Grayson Lafrenz - The Mistake That’s Making Companies Waste Money on AI - Cadre AI

I'm a bit of an AI skeptic, but I think it's going to take a much longer time for it to really transform businesses than what the media would like to tell people. What most companies are doing is they're chasing tools. They're at a YPO forum, EO forum, CEO Alliance, and someone says, oh, we used this tool. It was awesome. Well, let me go see how I can use that tool. That won't do anything for you. You've got to chase the business problem. What's the problem we're solving? And you know what's interesting in our world is a lot of times we find these business problems we're there to do AI, but it's like, look, you don't even need AI. You just need automation is step one, and you're going to make this problem way better. Most executives wish they had more time to work on the business and think and strategize, but they're firefighting and they're very busy in the forest running the business, and so they don't have the time.

So Grayson, good to see you again.

Great to see you. Thanks for having me.

Yeah, I'm really looking forward to this. Um, you guys, Cadre, have become a partner with now the COO Alliance, and we've been talking about you to all of our clients I think it kind of makes sense for me to get a little bit deeper and share more of why you're a partner and why we selected you to work with, because we reached out to you guys and you jumped at it. So tell us a little bit about Cadre and the niche in the AI sector that you're playing in.

Yeah, so, you know, my background is as an entrepreneur, builder, operator, and my focus has been really heavily around B2B services, tech-enabled services. And about 6 years ago, my other business, we got really on the AI train and it gave us some tremendous operating leverage. It allowed us to have about a 40% EBITDA margin in that business up until about $100 million of revenue, which in that space, you know, 20% would have been great. But so I was drinking the Kool-Aid with AI, you know, due to that. And a lot of what we did there was around AI enabling the go-to-market engine. The way we sell value-based selling to clients, the way we onboard them, but we also wasted a tremendous amount of money. So after exiting that business and moving into chairman role there, I was like, you know, what do I want to do next? And obviously I really wanted to be in AI and services, but I just saw this huge white space where companies have no clue or are really struggling to figure out What are the problems in our business that we should AI enable? What's the best way to do it? And most importantly, how do we have our AI strategy be highly measurable and driving P&L impact? Because at the end of the day, if it's not enabling revenue to grow faster, your business to become more profitable, your people to become more happy, enterprise value to go up, then it's a distraction. And it could be just, just AI can be., a negative thing for your business and can create a lack of efficiency. And so when I kind of studied why companies had not been more successful, like we had in my previous business with AI, it wasn't the technology. It was the integration, the strategy, the services side. So what Quadra exists to do is to help companies get really clear on their AI strategy and what are the business problems What's solving with AI and what's the impact case? And then to be that elite SEAL team that can implement on your behalf and be an extension of your team and be your AI team. And so for some of our clients, they may have in-house AI teams and we're augmenting and bringing strategy, perspective, relationships, horsepower. And for some clients, it may just be a committee. But that's really what we're here to do. And we sit in this seat where we have great relationships with all the tech partners, but we're agnostic. So we're not going to try to jam, you know, this technology down your throat or that. We're not going to try to, uh, reinvent the wheel. We're going to meet you where you're at and help bring those technology relationships. But we also get to see what hundreds or thousands of companies are doing with AI and what's working and what's not working. So, so that's what we can do. Um, well, there's, there's—

sorry, the last time that I've ever really seen this kind of a need was actually 30 years ago, and it was right as the internet was starting to evolve. And I was just speaking yesterday, 2 days ago, to our former tech partner back in the 1-800-GOT-JUNK days. So this was 1996. This was 4 days, 4 years before I joined Got Junk. Um, he was my partner at the auto body business we were running. Anyway, fast forward it, we didn't know what the internet was. We didn't know how to be an internet-enabled company. We didn't know how to connect our We didn't have any laptops, how to connect those to Wi-Fi. We knew that it was a thing, but we didn't even know where to start. And we brought them in to kind of do what you're talking about, to lay out the strategy, figure out where to focus, show us what our low-hanging fruit was. And then really, instead of even teaching us how to do it, they taught us how to do some things, but they just did some stuff for us because it was fast forwarding. Are you noticing right now? I feel like I've noticed a lot of companies in the last 6 months, maybe even 3 months, all of a sudden put their hand up and they go, okay, I give. Like I've been scrambling, trying this, trying to do OpenClaw and Claude Code, and they're following the next cool thing and they're spending all, all, you know, all weekend working on it. They're not getting any results or they're not getting any momentum. And it's almost like they, they're now realizing they don't know what to do. They don't know where to go. Are, are you seeing that they're more apt than ever to even come and talk to you now?

For sure. I mean, I can count on one hand the number of companies that I've seen that are like, we are dialed, we've got this down, we feel great about our strategy and how we're executing. And I've spoken to thousands. And the reason why it's exactly what you said, it's hard. And it's honestly not that hard to find the business problems that are worthy of AI enablement because forget the tools, forget AI. You know, as a exact CEO, COO, executive, your job is to be like, what are those bottlenecks, levers, problems that if we can unlock or improve will drive the most impact? So finding those is not the hardest. The challenge is most executives wish they had more time to work on the business. And I know at COO Alliance, I'm sure that you all do a lot of work around that. They wish they had more time to work on the business and think and strategize, but they're firefighting and they're very busy in the forest, you know, running the business. And so they don't have the time. The second is it takes a lot of skill sets. That's the hardest.

There's a real fear curve that I think is real here. If you're not a tech CEO or you're not a tech savvy CEO, which usually means you're under 45, you're just not going to adopt this or it's just scary. It's scarier.

Yeah.

Right.

Yeah.

And where the fuck can go.

It is. And what's, what's really interesting with AI, what I've learned is you need great business strategy. So what are the problems we're solving? You need finance involved. What's the business case behind this? What's the payback period? You need product and research. Okay, here's the business problem. We can solve this 20 ways with AI. Which of those 20 should we do? With any business problem, there's always the really scrappy, rapid, that could be an in-it-in workflow with Claude. To prove that AI can maybe impact this problem to the end-all be-all system, and then everything in between. So you need that solutioneering, you need engineers, AI engineers, you need data, you need project management, you need training and change management. That's been one of the hardest parts. So you need all these skill sets, but also the challenge companies have is to have a really good AI transformation. It's not one department.

Right.

It's, it's across the whole org. So you have to figure out how to corral these different stakeholders and leaders, get them on the same page and then implement. So it's, it's really hard. And if you're trying to build the team in-house, it's really expensive. And it's also hard. It's like for me as a CEO, whenever I've hired CFOs and I'm a pretty financially savvy CEO, I would say, but I always have leaned on my private equity partner or other advisors to do more of the skillset evaluation of the CFO, and then I'm more interviewing for the culture fit, core values alignment, these things. And so for me personally, I could not interview an AI engineer and tell you this person is the best, even though I've interviewed. Right? So it's very difficult. And there's a really big need.

When a company, when a company is looking to bring someone on like you and they're looking at you and maybe a couple others that their friends have told them about or wherever they get, you know, cold called by somebody off Instagram. And what should they be looking for? How do they pick, other than culture fit, how do they pick who to work with? And then my guess is that your ideal client type would be more midsize to larger company, like 50 to 500 employees. Is that kind of the zone that you, you tend to work with?

Yeah. So we're really focused on middle market companies, which I'll say is called maybe And everyone defines that different. To me, it's like at least $30 million of revenue, um, up until we have, you know, 4 or 5 publicly listed companies that are, you know, $20 billion types of businesses. But I think our sweet spot is that $30 to $500 million of revenue. You're, you have a legit business, you have product-market fit, you're scaling, you're growing fast. Um, but you know, you're not, you're not at a point where you're super corporate and siloed. At the same time. So that's, that's our focus in terms of trying to figure out who to work with. The competitive landscape for us is you've got the McKinseys, the Bains, the big consulting firms. Most people have worked with those. I won't go into the pros and cons of that, but if you're not Fortune 500, 1000, that, that probably is not the right fit. Then you've got the software development firms, which is not the business I love, that are now AI development. If you have a vision for a proprietary product you're trying to build, those groups could be great. But if you don't necessarily know exactly what you should do and you don't want to build some heavy custom application, but instead be using the best-in-class technology and stitching together, that's not a good fit. And then you've got the AI—

let me speak to that for a second. I've had a couple of, of, um, friends that were entrepreneurs that went and ended up talking to these AI companies that were really more like a software company, like you just they went so far sideways working on stuff that was busy work and complicated work that didn't necessarily drive revenue, gross margin, or make anybody happier. And then they're like, what the fuck did we do all this for? Like, yeah, AI enabled some stuff, but it AI enabled some stuff that didn't need to even get done.

Yeah. And look, the biggest mistake that I've made in tech enablement in my own businesses is building too big, heavy of custom systems that create a ton of technical debt. And especially in this wave of AI, you don't want to be handcuffed to your system that you have to maintain. And then when better stuff comes out, you're flexible. Instead, you want to try to figure out how do I take the best pieces from the landscape and then build a custom system that connects those and works for my workflow, right? So look, I'm a big anti-software development player. I had a P&L in business in my past business that was a good size for that. I shut that business down. It's just, It's very, very hard to deliver what the client wants because they, they think they know what they want, but they may not. So those companies are good order takers. If you want a cheap, just do what I tell you to do solution, they could be a great fit. And then there's the AI native firms, which is us and others. Now where we're different is most of it's very similar to internet marketing, which I was in the field before. Most of my competition in my previous business, Power Digital, They were a practitioner, an amazing media buyer that starts their own consulting business. Yeah. Now all of a sudden they become an agency or a business and they grow, but they don't know how to operate the business. They've never been in the seat of the client. That's exactly what's happening in AI. The difference with us is if you look at our executive team and we've got about 70 people in the company now, these are really polished executives that have built scaled, sold businesses, have been in private equity-backed, you know, high-pressure, uh, high-expectations environments, and are very, very P&L-centric. So we combine that with also happening to have some of the best AI talent there is. We own the largest technical AI community in San Diego. It's called SDX. There's 1,500 AI builders in that community. So we have access between that and others to get the best engineers, the best AI strategists, but the most important thing that we offer is the business strategy. And what most companies are doing is they're chasing tools. They're at a YPO forum, EO forum, CEO Alliance, and someone says, oh, we use this tool. It was awesome. Well, let me go see how I can use that tool. That won't do anything for you. No, that won't do anything for you. You've got to chase the business problem. What's the problem we're solving? And you know, what's interesting in our world is a lot of times we find these business problems. We're there to do AI, but it's like, look, you don't even need AI. You just need automation is step one, and you're going to make this problem way better. And we don't care, you know, we're not like, oh, well, if it's automation, we don't want to do that because we want a fancy AI system. We're going to say, what's— if this was my business, what would be the move I would make, an investment I would make right now to drive the best outcome and to meet me where I am?

So you guys are, you guys are doing work for about 4 or 5 of our CEO Alliance members already. When you start working with a client, you go into a mid-sized company, they've got 100 employees and they're doing $30 million in revenue. What do you do? How do you go in to assess where they, if they don't know, they, they know they want to AI-ify their place in some way. How, how do you, without them leading you, know where to go? Do you look at revenue first or do you look at margins first? Do you look at, efficiencies and waste? Like, what do you look at to decide what to put your people, time, and money onto and what to put their money into?

Yeah, so I might give you too much context here because it's a great question. And so if I do, I'll, I'll, to get to answer the question direct, and then I'll give you the backstory. We start with strategy and I'll explain that. I didn't want to do that. As a founder, I hate paying for strategy. I hate it because I'm like, I've got a great network of friends and advisors I can tap. Usually I don't feel like my problem is strategy. I usually feel like it's How do I execute? How do I pivot? But what we started off doing it, what I wanted to do at Cogedre is go do the strategy for free. And then I wanted to get into integration. It is so hard. Um, and it is so intensive. So, so what we found is most companies, if the answer, if I ask you, do you have a really clear AI strategy that your entire leadership team understands that you're measuring against that's rooted in ROI that ladders up to a 3-year longer-term dream vision? If your answer is yes, I'm like, okay, great. Show it to us and we'll show you how we can help you evolve and help you. I'm yet to have somebody answer that yes.

Yeah.

We need, we need to help you get that. The way that we've figured that out is we start with this strategy project that is very low risk for the client. It's not exciting financially for Cadre, but basically it's usually 60 days. We can do it. We've done it faster. We've also had much bigger companies that want to do it slower. We come in, we help them pull together their AI committee. A lot of times they may have one. We do some education and we help show them lots of use case examples to inspire them to be like, oh, these are the types of business problems that could be solved with AI. Then we do this maturity index, which we've done with thousands of companies that will give you a quantifiable metric as to where your company is on the AI transformation journey and gives you a benchmark that you can measure progress against. It's really, really interesting. And then we do deep dives with every department and functional leader. And we're focused on, you know, what are you doing with AI? Chief Revenue Officer.

So it's almost like you're doing a SWOT with every business area then.

Yes. And it's exactly. So if I'm talking, we're talking to a Chief Revenue Officer, it's like, hey, are you, are you at plan this year? What would it take to be 200% of plan? Is it a deal flow problem? Is it a sellers and Pareto seller issue? Is it, velocity of the sales cycle? Is it handing it off once it's closed is burdensome? What are those problems? And so we're looking for those problems that we've solved or that we can solve with AI. After all those deep dives, we bring them back a use case library and it's all prioritized and ranked. And this use case library can have 100 use cases sometimes, and every single one has a back of the napkin ROI impact case. Why? Why are we talking about this? What metric can it move back of the napkin? Why will this drive financial value?

Interesting.

We co-author that with the client and then we ultimately help them build a 3-year vision of what does this thing look like, feel like, fully AI enabled. And then we help them build a 12-month roadmap that's sized to their risk tolerance and what they're comfortable doing. And once that 12-month roadmap happens, our FP&A team is working with their CFO to build robust ROI cases against those. Right. And they can, we've had clients that then take the 12-month roadmap We help them build the in-house team. They do it on their own, but most of them then have us help in some capacity to implement that plan. So that is, that is where you need to start, in my opinion.

Years ago, I was asked to go into a company in Florida. He was president of his YPO chapter. He went on to raise $255 million from Warburg Pincus during the time I was coaching him over the next 4 years. But when I went in, he asked me to do a SWOT analysis on his company. And basically I had them fill it out and then I just talked to them about it. And then I went in and led a 1-day planning around their SWOT. That was my next 4 years of coaching, just talking about all this stuff. Like I was like, well, you just paid me to lock you in for 4 years because you— so that's why they're hiring you is you're helping them prioritize everything. First, you're helping them know what it is, then you're helping them organize it, then you're helping them prioritize it based on an ROI. And then you're basically saying, we can get you, you know, these ones. Is that, is that what you do? Do you select the ones that are the easiest or do you select them based on what gear they're going to make spin?

Yeah. So we have a whole scale. It's interesting. So when we, about midway through and we expose them to the first draft of the use case library with those impact cases, there's often, we're, we're co— we're debating it with them at that point, which is healthy. And a lot of times client will be like, look, we, this is the one. This is, and we're like, we see it. We understand if we can, if that happens, it will transfer into, but that you are not ready for that.

Yeah. Yeah.

Yeah. You are not ready for that. Or maybe we're like, the technology can do it. It won't really work the way that you want. So let's put that, let's put that up here in the longer vision because you have use cases that are, that you've already been able to show them. And, and part of it is you also, a big part of the strategy phase and why we do that maturity index is like, we need to understand the culture of the company. And one of the really interesting things, having done this maturity index across thousands of companies, is employees are way more scared and reluctant than the C-suite thinks.

Okay, this is my exact— here's my question. Layoffs used to be a fear. It doesn't feel like that's playing out, but people tend to still be a little bit nervous. It feels like a year ago everybody thought that every business area was going to get obliterated by 80%. It also feels like the Bay Area and Sand Hill Road have kind of pivoted the communication a little bit to not scare the shit out of the government and slow it all down. So now people aren't so worried about their jobs, but I feel like the average employee is still a little bit nervous. So do you go in and kind of coach the company around how to get people feeling safe and secure in their job and safe learning these tools? And, you know, do you coach around that or?

Yep. So yes. And the employees are nervous. I don't even think it's as much, I think humans are nervous of any type of change. I mean, I'm a creature of habit and when I moved from PC to Mac back in the day, I was nervous and it was very hard for me for a period of time, which is something to think about. 19 years ago. Yeah. So I think it's that. Look, I think the way we do this strategy project is there's a, have you ever seen the movie Inception? Leonardo DiCaprio, but it's like, how do you effectively take an idea? Like something I know for your business, or you're a sales manager. I know that I've got this thing that will transform the success of your team. I need to make sure that I'm not pushing that on you, but that I help you see it. It becomes your idea. When that happens, and everyone's seen this in companies, when the idea is the idea of the employees, The failure and the success goes through the roof.

Yeah.

And I've seen enough AI implementations, like very rarely does the AI system snap into your existing process. The way people work is going to have to change. And if they're not bought into it, I've seen so many systems deployed in companies. Awesome. It does what you want and then it's not used and adopted and never drives the impact desired. So The change management training culture, it's all throughout and it's constant, but to your point, it's first training the team members, but we also consult the CEOs on how should you be communicating your AI strategy to your team. Yeah. And messaging. And that's different for every company because the culture of my company at Cadre or my previous business, Power Digital, or versus yours, it's really different. Right. And so. We help lead them there. I think one of the challenges why employees are scared is very few CEOs have communicated any type of well put together, well thought out strategy of where they're going with AI. Yeah. So clearly when that's the case and all you're hearing about is AI, you're gonna be wondering like, well, what, what's this?

And all they're, all they're seeing is what's getting pushed in front of them on Facebook too. Yeah. Right.

So I, and I'll tell you, there's a big media cycle. Like I'm, uh, funny enough, you probably wouldn't think it from me. I'm, I'm a bit of an AI skeptic. In terms of, I think it's gonna take a much longer time for it to really transform businesses than what the media would like to tell people.

I don't think you're, I don't think you're the skeptic anymore. I think you're more of the early majority now. I think we've gone from kind of the innovator to the, the early adopter to the early majority. I think the vast majority of entrepreneurial companies that I'm speaking to that are kind of the small to mid-size are pretty much across the organization saying, We now see this as a tool that we should be using. We're not as panicked about using it as we were. And I don't think I'm going to be able to lay off very many people at all unless I uncover the fact that they don't do much work, but I'm going to empower the shit out of them.

Yeah.

I just don't see the layoffs coming like we were worried about a year ago. I know. I think it may happen, but it's like the driverless vehicle. I drove in the very first autonomous vehicle in 2011 at TED. 15 years ago. It took a long— and I just saw a Waymo today in London, but it's still got a human driving it. Like, it's just not ubiquitous yet. And it's gonna— to get ubiquitous, it's gonna take a long time. So, but people are—

not, not, and I'll tell you this, what we're seeing in our most successful clients is not as much the layoffs, but they're saving substantial time to where now it becomes, all right, show it to me that they can now elevate the humans into a more strategic work.

Correct.

And then they're either self-selecting out those that can't do it and are tactical or self-selecting out and they're getting that cost synergy that way and others are rising to the occasion. But most of them, what they're, what we're trying to accomplish is not necessarily to go gut your team or anything like that, but how do we get your hiring ratio that maybe today is for every $3 million of top line I add, I have to hire 10 people. How do we get it to be for every $3 million of top line I add, I have to hire 2?

Yeah. Yeah. And then, and then give those 2 the tools that they're going to crush the, they're going to crush 5. Two final questions I want to go to. One might be a bit of a sidebar, but the buzz over the last 3 or 4 weeks on all the AI podcasts I'm listening to is about tool routing, where you've got some system that now sends your request out to whatever tool is the cheapest and most efficient for whatever use case you're going on. Is that a big trend that companies should be looking at, or is that one that more, you know, enterprise level when you're burning tokens should be looking at? How do you know when, when that's something to put in place?

Yeah, so that's something we do for every client. And, uh, what we're able to do is getting more sophisticated, not tool routing per se, but there's a big, uh, there's like a bubble in AI tech, right? I mean, the amount of energy these systems take, uh, and obviously their approach has been a race, just get users and do that, but that is starting to flip, right? And we're seeing that, that happen. So The management of how tokens are utilized and tracking is critical. And it, you know, sure, uh, routing is, is, is one way. The other is just looking at certain workflows you have AI doing and does this need to happen, uh, constantly? Can this be a one time a day? Yeah, it's, it's very similar to if you're on Snowflake or whatever data warehouse you're using and consumption, it's a very similar strategy, rigor, management you need to have there to the AI systems as well.

Well, where I would rather focus as an entrepreneur is I want more revenue and more gross margin instead of more efficiency. So maybe I won't worry so much about optimizing my token spend if I can just grow my revenue and my margins by 25 or 30% because I'm kind of AI-fying, right?

That, that, yes. And then that's also why when we were talking about the software development and building these heavy proprietary systems, I don't recommend it. We want to be able to modularly snap stuff in, even like Claude, so far ahead for businesses of OpenAI for the last 6 months. Over the last month, that window has changed a lot. Like OpenAI has made huge advances and is more cost effective token-wise in many, many cases. So having flexibility is key. Now the challenge is my goal for a company, if I'm working with them, is to introduce as little new technology as possible.

Yeah.

You know, the last thing you want is 30 different systems. How are you going to master and have an employee base that's confident and amazing at using AI if they have to jump from, you know, 20 different tools?

I think that's also something that if some, if a company is dealing with something at that complexity, they probably have the expertise internally already anyway to help deal with the complexity, right? Final question I've got, I just wrote down Jerry Maguire. What makes a good client for you guys? Like, if— help me to help you kind of thing. Like, if you were to turn to— if, let's say, I'm the CEO of a $50 million company and I'm bringing you guys in to AI-ify me, what would you tell me to make it easier for you guys to help me? Like, is it show up on time, show up prepared, show up vulnerable, show up honest, return our emails quickly? Like, what makes a good client so good? That you guys can just end up doing better work for them because of them? If that makes sense.

Yeah. So I think first is, is, uh, an educated client is very helpful when they understand AI and they also understand that the path is not a direct line. It's going to be like, you know, these types of things, like anything. Um, second would be the culture of the company is very critical when we're doing the strategy, uh, phase. We're paying a lot of attention to that. We need a company where the culture is not of a growth mindset. It's not trying to catch someone messing up. It's a best idea wins. Doesn't matter if it's mine or yours. It's open to debate. Um, people are not afraid to have a voice and share. They're not afraid to mess up. So it's that. And then you need a boss. One of the biggest challenges that I've seen is you look at an AI committee of a typical 500-person company, you might have 12 stakeholders and all of them have their own motive. Um, not in a bad way, but ultimately it needs to be led by either a strong CEO, strong president, or somebody that's going to ultimately listen to that group, but then make the call and make the decision. Or you can just sit there and waver and have way too many cooks in the kitchen. So those are all critical things. I'd say businesses that scale heavily with people are, we love, those are like, you know, amazing clients to where we look for sleeping giant companies where we're like, oh my gosh, this company's successful. And there is such, we can blow them away fast with big impact stuff. And there's just companies that have that attribute. We could tell very quickly, I could have a call with you for an hour and I could tell whether you're that sleeping giant or, you know, hey, we can do some stuff for these guys, but they are dialed and there's not a ton here due to the nature of their business. Right.

So yeah, I just, just you saying that, I just thought of one of our third year CEO Alliance members. I'm going to introduce you to, they're about a $100 million company. Um, Tech people enabled, strong team. I'll introduce you to them. They could be a great client for you guys as well.

The last point is I love private equity-backed companies.

Okay.

Um, you can't be a scared money investor in this stuff. There's certain things that you're going to need to invest in that are table stakes to get your car at the start of the race that won't, won't generate an ROI. And, um, I've seen, you know, founder-led companies where it's scared money. And, you know, you, you have to be smart about what you're committing to, but then you got to see it through. You can't knee-jerk around on this or you'll do a lot of activity. You know, I think AI, one of the biggest issues with it in general is it's creating a ton of tinkers. And I think that's a good thing, but the amount of AI experts I have, some of my team here, they're the best AI people ever. I'm like, you are the least productive team member I've ever worked with. You're doing a ton of stuff. You're not finishing. And you're not putting stuff out on the field for us that is usable. That's, that's more than like an MVP, right? So these are things that you got to really watch out for. And it takes a real mindset. It takes a real, you know, we're burning the ships, we're doing this, we're going to see it through, you know, type of mentality.

Well, I guess for anybody who's watching and listening, if you're running a mid-sized company, kind of in the $30 to $300 million zone or plus, certainly if you're venture-backed, Reach out to Cadre AI, reach out to Grayson and his team, at least have a discussion to see where they might be able to help you. Um, Grayson, thanks so much. Thanks for sharing. Thanks for being a partner to the CEO Alliance and my entire community.

Thanks, Cameron. Enjoy talking to you.

Appreciate it.