Scaling Without the Suck: The R&D vs. The Multiplier Brand

The question is, you got something, you're creative, you're productive, you're profitable, and you don't want the point where your growth has stopped. I've been thinking about this for 50 years.

The fear I think every founder has, if you have a strong personal brand, the moment you start losing relevance, it's like, oh, when you see a brand losing your relevance and it's like, you just know it, it's like the herd starts to abandon its leader.

And I think that there's a way for entrepreneurs to think about this differently, that they actually have two companies. One of them is an R company, which is the original company that got them started, and the other company is a multiplier company that you don't go public. One thing, do not go public, but you go big in terms of collaborations with other people who love you for the quality of what you've created.

I believe the DNA of the founder is encoded in brands that last, and their non negotiable values are embedded in the DNA. All right, today we're going to be talking about scaling without suck. And everyone remembers how Starbucks used to be a fun place to go to, and the baristas would know your name, they'd remember what you purchased, and somewhere along the line their quality went down. It became, it went from being a fun place to a dirty place. And every business owner deals with this at some point where they either give in, in scale and the quality degrades or they keep it because they've got their egos in check and also realize they don't need to do that. But at some point, you give in to the public or you really, really focus on your customer and client. Before we started this, Dan, you were riffing about your experience with Starbucks, what happened? But also translate this into a business owner's opportunity to divide their attention in two key places that makes a business fun, awesome, and feeds both the customer and the founder.

Yeah, well, not to, you know, not to kick the, you know, the lame Starbucks horse too much here. My sense is that I think inherently Howard Schultz really wanted to create a revolution. You know, I mean, he was an employee of a wholesale coffee company. You know, that's, that's where he got his experience with coffee. And he recounts having a trip to Venice and sitting in the plaza in Venice and just noticing the difference of the quality experience in Europe compared to, you know, I mean, to be fair, to be fair, before Starbucks, the United States was a Maxwell House coffee culture. You know, big cans and, you know, you, you know, you made Them in this drip coffee that you made in your home. And that was, I think it, it probably prevented a lot of people from becoming addicted to coffee because it was kind of awful. You know, remember six or seven years old and I snuck a sip of my, one of my parents coffee and I've said whoa, whoa. You know. Yeah, you know, I knew that my.

Dad, I remember opening up a can of Folgers. I love that smell. But I remember tasting, I'm like, that does not taste the way it smells. Maxwell Health or instant coffee.

For sure.

Yeah.

So anyway, and he really, you know it came like a thunderclap when Starbucks, I mean they, the packaging was beautiful. They, they created a concept of a third space. You could come there and work, you know, like everything. And it coincided with people getting personal computers. I mean if you look at the agent people, you know, it was like, it was like we work where you enjoyed the we who you were and you enjoyed the work. You know, you were there. And then I think they had about a 10 year window when it was really a quality experience. It appeared in all the movies. You know, it was, it's like, it's like you don't see Dell, Dell computers or you don't see Windows computers, you see Apple computers, you know, movies, you know, because it's got a higher status. There's a cachet about. And Apple has done a really good job of staying in touch with the creative class. They've stayed a real, in really good touch with, you know, it's a higher quality, you pay more for it and everything like that. But they had about a 10 year window. Window and I would say it was 19, probably 1990 to early 2000s where there was still a sense that when you went into Starbucks it was a neat experience. You just, you know, you like taming out there. You went looking for a Starbucks, you know, you went looking for a Starbucks and you know they weren't everywhere. And, and that, and my sense was that, and I don't know if it could have gone any differently. So I'm not making any judgment if you, if you want to be a billionaire and you want your product to go all over the planet and you.

Know, yeah, you need the numbers.

You need the numbers. Yeah, and everything like that. But in terms of strategic coach clients and my, my, you know of our clients are small to medium size. We have really big businesses but not, not that many small to medium and what I mean like that a low of maybe five people to maybe 500 people. You know that would be the range that we were in, and that's the definition of small. And 50 to 500 is medium. So our company's in a medium, medium class. And the question is, you got something, you're creative, you're productive, you're profitable. And you don't want last year to be bigger than this year.

Right.

You don't want the point where your growth has stopped. And I've been thinking about this for 50 years, and I think that there's a way for entrepreneurs to think about this differently, that they actually have two companies. One of them is an R and D company, which is the original company. I got them started. And the other company is a multiplier company that don't go public. One thing, do not go public. But you go big in terms of collaborations with other people who love you for the quality of what you've created. So I'll just put that out as my framework of talking about this.

Right.

So I'm going to ask you a question about, let's say you, you had an opportunity to talk to Howard Schultz and he came to you and you could ask him a question that would help him restore the barista handshake experience. Because when you were chatting earlier, you're talking about you'd get the thumbs up from the barista, which meant they know what your coffee is and they'd have it there and you got, you know, the extra creamy foam and you increased the quality of the experience could restore that. Is there any restoring a brand that loses its relevance? Because when you were just talking a moment ago, that's what I thought of. As you know, at some point, if your business isn't maintaining relevance, it loses momentum. And that is the fear I think every founder has. If you have a strong personal brand, the moment you start losing relevance, it's like, oh, that's a fear. And when you see a brand losing irrelevance and it's like, you just know it. It's like the herd starts to abandon its leader. Something gets lost. And so what's a super powerful Dan Sullivan question that could restore relevance or restore the original energy that existed before?

Yeah, I think the question I would ask him, Howard, when you started it at, if I had to pick a 10 year period when you loved how your company was growing, what was that 10 year period and what were the three things you liked most about that period? So I get him fixated again. My favorite thing is going back to people's past when you were really proud of what you had created, you were really enjoying Being in your own stores, you, you really enjoyed being with your own customer and you liked who the customers were. If you had to narrow it down to a 10 year period, what would it be? And I said is there any possibility for you to capture that again and separate it out from the big public company, even start a private company again? And it's your R and D lab, you know, where you can just pump quality into that model. And then the lessons that you get from the, the, you know, the, what I call the R and D lab company, you can put that out to commoditize any way that you want in the marketplace or you can even sell the, you know, you can even that part, that, that part of the company. It would be the original Starbucks, you know, it'd be, you know, it would be back, back to the original Starbucks company.

Okay.

And that, you know, that, you know, you, you can raise the prices. You can raise the price. I mean I, I think people who you would like to have to come. You would love to have to. Your come back to your company is a certain type of individual where money doesn't matter. One, number two, who will not spend on other things to save up money to come to your, to come to yours. I mean there's two types of people and everything like that. And that I would start attaching you to high level quality experiences out in the, in the, in the marketplace.

Okay.

And, and maybe there's a membership, a yearly membership bond to the original Starbucks. I'm just pulling.

Yeah.

Out of the air, you know, somebody who really pulled us off. Well and we, Jeff Madoff and I are, we're including a whole chapter in our upcoming book Casting not hiring is Ralph Lauren. Ralph Noren has these beautiful stores and he doesn't have hundreds of them. He's got in major cities, you know, Chicago, New York, L.A. you know, probably not San Francisco now because San Francisco is on the San Francisco. The same things happened to San Francisco that's happened to Starbucks, you know, and everything. But London, Paris, Milan and Italy, he's got these stores and in some of the stores he's got a cafe, a bar and a restaurant in. But there's a maintenance of a very, very high quality. Now he's, I don't know if he's a billionaire, but he's certainly hundreds of millionaire. But he's maintained a certain quality of image. And not every store can become global where it's everywhere. Not every business can go that way. And I bet if he wasn't being recorded a bit of Howard Schultz wasn't being recorded, he could tell you exactly what the 10 years were and how much love he had for that 10 year period. How would you, how would you like to have it again, Howard? Would you like to have this feeling again?

Okay.

I mean, that's when Howard was really 100% committed to the quality of what he was creating. When did you stop being 100% committed to the quality and you started be 100% committed to the quantity of what you had?

Yeah.

And where I go to, so what I'm, what I'm hearing is you're, you know, going back to the, the, the, the experience extraction. Right. So what made that golden decade unforgettable? It's the feedback loop that made things great. And also the skunk works environment. Being able to be in that R and D space where you're constantly making something new, you're innovating and you're creating. And my guess when I listen to you right now is, well, you lost that when suddenly you had quarterly earnings and you are reporting not to the customer anymore, but you're reporting to Wall Street. That takes the fun out of business. It's when there's that separation and you're no longer serving the customer, but you're serving a machine that conflicts with all of the elements that make that true. Let's take this a step further and let's create the. Let's imagine we're creating a mini toolkit right now to recreate.

You should run it through one of the AI programs and say, when were the 10 years of Starbucks history when they were considered the best? You know, it just being interesting. And what, and what 10 factors make them the best when they have are having their best years.

Okay, let's see, let's see what it.

Comes up with from a quality standpoint.

Oh yeah.

Let'S see what it comes up with. While that's thinking, think about this through the founder's perspective in making this real and going through the innovation cycle. I put myself in every founder and when you feel like I hit a slippage point and maybe I can ask you a slightly different question which is more personal to you. So when Strategic coach has gone through some evolutions, where have you experienced some of the biggest bumps that required corrective action? And what did you do about it? What changed inside you? And then what also happened systematically? And then I'll come back to what we get from ChatGPT.

Yeah, well, I think our experience in our history is similar to 99% of entrepreneurs. It's that there was a period where the, from a front stage standpoint, everything really depended upon me. You know, if Dan wasn't there, there wasn't anything like if Dan wasn't the coach. And it took us a good, I would say, five years to crack the nut on that particular issue.

Okay.

And it forced us into doing something that is now our biggest wealth creator. It forced us to get the ideas out of Dan's head where she could used to do on whiteboards and, you know, you could do with, you know, just big sheets of paper and, you know, one sheet of paper or two sheets of paper. And you began to realize that what people needed was very, very quick, fast, fast shortcut thinking modules.

Okay.

And that you could. And the other thing is that if they were signing up for a year, they wanted to know if next year is just the repetition of the first year. Is next quarter we going to do the same exercise? And I would say for the first two or three years, from 1989 to 1992, it was the same thinking exercise we went through. And I would say our dropout rate was probably 30% at the end of the first year, 30% at the end of the second year, 30% at the end of the third year, and by the fourth year, you didn't have much leftover. We're at the point now where out of every two people who sign up for year number one, one of them goes to year number four. And when they go to year number four, they'll stay for another three or four years.

Okay?

So there's. The money isn't in the. Getting them in the first year. The money is getting them into renewals are. Renewals are much more profitable than. Than initial sales.

Okay.

But in 1994, I did 144 workshops. Those are full day workshops. Doing them in 1, 2, 3, 4, 5 different cities. A lot of. A lot of air miles. A lot of air miles in those days. A lot of hotels. And. And I just couldn't do. I just couldn't do anymore. So we started. How do we get someone else to coach where we get the same signup results and the same renewal? And I think it took us from the point where we got our first coach, which was January of 95. So this is five and a half years after we started to the next five years. And we had a solid core. We were probably up to five or six coaches. Now we're up to 15. And I would say the last 10 years we're in 95. Now I would say 2015-20, 25 are easily our best 10 years. Not just from a quantity standpoint, because we're, you know, we're much, much larger. Revenues are larger, profits are larger, reach is larger. But I would say the quality is much higher now than it was during any previous period. But the big thing was, is to create them, is to have the associate coaches who are coaches, and all they have to do is coach. But the other thing is they're entrepreneurs. They're not hired coaches, they're entrepreneurs and they get rewarded. You know, the top one makes probably a couple hundred thousand a year. You know, and they get paid like airline pilots do. Bigger the workshop, more you get paid. Bigger, bigger the renewal rate, the more you get paid, you know, higher the clients are paying, more you get paid. So it's sort of like the way airline pilots, A380 to Dubai, you get paid a lot more than a embraer from, you know, an embryo from San Diego to Los Angeles or San Diego to Phoenix. You know, you get paid a lot more money. The big thing is that we've really kept them. So we've had a total in. Since 1995, so it's 30 years. We've had a total of 26 coaches. And we still have 16 of them. We still have 16 of them. And, you know, some, you know, voluntary, voluntarily left and some we asked them to leave. But generally speaking, it's really been good. But all they have to do is coach and we feed them with new tools. So they have to learn new tools every quarter. The other thing is they have to be clients. They have to be active clients of strategic coach to be a coach. And so we've maintained. And you've been in 10 times with other, you know, you. The day before you do your workshop or the day after you do your workshop with me, you're with another coach. And it's a good experience.

Yes.

So really what I. What I heard here is one of the key things, and I'll bridge this back because I got my report on Starbucks. There's some similarities and parallels, is when you went from Dan doing all the work and also the tools, people didn't have a sense of a progress moving up in the ranks and having more tools and a bigger future and being able to get further faster because the tools had impact, but there was a shelf life there. So one of the things that you do now is there's always something new. There's a new tool, there's a new mindset, there's new thinking and. And there's new collaborations that get created. That's another important thing. And then scaling through coaches who are rewarded and they're part of the culture. And here are some of the parallels that I'll share with you about Starbucks in this little report. There's some good stuff here. I think your assessment was very accurate. 87 through 97 was peak. So that's when they brought in the espresso bars handcrafted. They also had internal partner first when it said local store design. So that was before everything looked the same. And grinding beans in front of guests it was the smell. So he said what went wrong? The super automatic espresso machines and there was blocked eye contact so there was no theater. Pre ground coffee. No more smell and I would argue no more taste over saturation. So the culture and then here's the also said they started just creating crap drink bunch of sugar which probably pushed away those higher value people willing to pay more and they weren't looking at it and spending their last dollar. So you know, look at the takeaway. So it's codify the non negotiables. That's very true. I always say you've got to preserve the mindset of the founder. The RD Heritage Lab. There we go. Prototype group feeling special. And then look at that. The aroma Dwell time barista. Name recall daily.

Yeah.

To prevent dilution which you communicated in a lot of ways. That's really accurate.

Yeah.

I like a copy of that to send to Jeff because it's really important to.

I'll get it sent over.

Yeah.

And the big thing is that there's a. My sense is that for every business there's an appropriate maximum size that they should strive for where they can double down on the quality of what they're doing.

Yes.

That's the limiter. So limiting.

Yes.

So that we are preserving exclusivity and that amplified experience.

Yeah.

Makes. Makes tons of sense.

Now the question I would be.

You.

Know in the follow up question to Howard Schultz I said when were you most admired as an entrepreneur? And I bet a course corresponds with the. With the 97 to 07. I bet he was most admired and he was seen as a real trailblazer and once he went to quantity was. Yeah, he was.

Yeah, yeah, yeah.

Well that what motivated him as an innovator and an R and D guy who tapped his greatest capabilities where he took the synthesis of Italy, brought that in along with the architecture and the neighborhood. I mean first of all it went from a creative challenge and an immersive challenge to something that was scalable in the eyes of the bean counter. And the bean counters don't care about the real stuff that matters. So I think that's.

Yeah.

For a long time they, they would only serve nibbles. You know, they had dark chocolate. They had really great dark chocolate. There was about five, five years. And then they got rid of the dark chocolate and, and they started introducing every possible sugar concoction that you could. And, you know, and, you know, I, I remember drinking a Starbucks, you know, like, you know, like a, you know, like a, you know, double shot, double shot, triple shot latte, you know, and everything else and it was like, whoa, Whoa.

Yep.

Oh, and now I throw away half the. You know, you're not supposed to throw the drinks into the trash, but I still do it, you know.

Yeah.

You don't have something for me to pour it out, then I'm going to throw it in the trash. So I bet the trash bags are a lot heavier now.

They're very heavy.

Yeah. Don't.

Don't puncture the traffic. The trash. Trash bag.

Right.

It'll dribble, but it just took on a tawdry feel, you know, like now it's in every airport, it's in every, you know, it's gas stations, it's. But once you went down the quantity line, you know, anyone that would. Anyone that could take it, you know, the. Anyone where you could get a Starbucks and, you know.

Yeah.

Nice to stay in hotels because they had Starbucks in the hotel.

Mm. Yeah. Yeah.

And now they're, they're, they're little factory machines making impersonal nothings with people who don't care.

Yeah.

So. So if you get back to scaling without losing essence, there was that question that you could ask a founder that would help them establish and recognize essence, which again, nowadays we can feed that in. We could take conversations, we could take testimonials, we can take positive and negative reviews. We can feed that into ChatGPT or Manus, which is my favorite deep research agent. Now I can get a complete assessment of a business and provide solutions based on that and also mirror historical data from other companies, your competitors. It'd be like, learn from the top competitors and what makes them unique and grab all their essence. By using customer client feedback, you could create a top 10 list of stuff to implement. But from a psychological perspective, how would you inspire. What's the question you'd ask a founder right now to inspire them to get back to what got them excited in the first place and recreating that experience for themselves? That gets echoed inside the brand.

Yeah, yeah, yeah. It's really, you know.

I think the.

Difference between entrepreneurs period if I separate entrepreneurs as a group of people from let's say corporate executives is that one, they last a lot longer. Entrepreneurs last a lot longer. And, and you know, when was there a corporate executive who is a hired gun that you actually remember? A year after he's gone.

Yes. Yeah.

Here they're commoditized.

They're commoditized individuals.

Yeah.

And sanitized by a Wall street selection.

Process and by their legal firm.

Yes. Yeah.

De risked because I think most founders are loose lipped and they got fast guns and fast mouths. If you the what I ask people all the time when I talk about the importance of building a strong personal brand as a founder because here's the pushback and the objection I would get is they'd say I don't want to give up my anonymity and my freedom and to be famous. And I will say okay, well that's, that's valid. But everyone remembers who launched, created and founded Apple and you certainly know whether at this moment you love them or hate them, who started Tesla and SpaceX. And if I asked you what the CEO is of the car you drive, unless it's a Tesla or the phone company, the cellular provider you use or the cable company you use or anyone else who you buy a lot of stuff from on autopilot month after month, what's the name of that person? And no one can answer that question. It's just without exception. And I believe the DNA of the founder is encoded brands that last and their non negotiable values are embedded in the DNA. And Apple for all of its. Some say it lost its soul, some of that's true. But Tim Cook scaled that business to multiple trillions and he had the right amount of reserve and operational excellence and enough respect to preserve some of the core values.

I also think he had a real personal commitment to the founder.

Yes.

Which was because he spent days, weeks, at least a decade. I don't remember how long his 10 his pre tenure was before he was selected but I think that was.

A.

Profound level of trust. And when in his probably the most.

In my mind he's probably the most visible of the inheritors that I can think of in the last 30 or 40 years. Somebody who took over a company from somebody else who was an iconic founder. I think Tim Cook has probably right at the top of a. Yeah.

And you look at Microsoft or Google, there's leadership there, but not What I would call charismatic, joyful leader who was not unafraid to spar verbally with the world and would not compromise. It's sort of like the moment when Elon took over Twitter and it became X and he publicly told Disney and a whole bunch of other advertisers he would not compromise on his core values and they could go F themselves. And it was like so shocking to the audience. He goes, the guy who was interviewing said, are you sure? He goes, yeah, yeah. I mean it. Go F yourselves. He goes, I don't need you. I'm not going to be held hostage by your. At the time, he was. He was at war with DEI and what he thought. And, you know, there was a. Again, it just came down to his interpretation of what.

He was alone. He was alone because he wasn't. He didn't even have the benefit of being a Republican in those days.

Yeah, yeah.

And you had, in a way, you know, Another example of that is Palmer Luckey, who we've seen a couple times at Peters, who got ousted effectively from Meta, who bought his VR company because he supported Trump, which was very unpopular at the time, and then went on to found Enduril. And he's still a very verbal, combative, loud personality who, you know, he's either gonna rub you the right way, he's gonna pet your hair in the right direction, in the wrong direction.

He's also really funny.

Yeah. Oh, yeah.

He's got a great sense. He's got a great sense of humor. Yeah, that helps. That helps. So what have we established here? Because my sense is that the exercise that we have in coach actually creates a satisfy solution where you can scale.

Okay. Yeah.

Like, my feeling is the next couple of years, with the new mainstream market books that we have coming out, we're going to, you know, we, you know, we're. It's very, very clear to us that we're going to scale and, you know, and. But everything's in place. You know, we got great teamwork. We've introduced the four by four scaling tool throughout the organization. We're now creating four by four coaches in the organization that are. Every one of our team members can recalibrate every month or so. You know, what their role is in the company and they're in charge of, you know, they're really in charge of doing this. So I think. But we're not going to be, you know, we won't be getting any invitations from Wall street to go IPO or from Silicon Valley. I mean, I like my free days. I Like my lifestyle. I like the collaborations that I have with people who are not only great business people, but they're great friends. And we're cool. I'm cool.

Yeah.

My take on this, you really began with it, which is dividing the company into two parts, the R and D company and the multiplier company. And charismatic, innovative, creative founder should be. They should place themselves in the R and D box because that's what gave the company its soul, its foundation, what made it attractive. And their pursuit should be to evolve and create, if necessary, new brands and new products that adhere to the original vision. And it should get more exclusivity, more experience and more valuable products that people are willing to invest more, as you said earlier, without looking at their budgets. In other words, this is a must spend and I don't care what it costs, I'm going to buy it anyway. And I think that is the soul of a great company that's built to last and the multipliers can bring it to market as long as adhere to the non negotiable values that made it work in the first place. And I think there has to be a tripwire and things in place or maybe it's time to sell off the. The multiplied brand to create the payoffs, to create more R D. But at some point you're going to lose relevance and attention by over commoditization. That would be my synthesis of this episode.

It's terrific.

All right.

You could go to, you could go to almost any business school in the United States and it wouldn't be as good a lesson as we just created.

I think so. And we just made it up with a little bit of help.

So.

Well, we'll wrap this up. Is there anything that you want to leave our listeners and our viewers with in this episode?

Yeah, the thing is that, you know, it's a common tool, but I haven't really developed it yet. Always look at tomorrow from the standpoint that it's now yesterday. And are you still proud?

Oh.

You handled tomorrow. If you handle tomorrow. If it was yesterday, would you be proud of. Would you be proud of how you handled today?

No, that's a thinker and a writer downer. I love it. That's definitely a future episode. Great way to end. So we'll wrap this one up. This is Capability Amplifier with my good friend Dan Sullivan. I'm Mike Koenigs. Like this. Share this and we will see you in another episode very, very soon. Thanks for watching. Thanks for listening.

Sa.