The 5 Obsessions of Elite Organizations: A Blueprint for Leaders Who Want ROI and ROL with Michael Erath and Joe Polish

Elite organizations obsess about filling their ranks with great people, but also making sure that those people are aligned and motivated and driven by an inspiring purpose. And then equipping those people with optimized playbooks so they know what plays we run. I don't mean SOPs and work instructions and that level of detail. You need that for onboarding and training, I think. But these are literally, you know, think of a pilot's checklist. For anybody in here that's a pilot, you've got manuals, there are thousands of pages on all the systems within within a plane. But when you fly, you've already been trained on those things. You have a checklist to run so you don't miss a step. The fourth is a culture of performance where people know what winning is, they know what success looks like in their role. We have a system to measure and give them feedback, but also a system that will provide coaching and mentorship and development for people that are coachable. The fifth and final is growing profits and cash flow. I hear lots of people say profit and cash is a byproduct of doing everything else right. And in theory I can buy that, but I think it's intellectually lazy because if you treat it as a byproduct, it will be.

How can you be a domino for someone else? The Joe Polish Show. Any problem in the world can be solved with the right genius network. Michael Erath is the founder of Next Level Growth, a company dedicated to helping entrepreneurial leaders build elite organizations that not only offer a strong return on investment, but also a meaningful return on Life. With over 20 years of experience in the hardwood manufacturing industry, Michael is passionate about systemizing and scaling businesses. He has a rich background as a former record holding EOS implementer, a scaling up coach, and a member of both the Young President's Organization and Entrepreneurs Organization. Now he uses his expertise to help businesses reach their next level of growth. Please help me welcome Michael Erath. Thank you, sir.

Thank you.

Awesome. Okay, so we got your first book, which is the reincarnation of an entrepreneur that tells a little bit of a story we're going to get into. And then the latest book is 5 Obsessions of Elite. Take your business and your life to the next level and everyone will have a copy of that book. So I've got a whole bunch of questions, but I'm going to meander all over the place, give people a little bit of what you're currently up to now, what you're doing, what your main focus is, and then we'll do Some questions and then we'll do a little bit of Q and A with the audience.

Yeah, sure. So our main focus now as this whole business model has evolved is really trying to get dialed in on what have been the things kind of at a principle based, fundamental level that truly the best of the best organizations obsess about and how to build systems and tools and concepts that will help organizations really create a customized business operating system that will help them excel in those five principal based areas. So that's, that's really kind of the focus of everything for the last few years.

Cool. And so in the spirit of this, I could have worn my what's in it for them Socks. And I don't. I couldn't find my elf socks. So I have the closest thing to an elf, which is a gnome. And so elf is easy, lucrative and fun. So I think we're going to try to talk a little bit about how people can develop more easy, lucrative and fun in their business and less hard, annoying, lame and frustrating. So more elf and less half. So let's start off with how you lost $45 million and came back even stronger.

Yeah, so. So I was second generation in a family manufacturing business. As Joe said, we manufactured hardwood veneer for the furniture industry. And when I took it over in my late 20s, we were about an $8 million business, 100% domestic with our sales. We were located manufacturing in Virginia, Our sales offices were in North Carolina. And as I was growing the business, one of our challenges was sourcing raw material. And I was in YPO at the time in the Southern 7 chapter. A few of my form mates had gone through some vertical integration. I was really intrigued to figure out how to get closer to the raw material and have more control of the input. So I ended up hiring a guy that had a background in timber merchandising. So what we would do is we would go buy kind of the best of the best logs from sawmills, primarily from sawmills or from hardwood log traders. And so we always had to pay a premium for that. There was limited supply. So by creating a partnership with him, we actually started buying standing timber. He would merchandise everything we couldn't produce or didn't want to produce. So we got our inputs. We had more control of the raw material source. We had a lower price on what we were actually using. So over the time, as we were scaling this, he and I became best friends. I became his son's godfather. We were vacationing with our families together all the time. And in 2008, in November of 08, kind of right. In the first few months of the housing market collapse, revenues were declining. I got a call. I was actually driving to dc. It was my year to moderate our forum, so I was going to form moderator training for those of you that are familiar. I got a call from my cfo, my partner's name was Matt, that he was confident he had discovered that Matt had been embezzling and committing bank fraud. So revenues are declining, credit's tightening. And so I called my attorney immediately and he said, if there's any truth to this, cancel everything you got, turn around and come back. So we actually met that night at my attorney's house with my cfo. My attorney and I, we hired a private investigator that was a retired FBI forensic accountant that had his private service. And took him about three days working with my CFO to put it all together. But we found out that the guy that was my best friend had embezzled half a million dollars. And he was signing falsified borrowing based certificates to a federally chartered bank. Because what he was doing is his embezzlement. He was running through the company, actually having an affair with the controller and the entity that he was operating. So we were trying to figure out, like there were two sets of books and we were trying to figure out why would she do this? And it became uncovered in the investigation with the Feds that they were having an affair. And as part of that, she was doing all this stuff behind the scenes. So we ended up. The whole thing's kind of written about in the book, but we went to the Special Assets Group. If you think about at that time, companies that were in trouble primarily were just giving the keys to the bank and letting them fight it out with attorneys. I was in a situation where by then my father had passed. We had recently transacted my mother out of the business, but I had borrowed $6 million on a term note about 18 months earlier to add some production lines and rebuild the factory. My mother was hung on the bank guarantee, but no longer had equity and my father had passed. So I had to figure out how to navigate that. So we went to the Special Assets Group and I was able to negotiate with them that if they would give me enough liquidity to unwind the business slowly over time, versus them throwing it into bankruptcy and auction, they would at least recover significantly more. And at the time, I think the timing was great because I was one less fire for them to fight. So we did that. And I got the education of spending every other week meeting with the special assets group for about 18 months, but had some very fortunate breaks along the way. Got the bank made whole, got the creditors made whole, and my wife and I took the haircut. But it allowed us to maintain our credit. We kept our house. We kept the equity in our house. So we just took this kind of live to fight another day attitude. We were in our mid-30s at the time, and so, yeah, we got through that and restarted on the heels of all of that.

Yeah. Yeah. And I should have made the distinction. You didn't lose 45 million. It was a $45 million company, right? Yeah.

Felt like it, though.

Oh. Like, early on in, you know, a few years into my marketing business, I had. I'm not even going to go into it because I could take. It could be relevant for morbid curiosity reasons, but it's. I was going through some very difficult personal stuff, and I had had a client that was seeing, you know, a success story, had done well. I was going through some personal challenges, said, you know, we could. I could help you run this company. I know that. I know your. Your stuff. I had had her. I involved her and sort of highlighted her to my clients. And my business was doing extremely well. Is that Joel Weldon doing? Of course it is. No. Yeah. So there's always one in the room, isn't it? So I ended up turning my company over to a person that would look me in the eyes and tell me they loved me and how much they cared about me. And about nine months into it, I started looking at some financials and seeing vendors that I didn't know who these vendors were. And I started looking into it, and it was really hard to track down who they were. And what was happening is this person was sending checks and stuff to a fake vendor. But I found out it was DBA doing business as. And then I hired a forensic account. And then, you know, we made the determination. It was probably embezzled about $200,000. And it was really well done. And it was such a difficult paper trail that they're like, it's going to cost as much to try to figure this out. So I had to basically get my company back and not have this person destroy it. But it was really. I mean, it really messes with you psychologically when people not only steal from you, but they're people that are close to you, that are like. One of my biggest pet peeves are people that bite the hand that feeds them. Right. And it was just so such a complex situation. And she always, you know, was on this moral soapbox, she's Jehovah Witness and talking about how great, you know, it's just, oh my God. But, yeah, just a total, total thief. And. But it, you know, it's really derailing psychologically. But you learn things that in the future, which of course, I'm sure it really helps you with what you do now with your own business and helping all the other entrepreneurs you do because you've gone through these battles.

Right. And I think that you talked about the return on life a little bit too, and I think that's a big piece that's framed that for me is that yes, we invest and we put the time into our businesses to earn a return on investment, but it's a shame to do that at the expense of a return on life.

Yeah, exactly.

And finding that balance, I think is.

Key from all that. Then what happened to your companies? And let's talk about what you do now and let's talk about your, your whole process that you wrote a whole book about because you learned the, you know, these five obsessions. So I want to talk about all these.

Yeah, so what. When I was, during the time when I had the veneer business and was in ypo, our forum went through a number of books together. We went through Rockefeller habits and I adopted some of the concepts from that. We went through top grading together, loved the methodology. So we built a lot of top grading into how we operated. And as we were going through that, even Jim Collins. I really geeked out on profit per X when I read Good to Great and with the help of my cfo, we got really, really clear on what our profit per X was. And using that to drive decisions that we made in the organization without spending additional operating expenses, it drove our gross profit through the roof. It was a fantastic discovery. This is all right before everything fell apart, unfortunately. But I really became interested in these different concepts and tools. And so as I was starting the new business in the wake of all of this, I didn't qualify for YPO anymore. I moved to eo and we were in Columbus, Ohio at the time. And my form group then went through Traction. And so the first time I read Traction, it felt like finally somebody has kind of gotten their arms around all of these different disparate things that I had been trying to do. So it made a lot of sense. I decided to self implement and I self implemented eos. But as I was doing it, there were certain tools that were in the book that I felt like, well, I came across this other thing that for me is going to work better. So I was kind of plugging and playing and substituting and from a principal standpoint it was all the same thing, but I was building more of a hybrid system that fit me versus me forcing my company to fit the system. We had a lot of success with that. Made it to the Inc 5000 and in 2015, really with the encouragement of my wife. Actually, I'll back up a minute. One of my EO buddies had a furniture business, custom furniture business in Columbus, Ohio. And he had seen the success we were having with eos. He was supervisionary and couldn't, couldn't really manage self implementing it himself and was trying to. So he asked me if I would just come help out. So as a favor to him, I did. And I had so much fun really helping with that that I decided there was maybe a different path for me. And at that time I was pretty beat up by the hardwood industry. It had become very commoditized with everything offshoring to Southeast Asia. So yeah, I made the, made the leap to start into coaching and consulting. Became an EOS implementer in 2015, actually 10 years ago this month. Wow. And did that for a little over five years. And then when, when that transitioned from a license to a franchise model, it just wasn't a great fit for me anymore. And that's when I decided to start working on my own thing. And a lot of that I mentioned in the book was to credit a Cameron Herald for pushing me.

Yeah.

And he always likes getting shouted out. So I figured what the hell.

No, no, he's. No, Cameron is very insecure. So he like if you met. It's same here too. So the more people mention my name, the more I like feel like.

Yeah, no taking.

So you were one of the top EOS implementers. And by the way, I'm friends with Vern, I'm friends with Gino. I think Gino probably has popularized the operating system. Now you got a whole bunch of different people offering what they call a operating system and why don't you define what it is and then we're going to get into the five obsessions. Because I've read like. And by the way, I showed Michael this earlier. This is his book. And so, you know, I take notes on the page and then I, you know, I have all of the highlights and all of the different things and as I go through this, yeah, it's really, really good. So I'm glad that we're doing this interview because I've learned quite a bit from reading Your book and now wanting to do this interview from a standpoint of there's all kinds of things that I wish I would have known, you know, 20 years ago that you, that you talk about in here, that I. But again, let's do that now and. Yeah, of course, of course. Right. So define an operating system and then we'll go into your way of how you think about it.

So I, I think every business has an operating system. Whether you've created it by design or it's happened by default, there are ways and processes by which you do things. At its core, I mean, that's, that's a business operating system. I think, you know, it's interesting. A lot of people say, oh, my business is different. It's, it's unique. And like. Yeah, I mean, it's, it is and it's not. Right. And I think every one of our businesses, at a really, really stupidly simple level, there are three things we have to do. We have to get work, we have to do work and we have to get paid. Right. And the way we go about doing that, there's a system underneath that. And I think I've seen this attributed to a few different people, but I think in the research for the book, it actually was Paul Bataldin, who's a CEO in healthcare, that said every system is perfectly designed to get the results it gets. And I mentioned that in the 10 minute talk in terms of relationships. But I think it's the same in our, in our businesses, if you continually hire mediocre people, you have a system perfectly designed to get you mediocre people. You've got to focus on the system, change the system, fix the system by which you're getting that result. If you want a different result.

Yeah. Awesome. So why don't you go through the five obsessions and then we'll go, we'll kind of go through some of them.

Okay. Yeah. So the, the five obsessions and the way I like to frame this is elite organizations obsess about filling their ranks with great people and that definition is different from organization to organization, but also making sure that those people are aligned and motivated and driven by an inspiring purpose. And I'll get into that a little bit in a minute. But great people, inspiring purpose, and then equipping those people with optimized playbooks so they know what plays we run. So many things within our businesses are predictable and consistent and having well defined playbooks. And I don't mean SOPs and work instructions and that level of detail, you need that for Onboarding and training, I think. But these are literally, you know, think of a pilot's checklist. For anybody in here that's a pilot, you've got. You've got manuals that are thousands of pages on all the systems within a plane. But when you fly, you've already been trained on those things. You have a checklist to run so you don't miss a step. Right. Because bad things happen. Same in our businesses. So what are. What are those steps we want to make sure we never miss? The fourth is a culture of performance. So when we have great people, they're inspired, they're aligned around an inspiring purpose. We've equipped them with optimized playbooks. We need to have a culture of performance where people know what winning is, they know what success looks like in their role. We have a system to measure and give them feedback, but also a system that will provide coaching and mentorship and development for people that are coachable. But also that system has to have guardrails and has to be designed to coach people out if they can't coach up into the role or coach them into a. Out of that role, into a different role. And then the fifth and final is growing profits and cash flow. And I'm pretty set on. I hear lots of people say profit and cash is a byproduct of doing everything else. Right. And in theory, I can buy that, but I think it's intellectually lazy, because if you treat it as a byproduct, it will be. I believe that you need to have a consistent and disciplined approach to looking at your cash conversion cycle, your pricing strategy. Most people I talk to that own businesses cannot explain their pricing strategy to me. Right. And so if you treat it as a byproduct, it will be a byproduct. Yeah. So those are. Those are the five perfect.

Okay, so you say most people problems stem from unclear expectations. So I wanted to ask, what are some steps that we can take to fix that? And how do you, you know, recognize it?

Yeah, that was kind of an epiphany I had. And I've done research to try to see, like, did somebody say this already? Because I wanted to attribute it, and I couldn't really find it. But I genuinely believe that the underlying cause of most of our frustration with people is a result of unclear expectations. When you think about people you're frustrated with, how clear are the expectations really? And so, you know, you mentioned Gino. I learned so much from him, and there was so much value I got out of going through the EOS process in our, in our own business and at the same time. So you were talking about Colby yesterday. So I'm actually an 862 3, so I'd probably be a really good COO. And it surprised me at first because to quick start, like no, I'd like to take risks. Like I've been a pilot, I've flown multi engine airplanes, I raced in Porsche Club for a while. But what I realize is I take calculated risks because of my fact finder. Right. So I do love the risk, but I'm super calculated about it. But one of the things when so like I felt like the accountability chart versus an org chart was a really big evolution that had a lot of, lot of positive impact. But then as I started really working with people and getting into coaching people in very acute specific areas. For those of you that use EOS or have an accountability chart, if you've just kind of copied and pasted and you've got a director of operations, for example, who has as one of their roles make the product or deliver the service, that's still pretty vague, right? And how, how do you really hold somebody accountable? What's the expectation? What's the standard of the bar? And so what we've evolved to, we wanted to really maintain the beauty and the simplicity that Gino created with an accountability chart, but add some context and clarity. And so we came up with this concept we call Mission Most Critical outcome and Obsessions. So it's three components in an accountability chart and everybody's going to get a copy of the book. There's tons of information and examples of this. But if you think about for a specific role, if you could distill down to one sentence, what's the high level mission that defines success in that role? One simple clear sentence. Oftentimes it's almost dumb how obvious it is. And even my own head trash when I'm teaching it is like we get to these, I'm like, it's so obvious. But the reality is we don't hold people accountable to those standards. So once we have a clear mission, so you could take, maybe take a director of sales in an organization, it's probably something as simple as ensure the consistent execution of the sales strategy and plan to meet or exceed revenue goals. That's obvious. But how many people have sales directors who are consistently missing our budgets, missing our forecasts and we don't really do anything about it because there's not that level of clarity that when you agreed to take this job, that was your mission. And if you fail to consistently achieve this mission, you're not successful in the role and something may have to change once we get clear on the mission. The second component is what we call a most critical outcome. And the idea with this is to really focus on a results or outcomes based approach as opposed to just here are the things you need to do and here are the leading activities. So with the most critical outcome, the way we teach this is it answers two questions. Number one, once you have clarity on that mission, what is the single most critical outcome that you can measure that proves success in the mission? And so high level executive seats, it's very obvious in most cases but this logic works down to frontline employees and that's where the real magic and power is. You talked earlier about where's Alex talked about cost of inaction. He's back there. Right. So the other question, the second question that having a most critical outcome for every role in your company answers is given the fully burdened human capital cost of the person who's actually in the role, what outcome do they have to achieve to prove we're getting an roi? I think you and Cameron yesterday were talking me, Cameron said it was, it was a 3x in 3 or 4 times in gross profit dollars. And I would say they're fully, they're fully burdened cost. Right. So every fall in it should answer those two questions because now you get a lot of clarity. I think there's so many things we invest in in our businesses where we will go through a return investment analysis to decide which platform are we going to purchase what piece of equipment are we going to purchase what vendor. But our biggest expense is often our human capital and we don't look at it through the lens of roi. And so I think that's a very measurable way to get to an ROI mindset. And then lastly is obsessions. And so the obsessions within an accountability chart are typically 2 to 4. But for example on the director of operations make the product, I would advocate for something more like they own the operations process, playbooks, execution and outcomes. That's how we go about making the product. But that's very specific. And now I can hold them very accountable to are you taking ownership of it? Are we getting the outcomes of what we want? Is it being properly executed? Which means you have to own the training, you have to own the playbooks and you have to own the outcomes. And the way that filters down into an organization is if you have a supervisor who's reporting to a director of operations, their obsession might Simply change to, say, drive the operations, playbook, execution and outcomes. Because at that level we don't want them changing the process. They don't own it, but their role is to drive it. And so now we can evaluate them and give them feedback and coaching around how well they're driving those playbooks. And what that often leads to is then when we get people and we get leadership teams to agree to this, okay, so show us your playbooks. And they all are like deer in headlights. They don't have them. So step one is we need to start building out your playbooks because otherwise you're creating chaos for people. Even with onboarding. We talked yesterday about, you know, you guys had some great conversations about recruiting and hiring processes and the study. I mean, Cameron's a student of these things and has been for his career. But one of the things I love to ask people is if I were to interview the last 10 or 20 employees you brought on board, would they tell me they had a great onboarding experience or that they got waterboarded? Right. And I think most of us waterboard new hires. Right. I was going to like make sure that they got the joke. But if you think about it right, that that leads to less retention. You have 90 days in, you have employees who are frustrated, who don't really know what's expected of them, and it's not that difficult to build a really great kind of first 90 day onboarding process. And if that relationship is built in that onboarding process between the employee and the person to whom they report, one of a few things happens. Either the boss realizes that they made a great hire because the person's been coachable, they've hit their ramp plan and we feel really confident, or we realized we made a bad hire and we've pivoted quickly. What was it in the March meeting? Someone was talking about the poker players. Professional versus amateur poker players. The pros play less hands like this. Perfect analogy for people. Like when you know you've got a bad hand, stop waiting for the magic card to show up because you got a bad hand, like deal with it. But the other thing that will happen is if you have a really dialed in onboarding process with lots of check ins between the boss and the new hire, is that sometimes that that new hire will realize, holy shit, there's nowhere to hide from accountability in this organization. I can't fake it here. I'm going to self select and leave. Which ideally is exactly what you want because they're gone quickly and you can refill it Most of the time, though, what happens is that employee feels like, damn, this. This is the first place I've ever worked where they put this much time and energy into me. I've got a great relationship with my boss. They've got my back. Those employees will always bring more creativity and passion and energy to the work that they do because they feel appreciated and valued through that. That first 90 days.

Yeah, this is. This is really great. I mean, I have a couple of questions. I moved ahead here about. You talk about process playbooks. So I want to go a little bit deeper into that, like, from the. And then the other one is, you know, the onboarding versus waterboarding. And what should, like, the first day, the first week for a new employee, you know, look like if you want to set them up for success? And so maybe let's first start with what I wrote is how do we get founders and leaders to stop using the excuse we're too busy fighting fires to avoid documenting and standardizing their systems? And I say this because I have spent, I mean, weeks of my life fighting fires that had I known how to set up something on how to prevent the fire in the first place, because, you know, Dan Sullivan, I've. I've talked with him about, you know, people that are usually fighting fires are arsonists. Right, right. And I could. I could call myself guilty of that. You know, I mean, I. You get in. Visionaries are like, they're so fast. They're so quick. You. They assume that everyone understands and knows, which I often do. And a lot of times I'll be like, how can someone be, like, not seen this? Like, are they stupid? What the hell is going on here? And the reality is it goes back to the expectations. You know, you people can't read minds. And Cameron talked about this yesterday also. So the process. Here's how I like it. And by the way, this is described in the book. Secondly, not just writing it down now with AI, I think you can do a lot of stuff easier. And then third, just the whole video. Like, I record videos a lot, but I've not organized it in a way to where, you know, it's like, duh, you know, if I had just a little bit better organization, I could have all of this captured. So let's go back to what is a process playbook and what's the difference, even though you've touched on it, between an SOP so that everyone here is not thinking you got to document these long everything, but just.

Right.

Yeah, yeah.

So. So process playbook. And I haven't read the book, but I know EOS came out as part of their library with a book on this. Chris Ronzio, I think has written one, the founder of Trainual as well. But essentially the idea with a playbook is it's the higher level kind of workflow and it's just you almost think about building a checklist for what's our sales process, what triggers it to start, what are the actions that happen and what's the outcome and who does the handoff go to. It's a simple high level checklist. The SOPs are the underlying support of that. And one of the things that we encourage people to do. Most of our SOPs are around things that are done in this day and age on a computer or in some sort of device. So when you have, for example, if you're for someone new in an administrative role who is taking information from the sales team and they're putting things in the CRM and setting things up with, within the systems, when they're just doing that work, have them do a loom video and talk through what they're doing as though they're, they're training somebody so they get into all the detail of it. Most people like to learn through videos anyway. You can then use something, you know, you can use a sonic transcriber or some AI tool to, to create a transcript and you know, have ChatGPT formatted into an SOP for you and even have that then extract like what's the playbook look like? And if those get you 80% done drafts, then you're most of the way there. But I think the biggest challenge, friend of mine likes to say the only thing worse than believing somebody else's bullshit is believing your own. And when you, when you convince yourself you're too busy to do the one thing that would keep you from being so damn busy, you have to kind of see the foolishness in that mindset. Somebody has to help you see, like that's a really dumb position to take. It's natural. Most of us do that because the process stuff is busy work. It is a lot of work. But what isn't?

Right?

Right?

No, yeah, yes, absolutely. How many of you can relate to that? How many of you have fought a lot of fires because you neglected to, you know, not pour gasoline on what became the fire? Yeah. So let me go to this. The thing about onboarding people. I think this will come up in this question as we go on to talk a little bit about people. So you put a quote in there from Jim Collins that says great vision without great people is irrelevant. So almost everyone here has really big visions and they would like these visions to become a reality and there's only so much they can do themselves. And so that being said, how do you interpret that quote? And what have you learned about recruiting, retaining and growing great people?

I, I think it starts again with getting really clear on your expectations, what the outcome, the outcomes are that a role requires. And I was talking to Max Hansen on his podcast a few weeks ago and I can't remember where I heard this, but somebody said to me one time that most interviews are two people sitting across the table lying to each other, right? And so you've got to be really, really clear and almost try to scare people away in the interview process in terms of what the expectations are, what the systems of accountability, what the check ins look like. Because if they believe in the vision and like Cameron talked about, if they understand your vivid vision, they understand where the company's going, the culture, they want to be a part of that, then you're able to use that as kind of a filter because your true A players, the people that are really driven, they're going to hunger for that. And so if you, if you can really kind of help almost unsell in that process, you'll end up fewer people get through it, but also a lot of the garbage doesn't get through it. And that's where I believe the way we've structured accountability charts. If you come into an interview process and I can explain to you what the mission is and the role and I can make it very clear to you how we're going to measure that, how frequently we're going to measure it, what kind of coaching systems we have. Here are the things I'm going to need you to obsess about. So for example, I encourage people like if you're interviewing a sales manager, ask them to bring the sales playbook from the last company they worked for and show you their sales playbook that they built. You'd be surprised how many of them have no clue what you're talking about. So I don't necessarily want that person coming into my company to lead my sales team. I'd rather stay in the recruiting process until I find somebody who's like, yeah, let me send you the PDF or whatever, right? So having some of those standards and then I think when you get into, once you've made a hire, and I said earlier, I think the onboarding process, actually a general one, can be pretty simple. In eos we talked A lot about the quarterly conversations. And I had a client, we've modified that some like we've done with a lot of things. But I had a client that coined a term, we had started calling them coaching conversations. And she was the chief people officer for one of my clients and she, brilliant lady and she said, you know, coaching conversations sound very one directional. She said, isn't it more of a calibration? I was like, damn, that's a great term. And so we start teaching now what we call quarterly calibrations. And so if you think about any piece of equipment you have, it has to periodically be calibrated or it will not perform well. And the relationship between a boss and their employee is no different. And so if you think about it as a calibration, it's a two way conversation, it's a two way meeting. And so in an onboarding process, and so those calibrations, the way we teach them is to have the individual employee, and again, this is all, it's all in the book. But to have the employee show up to that having done a self assessment on how they think they're performing relative to each of your core values to the mission, most critical outcome and obsessions in their role and the person to whom they report does the same thing. And you just sit down and you compare notes and we've got kind of a scoring system on that to give it some empirical data. But if they're aligned, that's great. You're affirming it, you're moving on. But anywhere they're misaligned or there's underperformance, it allows you to slow down and talk through that specific thing in that specific area. So what I teach people to do is in the first 90 days, if, if you have kind of like your day one is the onboarding to the company, right? But if we have as a process that, that quarterly calibration meeting, if we do that at the one week mark, the two week mark, four weeks, six weeks, eight weeks and 90 days, right? That's six intentional times that if, if I go to work for Darrell and I, he's my boss, if my first 90 days he and I sit down and have six intentional meetings. And these are 15, 20 minutes, they're not long meetings. He's going to know whether or not I was the right hire, I'm right for the role, I'm going to know if this is the right company for me. And I'm also going to most likely have a really good relationship with him and know that he's got my back, he's going to give me the things I need. I can go to him for support, I can be honest and transparent with him and it's going to set me up for, for success. And so I think you kind of have to have that whole soup to nuts, you know. Right. Recruiting pro. What's our recruiting system? What's our onboarding system? What's. What's the accountability and coaching system that we have in place and really understand the nuance and the details of that to build something that's going to be scalable and, and really get you the outcomes that you're after.

How many of you do not have a process like that currently in your company? Yeah. How many of you do? Okay, cool, cool. That's awesome. So I like what you talk about with ownership. That was really insightful for me. So I want to ask you, how do you define ownership? And I'll say a lot of people say I'll own this project, but what does true ownership actually look like? Especially when someone may not yet have the capability to fully execute it? Because when there's things that, well, you know, you need someone to be accountable in the company. If you have a team of people who's going to own it and then it doesn't get done or in the distinction you made. It's one thing about saying I'm going to own something, it's another about having the commitment to own something. And then if they don't have the capability to really do fix it if it goes bad, they didn't really own it. So how do you define ownership?

So go back to the sales leader, for example, on an executive team, if one of the obsessions is to own the sales playbook, execution and outcomes, and we are not hitting our outcomes and they agreed to the budget for the year, they agreed to the sales number and we're not hitting that. That's the person in the room, that's the one set of eyeballs or one throat to choke that owns that process. And if that process isn't getting the results we are, we want, they need to be the ones who go back into the process and fig out how to modify and change that. It doesn't mean they won't get stuck at times and need, need collaboration and help. But if consistently over time, I have a leader that is not able to really take ownership of their process or quality control. If it's operations, things like that, or client experience, if we're not getting the outcome and they're the ones who own It. Why is that? It could be that they are not holding their direct reports accountable and that might be where the breakdown is. But if I, if we as leaders put pressure on the tip of the spear, which is the person who owns it, then it often becomes more clear where the breakdown is happening. Right. So it could be, it could be that somebody's not driving the execution of the playbooks by not holding frontline employees or our actual sales team accountable. But until you bring that level of pressure to the leadership team member who's accountable for it, it's easy to come up with excuses and find reasons not to be accountable.

How do we best set ourselves up to truly delegate versus abdicate?

I think as human beings we're bad at delegation to begin with. And so it goes back to, I think, very clear expectations, clear timelines. Brene Brown talks about this idea of paint done, like paint for them, what done looks like and make sure they're really clear on that. One of our partners actually was a chief people officer for a big behavioral health company here in town and he's got a video on our YouTube channel that's really great. He talks about when you've given somebody something that you want to delegate. And actually Cameron's got a really. In the second in command book, there's a great tool on delegation to kind of figure out what you want to hang on to, what you want to delegate, but the things that you want to delegate away. I think it's also important after you've had the conversation to ask that person, when you get back to your office or tomorrow morning, send me an email and just clarify what you're going to do and what you heard. Because 9 out of 10 times the email you get back is not going to be what you told them or set as the expectation. And so now you've, you've, you've created a document, but you also have had them. You've given them time to process what you've delegated to them and what the expectation is, communicate it back to you, and then you can correct where it needs to be corrected and realigned. And I think that's a big, sometimes missing step in delegation because we think they got it, we're off to the next thing and it comes back and it's nothing like what we expected, right? No.

Very good. So, okay, so this I found interesting. Let's talk about your ultimate dichotomy, where you're growing faster than your people. So what happens when your company outpaces its internal talent development and how do you avoid that trap?

It's really, really hard because of the emotional attachment we have. There's an example I give in the book. I think you had a Picture with Craig DeMarco yesterday. You showed, so his partner, Lauren Bailey, with Upward Projects. So for those of you that are familiar with the Postino brand, that's kind of their flagship brand. I worked with him for about seven years. And one of the things that Lauren did so well, and it was really hard for her, but when we started working together, they had seven postina locations. They're in the high 40s now. But the leadership team, when we started working together was the team that was with she and Craig when they had their first location. And these were the people that were the grinders. They were the ones that worked late nights and were kind of doing it in the weeds. And what she started to realize when we started working together, they had just gotten an infusion of capital from, I think, Brentwood Partners they've been with for a long time. It's been a great. A great partner for them. But now there were different expectations on growth and what they needed. And one of the things that Lauren was able to get clear on very quickly was that team she'd surrounded herself with that had gotten her to these first seven locations was not the team. Just like Cameron said, this was not the team that was going to get them. Their goal was 55 by 2025. The pandemic throw them off a little bit, but they're not far off. So a couple of things she did. She went out and hired. Her first hire was a CFO that had worked for a private equity firm in the restaurant space that had multiple brands. He had done lots of board presentations. He dealt with private equity. So she. She went out and kind of paid more and invested in more than she needed at seven locations because she was investing in who she needed at 50. Her current COO is former director of operations from Shake Shack. When she refilled her chief development officer role, she brought in a guy that was the chief development officer for Cava. Think about how many locations they have. She wanted 55. And what she did so well was she was willing to make the investment and spend more than what she would have needed at the time to invest in the learned experiences so that she didn't have to learn them along the way, the hard way. And I think that's when you're faced with that, I think really kind of reassessing as much as we're loyal to the people around us and as much as we love them and they've helped us build things to a certain point that can become the constraint.

Right, right.

And if you don't and you have to decide what on. On what are you going to put Primacy.

Yeah.

Right, yeah.

No, And Lauren, Lauren's great, actually. Was just with her about two and a half weeks ago. And Craig, they're both very sharp and. Yeah, that's. That's awesome that you. You helped them, too. So I'm going to keep on the team thing. So building a performance culture without tolerating mediocrity, how do you balance accountability with empathy and ensure you're supporting people without enabling mediocrity?

I have to be redundant with it, but clear is kind. Right. And going back and being very clear with people. And there's a tool we use, and I got this from colleague of mine named Tip Quilter. I believe he's with Scaling up now, but he curated this tool called Seven People Solutions. And what I love about it is it takes a lot of the emotion out of dealing with people issues and allows you to have a system that we use as a company to manage people. And I'll run through those real quickly because this isn't in the book. The first people solution is no action. So let's say something's come up and we think there may be something going on. The solution may be, look, we're not going to take action on this. It's. It's my, you know, it's my cousin. They're always going to have a seat in this company. It's my company and I owe it to, you know, my brother, uncle, whatever. The kid's always going to have a role. So I'm not going to take action. We can at least stop talking about it. Right. The second is observe and revisit. So we think there's something going on with the person. So the plan is to observe and we're going to revisit it, but you have to put a timeline on it so it doesn't just disappear forever. So, okay, by when are we going to revisit it? Who's going to observe it? Who's going to come back with some feedback? So get clear on that and just set an action item to do that. The third is a coaching conversation. So this is not a pip, this is not a corrective action plan, but we're going to spend some time coaching this person. And so I do this. We all do this with our clients when we have people issues that we're helping them Work through which of these solutions is the solution you're going to work on for the next quarter. And so it might be, I'm going to take the next month or the next three months and I'm going to have coaching conversations. Okay, how frequently? When are we going to get feedback on how those are going and if that doesn't work, the fourth solution is a corrective action plan. And so that's much more formal. These are witness meetings. They could lead to termination. So that's the fourth solution. The fifth is I've got to make sure I'm pulling these out of the top of my head. The fifth is to either move their seat or we need a new seat. And so the situation there could be we've got somebody who's a great culture fit and now that we've onboarded them, we've just realized they're in the wrong role and they'd be a lot better off in another role. I had this with a client recently. A guy had gotten promoted to sales manager. Internally there's a really great territory manager for distributorship. It was a Johnstone Supply. So they do like H Vac equipment distribution. Great territory manager, really great guy. But he was not a sales leader. But they'd promoted him into that role, became very obvious he was underperforming and he actually decided to step back into a territory manager role because he'd be a lot happier. He really loved the company and it was a great fit, just not for that specific seat. So that's kind of the idea of moving seat or a new seat. The fifth is find and replace. And so this is when you know you have to exit a team member, but the damage done of exiting them immediately would be worse than starting to find their replacement and making a plan to flip somebody else into the role. And then the seventh is termination.

Yeah, so the last one was the sixth one.

Yeah, the sixth was find and find and replace. And then seventh is just immediate termination.

Okay.

And so if you follow again, it's a system that you can use in your business and you don't have to use those seven. You can, you can make it your own. But having a system as to how you escalate issues with people, I think when you do that, if you have a good system to coach and develop people that prove to be coachable, most people are able to level up or they'll realize they don't have what it takes for that role. And on their terms they'll self select and move on, which ideally is the perfect, you know, now they're not your HR problem anymore, but it's also been fair and kind to them because you've worked them through a process that's intended to get them where you want them to be.

That's really. Yeah. So I wrote down clear is kind.

Right.

Which is great. So, one, no action. Two, observe and revisit. Three, coaching conversations. Four, corrective action. Five, move their seat or new seat. Six, find and replace or seven, Termination.

Yeah.

How do you make firing people fun and enjoyable for everyone involved, including people? Yeah.

Fun and enjoyable. Wow.

Yeah. No, I'm kind of. Of course I'm saying that sort of.

Well, you know, with. With the assholes. It is fun and enjoyable. Enjoyable. But if you have a good recruiting and onboarding process, you avoid that.

Yeah. And I love your notion of coach up or coach out. So let's talk about both those things. So when you do have to let someone go, I mean, maybe coach up and coach out. Maybe start with that first.

Coach up or coach out? Yeah, I think it's whenever. And so, so this goes back to, you know, I mentioned our quarterly calibrations. And so we have some. Some people use a 1 to 10 scale, some use a 1 to 5, some a 1 to 3. I look at it as. There are really three compartments when it comes to behaviors aligned with core values or performance around a mission. Most critical outcome or obsessions. Does the person believe and does their boss believe that they generally have been exceeding the expectation for that specific thing? Do they generally meet the expectation or have they generally failed to meet the expectation? So even if you just keep it as simple as that and, and bucket it that way, if, if, if you were my direct report, and there was an area where I felt like you're failing to meet the expectation. As we go through that calibration process, we're going to talk about that. Right. And so that's going to cause us to slow down and we have to get you to a place of being able to meet the expectation. So the conversation then becomes, what do you feel like you need? Do you not have enough clarity? Am I not giving you enough time? Do you need more training? Do you need resources? Like, we're going to go through what the things are that you need, and I'm going to. As long as it's reasonable, I'm going to work to provide you those things. The next time we have another calibration, if you're still underperforming in that area, I've got to start thinking, you know, have you been coachable have you been coming to me with questions, things like that? And eventually that will work itself to a point where it becomes pretty clear that this is not working, in which case the person sees it coming. I mean, you know, Cameron loves being called out so much, I'll mention him.

Again, but he's very narcissistic.

Is it getting right?

And for those on the video we're talking, we referred to Cameron Herald.

Cameron Harold. Yes.

Also known as the narcissist. I'm kidding, totally kidding.

I thought that was Jim Do.

Jim do. Absolutely. No, no, Jim Cameron. We just say that to play with Jim.

Totally. Yeah. Jim. There's something about being on the stage that it just kind of happens. I'm sorry. Where the. Where the hell were we?

Where were we at? Help us out here before I threw everything.

When you have to coach them out. Oh, well, Cameron was talking about, like. Yeah, he didn't see it coming until the night before. Really? Like, that's not. That's not. That's not okay. And I think if you have a good process and system to coach people on a regular basis that need it, they always see it coming.

Yeah, yeah. You know, and to what Cameron was saying too, like, when you see four years of how that took a really strong relationship and how damaging that was, now they've come back together, him and Brian. But yeah, that, that was a great point of, of how we do things matter, right?

Yeah, yeah, exactly.

Yeah. This is really good. So we're going to do some questions here in just a couple of minutes. So I have to ask you this. So what's the smartest way to define and share your company's purpose so that the team is not just compliant but.

You know, deeply invested internally? Right.

Yeah.

Yeah. So. So I like that. And when we talk about inspiring purpose, a lot of it is how do we. How do we market what it is that we do? And there, and there's a lot in there around marketing. But what I really focus on in the book, because there's so many great marketing books out there and I'm not a marketing guy, is most companies spend literally zero of their marketing budget marketing internally, selling their vision. And one of the things we added about two years ago, I read Infinite Game by Simon Sinek and he talks about this evolution of his thought beyond just your why, which he describes as your origin story, but really understanding your just cause. What is that future state that you're trying to get to with what it is that you do? And. And it's a future state that you may never realize, but that you believe in so powerfully, you will commit your entire career to its advancement. And so we've actually now like modified our strategic vision and plan work to include a just cause that drives a daily purpose and all of those things. And so I think one, you've got to, you've got to be authentic with those things. But once you really understand what they are, being able to consistently communicate those to the point that it does feel almost cultish. I mean, the first four letters of culture are cult. You've got to really believe those things and not just profess them, but practice them on a regular basis. And when employees see that consistently over time, it builds trust and it builds buy in. And I think even in the interviewing process, it's like, you know, talking about selling your vivid vision in the process that should pull people in that are the right people.

Yeah, yeah, good. So you know what's interesting? Your book. So the book, because we're here at Genius Network and a lot. How many of you have written a book or written several books? Yeah, so a lot of authors in the room. And there's different reasons to write a book documenting things down. And there's one of my regrets. I wish I would have written an actual book. Very early on I did write books, I wrote courses, but they weren't sold for like 10 or 20 or $30. They were like multi hundred or multi thousand dollar courses. And you know, I sold millions of dollars worth of education and training. I did all niche specific courses the first 10 years of my business. And the very first general marketing one was the Nightingale course that I did in 2004, which was called Piranha. The seven success factors to multiply any market to dominate any market you enter. And it became the number one selling marketing program of all time for Nightingale Conant. But that was an audio learning company. It wasn't a book. Simon Sinek even in 2000, and I think it was 2009 at gathering the Titans, he got my Piranha marketing program. And then about, I don't know, it was probably like six, seven years ago, I was at TED in Vancouver and Simon came up to me, he said, I just want to let you know your book was really helpful for me. Right when I launched Start with why the Prime? And I had no idea of that. And now the reason I bring this up is if you have great ideas and great knowledge, don't keep it to yourself. There's a lot of people that will benefit from it. So your book here, you know, from My perception of it. It's a really great book to describing how you look at entrepreneurial operating systems, how yours difference. Which I'll ask you that question where we start taking questions like what makes yours unique compared to other things? I mean people can obviously tell from just us talking. But you also put things in the book that are response mechanisms to drive business to you. Such as you have the ask Michael Erath using the Delphi clone. Right. And you have different tools that you have people download and then you paint a whole picture of a future of what your business can be like if you do all of these things and then you give people how to do it themselves and then you're like, but if you want us to do it for you, we do that. So your book is, I'm imagining is just a way to paint the picture of what's possible. Here's how to do it. And by the way, we can help you do it for you if you want. So what did documenting all this in the book do for your thinking and how's it working for you right now?

No, I appreciate the question. So when I was part of Eos, it was a lot smaller at the time and I had a lot of time with Gino and we had some really interesting conversations about his thought process and the strategy behind him writing traction and really giving away so much of what he had created. And it really was a brilliant approach and it allowed someone like me who really like. And again, I mean as an 8623 I wanted to have, I wanted to have it in my head. So I wanted to self implement it, I wanted to figure it out myself. And there are people like that that could afford to hire somebody, but they just want to do it themselves and that's totally fine. So this is a resource for that. Yeah. You know, Jesus, I gotta mention Cameron again. His whole R D is rip off and duplicate. So I loved the astro polish thing. So I was like, well ask Michael, your app is different. So yeah, I'm gonna just. Yeah, you know R and D that from you.

Well, you're, you're doing actually a great job of setting it up to monetize it. I mean seriously, I think you're doing. I really like how you set it up.

But what I did is there's. I've created an AI clone now that's a companion to the book for those who want it. So if somebody's using the book and they want to use any of the concepts from the book, if they don't want to invest in Full time guidance. They can subscribe to the clone for I think it's 20 bucks a month is the lower level of it and get lots of very specific and unique answers. And of course you see all the back end conversation. So I'm going in and kind of updating the training. But it's really interesting to see people, I have no idea who they are asking it. You know, I've got this specific role in my company. Here's what my business does. I'm having a hard time with the most critical outcome for this role. And the conversations that they're having, getting to really good answers is pretty awesome. And so that was, I wanted to have kind of a good, better best option for somebody who likes this more customizable approach to you can use the book. You can use the book and the clone or you can hire somebody to come in and walk you through it and guide you through that.

Yeah. And by the way, what other ways you use an AI? I mean that's obviously one great application of using AI. What other ways are you using?

So, you know, I'm using it to get as much learning from you and Dean Jackson as I possibly can. So like a lot of my prompts are using the more cheese, less whiskers. But I'm using it because my background, I'm not a marketing person. So I'm using it to really accelerate my learning and help with marketing strategy. And our type of business is still a word of mouth and referral based business. That's the best way to get prospects. And most marketing agencies I've talked to to get help with our marketing want to boil the ocean. They want me to spend $50,000 a month and get all these Facebook and Instagram and all these other just shit leads. Like no, like our conversion rates are great if we get the right leads in. Like we need dozens of leads, we don't need thousands and thousands. And it's hard to get people. But again, this, and this goes back to kind of the whole premise behind our approach is one of the things that I believe and I don't. It works for a lot of people. But most of the systems that are out there and the coaching that are out there put primacy on the system, not the user. And that's the one thing I think we've tried to pick up on and say, how do we flip that? How do we take a user first results first approach? And that's where it got back to principles versus a system. So we refer to ourselves as a principled approach, not A prescriptive system. And so in our tool shed, we've probably got over 90 tools now. Nobody uses all of them. But I've studied so many different systems and authors and thought leaders, and I just, I want to make sure that if something that's generally a best practice that we recommend doesn't feel right to somebody, I've got, you know, five or six options of other things I could show them to get them thinking differently about how to create a system in your business that's going to work, fit your culture, your circumstances, that still advances that principle. If you agree to the principle.

Yeah, well, you know, I want to. This has popped into my head. So back in 1997, Michael Gerber had hired me for consulting at the E. Myth Academy. And when I first read the E. Myth before I learned marketing, it was like, oh my God, like the greatest insight. The entrepreneur, the technician, the manager, and, you know, systemize your company. And I just had the seed planted in my head. And this is when I was a dead broke carpet cleaner trying to figure out how to make my business work. Reading the E. Myth was one of the first books that gave me this, oh, you know, this, this aha insight. And I thought to myself, you know, if there's any area of business to automate and systemize, it would be the one area that would bring in the money, which is sales and marketing. So how do I systemize the sales and marketing? How could I, you know, can and clone myself was a term I got from Gary Halbert after I first, you know, read my first Gary Halbert newsletter. And that's what started my. My whole process of learning. And then I got really good at marketing. I turned my little carpet cleaning business around. I ended up realizing I loved marketing more than anything else. And so I would be better served to be teaching these methods to other carpet cleaners. Which only happened after I sold my consumer awareness guide and a free recorded message concept to a couple of carpet cleaners. And it actually worked really well for one of them only because he implemented it and the other guy didn't do jack shit with it. And then, you know, here I am like, you know, three years later, the most well known person in the world in the carpet cleaning industry because I quickly grew that and built the largest training organization in the world for carpet and upholstery cleaners on marketing. And so I had read the E. Myth, I joined this E. Myth Academy. I had already referred something like $30,000 in business to Michael Gerber. Then I meet someone that had Worked for him for 26 years and, you know, presented what I was doing to Michael. They ended up hiring me for consulting to help their monthly. You know, they were kind of like one of the very first people that were teaching. Right, like, we're going to teach you how to systemize the company. And of course, this is, you know, like the bible of small business to me at the time in systemization, even though Michael didn't know shit about marketing. And so we go in, I spend a whole day with him. At the end of it, Michael's like, this is the best day I've ever spent with a marketing consultant. I proposed $5,000 a month back then. And of course, this is. People were barely doing Internet marketing. They weren't doing E commerce back then. I mean, like, it was just getting started. This is where, you know, Jeff Bezos first, you know, saw this big possibility of what could happen with the Internet. And so then he proceeds not to hire me for a $5,000 a month retainer, even though I had already referred, like, I think they're bringing in like $30,000 a month from referrals. The woman who had work for 26 years quit. She's like, I've been trying so hard. And Michael was the most unsystemized person I'd ever seen in my life, even though he was so good now. Brilliant book, brilliant speaker, you know, so. But his company never did what he taught other people to do.

You guys talked about that yesterday, right? Do you know how to do it or have you actually done it?

And I've learned that there are people that are successful, and then there are people that are reporters of success. And you can report success principles, but that doesn't mean you know how to integrate it. So the reason I bring all that up is that, you know, it's a CACIC credo. You, you know, lasting happiness does not come from consuming values, but by producing values. And producing more than you consume is the only justification for existence and meaning. The way that I make that work is like, I don't try to come into Genius Network and tell someone what success is, because I don't.

It depends.

You know, some people, it's being a great parent, it's being in great physical shape. Other people, it's, you know, having a lot of profits and making money. And if this was just about business, this group, it would be, but it's not. It's about build a better entrepreneur. And there's many aspects of successful humans that is beyond business. And I think if you Build a better entrepreneur, you're going to be better in all areas of your business. But it's, it's the per. Like a lot of people try to put people into a cookie cutter system and say, this is the way that you need to make it work, you know, and so it's. Even if you put people into a quote unquote system, if you make it, if you let people plan the fight, they won't fight the plan. Right. And so you set it up so it's their ideas, it's their goals, it's their ambitions, and you help lead them there. So what do you think causes people to. When help is there, the life jacket is there. They're drowning and they still avoid grabbing the life jacket.

I think, I think it's our own. I don't say ego, but our. I think it feels like it's interesting. So if you want to get better at golf, you don't think twice about getting lessons and hiring a pro. But in the business world, for some reason, we see that as a sense of inadequacy, that we can't figure it out ourselves. But everything else in our lives, we don't look at that way.

Yeah, I think that is a great point. Yeah, yeah. No, I think it's ego. And again, I want to be careful because about, you know, Michael Gerber, I think his ego got in his way of building a giant business. I mean, really, I think, I think he was like. And he's a smart guy and. Anyone ever know Michael, his character? He's totally. Yeah. And it's. Yeah, I think ego is the killer. But ego is also necessary in, in business too. There are times where you, you know, it's, it's, it's a. What was, what was combat sport or whatever camera was saying? Contact sport.

He's back there on his phone.

Yeah, no, he's, he's not even paying attention.

That's his. He's just waiting for his name to be.

Yeah, exactly.

Mentioned again.

You want to come up here, Cameron, and say some smart shit?

Have you read the book Ego is the Enemy?

Oh, yeah, yeah, right.

And there's a statement in there that ego is like fire, and if you contain it, you can keep your house warm. It's beautiful and a good thing. But it can also burn your house down if you don't contain it.

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