Predictive Traits of Successful Owners

David has observed six common characteristics of agency principals that can affect whether or not their business succeeds.

Transcript

Blair Enns: David, today we're doing things a little bit differently. I'm interviewing you. That's not the difference. The difference is you've got some notes and I didn't want to see them. I'm tired of seeing your notes.

David C. Baker: We should dive into that.

[laughter]

Blair: We should dive into the fight we've been having over this. This is an experiment, people, where Blair gets proven correct for the first time. I really like this topic. It's predictive traits of successful owners. You've worked with it's over a thousand firms by now.

David: Yes. Enjoyed at least 800 of them.

Blair: That sounds high. I'm surprised. Over a thousand principals of firms. You've said previously that you're not really a consultant, you're a data scientist posing as a consultant. I know you've got reams of data on this, and you've got a list of what you see as the six most predictive traits of successful owners. Is that correct?

David: It is, yes. The things you didn't want to see. Yes, I do have those.

Blair: Before we get into this, I'll come back to this in a bit, but I guessed, and I think maybe I'll share my guesses. I kept it down to one word, where possible, for each of these traits, and I ended up with seven. I realized I better stop because I could keep going, and that's cheating. Before we get there, how many of these traits that you've identified that we're going to talk through, how many of them are easily quantifiable? Can you actually measure in, say, a principle at the beginning of your engagement through the data collection that you do?

David: Probably only one of these. The rest I'd have to pick up from a conversation the nature of maybe a partnership if they have one, and what that person does. They're making up for some perceived lack or often you get the most from just looking at their prior experience, the kind of jobs they did, what they majored in in school if they went to college, but only one that I consistently measure at the beginning.

Blair: Okay. I'm going to guess at that one. I think it's-- Because we've talked about it before, it's the D in the disc profile, which I believe stands for dominance. Is that right?

David: Yes, it does. I think of it more as aptitude for risk. I always say aptitude for risk-taking, but there's a lot of stupid people who have a very high aptitude for risk-taking who die young jumping off the garage into the pool, into the above-ground pool in Tennessee, right next to the RV up on blocks. [laughs]

Blair: I should say a glimpse into your life.

David: Yes. Measured risk-taking, I would say. There are other things you can pull from that part of a personality profile, but the main thing I'm looking for is just aptitude for risk.

Blair: Do you think--? My last question before we get into what these are specifically, I would imagine there's a whole lot of overlap in your sample, predictive traits of successful owners of creative firms and just successful entrepreneurs in general, or do you think there are any of these variables that might be different or more higher or lower weighted among our audience, owners of creative firms?

David: It depends a little bit on what we see as a role of a principal because you could see very successful owners of smallish entrepreneurial firms that have all the same characteristics or traits as a successful principal in the creative field, but they don't really have an aptitude for selling creativity. I don't mean the selling part, but coming up with the creativity to sell. In a firm that's grown to a certain point, a principal doesn't need that either. They need other people that do that. Off the top of my head, I don't see much difference. I don't.

Blair: What's number one on your list? I had risk. You've already alluded to it. Is that the thing that's at the top?

David: Yes, absolutely. To me, it was just, I don't know, a casual thing I just noticed, and then I realized, "Oh, my goodness, this could be really useful if I'm thinking about how to advise somebody on whether or not to take on a partner or how partners work together and so on." This did not come early in my career, realizing this, but yes, the first is risk-taking.

Blair: You're saying that's what shows up as the D in the disc profile. If somebody is high D, they have a high propensity or high tolerance for risk. They're okay being in risky situations.

David: That's right, yes. Now, I'm using disc lingo here, where you have D-I-S-C. If we just want to use that specific tool, and you can translate this to other tools too, but if we want to use that then they need to be in the upper half of that. If they swing towards the I, so if you have a lot of D and then some I, then you tend to be very much a people person. You're really good at reading signals and all of that stuff. If your high D swings more to a C as well, then you're more of a control freak. You're way more careful at how you think about risk and so on. The central part of the Venn diagram is always the aptitude for risk.

Blair: In the DISC profile, D is dominance, I is influence or influencer, S is steadiness, and C is conscientiousness. Is that correct?

David: Right. Yes, I've renamed those because a high I is clearly an extrovert. A low I, you wouldn't want to say that they're an introvert because there's a lot of negative implications for that, so I think of them more as somebody who is matter-of-fact.

Blair: Got you.

David: I don't even know how to spell I [chuckles], and I don't want to be thrown in with all those weird introverts, so I just say it's a matter of fact. They just say things that come to their mind. They're more driven by being transparent than they are about how it needs to be wrapped in terms of how people will receive it.

Blair: It's the extroverts who are shaming the introverts. It's never the other way around. If it is, the extroverts aren't listening, the introverts aren't speaking up loud enough. It doesn't bother them. Risk was the only thing that I knew this was going to be at the top. Just if you're an entrepreneur, you've got to have a relationship with risk. You have to be able to sleep at night. Then I'll get to my stuff at the end just see how well I've done it guessing at yours, but what's next on your list after risk?

David: It's average intelligence. [chuckles]

Blair: Oh, so not too smart, not too dumb. Is that what you're saying?

David: Yes, exactly. I just think intelligence is way overrated. I am missing a bunch of it, so this is in my best interest to say this. I just think if we measure this against IQ, it works against you because you just think other people's ideas aren't all that great. You don't test things and so on, but you got to have basic intelligence. I'm not defining intelligence here as how you do on the GRE or the ACT or something. I'm defining it as how articulate you are. I wanted to slow down there, so I didn't mispronounce that word.

[laughter]

Blair: Marcus, cut that up.

David: Articulate. [laughs] Articulate, your ability to make connections, an interest in history, those kinds of things. Understanding your role in the context of things. Average intelligence. What I'm saying here is that you're probably not a good fit for this business if you are below average in intelligence, but I don't think you need to be above average.

Blair: That's really interesting. I may have mentioned this before, but I have somebody in my life who's been through a few 12-step programs. They keep saying to me, "You know who struggle the most? It's the really smart people because they're always in their head, they're always second-guessing things, and they can't just let go and trust somebody else or trust the process." I can see how that would be an issue in owning a creative firm. Some people are coming to mind-

[laughter]

Blair: -who are too smart for their own good, and I won't name names. It's fascinating. I'd never in a million years would've guessed that this would've been on the list, so average intelligence. You and I have probably worked with some people where we've thought, "I'm not sure if you're smart enough to pull this off, but it's never occurred to me." That's pretty rare. That's really rare. I'm with you that you don't have to be a rocket surgeon to do this. Your point that you probably shouldn't be that smart if you want to be successful, that surprises me.

David: You said that you were thinking of some people that were really smart. Are you thinking of anybody that isn't all that smart that's successful? Does this test out when you think about it because you know hundreds of firms too?

Blair: No, nobody jumps to mind. I have met other entrepreneurs who have been wildly successful, and I've looked at them and thought, "How the hell did you pull this off?" To your point earlier, there are different forms of intelligence. It's clearly not the smartest person wins when it comes to entrepreneurship.

David: Oh, absolutely.

Blair: No, I can't remember the last time I encountered a business owner where I thought, "You're not smart enough to do this," although a couple names are coming to mind now. Please don't email me. I'm not thinking of you.

[laughter]

Blair: Okay. You've got risk is number one. Average intelligence is number two. What's number three?

David: Well, this one has got to be on your list, I think, and that's aptitude for selling. They see it as a fun challenge to be won. Maybe, they're not great at selling, but they don't shirk from it. They have an opportunity to sell, and they're like, "Okay, this is a challenge. How do I manage this?" The corollary is that when they're in a conversation or they're reading something or whatever, they see opportunity. I do know quite a few principals who are not very good at that, and they are not very successful. This I think also is what drives effective partnerships where one of the two or one of the three is a person like this who just has a natural predilection to sell. This has to be on my list. Is it on yours?

Blair: Yes, it's the last one. It's number six on my list. I put sell, so they're good at it and they keep responsibility for it. I too thought of how this changes as firms get larger. If you're not good at selling and you soldier through at some point in terms of size, on the assumption the firm keeps growing, and that's not what any of us should assume. If we assume a firm growing over time, there comes a size where you can hand this off. I think in those really successful firms, the owner does not hand that off at the earliest opportunity. They're very good at it. Their problem is that they can't find somebody else in the firm who's as good at it as they are.

David: All right. Then when you think about translating that experience into an exit, much of an earnout is often tied to the principal staying and what is the principal supposed to do during that time? Sell, keep selling. That's one of the biggest fears that a buyer has is that all of that will stop at some point. We both know very successful firms where they have hired a high-producing seller. It's so rare nowadays, it is so rare, and I would hardly ever recommend that approach because you have to look long and hard to find a very successful firm where at least one of the principals doesn't have a selling predisposition.

Blair: To your point, some of the most effective partnerships are one partner is this person, this rainmaker.

Blair: Okay, so we got risk, average intelligence, and interest in selling and some demonstrated success in it. Then what's number four?

David: It's the ability to model financials. I don't mean at a high level, but they understand the basics of financials. To them, they've moved beyond just looking at how much money is in the bank. Sometimes they're very sophisticated financially. Those people tend to be weird. Oh, that was the low-i side of me saying something everybody else is thinking but has the smarts not to say.

Blair: We're used to it. Go on. Yes.

David: They understand financials so they can read them. They're not hungry for a stack of financial data. They're hungry for a summary of the things that are really important. They can see things far enough in advance to make adjustments. They don't have a common language between each other, the group doesn't have a common language about KPIs, even though you think they should. They don't. They have their own unique ways of looking at this stuff, but it works for them. They understand that part of the business is financial success, and that it needs to be measured, and that it's important. I just don't ever see somebody who's successful who doesn't have that, either themselves if they don't have a partner or at least one of the partners.

Blair: I agree. This was the seventh on my list. I had my sixth trying to mirror you, and then I had a gap, and I had numeracy. I wrote, "This is bigger than the numbers. It's the business side of the business." This is where I think if you're a creative person running a creative business, you're in love with your clients' problems. You're in love with solving those problems. The most successful business owners, I think, they switched that attention to solving the problem that is their business.

Again, I'm not measuring any of this, just observational anecdotal. I think the most successful agency principals are the ones who fall in love with the challenge that is their business rather than it being an afterthought. I was in a workshop recently. We were in role-play exercise just trying to determine the economic value to be created by the various clients' challenges. Somebody made the comment that, "I'm just not very good at this business stuff." This is a business owner saying, "I'm not very good at this business stuff." It's a classic example of somebody saying, "I know how to design. I'm going to open a design firm," and that's all fine. At some point, you do have to embrace the business side of it, including the basic financials. I'm not surprised this is on your list.

David: I have a really good client and somewhat of a friend in New York City. The firm was run by a 60% and a 40% partner, I think, the 60% partner left almost, not right overnight, but pretty quick. This other person who was the creative mind in the business was left running it. He was really excited about learning and getting up to the challenge, but he was also terrified. He literally did not know what a balance sheet was.

I was so proud at how he just so quickly re-embraced a different methodology of running the business. He had to see that, "There's no way this business is going to thrive unless I am the primary financial driver," and so he dug in and learned. I think the business would have failed if he hadn't done that.

Blair: We're talking about predictive traits of successful owners of creative firms. Number one is comfortable with risk. Number two is average intelligence, not too high, not too low. Number three is selling skills or an affinity for selling. Number four is, I call it financial literacy. Is that what you called it?

David: Yes. That's a better way to say it than I said it, yes.

Blair: Okay, we've got two left. What's number five?

David: Flexible reinvention. The key there is reinvention. I don't think I would have put this on this list 10 or 15 years ago, but the world is changing so fast. What I'm saying here is that this is opposite from somebody who lands on a business model and slowly the world spins away from him. You look at their site and it just sucks. There's been no service offering innovation.

I guess there's a combination of appropriate risk, not being afraid to say no to revenue streams from the past. Moving ahead, even against some of the wishes of the key team who've settled in and they're really comfortable with what's required of them. Flexible reinvention, and this actually comes very easy, so anybody that's really high on the risk scale almost always has a very high aptitude for uncertainty as well. Sometimes they get in trouble by being too reinventive, but I'd rather deal with that than not inventive, not reinventive enough. Here, flexible reinvention. This probably isn't one of the most important ones, but it seems like it should be on the list.

Blair: I think it's big. I had for number three, I had visionary, and then I wrote focused on the future.

David: Same thing.

Blair: I tweeted recently that it's easy to tell the difference between leaders and managers right now at this point in time. The leaders are the ones obsessed with artificial intelligence. The conversations I'm in with you and other entrepreneur friends of ours and other people, it's AI all day long. The managers are rolling their eyes managing the people processes, and budgets, and departments, et cetera. The leaders, they're so obsessed with AI because their worry is it's going to change the fortunes of the business one way or another, good or bad. If they don't get ahead of it, it's going to destroy them.

To me, leaders are in charge of the future, and managers are in charge of the present. You can just try that on. If you're the owner and you think of yourself as a leader, and you're not thinking about these big things-- You can argue that some people are overthinking them and overreacting, but it's exactly what should be done right now, is parsing this new technology, figuring it out is it going to be good for us or bad for us? Et cetera. That flexible reinvention. It's not just a reaction at the last minute, I don't mean to put words in your mouth, it's always one eye on the future, isn't it?

David: Yes, it's a little bit like an F1 race through a city course, where there's a potential threat everywhere, and you overreact, you assess it, you decide, "Could this be a threat to us?" thinking about AI. You dive in really deep. It's a series of overreactions all the time, "Could this be a threat to me?" "Okay, it is," or, "Okay, it's not. Let's look for the next one." It's just constant reassessment in a flexible way to look at the future. I like the way you thought about that too.

Blair: All right. What's the last one on your list of six predictive traits of successful owners?

David: I should really hold out and make you guess this one. The most important of all of these is aptitude for risk. The second most important is this last one. You've heard me say this, you don't know what this is?

Blair: I've got two things left on my list. Three actually. How's that possible?

David: It's discipline.

Blair: I don't have discipline on my list.

David: I knew it wouldn't be on your list.

Blair: You're not surprised?

[laughter]

Blair: How do you spell that?

David: It's discipline. I see so many firms that are successful. Nobody knows about them, nobody wants to emulate them. They don't grow all that much, but you look inside and you say, "Oh, shit, they make a lot of money. Their clients are happy." They don't overreact to trends, but they make thoughtful choices, and they make a plan for whether it's lead gen or attracting people, or, "Let's put a better process in place." This is where I think the whole EOS stuff that probably a third of my clients use, or maybe a fourth, I don't know, I've never measured it, but I really overreacted to that at first, thinking this just seems so gimmicky.

What it's done is it's brought a measure of discipline to how firms run. It's made them operators with some feedback mechanisms, and they get in trouble if they don't do it. What it's done mainly is it's turned these people who are naturally visionaries into people with discipline because they're helped by the integrators and the other team. Give me discipline and aptitude for risk. Give me those two things, man, that's it. The rest we'll figure out.

Blair: That's such a profound point. You just alluded to this, but I think one of the reasons why discipline is so important to this group in particular, we're talking about creative businesses that tend to, not always, but they tend to be led by creative individuals, and there are a high number of creative individuals in the firm. Creativity has this thing where one of the costs of it, to a certain extent, not all the time, but it can be discipline.

If creativity is the ability to see, and that's the definition I subscribe to, it's the ability to think differently about the problem and the solution, then you're constantly thinking differently. You're constantly looking for new problems, problems that you haven't solved before. You get bored by routine. In some ways, these creative professionals are like wild mustangs galloping across the plain. They never win any races unless they can become disciplined. I think of the bridal going on the Mustang first of all as positioning. Alright. Quit running all over the place. You're going to run in this direction only.

There's the let's not get distracted along the way. "Ooh, bright shiny thing." Mapping out a path and agreeing to just keep going in that path. It's a profound insight. Back to one of my earliest questions here, are there any of these principles here that you think may be overweight or underweight when it comes to our audience versus the typical entrepreneur? I suspect this is one of them. Again, for the reason that I think creativity, one of the costs, sometime is a lack of discipline.

David: Yes. That's probably true. I would say creatives are by definition risk takers. Maybe you wouldn't have to worry so much about that. Creatives by definition are often not very good at financial modeling. What did I leave off?

Blair: I had decisiveness on here. Maybe that's risk. Maybe those two things are tied to each other. I was hedging my bet. I put in brackets after decisiveness confidence because I was thinking of another profound thing that Dan Sullivan says, which is the most valuable asset of an entrepreneurial organization is the confidence of an entrepreneur. Maybe that one's almost implied. If you start a business, you have to be more confident than the average person, don't you?

David: It almost needs to be unfounded.

Blair: Whatever irrational basis you have for your confidence, just leverage it.

David: Lean into it. Interesting.

Blair: Alright. This is really interesting. Six Predictive Traits of Successful Owners. Risk, average intelligence, affinity for selling, financial literacy, flexible reinvention, and discipline. You got me on a few of them. Thanks, David.

David: Thanks, Blair.