be listening

24:03

incredibly carefully to what is the mechanism by

24:05

which they grow companies because usually that's the

24:08

one, if they did it at their last

24:10

company, they're probably gonna try and repeat it.

24:13

And so what you want them to do is

24:15

when they look at your company, they go, oh

24:17

my God, this is so easy. I've done this

24:19

a million times before. I've taken businesses from a

24:22

million dollars in sales to 10 million dollars in

24:24

sales. I've done that between one

24:26

and five times in a similar business.

24:29

At this point, are you just constantly collecting people? I

24:31

mean, is that kind of how you look at your

24:33

job? I'm just always,

24:36

I mean, because if you're having to talk to all

24:38

these people constantly and you have 40 companies, that's like

24:40

pretty much all your time. I'm

24:43

always thinking about that. I mean, my worst fear

24:45

is we're gonna be recruiting for a CEO role

24:47

and I'm gonna forget about that guy I met

24:49

at that conference five years ago

24:51

or whatever. So Chris and I have Apple

24:53

Notes that we share and we just keep

24:55

writing down names of people we think are

24:57

interesting that are executives. it'll

25:01

be people that are up and coming in one

25:03

of our other businesses that we've thought might be

25:05

a good CEO for another business. But yeah, I'm

25:07

always trying to scan the horizon

25:09

for people who are smart and

25:12

I can bring in. But interestingly, often

25:14

it is every process

25:16

is different. And when we hire a

25:18

recruiter, only like 20% of the

25:20

time is it someone now that

25:22

we've brought in. Often it is someone that they

25:24

go source. I love the what's

25:27

their hammer question because

25:30

it's so true that the more experience somebody gets and

25:32

the more successful somebody gets, they start to develop this

25:34

hammer and they try to, they

25:36

go run around looking for ways that they can apply

25:38

that thing they know to everything, whether it's

25:40

the right thing or not. I think this is a good

25:43

thing and a bad thing. I've seen

25:45

the same advice given to kind of YC type

25:48

of companies are in Silicon Valley where when

25:50

you hire a CEO, if you hire a

25:52

CEO that grew their previous company by

25:55

creating a giant sales army, you're

25:57

trying to do product led growth. a

26:00

total mismatch. You might say, oh wow, they grew that

26:02

company from 10 million to 200 million. That

26:05

sounds good. But if they did it in a way that's

26:07

totally different than yours, very few people can

26:10

repeatably grow businesses using totally new

26:12

methodologies for sales and marketing. And

26:14

I'm curious also, what's your hammer?

26:17

If you're a man with a

26:19

hammer running around, what is yours?

26:21

Well, I would say I'm a man with a lot of

26:24

different hammers. I've gone really

26:26

broad now because I've seen so many

26:28

different ways of growing businesses. And

26:30

I think I have a lot of tools

26:33

in the toolkit. My old hammer was product.

26:35

I would always just be like, oh my gosh,

26:37

actually, you know what? I do have a hammer.

26:39

Okay, so my old hammer was product.

26:42

So I would always do Field of Dreams marketing.

26:44

I would say, we're going to build the best

26:46

product in the world. I'm a designer. I was

26:48

really proud of what we're doing. And that'll

26:51

solve everything. And I realized that really

26:53

doesn't work very well. And now I

26:55

would say my hammer is finance or

26:59

operations. So really what I'm doing is

27:01

I'm looking at a business. I'm going,

27:03

if we could just change one thing,

27:05

what would that one thing be that

27:07

would give the business leverage? And often,

27:09

it's something really simple. It's like, oh,

27:11

pricing, right? Or they're just not

27:13

selling ads properly. Something really boring. And to

27:16

be honest, I feel a little depressed as

27:18

I say that because... You're a sellout, bro.

27:20

You're a sellout. The designer from 20

27:22

years ago would be really sad. And I

27:24

still love... Don't get me wrong. So

27:27

when we bought... Let me give AeroPress as an example.

27:30

I just unboxed our

27:33

new AeroPress Clear. And

27:35

I just checked out the designs for a

27:37

couple of unreleased products. And that

27:39

was the best day of my month. I

27:42

love building great products. I love being involved

27:44

with that and knowing that if we hadn't

27:46

bought that business, that wouldn't have happened. But

27:49

when we bought AeroPress, the

27:51

boring assumption I made was,

27:53

I'm just going to do really

27:55

good online marketing and e-commerce. It's

27:57

really simple. They didn't sell online.

28:00

That was my one insight. That was my hammer

28:02

on that deal. And now the bonus, the gravy,

28:04

is we get to do amazing

28:06

products. You don't deserve... You need

28:09

to go throw away your Herman Miller chair and

28:11

your Birkenstocks and go put on a vest, you

28:13

nerd. You're no longer... I know. I know.

28:15

I know. I know. I want to self-flagellate.

28:20

I want to talk about though some of

28:22

the things you have to accept about hiring

28:24

a CEO. And also, when you interview a

28:26

CEO, what you want to look for, because

28:28

I think that's probably one of the most

28:30

important things. To

28:32

go back to this whole hammer thing.

28:35

When I interview a CEO,

28:38

I'm looking for whether or not I nod along.

28:41

When I interviewed Gerard from AeroPress, he told me

28:43

what he wanted to do with the company. And

28:45

I had already had a lot of those same

28:47

thoughts. And I was nodding along and going, Oh

28:49

my God, he's putting it better than I ever

28:51

could. And the reason that's

28:54

important is because when you hire

28:56

a CEO, you are a rider

28:58

on an elephant. So

29:00

when you're a rider on an elephant, the elephant is

29:03

going to go anywhere it wants and you're just

29:05

stuck. You can't tell an elephant where to go.

29:07

It's way bigger than you. And ultimately,

29:09

it's going to follow peanuts wherever it wants to

29:11

go. And

29:13

so it's really important that

29:16

you agree with their strategy.

29:18

And one of the ways that this has

29:20

failed for us is I've

29:22

loved the CEO candidate. And

29:24

they've said something like, Hey, I

29:27

was looking at the business and I really think we

29:29

need to go hard into Facebook ads. And

29:31

I would scratch my head and go, Well,

29:34

we already tried that. I was

29:36

thinking more this is like an

29:38

email marketing strategy that we

29:40

should deploy. And they would

29:42

always just double down. Whatever they say the

29:45

first time is usually what they're actually going

29:47

to end up doing. And they're just going

29:49

to use their hammer. So that's incredibly important

29:51

is having that alignment and that fit with

29:54

what else are you looking for in that interview? Not

29:56

along what's their hammer? What else? So,

30:00

I mean, the most important question is, do

30:02

you get the creepy crawlies after you walk

30:04

away? Do you feel in

30:06

any way, any cognitive dissonance,

30:09

any weirdness, does your stomach

30:11

feel off? Someone

30:13

can be incredibly charming. I often get this. Psychopaths,

30:16

for example, they're very charming people.

30:18

They are wonderful to hang out

30:20

with. But you might walk away and

30:22

be like, there's just something off, like something in their eyes

30:25

or... Have you had that? Yeah. Yeah.

30:28

And I'll tell some stories. The first thing is, would you

30:30

let them babysit your kids? Right? I

30:33

think either of you guys, I would let you babysit

30:35

my kids. And

30:38

that's important. You're going to hand over your

30:40

company, your baby, to this person. So you

30:42

have to have profound trust. And so often,

30:45

Chris and I, we look for people who

30:47

are real. So they can be... I

30:49

don't like to select people. I like people who,

30:52

their armpits get really sweaty in the interview. I

30:54

like people who get nervous and scratch their face

30:56

when you ask them hard questions. I

30:58

want to see that someone is a human. And

31:01

when things get tough, they will

31:03

want to do the right thing. And

31:05

so that's really critical. Do you

31:08

walk away energized? You can really like somebody.

31:10

But if you don't walk away energized, that's

31:12

not great. And then also,

31:14

are they down to have alignment? Are they down

31:16

to have skin in the game? Because

31:19

ultimately, the worst type of CEO would

31:21

be this. So let's say Sam's hiring

31:23

someone to run Hampton. And

31:26

they say, I want a million dollars a year

31:28

base salary. And you're like,

31:30

okay, well, can we do some

31:33

bonuses? Do you want equity? How could

31:35

we create alignment? And they just want

31:37

low risk cash guaranteed. That's

31:40

not someone you want to be working with. You

31:42

want someone who is willing to have skin in

31:44

the game and risk with you and work on

31:46

the long term. And there's

31:48

a lot of very shiny, fancy executives that

31:50

basically want zero risk. And they just want

31:52

to make a shit ton of money. And

31:54

you got to avoid those people like the

31:56

plague. Have you found any correlation between age...

32:00

or where they live, like if they're

32:02

from a Silicon Valley company, New York

32:05

company, middle of America, or whatever the

32:07

equivalent stereotype is of Canada. Well,

32:10

I mean, I wouldn't say that there's anything about

32:12

where they're from or even what they

32:14

look like or how they dress or

32:17

anything like that, although I'll talk about

32:19

that and the importance of matching your

32:21

cultural DNA with their DNA. But the

32:23

number one thing is the big company

32:25

people. You really don't

32:28

want the flashy person who's

32:30

got the LinkedIn with five

32:33

years at Accenture followed by IBM followed by

32:35

whatever executive role. I

32:39

find that when you take a big company

32:42

person and you put them in a smaller company,

32:44

they just don't know how to function. They're not

32:46

bad. There's nothing wrong with those people. They just

32:49

don't know how to function. They're used to having

32:52

an army of people doing everything for them.

32:54

And it's kind of like I always think about it like

32:56

restaurants. So let's say that you have one

33:00

restaurant with no systems and you go and

33:02

you hire the chain restaurant. Let's say you

33:04

find a guy who runs an Olive Garden

33:06

and you're like, Oh my God, this guy

33:08

really understands how to run a tight ship

33:11

and all the systems and stuff. You put

33:13

them back in your restaurant and they're

33:16

like, Well, I don't know how to build the systems. I

33:18

didn't do this. I just go to my

33:20

handbook, my Olive Garden handbook, and they tell me

33:22

how to do everything. So you kind of get

33:24

that in big company people. So you got to

33:26

avoid the big company folks. One nuance that you

33:28

didn't say, but I'm pulling out is

33:30

you want somebody who's run a company to

33:33

exercise, not 20 exercise. You would think

33:35

20X is better, right? No, no, no.

33:37

It's not actually better. 2X is kind of the

33:39

sweet spot of what you're looking for. Is that

33:41

correct? Totally. Well, there's this funny, I

33:44

think of it as like, there's a variety

33:46

of different skills. And if

33:48

you didn't, let's use Chipotle. For some reason, I

33:50

always go back to Chipotle. But think about this.

33:52

So there's the guy who invented

33:54

the burrito. If you think

33:58

about it, that's the founder of the founder. Then

34:01

there's Steve L, the guy that

34:03

started Chipotle. He went, hey, burritos

34:05

are great food. Let's scale this

34:07

up. Let's turn this into a

34:09

fast casual concept. Then

34:12

there's someone who came in and scaled it

34:14

to a bunch of stores. I think that was

34:16

still Steve. That's a different skill set. He went

34:18

from one store to say 20 stores, and

34:22

then they scaled it to thousands of

34:24

stores, and then they managed a public

34:26

company. These are all different skill sets.

34:29

Each of those levels are

34:32

a whole different set of skills. The guy

34:34

who invented the burrito is very different than

34:37

the person who would be great at scaling

34:39

Chipotle to a thousand stores. I

34:41

think you really just want to be accepting of, you're

34:44

almost running a, what's it called, you

34:47

pass the baton. What is that? A

34:49

marathon? A relay race. Yeah. You

34:51

might say the person that you hire, the

34:53

CEO you hire to take your business from

34:55

2 to 10 million, you know

34:57

what? At 10 million, you're probably going to

34:59

bring in some new person to run the

35:02

company then, and they're going to know their

35:04

scale. And then you keep going through this.

35:06

And occasionally you're going to get people who

35:08

read a lot and learn a lot and

35:10

are highly adaptable and can keep going. But

35:12

usually, a CEO is really effective for between

35:14

five and 10 years. And

35:17

every once in a while you get these

35:19

special cases that can go the distance. And

35:21

even those exceptions, even Mark Zuckerberg who's been

35:23

running Facebook for 20 plus years, he

35:26

has Cheryl and Cheryl does a bunch of stuff so

35:28

that he can keep inventing the next burrito. He's like,

35:30

great, I'm going to focus on AI. I'm going to

35:32

focus on Metaverse and somebody else will do

35:34

ad operations at this point. Cause that's not

35:36

what I want to be scaling up. Or

35:38

the Google guys did the same thing with Eric

35:40

Schmidt, right? They bring, they brought in effectively, you

35:43

know, a CEO to run that so that they

35:45

could keep going and creating the next

35:47

Chipotle. Can you talk about transitioning?

35:49

I think this is actually the hardest

35:51

part of all this is transitioning and

35:53

like you have always given me

35:55

advice and whenever, and I believe your advice

35:58

was right and I followed it. But

36:00

at first your advice is basically

36:02

just bail. And

36:05

you're like, just talk to him like once a month, and

36:07

then once a quarter, and then once a year. And

36:09

I was like, well, I was

36:11

gonna keep working there and talking to him

36:14

every single day and like give him feedback

36:16

constantly and be in all these meetings. And

36:18

you're like, no. So

36:20

Sam, is the question like you've

36:22

hired the CEO, what are those first

36:24

100 days supposed to look like? Yeah, and then

36:26

after six and 12 months, what's

36:30

it look like? Because this is the hard

36:32

part where emotion typically takes over logic. Totally,

36:35

and it's terrifying to use the baby

36:37

analogy. You imagine you have this beloved

36:39

baby and then you watch the foster

36:41

parent and they're playing a little rough

36:43

with your kid and you don't quite

36:46

like what they're feeding them. And well,

36:48

they don't really know the nap time

36:50

routine. So it's a little

36:52

bit scary passing off your business

36:54

baby to somebody else. What I

36:57

think you do have to rip the

36:59

bandaid and let them jump in the

37:01

pool. I think it's incredibly important that

37:03

you assert to your top executives, this

37:05

person is in charge and

37:08

you can't come to me anymore, right? So what

37:10

I like to do, what I would do in

37:12

the early days is I would make

37:15

the announcement, explain why I'm making the

37:17

announcement, why I'm making the change. And

37:19

then I would literally leave Slack,

37:22

I would stop responding to texts from

37:24

the executives, I wouldn't respond to email,

37:27

and I would say to the CEO, look,

37:29

you're in charge, let's do a check-in

37:32

in a month. And then I

37:34

would just completely check out. And I'd say,

37:36

look, if there's any emergencies, you can always

37:38

call me and get an opinion. But do

37:40

you give them a guide? Are

37:43

you compiling everything in notes? I

37:46

don't know, like what you're sending a handbook to.

37:48

Well, maybe not quite a guide or something, but

37:51

you're doing a lot of brain dumps, right? You're gonna

37:53

spend a couple of days with them and go through

37:55

everything. But business

37:57

is funny, everything tastes like chicken.

37:59

competent CEO will be able to jump into

38:02

most businesses within 5, 10 days, be able to

38:04

get the lay

38:06

of the land and get moving. So I

38:08

don't do too much of that transition stuff.

38:11

So first, you're checking

38:13

in maybe every 2 weeks. Then

38:15

you're checking in every 4 weeks. Then you're

38:18

checking in every 3 months. And then if

38:20

you want, you can go to 6 months or a year. And

38:22

I really think that the worst thing

38:25

you can do is have them writing you

38:27

a whole bunch of reports and constantly text

38:29

them and engaging them and making them feel

38:31

they don't have power. And

38:33

then worse than that, the swoop and poop. So

38:36

you bypass them. You

38:38

text your old VP of marketing. You say,

38:40

I noticed you guys

38:42

stopped AB testing this on the homepage. What's

38:44

going on with this? And

38:46

then before you know it, your CEO feels you're

38:49

undermining them. And all the executives

38:51

go, well, I see who's still pulling the

38:53

strings. Sam's still in charge. I'm just

38:55

going to go back to Sam. And

38:57

then the water, the stress finds its way back to

39:00

you. So I'm a big fan

39:02

of just being... You got to

39:04

do your diligence. If you're going to give

39:06

this person your business, baby, you got to

39:08

know they're not an epic piece of shit.

39:10

That's very important. But if you've done

39:12

all that, we can talk about all the diligence

39:14

stuff. So you got to get comfortable that passing

39:16

your business to this person is going to be

39:18

okay. Well, how many months or quarters

39:20

of mistakes or misses do you let them have? Well,

39:24

it depends. Is it a

39:26

hard business or an easy business? How

39:28

stark is it? Was it the moment

39:30

they started within a month the performance

39:32

went to shit? Is there a good

39:34

reason for that? I think that's a

39:36

really hard question. We've had very, very

39:38

competent CEOs join hard businesses and the

39:40

business gets worse under their purview. It

39:42

doesn't necessarily mean they're doing a bad

39:44

job. It could be a macro problem

39:46

or there could be some other headwind.

39:48

So I think that's up to you

39:50

to assess. I always say

39:52

you want flesh wounds, not

39:54

mortal wounds. So would

39:56

I allow a CEO to... spend

40:00

$500,000 on some R&D

40:03

boondoggle? Yeah, maybe. I don't want

40:05

them to feel that I'm holding

40:07

them back. But would I allow

40:09

them to announce to all the

40:11

employees that they're changing the business

40:13

model and shutting down some

40:15

critical revenue line? Maybe

40:17

not. I'd probably watch something like that. And

40:20

ultimately, I think it's important that you say... I'll

40:22

never forget when I was reading 4-hour workweek, Tim

40:24

Ferriss had this whole thing about anything

40:27

less than $5,000 does not

40:29

require my opinion. And I think

40:32

it's important you set that control with the

40:34

CEO. So you say anything that you want

40:36

to spend more than $300,000 on, I want

40:38

you to come to

40:41

me. I want you to discuss. So you can kind

40:43

of build a bit of a bounding box around that.

40:45

We got to take a drink every time you say

40:47

a cute Canadian phrase. We've

40:49

got boondoggle, we have dingus,

40:52

we've got creepy crawly. What

40:56

else you got for us? Dingus.

40:58

Dingus isn't even Canadian. It's actually...

41:00

It's from Tim and Eric. You guys

41:02

have watched Tim and Eric? Yeah.

41:05

What more of that? Go ahead, Sean. Let's

41:08

finish up actually in the hiring and diligence-ing stuff.

41:10

So I have one more on the interview. So

41:12

do you meet in person or are

41:14

you trying to do everything in Zoom? Do you spend

41:16

time in extended time with them? Yeah,

41:19

I like to meet them in person.

41:21

I think there's something to looking someone

41:23

in the eye seeing how their body

41:26

language is. You just can't get that

41:28

same level of diligence. I have hired

41:30

people sight unseen many times, but

41:32

for major hires, I always want to meet them

41:34

in person. So in terms of

41:36

diligence, this is the most

41:39

critical thing and this is where we've made

41:41

the most mistakes. You can avoid endless

41:44

pain if you just diligence

41:47

people carefully. Anyone

41:49

who's hired people at a company knows

41:51

this. Check references, top grading. There's all

41:53

these different ways of doing it. But

41:56

there's this idea of trust but

41:59

verify. So I'll trust my gut.

42:01

That's my first screen. And then I'll

42:04

perhaps introduce them to one or two

42:06

other people I trust. So Chris might

42:08

talk to the CEO as well, someone

42:10

else from our team. We'll assess, okay,

42:12

do we get any creepy crawly vibes?

42:15

If that's not the case, if we

42:17

don't, then we'll move into actual diligence.

42:20

And we've learned the hard way. We've made

42:22

a couple really bad hires that burned us.

42:25

And so we actually use these

42:27

former CIA guys to do background

42:29

checks. They're called Business Intelligence Advisors,

42:31

kind of like CIA but with

42:33

a B. And they're incredible.

42:36

They will interview those. So they'll call

42:38

up the person. They'll talk to them

42:40

for an hour or so. And they'll write

42:42

down every single thing they say. So if

42:44

they say, oh, in college, I was an

42:47

athlete, they'll verify that.

42:49

If they say, oh, I left

42:51

that company because XYZ, well, they'll

42:53

go and look up that

42:55

company and they'll message five people who

42:58

might have worked with them. And so

43:00

you end up getting this dossier on

43:02

the person that gives you a high-level

43:04

thing of what are the positives? What

43:06

are the negatives? And then also, have

43:08

they ever been accused of a

43:10

crime? Have they ever had a track

43:13

record of not paying bills, legal

43:15

records, all that kind of stuff? I

43:18

think that's really important. And we've

43:20

made a really bad hire

43:22

about 10 years ago. And

43:25

the guy basically was full of shit

43:27

about a whole bunch of stuff on

43:29

his resume. And it ended

43:31

up being a nightmare. And so after

43:33

going through that experience, I think it's

43:35

well worth paying between $10,000

43:38

and $20,000 to get this deep

43:40

reference check done. And so I think that's just

43:42

so critical. It

43:45

sounds like between the recruiter and

43:48

the reference check, the background check people,

43:50

you might be spending anywhere between

43:53

$50,000 and $100,000 of transaction costs in

43:56

recruiting a CEO. Or more. I'm assuming

43:58

you can't do that when it's... a $300,000

44:00

a year profit business. What

44:03

is the minimum bar you use when

44:06

you're gonna pay for both the

44:08

good recruiter and the background

44:11

checks? And what would you do if you're the

44:13

person who is more at the $300,000

44:15

a year profit and

44:17

maybe can't afford those transaction costs? How would you

44:19

do it, DIY? Well, I would just follow the

44:21

same process, right? So you're

44:23

not gonna be able to hire the recruiter

44:26

and afford them. And so you're gonna

44:28

try and cast your net and

44:30

you're gonna be able to hire the people who

44:32

are really broad. You're gonna talk to a lot

44:34

of different people. When it comes to verifying what

44:37

the person tells you, the

44:39

number one thing is never call the references

44:41

they give you, right? Any snakey

44:43

person can find three buddies who

44:46

can say that they're great or whatever it

44:48

is. I always try and scuttle butt. So

44:51

I'll say, okay, my friend invested in that company and

44:54

I'll ask them to ask the CEO why that person

44:56

left or if they recommend.

44:58

I love that, but I love this one. You

45:00

email a whole bunch of people who used to

45:02

work with them or the former CEO they worked

45:04

for and you say, hey,

45:07

I'm doing a reference check on this person.

45:10

I'd love to talk to you about them. If

45:12

you don't respond to this email, I'll take

45:14

it as you didn't have a good experience.

45:16

Oh, eyes cold. That's what I do. It's

45:18

such a great trick. It's such a great

45:21

trick because if they don't respond, people

45:23

will almost always respond because they don't wanna

45:25

shit on somebody if

45:27

they have anything good to say, but if they

45:29

have something bad to say, it gives them an

45:32

out. Because a lot of people I found are

45:34

worried about legal liability. They don't wanna go and

45:36

say this person's a piece of shit and then

45:38

that person sues them or something like that. Dude,

45:40

I'm gonna use that line for any email

45:42

I want. I'll just ask

45:44

someone anything. If you don't reply, I'll

45:47

assume you hate yourself and your family.

45:51

Yeah, exactly. Sales guys

45:53

do that all the time. That's the worst. Okay,

45:55

so you found the person. How

45:58

do you negotiate? and structure

46:00

the comp package for the CEO. So I

46:02

always like to make the first offer because

46:05

ultimately you kind of know what you're willing to pay

46:07

and what makes sense based on who they are. And

46:10

I think you kind of have to scale

46:12

up or down based on their experience. So

46:14

there's times where I've taken a risk where

46:16

I've said, you know what, this person was,

46:18

they're a VP marketing, but they really have

46:20

CEO energy and I'm gonna take a chance

46:22

on them. I'm gonna try and

46:24

pay less for someone like that. I'm not

46:27

necessarily gonna put them into like full CEO

46:29

comp. I'm gonna try and go high variable,

46:31

low base. But someone who's more established, I'm

46:34

gonna give them basically what they want and

46:38

whatever we think the range is there. And

46:40

then the most important thing is to use

46:42

total compensation. So when you make the

46:44

offer, so let's say I have

46:46

a business that's doing $300,000 of profit and

46:50

I can comfortably afford a

46:52

CEO base salary of 150 grand,

46:54

right? So

46:58

let's say this person is worth 300 grand a year, 400

47:01

grand a year. I'm gonna go to them and I'm gonna

47:03

say, I'm gonna pay you 300 grand a year, but

47:06

it's gonna be $150,000 base and

47:08

it's gonna be $150,000 bonus. And

47:11

the bonus is if you get me to $600,000 of

47:13

EBITDA, right? And

47:17

so you're basically using the profits

47:19

that they've created to pay

47:21

them the bonus and you've created alignment between

47:23

the two of you. But it's important never

47:25

to just say, well,

47:27

I'm gonna offer you $150,000 a year plus a bonus. Because in

47:30

their head they're going like, no, I'm a $300,000 a year person,

47:32

right? So

47:34

I always lead with what's the

47:36

total compensation and then what

47:38

needs to be true to achieve that

47:40

compensation. I'm also a big fan of

47:42

uncapped bonuses. So for example, let's

47:45

say the target is $600,000 of EBITDA. Well,

47:49

if they do $1.2 million of EBITDA, I

47:52

want them to get double the bonus, maybe even triple

47:54

the bonus. And that's worked really well for us. So

47:57

the idea of saying, look, I'm gonna offer you $300,000 a year.

48:00

a year, but it might be $600,000. It might be

48:02

a million dollars a year depending on how you perform.

48:05

And then the other thing is equity is just

48:07

hard. I'm not a big fan of stock options.

48:10

I like to try and find people who are

48:12

willing to... If they want equity,

48:14

they're willing to write a check. So

48:17

if a CEO comes to me and they say, okay, but I

48:19

need equity, I need skin in the game.

48:21

I'm going to say something like, okay, so you

48:24

want $40,000 of equity per

48:27

year, are you willing

48:29

to lower your compensation by $40,000? Or

48:31

are you willing to write a check?

48:35

Do you have a

48:37

stock portfolio you can sell and you can inject

48:40

the money into the business and I'll let you

48:42

buy in at a really great valuation? And

48:45

if they don't want to do that, then sometimes

48:47

I'll even loan the money. I'll say, I will

48:49

personally loan you the money and then you're going to write

48:51

a check and you're going to buy it. And I

48:53

have the right to buy back your... If you leave,

48:55

I have the right to buy back your stock at

48:57

whatever multiple of their earnings at the time

48:59

or whatever it is. How

49:02

do people react to that conversation? Because that's very different

49:04

than where a lot of people are probably coming from.

49:06

Well, I want them to value the equity and they

49:08

don't value the equity when they get stock options. They

49:10

just look at it. They don't even consider

49:12

it as part of total comp. So let's

49:14

say that... Here's the

49:16

kind of thing I'd hear. So they say, I want

49:19

to make $400,000 a year and

49:22

I want equity. And I'd say, well,

49:24

okay, how is the equity going to work? And they go, well, I think

49:26

I should have 5%. And

49:28

let's say the business is worth $100 million. So

49:31

they've now said, okay, I want $5 million. And

49:34

you're like, okay, well, you're worth $400,000

49:37

to $500,000 a year based on

49:39

your track record and your experience and all

49:42

that kind of stuff. How am I

49:44

supposed to give you $5 million

49:46

of equity? It just doesn't make sense. And so

49:48

I always try and talk about it in terms

49:50

of what's the cash value of

49:52

the equity that they're receiving. And

49:54

how do we create a scenario where we

49:57

have shared downside and a lot of

49:59

people in Silicon Valley. are used to stock options.

50:02

And the way stock options work is, let's say,

50:04

Sam, you joined my company and the stock price

50:06

is $100 and I say, here's $100,000 of stock

50:08

options at $100

50:14

share price. If the shares drop

50:16

to $50, it's

50:18

a lotto ticket and it's a

50:20

zero. It's not worth anything. If

50:23

it goes up, then it's worth a

50:25

shitload. And so you end up

50:27

with this binary situation where they have this

50:29

lotto ticket that pays out

50:31

big or is a zero. And

50:34

so what that means is, if your value

50:36

of your business goes down even 10%, they're

50:39

basically at a zero. And so

50:41

they're disincentivized. So I don't love

50:43

stock options. And in general, I

50:45

only like giving equity to people

50:47

who are willing to sacrifice something

50:49

for it. Otherwise, why wouldn't

50:51

I just pay you a really fat bonus? If

50:53

you get down to it, that's usually what executives

50:55

want. They want to do an

50:57

addition to their house. They want to go on crazy

50:59

vacations. They like cash most of the time. A little

51:02

quick question as we round up to what

51:04

the downside of all this is. Everything

51:07

you're saying, I think, sounds... When

51:09

I hear it, I'm like, this is

51:12

the way. There's a fair argument

51:14

against this that founder-led companies typically

51:16

have more innovation or more soul

51:19

and things like that. And that

51:21

it's better to have one thing

51:23

go big versus many things that

51:26

are potentially okay. Is

51:28

that a fair argument, do you think, or no? Yeah.

51:32

But I think, like I said in the

51:34

beginning, I think it comes down to personality. For

51:38

me, when I was running Metalab, I

51:41

started five other companies in

51:43

the first three years because it was irresistible

51:45

to me. Now, I knew the right

51:48

thing to do might have been to focus on the

51:50

business, but my personality is that I want to go

51:52

do other stuff. So Sam,

51:54

you seem super focused, and maybe you're

51:57

better off just having one focus. You

51:59

wake up... every day you think

52:01

about one thing. But if

52:03

you start finding yourself getting drawn into other

52:06

businesses, it would be a huge disservice

52:08

to continue to run that business. I think

52:10

ultimately it comes down to being true

52:12

to yourself. You shouldn't, if you're

52:14

listening to this, go, Oh, I

52:17

should go do this. You should only go do this

52:19

if you're drawn to it. It's the same advice I

52:21

give to entrepreneurs. They say, Well, should I go and

52:23

work at a company or should I be an entrepreneur?

52:26

And I kind of go, Well, if you have

52:28

to ask that question, the answer is probably no.

52:30

Because for me, I could never consider working for

52:32

someone else. Whenever

52:34

I had a job, I just went to

52:36

shove the boss out of the way and

52:38

take the wheel of the business. So I

52:40

think to me, it'll be obvious. If this

52:43

is something that appeals to you, you'll know.

52:45

You'll be listening to this nodding along and

52:47

going, Oh my God, I can do this.

52:49

I just didn't know I could do it

52:51

and not feel that guilty. Well,

52:54

dude, this is awesome. We love having you come on. What

52:56

do you think, Sean? Yeah,

52:59

this is great. And it's also

53:01

earned information. So this is

53:03

not something that you might be able to read

53:05

in a book, but a lot

53:07

of the nuance of what you described is from

53:09

hard lessons that were, you know,

53:12

things that went right, many mistakes of things that

53:14

went wrong. And the lessons you've learned.

53:16

So we all got to benefit from, you know, your 20

53:19

years of experience kind of going through

53:21

this process yourself. And I

53:23

know for me, it was a huge unlock

53:25

to be able to hire a CEO and do that successfully.

53:27

And I was like, wow, this is cheat codes. Oh my

53:29

God, I get the business is going to do well. It's

53:31

going to do better than if I was doing it. You

53:33

know, I get all of the

53:35

reward without any of that work. And it's

53:38

a totally great trade for this person because

53:40

I kind of didn't really appreciate how

53:43

many people are entrepreneurial, but

53:45

maybe not entrepreneurs. They're people

53:47

who are great CEOs, but they also

53:49

got two kids. They don't want to

53:51

take full on risk. So they want

53:54

that kind of medium upside low

53:56

downside. And finding

53:58

that fit has been. pretty huge for me

54:00

so i think that's great a

54:03

lot of things you said that stood out to me the golden

54:05

nuggets for me was find the

54:07

find the number two at a business that's two

54:09

two x bigger but similar to the one you're

54:11

in right now. Figure

54:13

out what's their hammer cuz that's

54:16

probably everybody's a man with a hammer and you just

54:18

have to make sure that that's the right hammer for

54:20

your your business and then. Pay

54:23

up on the on the reference checks and the

54:25

recruiter to make sure that you get enough candidates

54:27

and then you find the right person because that's

54:29

it it's a necessary tax you have to pay

54:32

once the business is big enough that you can

54:34

support this. I don't leave

54:36

them alone that's the other thing most people don't leave

54:38

them alone they say well it didn't

54:40

work you know in the first two weeks they

54:42

did something i didn't agree with so i just

54:44

what's the balance there like you leave them alone

54:46

but you don't even completely on i think for

54:48

you guys they send you wanna find a financial

54:50

only update every every month. And

54:52

then is there anything else to

54:54

it like a strategy planning thing or do you do

54:56

anything else. So we used to

54:58

do is we do a report every single month and

55:01

they would write like here's what's going in

55:03

the business here's the numbers and that was

55:05

just crazy we can keep up and it

55:07

also wasted a lot of their time now

55:09

we get just the numbers to head office

55:11

and we meet the ceo's annually and then

55:13

often there's certain ceo's we don't

55:15

even meet because they're within operating platforms

55:17

so we just meet with the ceo

55:20

that operating platform. Usually

55:22

like monthly or quarterly and check in by

55:24

the way this is. The number one

55:26

thing i get emails on like literally like

55:28

every single day i get questions about it on

55:31

twitter and on email and so i actually

55:33

wrote a pdf on here like

55:35

a checklist based on are you ready to

55:37

hire a ceo and how to hire ceo

55:40

and if you sign up for

55:42

my newsletter it's never enough.com/newsletter i'm

55:44

gonna post the pdf next

55:47

week i think. awesome

55:49

okay great i think that's that's that's

55:52

the pot every should go check

55:54

it out never enough.com/what newsletter. newsletter

55:57

and will link to it and yeah we'll link

55:59

to it down. here. Alright dude, thank you. That's

56:01

the pause.