7 Levels of Scale: Hitting Your Entrepreneurial Number

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But ultimately, to me, the most fun is to not be in the weeds of your business, but to be above it. Like we talk about working in it, we talk about working on it. That's Gerber's thing with the E myth revisited. But on it really still is quite limiting. And so I think when you get above it and you think about that now, I have not a portfolio of products and services to manage. I have a portfolio of businesses to manage. My products and services are effectively my businesses. Then that gets really, really fun. And the opportunity to build incremental wealth and have incremental impact is significantly multiplied. When you're up there, how much more.

Successful would you be if you had lunch with insanely successful entrepreneurs who shared their biggest secrets on how they think and achieve success? Well, now you can here successful entrepreneurs reveal their step by step strategies and other fascinating stories. So grab your seat at the table because this is Business Lunch with Roland Frazier and Ryan Deiss.

Hey, Ryan Deiss here. You know, it's been a while since I've run the Day to Day for Digital Marketer, the company that Roland and I are partners in. Fortunately, we have a great team and great partners who help us with all that nitty gritty stuff now. But the one thing that we focused on while I was there and the one thing the team still focuses on to this day is optimizing everything. I'm talking testing everything from the sales copy to the color of the checkout button. Testing like this can have a huge impact on your bottom line. But the truth is it takes a lot of time and a lot of resources. And half the time we were just throwing stuff against the wall just to kind of see what stuck. But the good news is you don't have to figure everything out on your own anymore. And that's because our friends at Conversion Fanatics have optimized hundreds of sites in all types of industries, from small startups to Fortune 500s. And now they can handle all your testing and optimization for you too. So if you feel stuck when it comes to optimizing your website, go and visit ConversionFanatics.com and they'll give you a list of custom suggestions to optimize your site 100% free.

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About a.

Year ago, my friend asked me if I'd ever thought about how big my.

Company would be if I had never, ever lost a customer. And that's a pretty crazy thing to think about. Of course, 100% customer retention is, as far as we know, impossible. But after that conversation, I really started thinking about how to increase customer retention. And after all, the more customers that you keep, the more money you do make. And it's generally 100% profit. So as most of you know, one of the most proven ways to increase retention is to communicate with your customers. Which is why I've really been focusing on making our email newsletters great. And if you're interested in doing the same thing, I'd like to recommend you to our partners, the newsletter pros. They've done a ton of research on how email newsletters can make a big impact on customer retention and and they'll share it with you for free. Just text retention R E T E N T I o n retention to 208-269-9911 that's 208-269-9911 and get your free retention guide.

Hey everybody. Welcome to another episode of Business Lunch.

With your hosts, Roland Frazier. That's me and Ryan Deiss. Today we are going to continue a discussion that for a while now on the last several episodes, something that's near and dear to our heart because we created a whole company, a whole movement and a book that will be coming out in the next month or so about this called the seven levels of scale. And we've been going over, we've gone over six of them now and now we are on the seventh, which is the one that we're actually the most excited about because it's the most fun. And just for a very, very quick overview, level one is when you get your first 10 unaffiliated sales. That means sales not to your mom and your sister and the people that you beg to buy, but actual real customers that are out there. It shows you've got what we call product market fit. People actually want to buy what you've got. Level two, you've got a predictable sales engine. You've got the ability to. It's a growth engine that allows you to sell stuff on a regular basis to people. Level three, you're going to build your operating system so that things start to click just like a computer operating system makes your computer go. The operating system for your business should also help make your business go and run relatively automatically. Level four, you're going to get to double your take home pay. That's pretty exciting. I know I said level seven is the most exciting.

Four sounds like it's going to be.

But the truth is, as you'll see, level seven is even more exciting than that. So Imagine doubling your take home pay and how cool that would be. Well, this is even cooler. So you're definitely going to want to listen to that. Level five is going to be to install your advisory board so that you have got people who are skilled and helpful guides that will help you accomplish the things that you want to accomplish, help get you back on track if you're not not on track. And a few other good benefits. Level 6 to be able to do an expansion acquisition, meaning you're going to acquire some assets where other companies that will help your business to achieve its goals faster. And then level seven. Ryan, what the heck is level seven? If all that stuff is as good as that, Level seven must be pretty exciting if, if we think it's the cool thing.

Yeah. Level seven is to hit your number. Every entrepreneur needs a number and we've talked about this before. Roland, I think one of the earliest episodes that you and I personally did together when I came on as a co host on this podcast was that discussion like, what's your number? Trying to figure out what the number is. And even then we were, we didn't necessarily have, I mean we had pretty good answers, but I think even then we were a little bit like, you know, I don't know. And so the first thing kind of a pre step and when we're working with, with clients at the scalable company, one of the first things that we have, you know, our clients do is to answer that question, what is your number? I think there's one thing that people.

Miss too, and it's a, it's a distinction that really is, is helpful that that kind of makes what is my number gray and that's that there are two numbers really. There's the number that is your personal number globally. Like overall, what number do I need to hit to feel like I've made it or to have what people call FU money or whatever. But there should also be a number for your business. And we've run into this as recently as like yesterday talking, right. Like we're in the process of some people that are interested in one of our companies and we're like, well what, what's your number? And we're having this conversation, but that's not what our personal numbers are for. Our desired ultimate wealth is completely different from what we're likely to be able to get this business to do. And it's important to have an understanding of both of those things. So within the context of the seven levels we're talking about, what's the number that you Feel you've made it with your business where you've maxed it out to its optimal level. Right?

Yeah. So we're going to look at this from three perspectives but also three different numbers. So the three numbers are number one, top line sales, number two, bottom line profit and number three enterprise value. Right. So what could it sell for? And obviously the third one is going to be a function of the other two. And so, and so that's the first thing. So what we'll have our clients do and what I would encourage you to do, we think in terms of three year planning cycles. I know lots of people, entrepreneurs, books will tell you to think about like your 5 to 10 year big hairy, audacious goal. I think the world moves too fast, business moves too fast. Anytime I've worked with somebody like what's your 10 year BHAG? It's like God dang it, I don't know yet. Like, I mean I can have a big massive vision for a long term thing but I need something that's a little more tangible. And we found that three years is really that sweet spot. It's long enough to do something really truly meaningful, but it's short enough to still be somewhat predictable. And so we'll say let's set a three year target where you are today. What do you want to happen with your top line sales? What do you want to happen with your profit margin? Do you see that going up? Maybe you see it staying about the same. And what do you think is going to happen with your enterprise value? And the beautiful thing is, and Roland, you know this better than anybody else. If you can dramatically, we call it going top to bottom. If you can take today's top line revenue, what basically what you finished last year and if you can finish three years from now where that's actually your profit, not only did you make substantially more profit, but your company may go from being valued at a 3 to 6 multiple to being valued at a 9 to 12 to 15x multiple. So that's when you're getting into what is when we talk about the number revenue, profitability and then enterprise value and all that's very figureoutable. You know we show you how to do that Googling what's the, what are the multiples for my space? So that's the first thing. The second area that we're going to look at is what's the impact that we want to make. And we look at this in three levels. So the impact for us, our own personal life, what do we want for Us. And that's where your personal number may come in. You may say, I want to have $10 million sitting in a vault in cash that I can actually roll around in Scrooge McDuck style. Again, I'm not here to pass judgment on anybody. I think it's a bad idea given the amount of, like, cocaine that is almost. It's very filthy. But again, far be it from us. We're not going to be dream killers. But maybe whatever it is for you, maybe you want to have a second home in the mountains or on the beach, but like, what do you want for you? What's the impact that you want to have for you? Then you go out. That's the me. The me impact. Then you go out and you say, what's the US impact? Those are the people in your inner circle. If you've got a family, I would like to think it would include them, maybe your co founders, the higher ups at the company. So the folks who are in your tightest inner circle. And then you have them. So me, Us. Them. Me is you. Us is your inner circle. Them is the world at large. And so maybe this is charity work that you want to do. Maybe it's an impact that you want to have on your industry. But if we think about this in these three spheres, me, us and them, we can get really specific about what do we want for all these different groups. Do you want to be able to send all your kids to college debt free? Do you want to be able to buy a house for. For a parent? Right. Do you want to be able to donate, write a check for a million dollars to your favorite chair?

And increasing. It's for you to decide, increasingly important in this area like this, this area has become kind of front and center because there are so many challenges that are going on right now that the world is asking companies to take more of a stand socially. And so we have a whole movement called esg, which is environmental, social and governance that focuses around what Ryan was just talking about. So if you think about how do I want this to impact my personal environment and all the way up to the them, the world, the environment of the world. And that can be eco, environmental, or just environmental as an ecosystem. So that's important. And then also we get to social, like, what is the social benefit? Are we going to support causes that we think are important? Are we going to make donations as a percentage of our profits going to do something? Are we going to create a foundation that's going to be funded partially by our company? Or whatever, and then governance. How are we going to be sure that we do no evil? Right? We can have, as one large company does or did do no evil as our mantra and our mission, but sometimes even that company maybe more than sometimes runs afoul of that. Right?

Does evil.

So you know, they forget.

Yeah.

No, they forget to do.

No. And then it's just evil, you know, so. Right.

You guys nailed the last part of that quote. Yeah, no, exactly. And what I think is important, there's two things going here. Number one, all of this stuff that people want to do, and I see this all the time, like, why'd you start your business? I just wanna make an impact. Like, okay, that's freaking great. But you're not gonna be able to make an impact if you're starving to death. You're not gonna be able to make an impact if you don't at least get some customers and if you don't acquire them and serve them profitably. Right? So that's what the first six steps are really about. That, and I'm not saying that you can't have an impact between step one and six. I'm not saying that you can't give generously between those steps. But really where the big impact can start happening is when you hit level seven. That's why we say this is when you can begin to live out your level seven life. So taking a moment and saying, across these three spheres, me, us and them, what do I want? What's the impact that I want to make? And then going back up to that three year target and saying, does this allow me to achieve these? And maybe you're looking at the profitability and saying like, okay, I should be able to put some of this in my pocket. If I'm taking a lot of this, maybe you're taking all of it out. If it's a solo enterprise, if I'm able to take a significant chunk of this profit in three years, will that allow me to hit the me impact that I want in the US Impact? Right? Maybe you're looking at it saying, after three years I'm interested in selling. So if I achieve this enterprise value, if I exit and I pull all my chips off the table, or maybe I do a partial exit, will that allow me. Now, there's nothing wrong with the answer being no, right? Because what I believe is that you're certainly further along than if you don't do this. And so maybe what you say is no, not yet. So I may need to reset for another three year cycle and Go again or. Yeah, a lot of it. The point is, you need to have a number, right? And when we talk about a number, it's really three. And those numbers need to align to an impact plan, right? They need to align to an impact plan that shouldn't just be for you, can't just be for the people around you, and it can't just be for the broader world at large. We got to touch all three of those phases. And so that really is level seven. Level seven is, I know where we're headed. We've hit the number. We're beginning to live our level seven lives. And then what you decide is, where do we go next?

Right?

That's the beautiful thing about Level 7 is you can decide, do I want to sell everything and start over again, acquire another company? Do I want to reset for another three years? I'm going to intentionally move the goalposts. We're going to reset for another years and also reset because I want to make a bigger impact. Right? The point is, at level seven, you get to choose. Your customers aren't dictating it, your team's not dictating, and investors aren't dictating it. The government isn't really telling you what to do anymore. It's your level seven life, and you get to live it however you want. And our favorite thing and the way that we think of ourselves is this is when you can ascend to the class of what we call the entrepreneurial investor. Right? And the entrepreneurial investor, because there's entrepreneurial operators. But. And I love being in the nitty gritty, in the trenches of a business. But I think the most fun that you can have is as an entrepreneurial investor. This is when you take all of your skills of, you know, launching, growing, scaling, operating businesses, and now you apply them to your own company's wealth as well as your personal wealth to help other businesses grow. So, Roland, can you kind of speak maybe to what some aspects of that look like? Because it can be as active and passive as people want. But how do you approach that when you're thinking about what do you do with your money as you're kind of living out your level 7 life, you're kind of your personal.

Yeah, to me, it's. The first thing is, is like, like, I love business. I do not like the nitty gritty. Right. I have enjoyed, like, I really like situations that have a complex set of rules and then you apply facts to them dynamically to have an outcome that you desire. That's why I like SEO. Right. And I built private blog networks and all the nitty gritty stuff of that and could rank things, you know, instantly and all that fun stuff. And then enjoyed the. All the different changes and various animals and things that Google threw at us as throughout that process. I like the tax law for that same reason. Like law is a complex set of facts or securities law, complex set of facts. You look at the, excuse me, complex set of rules, a complex set of facts, you reconcile the two and get your outcome you want. But ultimately, to me, the most fun is to not be in the weeds of your business, but to be above it. Like, we talk about working in it, we talk about working on it. That's Gerber's thing with the E Myth revisited. But on it really still is quite limiting. And so I think when you get above it and you think about that now, I have not a portfolio of products and services to manage. I have a portfolio of businesses to manage. My products and services are effectively my businesses. Then that gets really, really fun. And the opportunity to build incremental wealth and have incremental impact is significantly multiplied when you're up there than when you're kind of on or in. Down. Down in the. In the lower levels. So for me, it's just to continue to acquire businesses that serve the other businesses I have or get me into new areas that I'm interested in, like in. In the, you know, the W3 world. Right. I'm interested in how do I get crypto for free. Right. I don't want to pay for it at, you know, crazy prices, at least to me, and maybe have it fall the next day, which if I buy, definitely sell, because it will when I buy half the next day. So that if I get it for free and it falls in half, I don't care. So I'm thinking about how can I do. How can I take the things that I've learned from growing so many businesses and apply them to help others along the way, which allows me to do the things that I want, allows me to contribute to the charities I want to contribute to help my family and to build generational wealth. That's. That to me is super, super fun. How about yourself?

Yeah, I mean, I think about it into three broader buckets. So I mean, obviously give, I think should be an aspect of anybody when they've reached that. And I'm not going to say who you need to give to, but I do believe that if you're not and you have received wealth, then you've got a closed fist And a closed hand. And I don't think you could expect. I do believe that it is immoral to not give anything at that level.

Giving of your time can be exponentially more valuable to people than giving your stuff. So don't feel like you just like, I don't feel comfortable giving stuff. Fine. Give time. The fact that you're at level seven means you've got the time to give as well.

That too, yeah. I mean, so I think that as you're looking at your wealth and your time, thinking about what percent am I going to allocate to giving? And maybe you say it's going to be 5% or 10%. There's been some very certain philanthropic entrepreneurs who are like, I'm going to reverse tithe, so I'm going to give 90% of everything moving forward and live on the 10. Yeah. I'm not going to tell you where yours should be, but I think being intentional about saying I'm going to give a certain percentage is really big. And then there's also the how much do I just want to have just fun, just blow off and feel no guilt whatsoever? You know, I'm going to go. We got a friend who had a massive, massive payday. And I think within a week or two he had acquired, you know, a couple, like two or three watches that each of them cost more than my first house.

Yeah.

Right. Now, this is. Somebody would look at that and say, how dare he? Right. But in reality, as a percentage of his wealth, it was relatively small. It's what a normal person would spend on a really nice dinner out. Right. And so whatever level you're at when you hit level 7, you need to celebrate that and you need to enjoy it. Because if you don't learn to enjoy it, then you're just a miser. Right. And the people around you are going to resent you. So whether it looks like making that big purchase or going on that big trip.

Hey, business lunch listeners. We're going to get right back to this show, but Roland wanted me to invite you to a brand new training that he's doing on acquiring businesses with no money out of pocket. It's something that he's talked quite a bit about on the show, but he's doing a free training where he's going to walk through the entire process. So if you want to get access to that, go to businesslunchpodcast.com EPIC. That's businesslunchpodcast.com Epic. And you can get signed up.

But.

It needs to be something where you Celebrate it. You're giving as well. And I think having those two things aligned can be really appropriate. Right? So, I mean, if you find that you're, I'm going to go and blow it. Money is orders an order of magnitude larger than your give, then I think that's when people, I've seen people kind of get a little whatever. And then the bigger chunk is invest. So give, spend it, blow it, and then the bigger chunk is to invest it. And I like to look at it from a perspective of there's going to be some just pure passive things that I put them in, whether it's index funds or mutual funds. And it's like, yeah, why not? Because you can't deploy everything all at once. But I do think as entrepreneurial investors, we should look to invest in businesses, right? We should look to invest in businesses because it's a way to give back. We should look to invest in businesses because it is a way to stay in the game. We should look to invest in businesses because it's how we continue to live out the skills that we've acquired. And so that, to me, is the most fun. And again, what the percentage is, how you allocate your buckets is for you to decide. Also what we would just simply encourage you do at level seven is to have buckets and be intentional.

Yes.

And the other nice thing about, to me about investing in businesses is, is to me, the stock market is just a wild ride. Always. It's up, it's down. And as I think it was either Buffett or Graham and Dodd said, It's Mr. Market. And Mr. Market shows up and is completely illogical every day. There's no reason that Apple's worth $2 trillion one day and $1.5 trillion the next day. Right? It's because news, because the market is illogical. And so having been involved in on lots of sides of that kind of world, I just don't like having my net worth tied up in other people's mistakes and folly. Like if somebody gets an ego and decides that they want to have a fleet of planes and that makes the company unprofitable, or somebody does something that they're not supposed to do and that gets put in the news and the value of the company drops, I don't like that. I am not comfortable with that. Not saying, don't invest in the stock market, do whatever you want, but to me, make your own stock market. We have our own stock market. We have our own fund. Our fund is our investment in our portfolio of companies. And to me, that you have so much more control of. And also the upside is generally like, the legitimate upside is so much greater there than it is when you are kind of delegating your wealth management to an irrational group of people called the stock market. So it's whatever you want, but what's cool is I can do that because I'm at level seven, right? You can do that because you're at level seven.

And that's exactly it. Yeah. You get to pick. And nobody can say, like, well, I think that's dumb. I do think within the investment category, you know, I personally, like, would subcategory categorize that into what are the things that are just going to be generally passive. And, and so whether that is index funds, whether it is, you know, some percentage in the, in the market, or maybe you're like, I'm just going to have this sitting here in, in money markets, not whatever. I think that then there's a bigger group where you should be looking to build your portfolio, where it's not active, but it's not passive either. It is where you are bringing your particular skills because that's when you can have some of these asymmetric wins, right? You can invest in a company that's a small amount and it goes big because you knew the founder, because you knew the industry, because you were able to do something to make it happen, which not only created wealth for you, I think that should be the biggest chunk. And then I do think that you should allocate a percentage of your investments to stupid ideas that you just want to play with because it's fun, right? And that's where it's like, you know what, I took a portion of that many years ago and a friend was like, hey, there's this Bitcoin thing and you should throw some money at it. What is it? He's like, don't worry about it. Just throw 10 grand. Okay? You know, that kind of thing. Or, you know, you got a, you see an opportunity to buy a restaurant, to buy into a restaurant in a city that you really like or that you go to a lot. That's probably a stupid investment from a returns perspective, but it's a fun lifestyle thing. And maybe it doesn't fall in the. Just blow it. You're like, I want maybe that recipe.

I want to. Maybe you like wine. And, and maybe that connects you to that community and gives you a reason to help.

I'm just saying hypothetically. Hypothetically speaking, Roland. Hypothetically speaking. But these are the kind of things where should that one investment dominate 50% of your total investments? Probably not. But if you want to take 10, 20% of your investment to throw it those kind of things because you just think it's fun, I want to throw it an entrepreneur that I believe in, even though I think their idea is stupid. I want to throw it at this, you know, business investment because it'd just be fun to play. And even though it'll probably go to zero, I'm going to throw it at this crypto thing or this NFT thing, even though it might go to zero because a friend of mine told me to do it. And what that is, that's the ultimate FOMO prevent device.

It really is.

And so. But that's what you get to do at level seven. And so we're going to talk a lot more about that. We're actually building and spinning out an entire brand new brand that's going to be all about what does it mean to be an entrepreneurial investor and live a level seven life. This though, at the scalable company, this is what we want to help entrepreneurs get to level seven, because God dang it, it's just so much fun.

Exactly. So that's it for today. Now you have all seven levels of the seven levels of scale. Hope that you guys have enjoyed that. If you missed any of them, go back and listen to some of the other episodes. We covered everything from one through six in prior episodes. Lots of fun stuff there. Got a fun book coming out if you'd like more information about the seven levels of scale. Ryan, is there any chance there's a website that exists where people could go and find out more about it?

There is, and it's at 7levelsofscale.com. Whether you use the number 7 or you spell it out, both will get you to the same place. And yeah, what's great about this is not only is there a report that you can download that'll kind of, you know, give you all the things we talked about over the last few issues in a nice condensed, printable format. There's also an assessment that you can take that totally free that'll let you know what level you are at right now and it will give you kind of a little roadmap, a game plan for what are some of the steps you need to take to ascend to the next level. Because that's what scale's all about. Scale's all about tackling the seven levels in the sequence that we're talking about and the steps that you need to take to do that and if you follow those steps, you're gonna hit level seven.

Awesome. And thank you guys for listening and or watching today. It's always fun to have to have the ability to share with you guys and this is one of the things that we're the most passionate about. So it's even extra fun today. If you enjoy this stuff, we would love for you to subscribe and not miss out on anything. Particularly when we're doing serialized sequence things like this, it's nice to not miss out on them so you'll get notices. So subscribe so you don't miss. And also we would love it if you like this and find it valuable for you to share it with other people. And that's it for today. We'll see you next time. You've been listening to Business Lunch with Roland Fraser. If you're enjoying the show, let us know by subscribing and leaving a review. And for more information go to businesslunchpodcast.com thank you for listening.

Hey, quick question. Do you know someone who's looking to grow as a leader? Maybe their team is growing a little faster than they expected? Or maybe their new role requires them to work a little bit more through people? If the answer is yes, I want to recommend a new podcast by the Scalable Media Network called Ready to Lead. It's hosted by Richard Lindner, one of Roland and Ryan's business partners, and Jeff Mask, who's one of the top executive coaches in the world. They cover tactical strategies on how to improve as a leader and also their biggest failures they've had throughout their career. You can find the show@readytolead.com or search for it wherever you listen to podcasts.

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