When You Put Someone Else In Charge of Your Firm
David keeps seeing principals who get someone else to run their firm, which is not a good idea. Then he gets Blair's thoughts on why he thinks it happens.
Links
Win Without Pitching Workshops with Blair Enns
Built to Sell: Creating a Business That Can Thrive Without You by John Warrillow
Entrepreneurial Operating System Traction Library
The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success by William Thorndike
Transcript
Blair: David, it was great to see you in New York last week.
David C. Baker: Do you mean that?
Blair: [laughs] Yes, and the folks who were at our workshop. We got so many nice notes and comments about it. It was so great that David Baker does really exist. Everybody enjoyed meeting you. Thanks for coming out. That was fun.
David: It was fun. I tried to sit in the back and just bite my tongue and just be nice. Yes, it was really hard. It was so exhausting for me to be nice for two days in a row.
Blair: Yes. You did a great job. I stuck around for the weekend and then I worked with the client there and promptly lost my voice and it's just coming back now. I've got that really sexy 1-900 voice going. Just planting that seed in your mind.
David: You were in Croatia before that.
Blair: And the UK before that, yes.
David: You have been all over the world speaking this year. Have you enjoyed it?
Blair: I've enjoyed it, but you know, when you get sick at the end of a three-week, three-country tour, it's a sign that you're maybe traveling a little bit much. Next year's different. It starts the same but it's different. Okay, that's enough about us. Speaking of events, you have an event coming up. I think this episode's going to air shortly after we're recording it. It'll be December of 2019 when this drops live. What's your next event coming up?
David: My next one is January nine to 10. It's the advanced positioning, lead gen and service offerings. It's in Nashville and people can find it on the website, davidcbaker.com. Hope people can come. It's got about two-thirds sold out. There's still a few spots left. Love to have you.
Blair: That's great.
David: You have one too, don't you? Yours is in Miami in February, right?
Blair: February 11th and 12th, winwithoutpitching.com/workshops. There we go. We are now officially sponsoring our podcast like we should have from the beginning. Now that we've sold people things, let's just wrap this podcast up.
David: Right. [laughs] Thank you for joining us.
Blair: Today we're talking about, when you put someone else in charge of your firm. This is a really interesting, to me, subject because I think a lot of business owners would identify with this. If you haven't already done this. If you've been in business long enough, you've probably had a moment or two where you've thought, "You know, I bet I could just get somebody else to run this." I have your outline here, but even before you sent me your speaking points, I had a suspicion that you wouldn't be overly in favor of this.
David: [laughs] True. I never have been in favor of it. What made me want to talk about it now, I guess, it's just because I keep coming across this in different flavors, like one or two a week where somebody is toying with this and sometimes they're making a really specific choice to do it. They anoint someone and put them in charge. Other times, they're just slowly sliding away from running their firm and somebody is stepping into the role and then it's recognized officially down the road.
If people haven't gathered yet, we should probably build a negative into this statement. It's not a good idea to put someone else in charge of your firm. I want us both to, I guess, transparently talk at some point later in the podcast about this. I have a particular question I want to ask you why it happens, but yes, it's not a good idea.
Blair: Do you think it's a function of maybe a misunderstanding of this Dan Sullivan, Strategic Coach idea that you should strive to have your company be a self-managing company?
David: I think it is. Even from people who haven't been a part of that Strategic Coach program, for sure, because that concept is prevalent out there. You see it show up in different formats. Even forgetting the fact that a lot of the firms that find that possible to have sort of a self-running firm are the ones who are outside of this industry. That's one of the things I want to talk about at some point. Why is this industry so different because, like even John Warrillow's book-
Blair: Built to Sell.
David: -Built to Sell, yes. He even uses an example of a firm in this space. In real life, you do find firms run in a Built to Sell way and then they sell. What we're talking about here is firms that are run in a Built to Sell way, but then you don't sell them. You have somebody else running the firm who's not an owner. That's what we're describing here. For some reason, you can't find a buyer or you don't want to sell the firm. In many cases, you haven't even tried to find a buyer. You just like the fact that the firm is requiring less and less of you.
There are some things happening in the business that are forcing you to lose a lot of your initial interest in running that business. You decide to just, "Okay, you know, this is kind of working." "What if I turn the knob up even higher and I have even less involvement?" On the flip side of that, what's driving this for an owner? Why did they even consider this? Nowadays, it often starts by just getting really tired of, it used to always be clients first.
Nowadays, it's also employees equally. I think my next book needs to be how to run a successful business without clients or employees. I know that would be a massive bestseller. I have no idea how I could write that book. It seems like that's what a lot of principals are looking for. They want to find a solution that can run without employees or clients. They get tired of them.
There's ways to fix that, obviously, but instead of fixing that, they just step away and they let other people who aren't quite as tired, who are frequently a little bit younger than them, run that part of it so that they don't just run completely out of energy at running the firm.
Blair: You've got to note here, I referenced Strategic Coach and the idea of the self-managing company but in your notes, you've referenced the EOS idea of the visionary integrator model. I think you're asserting that there's a little bit of a misunderstanding of those visionary integrator roles. Do we need to unpack those roles first?
David: I think so. Enough of the listeners of this podcast are familiar with the EOS book, Entrepreneurial Operating System that we should talk about it just for a minute here. The visionary is one of the ownership types and then you have an integrator who is basically holding the visionary off from wrecking the business by having too many great ideas all the time and making sure that they are-- [laughs] Hands up listeners.
Blair: Hands up. [laughs]
David: I said that just for you. Integrators are saying, "Oh, that is a great idea." "That's just like that great idea you gave me yesterday that I'm still trying to implement and you've completely forgotten about."
Blair: Right.
David: You do find-- I'm not a complete believer in the EOS system but I think that some of the principles are really useful and helping to run a firm well. Anyway, what some people are doing is this. They're taking that model and they're saying, "Oh, I'm the visionary, and I have an integrator, maybe the visionary doesn't have to be involved in the business. Maybe the visionary can move out of the business involvement sphere, or maybe even move geographically-" Which is way worse.
The other mistake they're making is saying, "Well, maybe the integrator doesn't have to be an owner, maybe it could be just a key employee." There are some cases where the integrator can be a key employee but if you misunderstand the system and don't realize what the owner or the visionary, whatever has to do, then it gets you in trouble. We're kind of a little bit off the path here. That's part of what's happening too, is people who are taking that system and going too far with it.
Blair: Got you. I'm a big fan of the EOS System. The first book is called Traction. There's, I think the fourth book is called Rocket Fuel. In that book, Rocket Fuel is where they describe the visionary and integrator roles. You can do a self-assessment to see where you fit. When we did it in my business, my wife is my business partner. She's a classic integrator and I'm the classic visionary. That helped us define our roles in a way that allowed us to work together. I'm a really big fan of it but I can see people making mistakes in the application of some of the stuff. The central issue that we're talking about here when you put somebody else in charge of your firm is what?
David: Yes. Here we get down to the absolute core of what the issue is and it's this, you're the owner who's tired of this and you don't sell it either because you can't or you just haven't thought of it, whatever. You want somebody to run your business for you. It doesn't matter what you call them. They're often called operations something or COO or just an operations manager. For this person to work out well, there has to be this very, very narrow overlap. They have to be entrepreneurial enough to be successful at running the firm, almost on their own, because you are just checking in from time to time.
You may influence some of the decisions, but this other person that you think highly of is making most of the decisions. They're actually acting like an owner. They must be entrepreneurial enough that they are successful in that regard, but and here's the rub, they can't be so entrepreneurial that they wake up one day and say, "Why do I need you again?" "Why are you here?" "Why are you taking all the profits?" "Why are you making most of the money?" "Why do you step in, throw everything off the table and disrupt the decisions that we work so hard at figuring out and so on."
That very narrow overlap is what's tough, so if you don't get it exactly right, then you've got somebody who's not entrepreneurial enough to actually be successful, and the firm slowly but really distinctly begins to not be innovative anymore, to not take risks and so on. Or, there's somebody that's so entrepreneurial that they say, I don't need you. In that moment when they wake up and realize that and it's usually about a year and a half or two and a half years into this, I guess, test or whatever. They wake up and they realize this. At that moment, if they are evil, then you have lost your company and they can do whatever they want. It's too late for you to step back in. You don't have many relationships with those clients or even with your employees.
If they're not evil, then you have a come to Jesus talk where you decide what's going to happen. You either need to get back involved and that almost never happens. Or you work out some sort of a transition. I call this, delegating, directing. I describe directing as some of the big high level things that you as the owner must do and must never delegate. When you delegate directing to somebody who is not an owner or who doesn't have the right outlook on this, then trouble is ahead. That's the central issue.
Blair: I want to push back on the good versus evil thing here because you and I have seen enough of these scenarios where we've been closer to one party or the other, either the owner or let's call it the operator, usually the owner, but not always. I think my experience is whoever I'm closest to, I tend to see their side of things a little bit more. You've already pointed out that that overlap, it's so narrow but I don't think it's an issue so much of character. Although if somebody has a poor character, you're going to more easily be able to predict what they're likely to do. It just calls to mind in psychology, the fundamental attribution error, which is to ascribe to somebody their behavior based on their character rather than their environment or their context.
I think you've already identified this or acknowledged it. It's a really tricky context. I'm just imagining being the operator, I'm effectively running the business for this visionary who, they used to be an onsite visionary and taking the reins and high-level stuff. Now they're just going to South America and doing Iosco and having visions on their own down in the jungle or whatever it is that they're up to. I can see the resentment build. Some people are really good and some people are evil, but I think the vast majority of people are somewhere in the middle and it's just the context. Something is going to give. Something is going to break here.
David: Yes, the majority of these people are not evil but where the evil comes into play is if you have somebody who is very ambitious. They're very talented but they feel like they're owed something. They usually get into the beginning phases of this when the principal is not making great decisions. You have this integrator person who points that out in very little passive-aggressive ways. The employees are listening to those and nodding their heads to themselves and saying, yes, that is really not a great management style. Thank God we have Tony here who protects us from this principle.
Now, in that situation, if Tony is a good leader, Tony should be having transparent discussions with the principal and explaining the implications of some of these decisions that they're making. What some of them not a majority, but what some of them do is they use every failing of the principal to garner more power. That's what I mean by the evil side. It's not very frequent but it certainly does happen. Now, there's this little flip that occurs, you use the word flip in sales conversation, so that's probably what's influenced me here. It's such a great word but, there's this little flip that occurs.
At a certain point, the principal says, "You know what, there are some problems with that person and their cultural outlook and how good a fit they are for the company." They recognize that if they're being very honest with themselves. They wouldn't come around and say that, but if they're being very honest with themselves. They shove that realization down because that person has relieved them of a lot of things that they have hated to do more recently. They have stepped in and taken the things off their plate that they hate doing, whether it's solving client anger issues or whether it's the tough employee that needs to be dismissed or whatever it is.
They suppress that doubt they have about the cultural fit, because if they let that person go, then they're going to have to step back in and do the things that they are so grateful they don't have to do anymore. The longer they wait and respond to that instinct that they have, then the more power that person gains. That's not the primary issue we're talking about here. I want people to recognize that in themselves. It's really hard to make tough decisions about people that when you make them means that you're going to have to do things that you no longer want to do and you're so relieved you don't have to do them anymore.
Blair: Management-wise, I think most of us tend to swing back and forth. We make hiring decisions based on the last person in the role. We often tend to hire somebody who has opposite end of the spectrum attributes from the person that drove us crazy for their attributes in the last role. I can see a frustrated principles/visionary is just so relieved to have the strong COO or number two integrator in the role and so they overlook some things. They just let it build, let it build, let it build.
David: Can I ask you have a question here?
Blair: Yes.
David: This is something that plugs me and it's so obviously true but the answer is not very obvious to me and it's this. You or I probably between us, and we know lots of firms, some of them intimately, some of them just from a distance, and our listeners, of course, they know thousands of other firms. Can any of us think of more than a handful of firms that are owned in this space by an absentee owner that are doing really, really well? I can't think of any.
Blair: No.
David: Why is that? Is it because this is a lifestyle business and nobody gets into this space unless they also want to be close to the work? Or is it because nobody in their right mind would own a firm like this with this sort of work that it requires to generate this profitability? I just don't know the answer to that.
Blair: I think there might be something about the nature of creative and marketing firms that are meant to be owner-operated businesses. Now, once you get to a certain size, that can change where you see this separation between-- not an outright separation. I mean, we win without pitching, we don't work with firms where ownership is fully separated from management because, we're interested in helping the entrepreneur, so there's a bias in my sample size. I think of the examples where just didn't work out and number two had to leave. That often triggers a sale too, doesn't it?
As you were talking earlier, I was thinking, first of all, the number two becomes a very smooth operator, an effective operator. The principle is really appreciative and then there's this tension builds. They have to come to Jesus conversation and somebody puts this issue on the table and that is like sale. Why don't you the owner, just sell me the operator the business and not that my sample size and this is massive. The ones I'm thinking of where those conversations happened, there's almost always the same challenge, which is, if the owner is willing to sell and they often are, they want to sell it what they see as a fair-price market-value price.
The operator feels like they should get a discount on the price given that what it is that they're buying is something that they have effectively help to build. Do you ever see that conflict?
David: Oh, yeah, absolutely. Especially if in the earlier part of this process, the firm was struggling a little bit. Under this second in command, the firm has done well. In essence, they've just been screwing themselves by making the firm more valuable and that's more difficult to purchase. Absolutely, it does. Again, this is where the not evil person comes into play because, really, the principal has lost so much leverage at this point because there's really only one buyer and that's the person who has been running it well for a few years while you've been off doing something else or you've lost interest in running the firm.
How you're going to bounce that one option you have off of something else? Now, it usually works out okay because people are I think innately good in these situations, and especially if they have an outside objective person that can facilitate it. Often, it's somebody that they both worked with locally or whatever and it can work out. It is interesting, back to this issue of owner-operator thing. When I get a call from somebody who wants to work with me in an advisory role. If I at some point in the conversation, discover that this person that I'm talking with is not an owner, I'm suddenly not interested at all.
Because, they don't have the power to make those decisions. Later, I discover, they do have the power to make those decisions because they're effectively in charge and the principal has stepped out of that daily role. That's even worse in my mind. Yes, it gets really complicated quickly.
Blair: We're going to get to what I'm going to ask you, what you think the solution is here but there are just some key areas of responsibility that the visionary owner should not delegate to an employee, is that right?
David: Right, and especially if the firm is really big, there are only a few things you need to do but even in a smaller firm, a lot of this is true. So, the first one that you never delegate to somebody else is just what I call directing and of course, I'm making up a word here. By directing I mean, determining the positioning of the firm, setting the culture, deciding how big it's going to be, how are we going to funds this growth, what risk are we comfortable taking. That all falls under the umbrella of directing. To me, that's the most important thing that you must never give to somebody else to do.
Blair: Or going in this direction. I looked at that, directing is a word gone. What's after directing. [laughs]
David: Okay, good. What a relief?
[laughter]
Next is balancing or managing the financial performance of the firm, just keeping your finger on the pulse of that. I don't mean being in QuickBooks or Zero or whatever you're using, I mean just saying, "All right, this is in the right direction." Because the people downstream are not really looking at the big picture. You've got to be the one to look after the big picture and balance all that risk.
The third is just leading the team at the level right below you. So, in a typical creative firm, maybe that's head of strategy, maybe it's head of creative, maybe it's head of new business, maybe it's head of account management, project management, whatever that looks like at your firm and obviously, that's different for a desk job and so on, but managing that level right below you is the third thing.
The fourth thing is just touching and you're more qualified to touch this than I am but, touching the whole sales process. You obviously can delegate some of this by hiring the right person but, if you don't have a new business outlook as a principal, then the firm is probably going to struggle at key points during its history. You could speak to that one more than me.
Blair: I think that's a great way to put it, this idea of having a new business outlook goes hand in hand with directing, we're going in this direction. When you set a strategic direction and given the small number of clients that an independent or even a network agency would have at any one time, every new client represents either a step towards that strategic objective or a step away from it. So, yes, it's vital that you have this vision and you realize that the vision is executed one new client at a time. So, if you're willing to take anything, anybody, if every dollar is a good dollar, then that's a firm that does not have a new business outlook.
Everything else can be delegated safely. When you're speaking about balancing financial performance, I was thinking of this idea of, I think it's Warren Buffett's idea. William Thorndike talks about this in his book The Outsiders, where he profiles eight different leaders what he considers to be the most effective CEOs of publicly traded companies over the last 50 years. He says the number one job of the CEO is capital allocation. It's not managing the finances on a day-to-day basis, but it's making the big-picture, financial decisions.
I also want to just come back to this, I want to ask you what the solution is here but another observation about the visionary integrator role and I want to line it up with this favorite topic of mine this last year, so this idea of the inefficiency principle, which is a combination of two words, innovation and efficiency. The idea that innovation and efficiency are opposable objectives and if you try to increase one, you decrease the other. Every organization has a culture that is somewhere on that spectrum. Every individual also resides somewhere on that spectrum. A typical visionary is more of an innovative person, a risk-taker, the more likely to earn extraordinary rewards or compensation but they're also more likely to bankrupt the company because they take greater risks. That's the visionary. The integrator tends more towards efficiency.
When the visionary starts to step away, the company becomes managed better but it can almost be managed very slowly into not oblivion but into obsolescence, because the visionary is not there pushing to innovate and stress and inject new energy into the business and say, "Okay, the direction we were going until now, things have changed. We need to make a shift." This goes hand in hand with high level of financial overview. "We need to invest money in this new direction."
When somebody is really out at the integrator end of the spectrum, they don't make those big decisions, they make really good day to day operating decisions. I think the previous problem in a lot of these firms was too much towards the innovative end of the spectrum, not enough efficiencies, not enough profitability on an going basis, not enough systems and processes and then that's fixed when the visionary hands a whole bunch of the responsibility over the integrator. Things can go too far to the efficiencies seeking end of the spectrum. Do you have any thoughts on that?
David: They can and they can go to either perspective obviously. As I think about the typical makeup, employee makeup of the firm, people listening to this podcast, there are very few true visionaries on your staff. Most of the people on your staff actually have an integrator outlook and they are drawn to the integrator except for brief moments, because the integrator provides process, provides boundaries, is predictable, thinks outside of themselves more frequently. Now, without some visionary presence over a long term, then the whole thing will slowly die because a firm just can't exist without making changes and innovating using that word.
There is something about this and I would like to divorce this from the EOS thing because, in some situations, you have a principal who's an innovator and you have a principal who's a visionary and those are a pretty good combination. Essentially what I'm saying is that, while that's a good combination what's not a good combination is an integrator who is not a principal who's going to be left to run the firm because you're tired of it. So, if you're tired of the firm, then if you want to be honest with yourself completely and make the tough choices, then you should figure out why it is that you're no longer interested in the firm and fix that.
It usually is more fixable than you think. Whatever that fix is, it's usually more fixable than you think. The other option is just to say, "All right, this has been a good run. I need to find something else to do and I need to transition this firm to somebody, whether that's internally or externally or merging or whatever, I need to find some other solution for this firm because, I'm starting to die on the inside. I'm not looking forward to going back to work."
What I'm trying to save people from is choosing the option that seems like a good solution and it actually looks like a good solution for a year, a year and a half, and that's putting somebody else in charge of running the firm who isn't the risk taker. I'm trying to save them from doing that and then waking up too late. If that person is a good person, well, they've basically lost a year and half of their solution time. If it's a bad person, they've basically lost the firm. That's the summary of where I'm hoping people would take this.
Blair: Yes, and it could be a good transition to a sale if that's the person you want to sell to or even if it's somebody else. If there's another buyer on the horizon, does that make sense to you?
David: It does, right. We don't often know when these podcasts will air. We know this one will be at the end of this year. We're at the time of the year where things slow down. The only thing that's happening right now are your nasty clients who want you to get a lot of work done before the end of the year or your really great clients who want to spend their budget or they'll lose it next year. But, there's not a lot of engagement you can sit back and just be honest with yourself about how you're feeling about the firm and don't be afraid of the truth.
This is something I learned from you, Blair, many years ago. I think I was struggling with somebody who was mad at me, it was a client who was mad at me. You said, "Hey, man, don't be afraid of the truth and if you're not afraid of the truth, then the sooner you face the truth the better." I've thought about that a lot and this is one of those cases where I think it's also true. Don't be afraid of the truth about whether or not you're engaged.
Now, the truth about whether you can be re-engaged is a little bit more complex. You need to look at that and realize that usually there are some really good fixes to get you re-engaged at the firm, if not, then quit fighting this and just make some changes and start next year with a free your mindset.
Blair: If you find yourself, listener, in this situation where you've lost control of the firm or you're in this transition, this very difficult somewhat tense seems like a transition period, call David, right?
[laughter]
David: That wasn't advertising for that, no. Call your therapist.
[laughter]
That’s probably safer.
Blair: Yes, call your therapist. His name is David Baker, davidc.baker.com. All right, David, this has been a lot of fun. I think this is it for the year for us. We might get another recording. I think the next one after this drops January 1st. So, maybe we'll do something special for that. Are you off to Columbia?
David: I'm off to Bogota tomorrow morning, yes. My last trip of the year. It should be fun. If you never hear from me again then things aren't as good in Colombia as I thought they were.
Blair: I'm not even going to ask what you're doing down there. All right, safe travels, David. We'll talk to you next time. Bye.