142: Ethan Martin & Dale Meador — Inattention to Results and Cash

Well, we see CEOs and leaders of businesses make a lot of the same mistakes over and over again. Today's show is about one of the mistakes that we see all the time, inattention to results and cash. And so listen in for a chat with some of the coaches about the problems that we see in this area and how we solve them and see what it is that you could do to make scaling up easier. Listen in. Hello and welcome again to the Scaling Up Business podcast. I'm your host and Scaling up coach, Bill Gallagher. On the show with me today are a couple other rockstar coaches and we're going to talk a little bit about one of the issues that we see CEOs struggle with again, CEOs and teams, but the leaders in particular struggle with and get in the way of scaling up effectively. So joining me on the show today is Ethan Martin from Denver, Colorado area. And Ethan is another rockstar coach with a distinguished background and in business and I'll let him tell you a little bit about that. And Dale Meador up in the Seattle area also joining us today on the show. Welcome, Dale. Welcome, Ethan.

Thank you, Bill, for having us.

Good to be here, Bill.

So let's just go because I did it in that way, not alphabetically because that's the way you are on my screen. Ethan, tell us a little bit about your background in business and as a coach.

Yeah, I've had the pleasure of being a coach for the last eight years. I was an EO for seven years before that and have a real passion for helping mission driven CEOs grow their company, build great teams and make a lasting impact on their community. And Scaling up has been a wonderful set of tools to use with them.

Nice. Good. And a little bit maybe about the work that you did before then, the kind of business that you've been in.

Yeah, so I've been a serial entrepreneur. I founded a private equity company and also I've had several successful businesses that I've started and sold here in Colorado.

Yeah, so multiple businesses, private equity and now coaching pretty effectively. So. And you can share more. I mean, you're leaving out some of the cool stuff like Ethan and I both share a passion for flying and he has some pretty fun aviation related interests. Dale, tell us a little bit about your your background as a coach and in business before the coaching.

Sure, Bill. So had the pleasure now to be a coach formally for the last couple of years, since the end of 2016. Prior to that, I founded and ran a CPA firm in the Eastern Washington Region for about a decade and we focused on delivering controllership and CFO level services to scaling businesses and you know the topics today. I know we'll get into some cash related topics, but it sure is apparent from that experience that while businesses present challenges or problems as economic and financial, there's often people issues or strategy issues or execution issues to focus on. So that was my background prior to being a coach, formally used a lot of the scaling up tools informally through our practice and with our clients. Made a natural transition to the coaching field when I exited that firm at the end of 2016. Prior to that, I had a number of other small business startups that I successfully ran and sold as well. So a lot of practical real world business experience in the service sector and excited to be working in the coaching space today and really helping make an impact in a lot of businesses.

All right, so today, awesome and welcome to the show, guys. Let's just dive right into it. So we're talking about inattention to results and cash. You know, not having dashboards, Warhams, or having too many metrics or no metrics or not paying attention to them. Poor cash forecasting, no cash forecasting. The whole all the world of that that can trip you up. And we've been looking at and talking among the coaches about what are some of the common pitfalls that we see people struggle with in implementing the scaling up framework. So that's the subject of our conversation today and I just thought it'd be great if we just shared some real examples. So either one of you, have you got one to share with us?

Sure, Bill. I've got a distribution company that's been growing quite successfully. The CEO is both a visionary entrepreneur and has a real eye to see many, many opportunities. And what I saw in that case is the classic example of what got you to this stage of growth won't get you to the next stage of growth where the CEO was continuing to pursue probably a half dozen different diverse business strategies within this one company. Didn't have the war room, didn't have a clear focus on cash flow, cash projections, even profitability by customer. And so even though he was able to grow, wasn't at the rate that would be ideal and certainly causing a lot of stress for him as an owner not being able to predict that cash flow.

And so what were you successful in that? Did it ultimately fail? How did that go?

Yeah, the business continues to be successful, but when we came in and used the scaling of tools, one of the first opportunities was to really, really get clear clear on the strategy and what the priorities should be for that owner and for his senior team. And then creating a war room out of our off sites where the whole team could stay very, very present to. These are the customers we want to serve. This is what's unique and valuable about what we bring to them. And having clear metrics so they could see both their sales pipeline and. And the operation of the business every week and know, did they have a great week or not? So they could improve those areas that they needed to.

Yeah. And how long did that take to get that done?

Yeah, so the initial strategy work probably took two quarters to really get clarity on and. Yeah. And then to roll out the metrics was probably the next six months to really get clear on what. Where they needed to focus.

Yeah, it takes time to get these things done. Dale, is that absolutely consistent with my.

Experience and, you know, just thinking about all the examples from the past, you know, decade or so in my practice that have presented like this, you know, one of the things that's, I think, critical when a team comes together and starts to work on these issues is to really get clear definition of what is winning for them. And so I can think of an example. A while back, I'd been working with a team for a period of time and experienced a measure of success. There had been some financial challenges emerge due to some circumstances that were somewhat outside of their control. And so there was a dip in terms of cash flow and got together with a team and had some serious heart to hearts about this issue. And I asked the leadership team the question, you know, is, is the business winning or losing at this time? And it went around, and each person responded with, well, you know, I think. I think we're winning. You know, there's some good things happening over here and some good things happening over there. And so, you know, we got some challenges and struggles, but overall, I think we're winning. And I got to the owner and, you know, he hesitated and. And pondered on that. His answer was, you know, in these areas, I feel like we're winning, but financially we're not winning. And so that's kind of uncomfortable. And what came out of that conversation was, you know, a lack of a clear scoreboard with a clear understanding of what the one critical number was tied to. Some kind of financial result is actually holding them back. They may be experiencing some cultural wins or seeing some, you know, emerging strategy clarification, but it wasn't connected to the clear financial win. A definition of winning and a result. And I See that over and over. If, if there's not clarity on that one thing, that one number, especially financial, that everyone understands, it really holds the team back and can really.

Cause, you know, I had a very large public company for a while that I was coaching and ultimately acquired by another business. But it's interesting that there was a lot of attention on the profitability but very little on the cash. And people only knew their own numbers, but not the overall numbers. And it had real problems. People didn't. The vast majority of the senior leadership and the mid level management had no clue that the company was in severe cash problems and couldn't reconcile profit versus cash. And we did some work on that. But, but I, it, it takes time, right? Like getting that in there and bringing attention to that. And sometimes, I don't know if you guys have ever had this, but sometimes the financial people are resistant to it. I can think of a couple examples where the finance team was like, oh, like you don't need to know that. Or we're taking care of that. And in one or more areas of the, of the results of the business.

Yeah, it's like you're, it's like you're putting blinders on people or putting a shield in front of their face and then asking them to, you know, drive down the road at a high rate of speed at that point it's like.

But, but don't you think there's some resistance in some of the senior leadership to sharing all the numbers that, that they're like, well, I mean I had this, I, we had big growth in a business and then suddenly everybody wanted raises because they're like, wow. And I'm like, yeah, but guys, we're out. Like the growth is sucking up cash and we have work to do. But suddenly everybody wanted to raise, right?

Well, yeah, it can be. Success can bring that hesitance. And you know, struggling in a particular area of cash flow can bring that resistance too, because it could be embarrassing. Like, I don't want to share that information with everyone. It's, you know, it's going to expose how tenuous the situation actually is. And I'm not prepared to deal with that. So that's another.

There can be resistance, but I've also just seen kind of a lack of comfort outside of the cfo. Some of the senior executives may not be as comfortable with the financials and not wanting to speak up and, or sometimes the CFO is presenting it in pretty complicated ways. And that's actually how we branded our company PFD Group Primary flight display is making sure the leadership team has a very simple, clear dashboards on these critical things like cache that anyone can look at and in a matter of 15, 20 seconds have that understanding of how are we doing and where do we need to focus.

Yeah. You know PFD has two meanings, right? Primary flight display, and then as a sailor, it's also a personal flotation device. Both things might keep you alive. You know, as you bring that up, I was thinking just as you, before you started to speak in instrument training, right. As a pilot, you will simulate different instruments being out and you'll cover them up, placard them, and then obscure them in some way and then try to deal with where am I, what am I doing? Like that kind of thing. And that's a really interesting thing that, that is stressful and, and yet you can do it. But it adds more to your stress level and concern. And I think some of the same thing is true of our business when we don't have full visibility to all the critical information and share that with the team.

Yeah, exactly. It creates tremendous stress and just a lack of understanding, you know, where the senior team can really work together to solve this. One of our portfolio companies, we made the mistake of not sharing probably enough of the information and as a senior team had a great turnaround plan. But because we didn't share everything with all the employees, they kind of left the burden of the heavy lifting to the senior team versus really taking ownership of what needed to be done to fix the cash flow.

Yeah, share the load across. So I had a contractor company that went through a period of growth and some acquisitions, invested in some other businesses, bought a building, did some things like that, and suddenly found themselves in some significant cash crunch. And that can happen a lot of different kinds of business. Certainly can happen in construction where the timing of cash in and out can be so important. But the financial team, the, the accounting crew was really, they were kind of proprietary. We already do this. We know the cash position here it is like you just need to work on it. And it was the current position, not the forecast. And the idea of creating a rolling long term cash model was something that they were pretty resistant to. Like, you don't need that, we're good, this is what you need kind of thing.

You know, why were they resistant?

A little bit of maybe not invented here and a little bit of like, you don't need to know that, you just need to run the business better kind of thing.

There's those. I wonder if there's not some additional resistance, just simply based on a lack of sophistication or understanding at times. You know, I've worked with companies that, you know, even in that 25 to $50 million revenue space that rely on accounting teams, you know, controller level accounting team members that really don't have the sophistication to understand how to create that kind of cash model. And so sometimes the resistance I've seen comes from that. So then it's an educational thing or it's a, let's look for someone that can come in on a part time basis and help you out. So that could also be.

Yeah, it's true. Do you guys find that this is the one report that's most missing is a cash forecast, cash plan?

Yes, absolutely.

Yeah, I feel like it's the one that's most sort of absent.

It's also one that just when he or she has it will give the CEO tremendous peace of mind.

Yeah, it's a lot easier to deal with a cash crunch if you can see it three months out, a month out. Anything other than next week is way easier. Dealing with a couple weeks out is, is like heart stopping. Having watched and talked people through that, trying to implement some of these changes. What about the. Let's talk about war rooms and dashboards a little bit. What works? What have you seen people struggle with? I'll kick it off. I have a manufacturing company I work with and they put a lot of attention on a new project. They were building some facilities and things like that and transitioning to them. And then productivity started to get off and this is a sophisticated operation with lots of data and ERP system and things like that. And I said, you know what? At the team level, at the crew level, in each of the areas of the business, the there's a defocusing of that at all. So let's start at the base level. Of course I shared some of the old examples, you know, from, from the book, but, but I said let's just buy whiteboards. So we had them order, I don't know, I think 12 whiteboards in the middle of our planning session and on Amazon and get delivered to the office. And then I had them put an appointment in to make sure that those things got installed or that they told somebody else to install them the moment they arrived. And then we spent the next, probably less than an hour or right about an hour, just saying, okay, what are the top four metrics that each team needs to have? And it could be as few as two, but at least two and no More than six, so two to six metrics that you'd have by team. And so they all did, they came up with what the most important ones and then they, they did some work in pairs and with their, their boss and the head of the business there and they just went around and got some feedback. I said, okay, you may change that later, but these are the metrics that you'd want to be tracking daily and weekly. And so this is what you're going to go put on those whiteboards. And and then they went back and did that and I had to follow up and I had to also visit to make sure and in one case that they weren't up yet and in other case they weren't using it yet. But once they did that, productivity soared across the business just by that regular daily attention. Because they get behind in one shift and the next shift would pick it up. They get behind one day and then they try to recover so that they're weak to date. And the trailing week numbers weren't off. But there was just a lot of attention and focus on that.

I can think of a lot of examples like that too, Bill. You know, we're talking about cash specifically in the financial stuff. But the, the team focus on that daily basis really needs to be focused in on what their individual drivers of whatever those critical numbers happen to be are. And I totally agree. You know, maybe, you know, real time information of actual, you know, P and L and balance sheet information at the team level is unnecessary. Maybe you know, a weekly update and some kind of a weekly huddle or something like that acceptable. But at that frontline team level, we've got to have, you know, two or three, four or five at most things that we're focused on on a every single day basis. And it can be as simple as the whiteboard, like you say, or something more sophisticated. I found that oftentimes, you know, friction to implementation on that kind of stuff comes from, you know, making it too complicated. People want to, want to put screens up and tie it into databases and so on, but you know, there's, there's cost and friction there. So doing what you said and getting those whiteboards up is, you know, it's the best solution.

Funny that that business, pretty sizable business, but I worked with one that was even larger, about $200 million. And they just had whiteboards up in every area and every team had a daily huddle around the whiteboard and they picked up their pen and they dealt with the thing and, and then I've had other teams that try to be all fancy with fancy BI dashboards and screens across every office across multiple continents. They're like, oh, we're a big time player. And it just becomes like, like screensaver wallpaper. You know, it's just back because they're not interacting with.

I work with a global software company and they've got a great ERP system and all kinds of visibility, but sometimes it's the most simple numbers that they're writing up on a whiteboard that really have that power, especially if they're writing them. And just the most critical thing here to keep in mind is visibility. Whatever it takes to make these numbers visible top to bottom in the organization just does so much for alignment and making sure everyone's focusing on what truly matters. And so we use a tool that kind of helped capture the one page plans and the execution side. And it does a great job with metrics. But yes, a simple whiteboard, as long as it's updated can be super powerful. And having that war room in a location where all the employees can see, that's what makes a difference. It's not keeping this stuff in.

Yeah. Getting it out and interacting with it. You know, it's funny, so many of these examples come back to basic things in other domains, but I was, I'm remembering because we're on it when I was getting my private pilot's license and, and I was all excited. I brought in an app that I had downloaded on a PDA device, right. And I'm like, I go in and I'm like, oh look, look. And I showed my flight instructor how I could do flight planning on it. And you know, at that point I'm flying under visual rules and he's like, dude, that's going to get you killed here, punch this in and flight plan that. Now tell me, can you go fly that? And let's look at it. And I put it all in and then we looked at the chart and we're like, yeah, I'm going to fly through a military operating area and into the side of a mountain. And he's like, you've got to think and you've got to not over rely on automation to tell you what to do. You have to know and understand what you're doing. And I think a lot of times we can over automate things, not interact with them. And sometimes the simple act of picking up the pen and going and interacting with something simple like a whiteboard can make all the difference, right?

Well, it's picking up that pen and it's doing so on that frequent cadence, I was talking to someone the other day about the use of a particular piece of technology. And I use the metaphor of it's kind of like a toothbrush. Right. You got to pick that thing up twice a day and use it for about three minutes each time. And I see our whiteboard, huddle, board marker interactions in much the same way, if you put the whiteboard up and you write the numbers up there, then no one ever, you know, shows up and does anything with it. No one ever picks up the pen and adjusts it, or we don't gather around and do something, it has limited effectiveness. But if we all gather around that thing every single day for a couple of minutes, pick up the pen like you pick up your toothbrush and the respective owners of whatever lines go up and update them and call out the numbers. That's. That's the kind of interaction, not high tech, but it's the kind of interaction that actually gets us in contact with what's most important.

Yeah, I think that's critical. Right. The regular, consistent use of it. Not the knowing of it, but the interaction with it on a predictable cadence. That makes sense.

What we're used to in every other aspect of our lives. Not everyone may be able to smile it and see how much it translates to running a company. We, a lot of us have played on sports teams where you've watched different games, and if you went to a game and there was no score, there was no amount of time left. I mean, just the things that we almost take for granted to know the context and kind of where things are at. The company is the same way, and teams just truly enjoy much more. How are we doing? Where can we make the greatest impact? And if there's no metrics, it's really hard to know what to move.

Yeah. Where are we at? How are we doing? Yeah, a score makes a difference in doing that. I think there's one other thing that comes to mind, and that's having too many. I can think of several companies, one where we just had too many, and they were just like, none of these numbers matter. And we did them. And I'm like, great, let's look at them. So we looked one by one, we started erasing them. I'm like, okay, now you have half the things on that dashboard, but they all matter. And these matter daily, and this matters weekly, and this one matters monthly. Right. And they could go through that process. And I have another one where I've got a CEO with a strong, strong financial and analytical background. And he's very comfortable having a lot of numbers, a lot of complexity, a lot of information, but it overwhelms the team and then they're not sure what to focus on.

So at a high level, how many numbers do you think is right to.

Have on that scoreboard? I've had good luck with four to six in terms of a high skim value and trying to have a really good mix of leading indicators and lagging indicators. I mean financial are certainly very, very important, but by the time they show up in our financial report, it's too late to change them by definition. So making sure we've got numbers that are forward looking could be around net promoter score, customer satisfaction, other things that will help us identify those key trends. Where are we going? Just like with the cash flow forecast, while we still have time to make a difference and an impact on them.

Yeah. Net promoter score, pipeline activity, pipeline value lead volumes, failure rates, productivity uptime, all kinds of things like that that are sort of activity production oriented are good and kind of the leading thing. But then like you say, balancing them out. So I found like, you know, for within a team is not too bad, but for the overall company probably more like 6 to 10 that are balanced again. So how could this one go wrong? Is the great question to ask. And, and I always, I mean I can think of one personal mistake as a CEO where I didn't a lot of attention on one number and not on how it could go wrong. And I ended up with a multi million dollar mistake that I paid for dearly when I put all my attention on the sales, but not the production side of things and ended up with some costly mistakes. It was real cash right out of the business. Some people call that tuition at that high level.

I agree. I think that I guess if I were to sit down and work with someone to build a scoreboard from scratch for the very first time, I'd want to see at least a revenue number, a cost number, some representation of general and administrative expense. Following that, really digging into what is the company's economic driver. We talk about profit per X as a, an element of strategy, but what's the widget count or the driver of economic progress and then balancing all of those numbers with that bespoke understanding of the particular drivers in that business's case. So is it satisfaction or is it retention or is it a production metric or WIP metric or something like that? I think that's kind of where you have to start is you've got to have some top level results or outcomes that we're tracking and then identifying the particular drivers and then that's going to create six to eight numbers to focus on.

So like I have a few clients that have a lot of staff, big employee costs. Right. And so there, when they look at labor costs, labor efficiency ratio, they're looking at, at that driver. Then we want to look at employee satisfaction and we want to look at work quality as well. So you could push so hard on that that then you end up with defects or customer complaint issues. You could also push so hard on that that people become burnt out and want to leave you. Right. The counterbalance to each of those things.

Absolutely.

So the too many, too few, inattention, overly technologized to the point that you're not interacting with it. Right. Not looking at it, being unwilling to talk about the numbers or share the numbers widely, not having your focus on the ultimate thing like the cash position where it can be game over pretty quickly if you run out of cash and can really stress you out if it gets too tight and you have to chase the cash, you make unwise decisions. And. And this is true of companies of all size, isn't it? Any difference that you see, large or small?

No, the only difference is if it's a large company, it could go bigger.

Problems quicker, happen faster.

Bigger problems at a much quicker rate.

Yeah. Any. As we start to run out of time on the show, any final words from you guys on things, things that you think are important for folks to start or take away?

So one of the things I've seen with a lot of scaling up clients is just creativity and how the numbers are shared and displayed and maybe tied in the quarterly themes where they almost gamify the process because not just at the senior level, a lot of the employees may be uncomfortable around financials and some of these metrics. And that's something I've seen with my clients is just a lack of comfort around priorities versus metrics and really building that muscle on the quantitative side. And so anything a leadership team can do to help gamify and educate along the way is usually very, very beneficial.

Totally agree with that. And I'd add to that, I've seen some teams jump into that process and start to create some themes or some games around it. And in some cases they'll create games where there may be teams within the organization playing in a competitive sense against each other. And I would just add that it's better, it's more effective if the company comes together and plays as a team. So instead of competing against one another. We compete for a common goal with a common objective and a common celebration or reward at the end of that as well.

Against the world against the competition versus against each other.

Yeah. And you know, some teams like to be competitive with each other, but when you introduce an element of competition internally, it can often detract from that common goal. And we end up not making as much progress as if we all aligned around one goal and agreed that we either all win or we all lose together.

Yeah, yeah, yeah, yeah. A little bit of rivalry or I've seen between shifts and between crews and things like that, be raising productivity and be playful but remembering the larger thing of, hey, guys, this is the business we're in together. We all work for the same company. The thing that I would say is whatever it is, get started obsessing about getting the numbers right or getting the dashboards right and figuring out the whole thing and when it is and doing anything that delays getting started is a concern for me. Like, let's just pick 10 numbers right now, pick four even. Let's figure out what we're going to do if it's a dashboard or flip chart even. Let's start doing something now and then make it better and better over time and then keep asking ourselves, did that actually make it better or was that something that prettied it up in some way and didn't actually forward the results of the effort?

That's good.

Well, it's a great subject. We're going to do more of these where we talk about the pitfalls of scaling up and the things that leaders struggle with in scaling up effectively. Thank you guys both for coming on. Ethan, tell us where our listeners can get more info. What's your web address?

Sure.

Thank you, Bill. It's PFD-group.com PFD group.com.

Yeah.

Yes, that's correct.

Yeah. Awesome. And Dale?

Yes. My Website address is financacoach.com that's F I N A N Z A coach.com.

Financacoach.Com Ethan Martin, PFD-group.com and Dale Meador, financacoach.com Thank you guys so much for being on the show with me today and I hope our listeners got a lot out of it. Reminder that we bring a show like this every week to you and so come and find us. You'll find all of our info and tools and downloads and things like that@scalingcoach.com thanks again, guys. Talk to you next time.

Thank you, Bill.

Thanks once again. I'd like to give special thanks to the original growth guru, Vern Harnish. Our show is produced by Crystal Carson with audio production at Podfly Productions and audio editing by Albert Burge. Our show notes are compiled by Ian Kadina with proofreading by two Tim McGowan. If you got some value out of the show, please share it, Pass it along, let people know, help us spread the love. And thanks again for listening. Keep scaling up. J.