Hiring the Wrong Manager Will Kill Your Profit

A lot of business owners hit that painful growth stage where the company is way too big to manage from memory but not quite mature enough to run without them. So, they do what seems obvious. They hire a manager. And sometimes, it works out beautifully. Other times, they hire someone with a great resume, a confident handshake, and the Leadership instincts of a raccoon trapped in a boardroom. And suddenly, profits start slipping. Good people get frustrated. Decisions slowed down. Meetings multiply like rabbits with Outlook calendars. And the owner's left wondering, why am I working harder after hiring someone to make my life easier? And that's exactly what we're talking about today on Marc Haine Live. Welcome to this episode of Marc Haine Live. Of course, this is where small business owners and entrepreneurs develop new skills to help them create the jaw-dropping, show-stopping experience that their customers and their employees deserve. I am your host, Customer and Employee Experience Strategist Marc Haine. And I'm really thrilled that you're here with me today. Because my guest is Nick Avaria, the expert at growing companies and scaling leadership. And today, we're going to be talking about how to hire the right managers, build the right dashboards, and stop letting the missing middle quietly chew through your profits like a raccoon in a snack cupboard. Now, I don't know why I keep falling back on this whole rodent idea. But anyway, stick with us. My one ask is that if you know somebody who could use this information, please share a link to this episode. And if you haven't done so yet, please make sure that you're subscribed to this podcast. That'll give you fresh notification when I bring you fresh new content each and every week. So, there comes a point in every growing business where the founder, owner, or senior leader realizes the company cannot keep scaling through heroic effort alone. You cannot personally approve every decision, fix every mistake, calm every client, coach every employee, check every number, answer every question, and still have a life. That's not leadership. That is business whack-a-mole with a nicer LinkedIn profile. So naturally, you start building management layers. And this is where many companies get stuck. They have plans. They have goals. They have people working hard. But they do not have the right middle layer to turn activity into profit and performance. And that brings us to our Question of the Day. So, where is your business currently leaking more profit? From not having enough management structure, Or from having the wrong people managing the wrong things. I'd love to know exactly what your experience is. Why don't you go ahead and share the link to this episode on your favorite social media platform? Hashtag it #ExperienceLeadership. Put in your comments and be part of this conversation. I would love to see and hear some of your stories. As I mentioned, my guest today is Nick Evarria. And he is not coming to us with Theory from the Cheap Seats. Nick has spent more than a decade as an agency owner. He has scaled multiple agencies into 7 and 8-figure range, bought and sold 7 agencies, and worked through the messy reality of merging leadership teams, culture, systems, expectations, and all the charming little surprises that make business ownership feel like, well, emotional CrossFit. He started consulting with other agency owners after seeing Too many smart, hardworking entrepreneurs burn out working their 60-hour-plus work weeks and still wondering why growth felt like punishment with a logo. Nick, welcome to the show. It's so great to have you. Oh, somewhere along the way, we lost your sound, Nick. Oh no. Oh, hold on a second. Maybe that's a setting here. Let's see if I can fix this for you and then we'll figure it out. Let's see. Does this work now?

There you go.

There we go.

I knew it wasn't on my side, so I was like, okay, yeah, it's like Marc's got this. He'll get there. So, by the way, I love the intro and I like the emphasis on raccoons. It was great.

Yeah, yeah. It's funny because sometimes we are just running and scrabbling through everything just trying to do the best we can, isn't it? Isn't that the case?

Yeah, it's like the rummaging around is like pretty accurate, I would say, in the whole thing, right? So yeah, it's sort of interesting because I think that we sometimes maybe like pretend or delude ourselves into thinking that we're actually like not like, you know, we're so organized or we feel like we're so focused. And it's like even the best of us are just trying to keep it all together.

Yeah. Well, it's really interesting because at the same token, we also a lot of times wear all this as a badge of honor. It's like I'm working this 60, 80 hours a week because I'm an entrepreneur. And we're the busiest people on the planet. But I know that even myself starting, I started a speaker bureau this year. And so, I even know that I'm getting to the point where I've done the most I can do. And without having help, I'm really just lobbing off my potential and my revenues at the knees because I'm at that really kind of tenuous space where I need to scale but I can't really afford to scale yet. But it's close, right? So maybe, Nick, can you tell me a little bit about— let's dig a little bit deeper into what you do, who your clients are, and how do you serve them?

Yeah, I mean, like generally right now, I primarily work with like B2B business owners on how to actually scale up. Right? But not only scale up, how to scale up profitably and sustainably where we don't get caught in this busy cycle. And like the busy cycle to me, when I hear the word I'm busy, it's like nothing killed profitability and scale as much as being busy has in any business under the sun.

Yeah.

And so a lot of the business owners I work with, when they close more business, they get more work, it in some way, shape, or form affects them either because they're maybe doing parts of the job themselves Or they do have a management team, but it seems that the more work that they give their managers, the less managing they do and the more that the owner or entrepreneur needs to actually step in and actually do a bunch of work for the manager. So basically, you have every single layer of the business doing the job of the layer below them, right? And it basically pulls everybody down. And this is to your introduction, The thing that I call the missing middle, right? And the missing middle is like, you're a founder and entrepreneur. So, you have the vision of your business and you probably understand your mission, vision, values pretty well because everybody talks about you need these things. And so, you have them, right? And really, what this comes down to is like, what is the strategy and the planning? Because you've been an entrepreneur for a while, you kind of have that nailed down. So, it's like strategy planning. It's like, yep, I understand this. Good to go. And because you started the business ground up, you also understand day-to-day delivery because you probably actually started in that day-to-day delivery yourself at the beginning. But somewhere in the middle between like strategy and planning and like the day-to-day stuff, there's this missing middle that occurred. And as your company grows, either you start fixing it or it will be the reason that your scale is gonna slow down. Or as you scale, your profitability will go down. So like this whole like scale of economy thing where the bigger you are, the more profitable you should be because of efficiencies, they never materialize and they never happen. So who I work with generally is in this moment where it's like, hey, we might have anywhere between like, you know, 10 to 50 employees and we're still trying to figure this thing out. And we've kind of done a couple of runs at scaling.

Yeah.

scaling the business. And every time we do, our profit margin goes down as a percentage. I end up doing more work as the owner. And it's sort of like, it's not sustainable, right?

Yeah, it's interesting because I've had a theory for the last 8 or 10 months now that we need to redefine what management and what leadership really is. Because I find one of the things that we do is we give managers too many technical jobs or technician jobs that forces them into, I need to put my head down. I need to work on spreadsheets. I need to look at the finance. I need to evaluate this. And so, they're doing less leadership and more kind of management roles. But then, we don't have anybody actually leading the team. And so, do you find that when we talk about this idea of messy middles that maybe we lack clarity? as to what the job description actually is?

I think that like, and by the way, this is a generational thing. In all of my work, I can tell you that the older generations in business, so like you could basically divide, create the dividing line around 50 years of age and up versus like 50 and below. The concept of management and leadership being 2 separate things is like not very well understood for younger entrepreneurs. Right. So people are like, oh, it's just leadership and management's bad. But I think that the history of management and leadership is that management was a very defined thing all the way up to like, you know, the '80s. In the late '80s, early '90s, you started getting this like, hey, it's actually not about management, it's about leadership. And like, management's bad and like blah, blah, blah. And like, this is what makes companies resilient is this leadership idea. I think the problem with that was, is that It was sort of like you're in the desert and you have like infinite water and like the leadership was the food or like, you know, whatever analogy you want to use to it. It's like you already had management in like plentiful amounts and like this leadership thing took it over the edge and it was amazing.

Mm-hmm.

I think in today's day and age, it's a bit different where like leadership is actually more pronounced today. than management is. So you have a lot of leadership with— and a lot of companies are devoid of proper management practices. So basically the pendulum swung from like all management in the '80s to like, you know, 40 years later, now we're in like the opposite where it's like we are so top-heavy on like leadership training, like emphasis, why it matters. And management has almost been demonized. And what I'm seeing is that you have great charismatic leaders that have a very clear vision, that have a very clear culture, like mission, vision, values, all that stuff, but they can't organize anything for the younger generation. That's not as much of a challenge for the older generation because they kind of grew up in like the, hey, management matters, and now leadership matters too. So they're a bit more balanced for that reason. And so, this is what kind of gives rise to all of this because in essence, people are like, oh, management, leadership, what matters? It's like, well, I think of it this way. Management is getting people to be in formation, right? So, if you don't get people in formation, what happens is that leadership comes along and leadership charges people up and excites them. and gets them moving, right? The problem is, is that if you don't organize people before they move, Yeah. like they're facing in all different directions. They're facing northwest, east, and south. They're facing each other. So when you charge them up with leadership and get them excited to march, they're gonna start crashing into each other. You're just gonna get like this chaos, right? Because it's just energy for energy's sake. If management comes around first and gets people to like be in formation pointing all in the same direction, Leadership comes around and charges them up. Now, you're moving the organization in a single direction instead of like just chaos erupting. And it's not that this is merely my opinion or experience. Like, I've seen this happen so many times where there's a charismatic leader or like owner or even like executive team and they charge their people up, but like they have no direction whatsoever. in terms of like how to work together as they're going in this one singular direction. And like, this is where a lot of this energy is wasted.

Yes, yeah. It's really interesting. I really loved Stephen Covey's definition. He said, managers manage things. Leaders lead people. And I always looked at that and I thought, so from this role definition, when we're trying to manage processes, Then, we have KPIs. We have standard operating procedures. And we have all sorts of stuff in there. But then, the leadership component has to kick in at some point to your point to keep people moving in the right direction and moving with the right focus so that we can achieve the goals that we set out for the business. But at the same token, there's a real cost to scaling. You mentioned that somebody will bring managers in and they go, I don't know why the profit has dropped now. We're supposed to get more sales and more profit. But actually, there is a cost to scaling.

Yes. And it's steeper than a lot of people think. Like, the profit margins you require in a business to scale properly is generally a lot higher than people give it credit for. Because as you grow, you have to hire people, you have more costs. You know, arguably, if you're running your business fiscally responsibly, you have, you know, 90 to 180 days worth of cash in the business. And every single time you add a cost, you have to add 3 to 6 times that cost in the bank. So, your profit margin has to be pretty solid to actually keep up with the cash demands of proper fiscal responsibility of the business.

Yeah. So, it's really got to be super strategic when you decide to make that happen. A lot of owners think that their growth problem is sales, marketing, or even might even be strategy. But I think less strategy because I think a lot of people think in their head that they have the strategy. We might look outside, be looking going, your strategy is pretty weak. But in their minds, they're probably pretty solid. So, how often is the real issue actually the management structure of an organization?

Well, I think that in my mind, the management structure governs like a lot of the other outcomes, right? And so, when we say to ourselves like we have a sales or marketing problem or a strategy problem like Really, like, where does that come from? And it's basically somewhere down the line of the execution of the thing. And that's where middle management really, like, rears its head. Because if you have this great plan and it's very compelling and people can get behind it because they see the vision of it clearly, like, you're not really short on leadership at that point. You're very much short on, like, deployment and actually getting the thing done. And if it's not getting done properly, it really does come down to the management. But to maybe get a layer deeper on what that actually means, it generally is because what happens is that nothing works on the first pass. Okay? So there's this idea of, like I mentioned, strategy, the missing middle, and then this day-to-day delivery aspect. And day-to-day delivery means with clients, With our sales and marketing, with like all aspects of the job, right? The missing middle is really like, what are the behavior change mechanisms that we have available to us, right? Like number one. But the other problem is in the iteration because just saying like, hey, we have strategy and planning. We have like this behavior change system and we have this day-to-day delivery in all aspects of our business. That is just like a one-way flow. It's not a feedback loop. And like wins in business happen primarily in an iterative manner. They don't just happen like, you know, how many times have you launched an initiative and it just succeeds on the first time? It's like, that's, I mean, when it happens, it's like great. Like it's amazing. But most of the time you kind of get maybe like a good version of a launch or like an initiative is maybe you solve 60 to 70% of the problem in that first go. And then you need some level of iteration.

Yeah.

Right? To actually get to the actual targets that you may have, like P&L or otherwise. And so day-to-day delivery has to have very clear ties to data, right? So like the— and what I mean by data and dashboards to me is that data and dashboards measure the behaviors of the business.

Mm-hmm.

Okay? Because really, like, what are we measuring when we're measuring like marketing success or like how happy a client is or whatever else have you, we have some behaviors inside of the business that we're doing day to day. Those behaviors are captured via the data. The data comes back to the leadership and management team. We have to interpret that data. And then, we have to use our behavior change systems in order to affect how the day-to-day operates. And basically, that's on an infinite loop forever. And so, this missing middle idea is that 2 things are fundamentally broken in my opinion of businesses that are trying to scale, But they either scale with low profit or they just can't scale at all, right? The behavior change and the data systems are generally the things that I see missing. And the behavior change systems are the easy part, unfortunately, because the systems in and of themselves, I always tell people the same thing. Systems are the easy part. It's the people behavior that's actually the hard part of the equation. And the problem is, is that you could say, well, we need better systems. And it's like, well, you might not be wrong because I look at systems from the angle of like, to put it into like a metaphor, the system is the car, right? So it determines whether or not how fast it gets off the line, how fast its maximum speed is, et cetera. But almost all cars can do the speed limit.

Yeah.

You know what I mean? And sure, some are faster than others, but what matters is the behavior of the driver inside of the car. And so if you have like, you know, a Ferrari of a system, but the driver can't actually maximize the performance of that car because that car's too powerful, it doesn't matter. that the car is amazing, that the system is amazing because the behaviors aren't there yet to actually draw out its full potential. So, in my opinion, a lot of times people end up in this like weird cycle of initiatives quarter after quarter fixing systems, fixing systems, and oh, I can't get the behavior from the person. I just need to add more systems and more SOPs and more detail and blah, blah, blah. And it's like, no, it's just that the behaviors are not And I hate this word, synergizing with the system. Like the behaviors aren't maximizing the system in and of itself. So, it's a behavioral issue. It's not necessarily a system issue once the system is reasonable. And most of the time, it is.

You know, I'd love to tap into a little bit more of that, specifically around the role of ownership ego as they try to make that transition. And we'll talk about that Right after this.

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Welcome back! I am having a great conversation with Nick Avaria. Nick, we're talking about kind of this thing. There are anchors holding businesses back. And would it be fair to say that the biggest anchor in a business is an owner-operator who has been at the helm for many, many years? They now are saying they're being told by coaches or by people, you know what? Let's bring in managers to help alleviate some of that workload. But then, the ego of the owner can then become the biggest bottleneck to any kind of scaling.

Yeah, I mean, it definitely can. And I think that as owner entrepreneurs, like we have a very specific way that we want things done. And it really is tough to hire people because when you hire good people, You can tell them what to do or how to do it, but you can't tell them both.

Yeah.

Right? And the entrepreneur kind of thing is that like, you probably opened a business because you saw a gap in the market. You didn't see it done right. And so, you're like, well, I'm gonna do it right. And then, when you hire people, they might choose not to do it the way that you do it. And sometimes, you got to be okay with that. But sometimes, you just need to like kind of go the franchise model in a way where You document everything so closely and all the movements and blah, blah, right? Like to a degree where people can replicate your behaviors, right? But again, like it's again, this marriage of systems and behaviors to do that. But it's very difficult to do that. And it's very difficult to let go of it from an ego perspective because ultimately we get like this jolt of like, you know, like whether it's like happiness or like justification or relevance when we fix the problem, right? And when we are the superhero and we wear the cape and all of these things, it's very— but the problem is that that's easy. Like being the hero is easy. It's hard to teach other people how to be the hero so you don't have to. And when you go from hero to hero maker, that's where your company is gonna actually be very, very scalable.

And part of it as well is that when they decide to hire somebody, they're looking for somebody to help them build the business. They're vetting for that skill set of what is it that you have that I don't have. And then, I bring you on board and then, I try to make you more like me. It's like, what?

Yeah, that's— I mean, The funny thing is that I've seen this time and time again, right? As I'm sure you have as well, where people are like, I'm hiring people that fit the culture. And I think sometimes that's a very narrow definition. And what they're actually saying is that this person's like me.

Yes.

And I'm like, okay, so you have no diversity of thought. And that's actually what matters, right? It's like diversity of thought is what strengthens the business because if you have blind spots, that person can help you understand and mitigate those blind spots because they can see them and you can't.

Yes.

And vice versa. And the more opinions you have and the more diversity of thought you have, the less blind spots there are. And the less blind spots there are, the more likely you are to win versus your competitors. And, but getting that diversity of thought I found is very, very difficult because where entrepreneurs generally go to hire is they go to like their typical watering holes of, you know, where they hang out, right?

Yes.

So like, if it's like, that's like they attend certain community events or certain functions, like with like-minded people, the problem in that statement is like-minded people.

Right.

And like that reduces the diversity. And don't get me wrong, that is not the wrong thing to do, especially maybe like very early on, like maybe your first 2 to 3 employees. Because then, you have high levels of alignment. And those high levels of alignment when you're not an experienced manager or leader are kind of like those baby steps to like teach you about management and leadership. But when you're trying to actually scale this thing, like that's not going to work anymore.

Yeah, yeah. It's interesting because again, it does mean that the owner-operator has to somehow park their ego and force— let other people tap into their own superpower. But again, if you're only hanging out in the same place where like-minded people are hanging out, then all you're doing is hiring that blind spot that you already have. And that becomes the biggest challenge, right?

Yeah.

Like, I have a sneaking suspicion that when an owner-operator gets into an interview with a candidate who they're thinking about for a management position, when that candidate starts talking about some stuff that they're seeing, that they're doing, and so on, the pictures in the owner's head is going, Wow! If I can leverage this, this would be really great. But then, we bring them into the job description only to lob them off at the knees and say, well, that's not how we operate.

Because it's uncomfortable.

Yeah. Now, you mentioned before the break, you mentioned that sometimes people are not ready to scale. That some people, they don't have enough profit to scale or they're not mentally ready to scale. Before hiring a manager, what numbers should a business owner understand ahead of that process so that they know that when they bring people on board, they are able to set expectations and then be able to test against those expectations?

Yeah, I mean, I would say that obviously like this is very contextual based off of your industry. So, I mean like look, if you have an accountant as an example, go to your accountant and ask them. It's like, hey, do you have any other businesses like mine? Can you maybe share with me not names but other businesses of my type, like what are the benchmarks of profitability, right? Like, you know, I know the agency space, for example, really well. Like the average profitability in an agency is around 15%. Now, what most people don't tell you about that average is that that average is built up of a lot of people in the single digits and in fact, low single digits. And then a few people in the low to mid teens. And a group of 10 to 20% of companies that are doing above 30 to 35. So, it's like this wide range, but it kind of goes to show that the people that are doing really, really well are not doing 5% more than the average. They're doing double, if not sometimes close to triple the average, right? So, you first have to understand that if you're a business and you're running at 10% and you're And you look up the averages for your industry and your industry says, hey, like the average is 8. It's like there's somebody out there doing triple the average probably. And like if that sounds like insane to you and you're like, that mechanically is impossible. It's like, I assure you it's not. It's like somebody's doing it. And so the first thing is basically understanding like in order to scale, it is inevitable that we're gonna go through this valley of cost. In the sense of like when we start building middle management, our profitability will at first lower. When we start building our leadership team, our profitability will in a short term go lower unless we flood that middle manager with a whole bunch of like work that is like client-based work, right? Or like doing the actual thing that generates money.

The problem is you actually hired a manager.

Yeah. But then Yeah, why did you hire a manager? And to your point earlier, it's like, yeah, we jam these managers with a whole bunch of work on the frontline that basically then doesn't allow them to actually do the work of management.

Right.

So you need to walk into the scaling phase with an above industry average profitability before you consider it. And you probably need a decent war chest. I would say comfortably 4 to 6 months worth of your you know, fixed and somewhat variable costs, right? Like not all variable costs, but the majority of them. Um, because the, the, the trek upwards will eat through cash position. And then you need that above average industry average profitability because it will shrink as you grow initially. Once you actually get them to like a plateau where managers are full, meaning, uh, you have like 4 or 5 managers and each one of them is managing, you know, 5 to 8 people or like whatever their maximums are, that will generate more profitability than when you were smaller. Like, there is no question, but it takes a while to get there, I guess, is my point. So you need that above-average profitability so that as you do this, Marc, like, yeah, it's gonna lower, but you're still probably like average at worst, but probably still above average even after all of this.

Yeah, because I mean, ultimately, by bringing that manager in, you're bringing in an expense at the At the beginning. And it's not just an expense of money. It's expense of your time as well because as the owner-operator, you're going to have to spend an inordinate amount of time investing in this new manager to get them up to speed. And so, we're looking at a 6 to 12-month orientation onboarding process of being able to get them to understand all these different expectations as you then start backing off and letting them start exuding their superpower.

And I think that like you bring up this really good point of, I think a lot of owners think that onboarding manager, like cognitively they understand like, yeah, onboarding a manager is going to take more work, more time than onboarding a frontline employee, but they misallocate just how much, right? Like they're like, oh yeah, like I'm gonna have to spend more time with this person. It's like, no, you're gonna have to spend like so much more time with Yeah. That it's not even funny compared to the frontline individual because the difference of the frontline individual is that you need to teach them how to do the thing, which is like, I don't care whether you're like B2B, B2C, you're making widgets or you're like a consulting firm. The frontline is actually the easiest job in terms of like the level of sophistication because you just need to tell them, like show them what to do. And if you hired properly, they kind of already know how to do the thing. It's just that you're teaching them how to do it our way. For a manager, you're actually having to build into them the mental models of management of how we do management here in accordance to our mission, vision, values, and ultimately, greater culture, right? And that is not a quick process by any stretch of the imagination.

I also look at it as being the time in which there's a lot of co-creation happening. You're bringing in this knowledge base into your business. So, a lot of that time is kind of, here's what we're doing, and having kind of those conversations and development brainstorming and testing and all that throughout the course of that first 12 months.

Yeah.

And so ultimately, if the business is sitting on the shoulders of the owners in order to generate profit and so on, you can pretty much expect your time is going to be taken up so much with this new manager trying to find those synergies, find those kind of new benchmarks that you're not going to have the time to do what you did before, which was the smiling and the dialing and the customer interactions and everything else you prided yourself on to get you where you are right now.

And I think that this is ultimately where— and I forget where I saw this statistic. But somebody said, it's like up to 65% of managers have negative to neutral value the businesses that they serve. And to be frank, I don't really think it's all that much the manager's fault generally, especially in smaller businesses, right? There's 2 types of managers that fail. The first is the professional manager that's been a manager elsewhere. They have the management skills, et cetera, but they're not onboarded properly by senior leadership, AKA in smaller businesses, the owner.

Yeah.

And so, they're put in a position to fundamentally fail because they just don't have the context. They don't have the mental models. in alignment with how the owner wants to do things. We're probably like underprocessed if we're in a smaller business. That's why the manager's like being brought on to actually create some of these systems and processes. And that's why they fail, right? And so the owner ends up actually doing more work than less. The second type of manager that I am, in my view, generates like negative to like neutral value for the business is A person who was elevated to manager and was very quickly Peter Principled, meaning they were a fantastic frontline worker. They're really good at their job. And they got elevated to a point where they had no business being in. And this is actually the most common problem I see personally is people take this individual, like I call them like an individual contributor, like frontline individual, right? They take this individual contributor and they're like, okay, well, if I don't pay this person more, they're going to leave. And so I need to retain this person, so I need to pay them more. And they find no other way to justify this person's higher pay than giving them a manager role. When the reality of it is, is that if you have somebody that you cannot lose that is incredible at what they do, you don't put them into a manager role unless they have management skills. skills and ability, you put them into a technical expert role, which is highly paid as well, but they're just not managing people. And like, and by the way, they're, to me, there's this line of, okay, well, what does it mean to have like a technical expert role or like a technical lead role versus a manager role? And I'm like, well, all of the people, individual contributor and technical expert, they— report to the manager, but the manager's responsibility is not necessarily— it might be, but it not necessarily is— to ensure the technical expertise of all the individual contributors. The manager in their toolbox has this technical expert that they can grab that technical expert and say, okay, your responsibility is to train these people on like these areas of deficiency technically that I have observed. Or even go as far as, hey, can you audit the technical work that these individual contributors are doing? And then like me and you, let's plan a training which you're going to lead in order to get these technical people up to this appropriate level. And so you have the number one problem in my opinion is less so the bringing the manager in from the outside and them failing. I think that does happen but not as much as this other version. where it's like, person should have been elevated to technical expert. You can call them like a technical lead or like, you know, a lead of XYZ product service, whatever it is. And then they basically have this dotted line quality assurance relationship with the frontline while the manager is actually doing the management of it. Right?

Mm-hmm.

And I think that big companies have this, got this actually very much correct. So I'll give them their flowers. Like, Enterprise-level businesses. If you want to get promoted, what is the last task that you do before you get promoted by management, right? For continuity's sake, you have to recreate yourself as the last step before you get promoted, right? Which by the way is also the right test for an individual contributor that is becoming a manager for the first time. Because guess what? In my opinion, If somebody cannot replicate themselves and their performance, they shouldn't be a manager anyway. Because what you're really asking of a manager is to be able to create individual contributor frontline staff that is fully autonomous in their jobs, meaning like they can do their jobs holistically.

Right.

Without management actually doing their job. Right? And so when people are like, I've had this conversation more times than I can count now, but they're like, hey, I have this great person. I think they could be a great manager. I'm like, okay, let's first of all inspect if they have management qualities or capabilities and leadership qualities and capabilities, number one. But number two, okay, if they pass all of that, the last test is that they need to take somebody who's either like not performing well or maybe a little bit mediocre. And they need to recreate their performance with this underperforming individual as the last task before we promote them. And guess what? Like a lot of people don't pass that last trial because they cannot recreate themselves. And if they can't recreate themselves, why would we make them a manager? Because all that's going to happen is that they're going to end up doing the frontline's job because they're going to be promoted to manager. Other people are going to do the job in a way that they're like, yeah, like now all you've done is like that ego problem of like, do it my way. And like, you're not doing it my way. You've just passed that problem off from like yourself to the manager. And then the manager's going to have that problem where they're going to be like, well, no, you're not doing it my way. And they start fixing absolutely everything. And now they stop doing the job of management and they start doing the job of just like fixing everybody else's work.

Yeah.

And not in maybe even a material way. It could just be in like an ad hoc contextual way for their context of doing things. It's not actually material to the outcome. And like, now that's all they're doing. Yeah.

Well, it's really interesting because each one of those phases, no matter what you decide to do with this employee, each one of those phases needs some semblance of training and coaching. And without that, You're just setting people up for failure anyway. If you have somebody that you want to turn into kind of like the technical lead, you still need to train them because what makes him so great today is not the same skills he's going to need to be the technical lead afterwards. To be able to audit a process for some. Like when you tell somebody who does really great work, how do you do it? He goes, I don't know. I just do it. I just show up every day and I just do what I do. And it's like, wow, you're a Superman. now go and teach other people how to do it, they can't because they've not been given the skill sets to be able to do it.

Right.

So, are there any kind of key performance indicators, KPIs, or dashboard items that a company should have that might be kind of an early warning system that we're taking a chance? We're sucking up the profit margin by promoting somebody, paying them more, giving them training and time and energy and money to do that and so on. Is there anything that can act as an early warning system to say, we're on the right track even though we're not profitable? It seems like we're heading in the right direction. Or it seems like we're just flushing this down the toilet.

Yeah, I mean, the best early indicator systems are generally like a little bit more qualitative than they are quantitative. Right? So, a lot of the time, I ask managers to actually either A, timebox their calendar so that they know what they're working on at all times. They themselves, I don't care what they're doing in terms of— I'm not trying to micromanage their time, but I want them to self-reflect on their time and figure out what it is that they're doing with their time. And are they spending it wisely, right? Because I think that A manager's role is actually 30% ensuring that the technical capabilities of these individual contributors are actually sound to make sure that they can actually do the work. Like, that's only 30%. And like, I think the problem with most managers is that they think that it's 70, 80, or 90%. So it's like, no, no, no, it's backwards. What a manager actually does, if a manager can identify the right talent and hire the right talent, is 70% of the time is actually spent on teaching people how to generate performance, right? And again, and even that 30% technical, like they can take that to that technical expert role and say like, hey, help me train this person on the technical side or finding an outside consultant, train them on that technical side, right? The 70% performance to me breaks down into like a number of things. Number one, how to Actually set the expectations accountability with that individual. So like, hey, individual, here's what I expect from you. Here's what you're accountable for. These are your lines of responsibility and accountability where you have authority over your job. So they have to teach people, the individual contributors, how to do that. They have to teach this individual what drives company results. So like, what are the day-to-day behaviors and day-to-day tasks that you do that are actually going to drive outcome for the business. This is going to sound really tactical, but time management. Managers need to teach their employees like how to do proper time management in their role, not just in general, for their specific role. How to work well with others. What is the definition of working well with others in this role? Like, what are the handoffs between team members? What are the connection points with the business? that constitute what a good handoff looks like. The other thing that is sort of similar to what drives company objectives is to like actually how to hit objectives because not just what they are, but it's like, okay, let me show you the tips and tricks that I myself have learned in order to hit the objectives in a sustainable way where we're adhering to the culture of the business. How to actually work well with others and not just so that we maximize numbers for ourselves, Both so that we maximize the numbers of the entire group. On that note, connected to how to hit objectives and the time management is how to prioritize. A lot of people don't actually know how to prioritize. They do their to-do list based off of like, hey, I'm gonna do all the things that I have control over first. That's generally not a great idea. You probably have to do the things that you're not in control of first. Meaning like somebody, you're gonna have to hand this off to somebody else. Do those things first so that you get those off your plate. And while they're working on those things, You work on the things that only you have to do or that only you can do, right? And the last one, which I kind of mentioned in passing, is alignment to culture. So the main things to me are these like 7 items that the manager actually teaches that constitute how to generate performance in the context of our business. The other 30% is the tactical stuff, like the technical, like this is how you actually do your job and how you actually like, you know, how the nuts and bolts of this thing work. Right? And to that end, like what are the KPIs and metrics that show up? It's like, okay, well, is it harder to get something actually done? Are we delivering our product or service faster or slower? If there's been some sort of slowdown, that means that we're less productive. We're less efficient. Something might not be going right in that context, right? If we do some sort of employee engagement surveys, engagement might go down because people are maybe a little bit lost. To this end, I generally tell people as well that when you start adding a middle management layer of any kind or a leadership level of any kind, skip-level meetings become non-negotiable. And what a skip-level meeting is, is when, for example, like imagine you don't have any managers and you add a manager. You as the person that this manager reports into are gonna go to like their people So, you're gonna— it's a skip level because you already do meetings with that manager. You're gonna skip a level and go to those people and just say how things are going like, hey, are you being supported well? Is there anything that the company could be doing better? You're not going to give them directions or coaching. It's just to see how they are doing. And you're going to do that once per quarter. Okay? Skip-level meetings go a huge way in identifying whether things are going wrong before it even hits the numbers. So, I highly encourage it because To me, like the question of the KPIs and the metrics, it's like, yeah, it's 100% valid. But I don't like— I would rather fix these problems through qualitative measures that are even faster than the data can get to me in the first place, right?

I love that. And Nick, for the people tuning in, how can they get a hold of you if this is resonating with them and they want to work with you?

Yep, you can find me at Nick Avaria on LinkedIn. So that's N-I-C-K space A-V-A-R-I-A, and that's on LinkedIn. You can also find me on Instagram and Meta and all that good stuff. YouTube as well. My website is agencyacquisitions with an S at the end .io, and so you can find me there as well.

Terrific! Hey, I'd like to talk a little bit about the behavior feedback loop and why it matters to scaling leadership, as well as some cautionaries that people need to take as they want to implement new systems. And we'll get to that right after this.

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Welcome back. I am speaking with Nick Avario. As you can tell, Nick and I are passionate about supporting business owners and operators just like you. So, if you're planning a leadership retreat, if you're planning, if you're part of a planning committee for a conference, a trade show where you need some expertise, you need some people to come in, please feel free to check out our contact information in the show notes. We are here to serve you and help make you better. We'd love the opportunity to have that conversation with you to see how we can possibly help. Thank you, Marc. Nick, you mentioned your 7 elements that I think were highly effective in being able to describe the steps that are required to take, almost like a checklist. This idea of a behavior feedback loop, each one of those I imagine are part of that feedback loop.

Yeah, I mean, so the behavioral feedback loop is like a little bit more simple than those 7 things that managers are teaching basically people how to generate performance. Right? Because generating performance is more of like a qualitative measure, right?

Yeah.

So, I would say that the behavioral feedback loop is sort of more on the quantitative side. So, that's to me, those 7 things are the qualitative elements. And the quantitative elements are really how the role objectives and measurements of the role are. And so, I look at this through the lens of, okay, what is the role? And the role is going to be basically their job description, right?

Right.

And inside of that job description, I'm going to have 3 to 5 objectives. And those objectives are going to be things like, hey, like if we're a B2B business as an example, one of our objectives number 1, we want to retain clients. Objective number 2, we want to generate clients the result that we promise when we sell to them and start a relationship with them. And objective number 3 might be like productivity in some way, shape, or form. Right? Those are the objectives. And those should go inside of the job description like, hey, yeah, these are the bullet points of what your tasks are day to day. But there should be the section at the bottom that says, hey, here's the 3 to 5 objectives that your role ultimately drives.

Okay?

And these need to be connected to business objectives. They can't be like, do your work on time. So, they can't be optimized for the role. They have to be optimized for the business.

Okay?

Those objectives like client retention as an example need measurements. And I use the 2 measurements of metrics and KPIs. And I use the traditional definition of metrics and KPIs. A metric is something that measures money or like measures the outcome in its monetary form. A KPI is a key performance indicator. It's an indicator of potential future performance but it's not actual performance. Okay, which is different. So I basically have an objective. Hey, client retention. A metric could be client churn rate, right? Because that measures real money. And then a KPI could be like a net promoter score. A net promoter score is something where you ask a client to score you out of ten to see how happy they are with your service, right? So if they're a ten out of ten happiness, it's like what is the likelihood? that if that's a KPI, what is the likelihood that the metric of churn for that client is gonna go down? It's like, well, it's not likely because they're very happy with us. Therefore, that objective is kind of safe. So I look at it as this is objective metric KPI, like lagging indicators versus like front windshield predictive indicators.

Right.

And I want those for like at least 3 to 5 objectives. And then the feedback loop part is that those objectives are measured by those metrics KPIs. That is what we measure. We then use our people performance systems to coach people based off of the data that we see because we see the data. Uh-oh, it's not maybe going in the right direction. We can then have in-depth conversations with those people using the data as the backdrop. So, it's now no longer opinion-based. It's fact-based. So, it's not like, hey, I think. It's like, hey, there's this issue. Let's fix it together. I'm here to help you. Right. And I think this is the problem that managers often run into is that the objectives in the first place for the specific roles are not anchored to business outcomes. Therefore, like, you know, the objectives are anchored to like get your work done on time or like things that are very like micro that are very much in control of the individual at like a day-to-day level. And so people maximize for those things and then they're like, well, if it didn't have the, you know, macro level of objective of hitting this metric, like that's not my problem. I did my job. And so first of all, aligning the objectives correctly is like the battle number one. Then the measurements actually mean something because what you're basically saying to this individual is these objectives, metrics, and KPIs, we judge the performance of your role from a quantitative perspective through the role of like through these numbers. They are yours. They are not mine as your managers. They're literally your numbers. I am here to help you. How can I help you? Rather than, oh, it's like my job to hit these numbers. And the employee's like, it's not my problem if these numbers aren't hit, right? Because like, it's like, so what? It's like, hey, if these numbers get brought up at every single performance interview and every single like one-to-one meeting and coaching discussion, blah, blah, blah, et cetera, We basically create this ongoing feedback loop where we're using the quantitative as a baseline so that we can have a positive interaction conversation. And we act as the helper rather than just dragging people. And I use this analogy of like being a Sherpa, right? So, it's like we're climbing the mountain together. And my job as a manager is not to drag people up the mountain. It's not to push people up the mountain. It's to walk beside them and show them like, hey, there's like, there's, there's, there's, there's a gap right there. Don't fall down that thing. It's like, oh, be careful of this thing. It's like, I'm here to help them avoid problems. I am here to help them keep them safe. I'm here to like help them be able to navigate up this mountain faster than they ever could by themselves. But I'm not here to move their feet.

Yes.

Right? And like, I think that when that relationship is not that way, like this is where managers end up doing all the work for the employee.

Right. And they end up bogging themselves down. And then, they get frustrated later on because it's like, why did I hire people if I'm going to do the work anyway?

And to me, like this is where this objective metric KPI thing, I use like this thing I call the Golden Triangle. Okay. And the golden triangle of objectives to me, I don't care if you're B2B or B2C, in some way, shape, or form, you need to figure out how to anchor people's behavior to client retention, client results, meaning like they got out of the thing that they bought what they wanted, and productivity of the individual, meaning like, are they productive? Right? Like in a B2B setting, this is really easy. Like client retention's like, well, in B2B engagements, like, can we retain the person for as long as possible? If we work on a project basis, do they keep coming back for more? Are the results there? Is the productivity there? Like, we delivered this in a reasonable amount of time because people costs are our number one cost, et cetera.

Right.

In a B2C setting, it's different. It's like, is the product and service so good that it keeps the person coming back and buying us again and again and again? Right? And are we reasonably productive? Meaning we don't linger around, right? But like, that's to me the golden triangle of like, if you can anchor back those objectives, metrics, and KPIs to client retention, client results, and productivity in some way, shape, or form, you're gonna be just fine.

Yeah. And then, that also then becomes the early warning system because to your point, they become the lead measures. There are lots of lead measures into those outcomes. And so, being able to define what those symptoms look like you're well on your way in order to have that kind of yellow flag, red flag system of being able to say, okay, I see something coming around the corner. For people wanting to implement kind of this new mindset around scaling their business, are there any pitfalls or cautionaries they should be aware of as they start stepping into it by leveraging the 7 elements that you talked about, making absolutely sure they have the defined outcomes and KPIs and solutions in place. What should they be looking for to help them minimize the tripping?

The primary pitfall that I see every single time during trying to launch something like this is getting the objectives and metrics and KPIs wrong. And generally, this is what this means. Okay? There are 2 fundamental methodologies to actually doing this kind of alignment to like the golden triangle, if you will, which is, is the thing more individualistic based or more team based, right? So for example, like in a B2B environment, it could be like, you know, there could be a client account manager that's also like a technical expert that has a primary relationship. And there's another person that does the bulk of the day-to-day work, as an example. You could, the person, like if you said like, hey, objective number one is client retention, we're a team or we're a pod or like whatever, we're like a unit. So like me and the 3 other people beneath me that help with the work, we all share the client retention metric. And people are gonna be like, but I don't have client contact. It's like, yeah, but your work does.

Yes.

Right? And so people will take the easy way out and be like, okay, well, you don't actually touch the client directly and you don't talk to them directly or If you do, it's not that often. We'll make the targets more individualistic-based so that like you have full control over them. And that is the best practice for a large company.

Yeah.

Not for a small one. Like that is the stuff of like Fortune 500s do it this way and blah, blah. And even they have team-based targets, by the way. So it's not like they do this all the time, but highly individualistic targets require a huge amount of data, policy, bureaucracy, and frankly, top-class HR to pull off. So what I tell people is that individualistic targets, they're great. They're easy to launch, easy to get buy-in, and they're great with a lot of management, HR, and policy, right? The cons of individualistic-based items are that are, A, it requires a lot of policy. Less people per manager requires more like non-billable people because it's just like more management structure. Now you're herding cats forever because like the thing that you're actually trying to achieve, like the little like circle that you're trying to achieve, everybody's trying to optimize for the individualistic numbers, which may not be in alignment with the actual company objectives. So now you're herding cats forever and people only focus on personal success, which slows down decision-making. That is the individual-based environment. Now, Fortune 500, big companies have this nailed because they have the bureaucracy, they have the policy, they have all these things that basically says optimize for yourself. But by the way, here's all the guardrails. So like you can't actually, like the cats can't like jump out of the box, right? It's impossible. You're caged in.

Yes.

But as a small business, like that bureaucracy will kill your business. And so what you need to actually do is have these more like team-based targets around the golden triangle. And I'll tell you the cons right now. It's hard to get initial agreement on launch because people are gonna be like, I don't have full control over it. And it's like, yeah, that's the point. We need to look out for each other's blind spots. And it makes dashboards a little bit harder to set up because it's like you need to maybe get a little bit more granular with a couple things. But the pros are easier to manage ongoing, easier to achieve goals because there's more alignment, teams improve. the organization and their own accountability because it's like we're all in this together. Less management cost and less managers required per person and faster decision-making because we're all aligned. So like really, when you're like between 5 and 50 people, the team-based model is like 9 times out of 10 the model that you should go with.

And what a magical ability for small businesses to have a co-creation process rather than a top-down process. Because you're going to have people who are on the front lines who have a perception you don't have. And so now, you can drive co-creation to make you so much better in the long run. Nick, this has been a fabulous conversation. Could you just remind everybody one more time how they can get a hold of you?

Yep, on LinkedIn, you can get to me via looking me up, Nick Avaria, N-I-C-K space A-V-A-R-I-A. Or you can find me at agencyacquisitions.io and/or just look up my name on YouTube. You'll probably find me there too. And all the contact information will be there.

I love it! Nick, thank you so much for making time for us today. It's been absolutely brilliant having this really great discussion.

Thank you so much, Marc.

Hey, and why don't you let me know if this was of value to you? As always, my offer stands. If you would like 30 minutes of my time to brainstorm your business with you and your team, feel free to book yourself on my online calendar. The link is in the show notes as well. Nick has a 30-minute free audit for you to explore your business. So, feel free to check his link down in the show notes as well. We are service providers. It is our honor to be of service to you. While you're at it, why don't you go ahead and leave a review or comment about this episode? I'd love to get your feedback. Was this of value to you? And of course, please make sure you're subscribed to this podcast. I want to thank you so much for joining me today. My name is Marc Haine. I hope you stay safe, stay healthy, and I hope you dare to be the exception. See you next week!