011: Daniel Marcos - The 4 Key Stages of Business Growth.

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Hello and welcome to the Scaling Up Business Podcast. Today we're talking to Dan Daniel Marcos, president of Gazelle's Growth Institute. A longtime coach, serial entrepreneur with a deep, deep background. A coach who's coached companies all over the world, particularly in Latin America and in North America. He works with some fairly small companies all the way up into several billion dollars and thousands of employees. Daniel's also a dear personal friend and just a lovely human being. So welcome to the show today, Daniel.

Thank you, sir. Thanks for the nice introduction.

We're talking today about the stages of growth of a company and all of the things that you have to do to move through the stages. We'll be focusing on four specific stages and what's needed at each stage and how the leaders and the organization have to adapt. So welcome. Tell me, how did you get into this? What brought your attention and focus onto design, developing this particular area of looking at stages of growth?

So I've been an entrepreneur for 16 years. I grew a company from zero to 1200 employees, second one from zero to around 140, 150. And I'm on my third startup doing probably 12, 15 employees and been coaching other CEOs for the last eight years. And I've learned and realized and discovered that the decisions you have to take in each stage are completely different one stage to the other. What I've seen CEOs having a lot of issues. They want to execute the same in each stage and they expect to have good results. Reality is they're not having the results they're expecting because they don't know how to act to the stage of the company.

Yes.

I've always said that if you want to grow your company, the first bottleneck is you is the leader. So how to evolve the leader from entrepreneur to be A CEO, so you could evolve the company from a venture to a larger organization.

Got it. So when did you first begin doing this? How long have you been working on these stages?

So I began being a coach eight years ago.

Yeah.

And the first client I really had, he was really stuck on the stage, and he didn't understand how to go from one stage to the other was probably six years ago.

Yes.

And by the way, just an interesting note, most entrepreneurs are stuck on stage three. I will talk later a little bit more in detail. But this was a company that had over 1,000 employees. Clearly should be on stage four. And the entrepreneur was stuck between stage two and three. So I begin getting into detail of this to try to teach him about it, and they begin using it with other entrepreneurs and they begin liking it. So more or less like six years ago.

Got it. We'll come back to stage three later, but why don't you talk to us about the first stage and just take us through the stages?

All right. So I believe the first stage is a venture, and I'm going to find stages in amount of employees, not in sales. Because really, the complexity of a company when you grow is the communication, and the more employees you have, the communication gets broker, and it's harder. So for me, the first stage, it's a venture, it's a startup. One to five employees. And the entrepreneur is everything. It's the technical, the administrator, the entrepreneur. They do sales, they do accounting, they clean the bathrooms. They do everything.

Yeah.

And the most important on stage one is product development. You have to understand what are you selling to whom, what's the right price, right packaging, really understanding what the company is going to be about. You start with a business plan or an idea of what you want to do, but that's what you begin testing the market, and the market begin teaching you what do they really want. So the first stage, the most important thing is to really understand your product and pricing and product development. Really.

So product development, figuring out the business that you're in, and in that stage, you're doing everything.

That's correct. That's. That's the. You sum it correctly and it's more or less one to five employees.

So one to five, your first team. Yeah.

An entrepreneur does everything. There are other employees kind of help you do things, but you really get your hands dirty and everything.

You're driving it.

You're driving it.

I totally. I can feel that today as a small coaching group.

That's. That's it. That's correct. Yeah. Second stage, I call small business. Six to 15 employees, more or less. And now the tribunal has to be a leader. And the leader has to do two things very, very important. Learn how to define direction to your team and delegate. And what I mean, as a delegate, now you have to act as a leader. You have to lead your team. You have to stop doing things yourself and start teaching and coaching your team for them to do them without you.

So leadership begins to emerge. After about six employees, you're not doing things yourself as much anymore. Six to 15. And now you're 600% on sales.

Why? Now you have fixed expenses, salaries, office and the rest. And if you don't feed the animal you created, it's going to go. If you don't pay payroll, every couple of weeks, it's gone.

So focus on sales and the beginning of leadership.

That's correct. And here I say stage two is the hardest stage for the entrepreneur. Because now you're growing. In the first stage, your employees know you don't have money, so they accept a low salary and they accept all these bad installations and bad office and all these kinds of things because they know you're a small business adventurer. When you're a small business, six of these employees, they begin to see the cash flow flowing in. And now they want market salary, and now they want nicer office. And now you want you to pay them new computers every two or three years. And your clients begin seeing that you're growing. And now they expect a much better service and they expect a market price that you can sell them the product. And they expect the company now to operate as a company.

So in this next stage, you're still small, but everybody starts expecting more of you because you look like you're beyond where you are.

It looks like you already figured out. And they expect that you figure out. They expect that you act like you figure out.

So what do I tell people?

And I really believe stage number two is all about leadership.

Yeah.

And you have to lead a balance between your employees and your clients.

Okay.

And it's all about negotiating a balance between both of them. So getting sales so you could get cash flow and keep the animal running. And leadership between employees and clients. Stage number three, now you're a leader of leaders. You have between 16 and 250 employees. And now the most critical role is you building other team leaders. You have to develop a great head of operations. You have to develop a great sales manager. Now before they were all doers, they were first level employees. Now you have to decide who are you going to Grow to be a manager or a leader, and now you have to coach them to be better leaders. And then another thing that happens on stage number three is communication. Now you have to tell your leaders what to tell your employees, and then they're going to tell their employees. So now, I don't know how they call this game. In English. It's telephone. Dos compuesto. Broken phone.

Yeah, we call it the phone game. Right, the telephone game. You say something to somebody and then they say to somebody and you pass it around the table at a dinner or something and comes back the other side. It doesn't make any sense.

That's correct. That's when. When the phone game starts to be important.

Right.

Because now you have to tell your sales manager, tell them a sales strategy, and now you expect them to communicate it and execute it correctly, the way you design it or the way you ask. So the most important thing on stage number three is building leaders and allow them to be leaders. You have to communicate better, coach them to be better leaders. And you have to stop fixing things because we're used to fix everything at every level. If an employee of operations comes to you and asks you to fix something, you can't fix it. You have to tell your operations manager and your operations manager need to fix it. You have to respect the position of your leaders.

I would bet in some regions, and especially in Gazelles, that we find many companies in this area, you start to talk to them after maybe 60 employees and they're expecting the next hundred, and they're thinking about that, and they're starting to feel the disconnect from when they were intimately connected to everyone. And now they're trying to figure out how to lead leaders, how to not get involved in every decision and how to move on. But of course, we see even in much larger organizations, people are still driving every decision and the organizations are not as strong.

That's correct. That's exactly. You got it right. So you have to help the leader understand that they're a leader of leaders and they have to stop getting their hands dirty. And it's hard for the entrepreneur that build it from scratch. It's really, really hard not to get their hands dirty. And you have to allow them for their team to shine. And this something very important in the stage number one. Stage number two, you are the supreme leader. If they're going to interview anyone for a newspaper or whatever, they interview you because you're the center. On stage three, if someone comes and said, hey, I want to interview you because I Love your sales process. You have to say, great. Interview my sales manager. They build it, not me. You have to go to a second stage. You have a leader understands when to make their team look great. And you have to help your team be better leaders and leadership is everything together. And it's really hard if you are the owner and you're the one that built it. So that's why I believe most CEOs are stuck in stage number three. Because to go to stage number four, you have to be very humble and really let go of everything and understand that your role is to have a great first layer of executives. If you have a great sales manager, you will never have a sales problem. But of course we don't want to have a great sales manager because then we won't be needed. We won't be the heroes that we're used to be on the first stages. And psychologically speaking, we build a company because we want to be leaders, because we want to be heroes, because we want to be the one that saves the day. And if you really want to go to stage number four, you have to understand that and let them be that interesting.

So you find a new kind of victory. So what does it look like? Can you take us through then, stage four? How does that develop then for me?

Stage four. Imagine you're seeing an atom, design of an atom and the leader, it's like a satellite around the atom. What does that mean?

Not the center.

Not the center. The operation. The day to day operation runs without you. You could go on vacation for two weeks and everything runs without you. Now the leader, the CEO, is strategic innovator, change catalyst and chief of culture. You have to make sure that the culture you design is respected all over the organization. You help your team go through change management. You have to initiate change because now you're not depending on the day to day operations. Now you're going to go to summits and reading and understanding trends and go and play golf with the most important clients or a PR relationship. And you have a feeling of the industry and what's going on the company, but you cannot fix it. But you have to be the catalyst of change inside the organization of everything. You see that is not working. You have more time to think, reflect, read and understand trends. So you have to be able to show your team how to go through the trends.

Well, you and I both saw retired General Stanley McChrystal talk the other day, right? And he talked about how they used to have a very rapid, highly trained operational cadence and they worked the Special operations teams. And they would plan and organize and consider and train and then execute everywhere in the world, one operation a week, and that they were going, going, going. And that was considered very, very high level. But then they got against Al Qaeda and they found themselves fighting less conventional opponent who was spreading faster and faster. Then they did some innovation. They moved it up a little bit, and then they did some more innovation. And at some point they realized that he couldn't approve everything anymore. He had to trust other people to approve things. And they moved to, I believe it was nine operations per night from like one per week. And that's when they started to turn the corner on winning that particular segment of what is obviously an ongoing thing that continues to morph. But he said his evolution as a leader was that he no longer could drive. He could not micromanage everything. He couldn't be involved in everything. He had to set them up. And then he shared this brilliant analogy that I think speaks to what you're saying. He said that a gardener doesn't grow anything.

Loved it. Agree.

Right? He said a gardener doesn't grow anything. The only thing that grows is plants. And all the gardener can really do is create the environment. So we prepare the field and we plant the seedlings and we add the water and we pick a location and we do all of that. But we're only providing an environment for the right plants to grow, and they have to do their own growing. And I think it speaks to what you're saying.

I think you nailed it. You cannot grow the company. You have to grow your team. Your team will grow the company. You have to get the brightest people in the company and then help them grow as leaders. And then you have to bring the data in the market or the trends that you're seeing to help them innovate and continue changing and evolving. And of course, chief of culture, you have to make sure that the culture that you design in your company, it's followed everywhere in the company. Yeah.

I think a lot of people, when we introduce things like a weekly huddle or a daily huddle or a weekly meeting to people and they ask, why is it so important that who chairs the meeting rotate? It's because you don't want it to be your meeting. You want it to be the company's meeting, the team's meeting, they need to own it. They need to make it their own. So it's your job to design it to create the environment, but their job to keep it moving forward so that when you go, it's still Happening.

The first rule is whoever is leading the meeting cannot be the CEO.

Yes.

The moderator. It's imperative. It's not the CEO, because if you're the CEO, you're going to be in the middle of the operation.

Yes.

So the best way to get out of that operation is beginning to put your team as the. As the center, as the leaders.

Yes.

Run the day to day.

I think most of us have done that at more than one point where we were doing that over managing things and being too involved in aspects of the operation. I can think of. And one of the lessons that I draw on, personal experience that I draw on frequently in coaching others, is to set themselves up to step away. What I did is I planned a vacation. So I planned to go away to Italy for a month with my family. And all year I kept asking the team, what are you going to do when I'm gone? What are you going to do when I'm gone? And both for me and for them, thinking that I'm going away for a month, which was in the United States, that's a particularly long vacation. It's not so much in some places, but. And I just kept driving that home with them all year long. And then we went away for a month and everything operated beautifully. Sales grew, operations continued, cash was collected, bills were paid. Things like that happened. Stepping out of the business in that way gave us an access to something else.

Perfect. That's right. You could go on vacation for a month and when you come back, operations are still running and there's no fires and clients are happy.

Yeah. Then you've done a good job.

Exactly.

Yeah.

But you're able to do that in a weekly basis. Stage three. And by the way, that's precisely the best way to test if you're ready to go to stage four.

So what does the evolution of a particular role or person through the stages look like in, say, sales or in the accounting function in the business?

So here I tell a story that. Let me do an analogy. On stage number one, imagine it's a baby, Right. And how do you feed your baby? You sit baby on a chair, open a Gerber, get a spoon and feed the baby with a spoon on the Gerber. That's it. At a certain point, probably a year after, when the kid is around a year, they begin getting the spoon because they believe it's like a game and they want to feed themselves. And as a parent, you said, great. Right. I want the team or my baby to be able to eat on his own. So I'm Going to have to step aside. But you give him a spoon, you open the Gerber and the baby's going to throw the Gerber all the way up and he's going to throw a spoon and going to do a mess. Then you have to open a second Gerber, a third Gerber and the kid, Instead of taking 10 minutes to eat, now it's going to take half hour.

It's messy, it's wasteful, it takes time.

But it's part of the change of.

The stage, the development.

But here's the big problem. Do you feed a baby with Gerber? Yes. Do you feed a kid or an adolescent or an adult with Gerber? No, don't. But here's the significant part. Did the Gerber did something wrong? Did the Gerber got spoiled? No. Gerber is still a great food for stage number one, not for stage three or four. So the type of employees that you need per stage changes dramatically. Stage number one, number two, you want very entrepreneurial employees that they could adapt to everything. They could do three or four jobs at the same time. They, they could change hats, multitasking, all that.

Yes.

Stage three and stage four. Usually one very disciplined, focused employees.

Yes.

They just know how to do one thing and one thing great. And that's where things begin to fall off. Because you had a great employee on stage one and it's a disaster on stage three. And he said but they were great. Yeah, but they was great long time ago, not today. They were great when the company had three. Now the company has 150 employees. Yes, that's faster now. Yes, but, but as human beings we say, well, they were great. They helped me all this time. They made the company for 10 years. And you try to keep them happy, you try to keep them alive in the company and that just doesn't work. I tell people if it's a Gerber, it's a Gerber. And hey, in stage number one and two they were extremely important. You will not be able to make it without them. Yes. It's like if you're in stage number one and you have an uncle that he was working for 3M and was a great engineer with 3000 employees under his belt and you have a startup and your uncle loses a job and you want to hire him for a five people company, they have no idea how to operate without 3,000 people below them.

Yes.

Without having 10 assistants. They just don't get the idea. So you have to understand what stage your company is at and what you have to feed the company in Each stage, the hardest part for entrepreneurs are employees because they have to understand that their employees on stage one, they were great because they were on stage one.

So it seems like you need to give people a way to figure out who they are, what stage they belong. You need to understand yourself. And then they've got to have a way that they feel like they're not losing out on the victory, on the rewards of what they built. And they're not humiliated, right?

Yep. So you have to sometimes help them do a transition. Organized transition.

Yes.

And make them happy somewhere else.

Yes.

And this has happened to me many times. So I interviewed the CEO and said, are you happy with the employee? And said, no. Why not? Because they don't do anything. I said, okay, what kind of job do you give them now? And they say, well, very low importance task because they don't know how to do things.

Yes.

So I go to the employee and said, hey, how do you like working here?

Yes.

They say, I hate it. And I was. Why? Well, five years ago, I was in the middle of the company. I was taking high decisions. I was being with the CEO all the time. Today, I never see the CEO. I never do anything important. I'm just relegated to a very small office in the corner. And they never asked me to do anything important.

Yes.

And they are uncomfortable and happy. So help them be happy somewhere else. Help them go to a place where they could excel. And that's part of leadership. Part of leadership is making people happy, even if they're not with you. And that's really hard. Really hard.

Well, right. If I help start the company, I want to profit from the early association. I'd like to grow and develop myself along the way. And I want to participate in the victory in the future. And I have my own income to think about. But maybe I don't have a role in a big company. Maybe I'm a small company person.

I think the entrepreneur needs to understand that in every bottle, the bottlenecks at the top. And if they're not able to grow faster than the company, they won't be able to grow the company. And they happen to even the best. Steve Jobs was fired from Apple because Apple was growing faster than him. And then when he came back, he said, now I have the right mentality and maturity to run the company. Now I'm sitting in the right place. And we know what happened with Apple after Steve Jobs came back, but he was the right CEO for the company at the right stage. So as an entrepreneur, you have to understand, if you're not growing as fast as your company or you're not the right person, then you have to evolve that.

Very good. Very clear. Well, this is really helpful. So we have four stages to think about. Four different focus areas at each stage. The, the challenge is to identify the stage that you're in. You say it's largely driven by the number of people you have and then your challenge for the company and your leadership style in moving into the next stage.

Correct. Just one more thing. Einstein used to say you could not fix a problem on the same level of mentality or knowledge that you have. If you create a problem, I'm going to, because no one's seeing me. If I have a level five of knowledge, I'm going to create a problem at level five. I could not fix a problem of level five. If I am at level five of leadership, I need to go to level six in leadership to fix a problem I created on level 5. Same thing happens with the company. The entrepreneur has to grow first to the next stage mentally to be able to guide the company to the next stage.

Well, that is a great endorsement for our overall value of continuous learning and development. Having people find things outside their specific role, outside their industry and their company that expand their thinking and approach to problems.

Correct. And it's all about development. By the way, last thing, Whenever I know I'm going to be able to coach a client and grow significantly, the company with them.

Yeah.

Is if they read a lot, if they read the number one question I ask them, what's the last business book you've read? And if they say, well, like four years ago I read this book, at that moment, I know I won't be able to help the client because they're going to be stuck in their level and it's going to be very, very hard to grow them to the next level. Huge. The good entrepreneurs, the ones that are growing significantly, they say, well, I'm reading three. Which one do you want me to tell you about? You could see the learning attitude and the curiosity in the mind that determines if they're going to be able to.

Grow or not from that. Yeah, really good. Do you have links or resources or things that we should connect people with and point them to from here?

So there's a lecture that I did about the four stages in Awesomeness Fest in Mindvalley event.

Oh, beautiful. Right? Yeah, Link. Okay, great.

I think you have it already, but I'll send it to you. And then in Growth Institute, we have design training for the four levels of management.

Yes.

And the four levels of a CEO.

Yes.

What they have to learn in each stage to go to the next stage.

So we'll link them to both of those in the show notes and and provide that as a followup.

I really appreciate that.

Beautiful.

Awesome.

Thanks so much for taking us through the four stages and talking with us today.

Thank you Bill. Give us a pleasure.

Thank you for all right, we'll see you soon.

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