The 7 Levels of Scale: Doubling Your Take-Home Pay

Here's a little bit from today's episode of Business Lunch.

I think that's exactly it. Like what you said there I think is so important because in level three, what we did is we essentially separated the founder, the entrepreneur from the as being the brain of the business. Right. We talk about, you know, we talked about in a previous episode when we, when we covered level three in depth, you know, the idea of installing and upgrading your company operating system, which is what we're doing in level three, that's about, you know, upgrading from a UoS. So an operating system where the, the founder, the entrepreneur, the owner is the operating system. It's all them and it's about getting them from the center and having them kind of really work. Like you talk about rolling over the business. And so we separated. We basically. Above. Yeah, I'm sorry, above. So we basically took the. The entrepreneur and said, you're no longer the brain. Now this operating system that's separate from you, it is the brain, but it's at level four. What we're talking about now where, how do we begin to kind of separate a little bit of the heart from it? Not that we want to lose the heart, the vision, the soul necessarily, but literally the beating heart of the business if it stays the founder.

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Hey everybody.

Roland Frazier and Ryan Deiss here.

Welcome to Business Lunch. And we are talking about the seven levels of scale, which is a book that will be coming out in the not too distant future that Ryan and I and Richard Lindner have been working on to kind of actual title tbd. Yeah. To share our. Yeah, that might be the subtitle, but thank you for that. But that's on its way. So what we're doing right now is kind of talking about it on the podcast just to give you an idea of what they are and then deep diving in a little bit. We've already covered level one, two and three, so in today's podcast, we're going to go into level four. Level one was get 10 unaffiliated sales. That means sales to people that are not your mom or your dog or your best friend. Level two, building a growth flywheel or growth engine. And level three, the os. Today we're going to talk about how to double your pay or double your salary, double your take home, whatever, depending on what you, you're doing and how you receive it. And then, Ryan, you want to hit them with 5, 6 and 7 real quick and then we'll pop into 4.

Yeah. 5 is to build your board, begin to kind of surround yourself with, with some advisors who can, who can help you. Level 6 is to complete your first expansion acquisition. So whether you're acquiring a, you know, media property or a product or doing an aqua hire or an entire business, understanding how to do that is going to be key to long term scalability. And then level seven, hit your number, right? Level seven, you are hitting your number. You're living your level seven life. That, that kind of is the goal. And yeah, what I love about this is it answers the biggest question that we've gotten is, you know, what do I do next? You know, everybody knows they want to grow, but like, what is the process? And so this idea of, okay, first just get 10, that's what you do. Then now let's look at, you know, actually getting this thing, this fly will spin and then, okay, now you can focus on operations, right? And now we get to the point where it's like, okay, now let's focus on profitability. And I think that's so important. It's not that you shouldn't think about being profitable, you know, all along, but now is when it's essential and really timely to begin to think about, you know, let's dive into the finances a bit more.

So I think that a lot of people would hear that and say, oh sure, double my take home. So if I do that, I'm going to go broke. I'm not going to have enough money to grow. I don't think it's possible. I've got all these other things that I need to do and shouldn't I be putting all that money back into my company? What say you to that?

There's two things here that are at play. One of them is nerd finance stuff that we should, we should address. Yeah, yeah, I'm learning to really like it. But, but kind of there's the nerd finance component of this where now is just the time to get your financial house in order. But there's a big mindset thing at, at play here. And what it really is about at level four is it's time for you to start feeling a bit more abundant. It's time for you to start experiencing some of the gains. Because I'll never forget the first bit of advice that I got from my very first mentor. And this is why eventually level 5 is there building this kind of board of advisors. But I remember my, one of my very first mentors told me Ryan, you're doing well. You know, you got a business but you're not really taking a lot of out of the company. You know, you're taking too much in months where that are good and you're not taking enough in down months. You need to pay yourself a consistent salary and you need to pay yourself well. And this is big. He said, cuz scared money doesn't scale. I will never forget that he said cause scared money doesn't scale. And I think this step is so important and why it is its own dedicated step. Yep. Double your. We want you to see whatever you're making before at this point we want you to have a plan for you personally to bring twice as much money home. Now if up until this point you haven't been making any money, you haven't been taking anything out, well then let's go more than twice. Like the idea here is that you're not just making a livable wage like you are personally bringing enough home that your basic expenses are covered and then some. Right? And this is so important because that fear, that fear of I can lose everything. That, that fear of like we, I need to make another sale or we could go out of business. That fear is really good in the early days. That intensity of the lion is chasing me and if we don't run, we're going to get eaten. Is really great for launching a business. It is not great for scaling a business. That fear is what will actually hold you back. It'll keep you from pursuing the right kind of opportunities. It'll, it'll keep you stuck in short term thinking. So the first thing is the mindset. We just want you to make more money so that you can start thinking longer term. Now in doing this, let's talk to.

Just for a second about that mindset because one of the obstacles that I think you face when you are in business is that you do feel guilty about taking money out of the company because maybe there are people there that are committed to the cause. And you're like, well, I brought those people on, but I'm bootstrapping. And we're talking mostly here to bootstrappers more than funded companies. Although this obviously applies to everything. But we're very fond of bootstrapping when we're not acquiring. And so you do have a bit of a tight financial situation when you're bootstrapping because you don't have a couple of million dollars sitting in the bank right off the bat that somebody wrote you a check for. So mindset wise, you've got to think about, well, I've got these people who I want to take care of and I've got this growth that I want to get and there's a few things resource wise probably that I don't have that I would like to have and I got to get more media and if I'm selling inventory, I've got to get more inventory. And by the way, I'm going to need some more people. So you're really spinning quite a few plates. And I think that the plate that gets ignored is you. And so that's what we're talking about here is that like you actually deserve this. You, you need to take care of you because if you don't, then your personal finances can fall apart. You also will if you don't think about building some profitability in for yourself so that you've got some significant resources yourself. Any ding that you get in the company could be the end of the company because you don't have an ability to deal with it or you might become over reliant on the money that you've got as in your personal life and you're not thinking about doing really important necessary things like building credit and having credit lines and things like that, that you can access. It's really that you're over parenting your company and you're not making it go out on its own and live and survive and perform at a level that it needs to perform at for you. So when we're.

I think that's exactly it. Like what you said there, I think is so important because in level three, what we did is we essentially separated the founder of the entrepreneur from the. As being the brain of the business. Right. We talk about, you know, we talked about in a previous episode when we, when we covered level three in depth, you know, the idea of installing and upgrading your company operating system, which is what we're doing in level three, that's about, you know, upgrading from a UoS. So an operating system where the, the founder, the entrepreneur, the owner is the operating system. It's all them. And it's about getting them from the center and having them kind of really work. Like you talk about rolling over the business. And so we separated. We basically. I'm up. I'm. Yeah, I'm sorry, above. So we basically took the. The entrepreneur and said, you're no longer the brain. Now. This operating system that's separate from you, it is the brain, but it's at level four. What we're talking about now where, how do we begin to, to kind of separate a little bit of the heart from it? Not that we want to lose the heart, the vision, the soul necessarily, but literally the, the beating heart of the business can. If it stays the founder, it will eventually consume the founder. Like in, like you said, if. Because I've been there. I mean, I have been there where I was making it, but in any given month and we were doing well and we were growing and we had a team, all the stuff you talked about, but there was always something else. It's like, I can't pay myself more because really we need to invest more in media over here. Or, gosh, we should really hire this person. Or, oh, we need to do this thing over here. We need to buy this, we need to buy that. There's always another expense that will need to be there when your company is growing. And so if you don't pause and say, I gotta pay me, you know, I, I gotta pay me first. We need to plan for profit for me. You will never pay yourself. And the person who taught me that lesson was you, Roland. I mean, you remember, I was, I remember showing up for Mastermind. We were talking. I was. Business was crushing it. We were doing great. And yet I was troubled. I Mean, I was freaking out because I knew if we had some bad months, if I couldn't take that distribution, right. I literally wasn't gonna be able to pay my mortgage much, much less. Like for the private school and all the other stuff. I remember you just saying like, just double your salary. Just double your salary. And I was like, oh, I can't. Why not? You know business, like how much you make it. I think at the time I was maybe paying myself like 10 grand a month, which at the time I remember when I set that as a goal, it was like, I will never need to make any more money than this. Right. This is, this is $10,000 a month is more money than anybody else could ever want, ever. Period. End of story. Well, you know, four kids and all the other stuff later, it goes pretty quick. And I was still in that kind of ten grand a month. And you're like, just double it. I was like, I can't, I can't. And I remember saying like, this was before we were partners. This is when we were just, you know, mastermind associates. I was like, okay. And I did, I was like, I'm literally just going to double them and we'll see what happens. And wouldn't you know it, there was enough money. It's it right? There was, there was enough there. When we planned for it ahead of time, decided to pay myself, it felt so dang good. I think a couple months later we doubled it again and the business never missed it. But to your point, from a mindset perspective, not only did the business not miss it, the business grew because the person running the company was no longer terrified about paying their own bills. Right. I could now think out into the future more strategically less scarcity minded. And the business actually grew weird.

Yeah.

Yeah.

And you know, it's long ago there was a bank that created a series of pamphlets. They hired a guy who was really smart guy named George Clayson to create a series of pamphlets that ultimately were put into a book. That's one of my favorite all time books that I recommend to people, which is the richest man.

Richest man in Babylon. Yeah.

And Pay yourself first is one of the principles of the richest man of Babylon. And Mike Michaelowitz, who we've interviewed on this podcast, went on to create an entire book called Profits first. And it's not a new concept, but it's really probably the most overlooked concept I think in business that people don't think to pay themselves first. And we know this because if you don't like, if you don't set that money aside, then the business absolutely is a gaping void that will suck up any extra money that you've got. But if you instead say, I'm going to take care of this. And a great example of this, I think, is something we recently did. We, we had a PPP line. We kept all our people, we were able to get that forgiven. We kept all that money sacrosanct. We said, we're not going to tap into that, which we could have, but we said, we're not going to tap into that. And now we're going to. During that time, during the pandemic, we were drawing against at some points our credit line. And so now a few months ago, we decided, okay, let's be sure that we get that credit line retired. And so we said, okay, we're going to carve off X thousand dollars a week to pay that down over the next eight or ten months or whatever it was. And then the very first week, our finance person came to us and said, hey, you know, cash is kind of tight. It wasn't, but cash is kind of tight because that's, that's how a good finance person always is. They're trying to hoard that money so that they can protect.

I know we've got this big expense coming because we just did this event.

Yeah, yeah.

So let's not.

And this was the first week, by the way, that was going to be one of those draws. Let's not do that this week because it's not there. And we all three, you, me and Richard said, this is like rent. And your salary has to be like rent. Like, it has to be. The business can't go on if it can't pay to have you there. You are a, you are a precious resource. You are the most precious resource the company has because if you're not there and you're at level three or level.

Two, you know, it might not continue.

To be going on. Right. If you haven't moved to that exit of the, of the leadership of the company, then why are you here? Right. And you can't even afford to be here, so you got to take care of yourself. And that mindset of that, this is absolutely gotta happen and you're going to do it, you're going to take care of yourself is really, really critical.

Well, and that, that whole idea of, you know, I'll ask people all the time when they're struggling with, why'd you start your business? And some people are honest. And they said, well, I started because I needed, like, money, right? But I also hear a lot of people like, no, I started because I want to make a difference. Or, you know, I just, I was really passionate about this. And, you know, I want to, you know, I wanted to have some freedom and be my own boss and all this stuff. And it's like, all that is great. All of that requires money. It does, right? Every single thing. Whether you're saying, I want to make an impact, great, that's going to take money. I want freedom. Awesome. You need money. And so in all of these things, you need to make some money. And I love that you mentioned George Clayson and, and, and the richest man in Babylon because he gives a percentage. He says, the first 10% is yours. Other financial advisors, like, you know, you look at like a Dave Ramsey or whatever, they'll say, once you're kind of out of debt, start paying yourself 15%.

Yep.

And I like when you're thinking about a number. Right. 10 to 15%, I think, is a really good number to think about. Now, at a certain scale, if you're making, you know, whatever, maybe, maybe you ratchet down or maybe you don't. Because 10 to 15%, most companies should be targeting. You know, ideally, you're. You're. You're dropping 20% to the bottom line. And it doesn't mean you have to take all of that out as salary. But if you think about 10% mentally, think about what, what your business is making, 10% for you. And if you've got some other partners, things like that, I think that's a really good starting point. And if you look at 10% and you compare it to your current salary, my guess is that you would way more than double. All we're saying at this stage is double.

Yep.

And we want you to double to get through level four. Not just because we want to deal with the mindset issue, but what, what we know is that if you look at it, you go, oh, but I can't afford to double. Right. Okay, I agree. I'm past the guilt, because we do deal with that a lot. People say, I need to put all the money back in my own company. Let's cover that just real quickly. That is a narrative that venture capitalists and the media have really imposed upon entrepreneurs. This idea of, you starve to death, you starve to death. You starve to death, then your company goes public, and then you're a billionaire. Yeah. Now, there's a couple things to that. Number one, consider the source. Okay. The source are people who are putting money in companies. So of Course, they want the bulk of their money to stay and they don't want people taking it off. But here's the other thing that we know. When our friends, we have friends, we have plenty of. We primarily, we're bootstrappers. We primarily talk to bootstrappers, talk to people as though they're bootstrappers. But even with funded companies, here's the thing, I know when a funded company does their Series B, very often Series A, now that they're getting larger, most VCs will demand that the founder take $2 million off the table and put it in their bank account. That is kind of it. It's an unwritten rule. You won't really see it talked about in the media, but they'll say, okay, we just did a $20 million round, a $40 million, $50 million round. We're gonna make you take as a part of this deal 2 million off the table and put it in your pocket because we don't want you starving to death. We want you feeling motivated, we want you feeling aligned. 2 million is not enough that they can just be done forever, but it's enough that they don't worry. The mentality is the same, right? Doubling your take home pay, it is the same. But from their perspective, they can't tell this founder, hey, start paying yourself a quarter million dollars a year, because I guess that's a bad look. So they instead make them cash in some of their equity. Their equity, by the way. They don't give them the equity dues, they make them cash in some of their equity, take 2 mil off the table, put it in their bank account so that they're not starving to death. So even funded companies get this, you just won't hear them talk about it.

Hey, business lunch listeners. We're going to get right back to the 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 let's say you're past the, the mental aspect. You say, okay, I believe that I should make this, I believe that I should double if there still becomes just the numbers. Yeah, but, but we can't afford it, and that's the other reason why level four exists is you need to structure the finances of the business such that you can afford it. So if you're looking at and saying, you know, double your take home pay, maybe you look at it, you go, I could do that tomorrow. When you gave me that advice, Roland, I looked around, I was like, it's here. I'm just kind of being a coward. You know, I'm being scared or I'm feeling guilty. I'm feeling like whatever.

I mean, mostly for you, it was moving it from distribution to salary. Just that recharacterization, you were already doing it effectively. It's just that it wasn't considered an expense of the company that had to be paid.

Yeah, it wasn't a guaranteed thing. It was, if it's there, I'll take it.

Right?

But yeah, you're right, it was from a cash flow perspective. No change because I was taking monthly distributions because I had to. Right. And that's a clear sign, by the way, if you're taking distributions every month because you have to just bump it up, make it, you know, make it salary, make it something that, that, that needs to be paid. But if, if you're finding that, that you literally, you look at the numbers and you say you can't afford to do it, then that is a time to really begin to look at, at your finances and to say, how much are we paying people? Are we overpaying for people? Are we overpaying on acquisition? Looking at your expense ratios like what, what needs to happen to change? Because you cannot move beyond level four until you at least double your take home pay and are we charging enough?

Should we raise our price? Right, that's a, that's an easy one. Are people falling off of our recurring revenue too fast? Should we work on that? But also it's an opportunity, I think, to go back to level two and three and say, what's our growth engine look like? Is it, is it the right growth engine? And are we, did we follow all of that correctly? And should we tweak any of that? And is the operating system fully implemented? And are we watching our scorecards and what changes should we make? Or maybe we made some decisions that we might want to reevaluate. That's the cool thing about the all seven levels is that each level supports the next. So if you find that you're having a challenge with the double your salary portion and you've gotten past the mindset and you've got good financials and you look at A couple of simple tweaks like raising prices and fixing churn and.

Things like that, adding some upsells, profit maximizers, things like that.

Then it's let's go back to the growth engine, let's go back to the OS and see did we do everything that we should do there to support our ability to double our take home.

And by the way, those two things that we just mentioned, raising prices, adding a profit, all that will happen in your evaluation of when you're going doing your quarterly Sprint plan, which is an aspect of the operating system. When you're reviewing your scorecards, maybe you say like we need to add as an element, as a metric that we're tracking on our gross scorecard, what is the average customer value or the 90 day customer value.

We even did this, we did this as early as last week. Right. We said our January is going to fall short. I forget how much it was. I think it was a couple hundred thousand from what we needed it to be to hit our personal goals for the company and ourselves. And then we said we got to go find that 200,000 and we did. Right. That's really what that's about.

Yeah.

And so it, when you make the decision that you are going to double your take, your mentality changes, you start thinking, you become a better leader, but also your company becomes more financially secure. So the goal of this level is not to say we'll go and rob from your company and run it into the ground. We're not saying that and we don't need to not say that because no entrepreneur would do that. They do the opposite. Right. They starve themselves more times than not. And so in this case it's get the money, make sure that you're getting paid. And if you find that you can't, that's a sign. It's a sign that you need to look at your expenses, that you need to look at your average customer value, that you just need to dig into the economics and you need to go out there and find and bake in at least 20%. So ideally you can have 10% carved out paying yourself first for, you know, for you and your, and your partners. So this is a good time to evaluate are we at market with, with our salaries? You know, have we been underpaying people? Do we need to pay people more? Are we overpaying certain people who aren't doing enough? This happens a lot of times at this level. You'll have folks that were there in the early days and, and they're paid very, very Very well. But you've had to build a lot of folks around them because they don't really know how to do the job. These are, these are things that come up when you look at your expenses.

We have a conf structure that is built around assumptions that turned out not to be true. That happened to us recently as well. Right. And that, that's not sustainable because those assumptions turned out not to be true. So you have to tweak that. That's called business. Right. You're always going to be looking at these things and adjusting, which is all taken care of in the operating system. If it's implemented correctly. I think that kind of summarizes it pretty well. Anything else you have to add before we sign off for this one?

Well, you really can have a lot of fun at level four. I mean, there's the mentality aspect, there's the financials, but we also, when we get into level four, when we're working with our, working with our founders, board members and things like that that are at level four, this is when we get into stuff like how do you turn your expenses into profits? E2P, which I know is something that, you know, that you're big on. Roland, you speak like, how do we take our, you know, our, you know, this team over here, our content team that's currently in a, you know, an expense, maybe we could spend that out into its own company or, you know, there's all kinds of strategies that are more advanced strategies.

Hundreds that we've got, right?

Yeah, literally hundreds that, that we can offer, you know, our clients and our founders, board members when they get level four. And so solving this quote unquote problem of gosh darn it, I've got to figure out a way to double my take home is a really fun one. To solve that in the process winds up increasing the overall, not just profitability, but generally top line. So this one is a lot of fun. So I will tell you, if you're kind of early in this, kind of early in this journey, you want to sprint to level four. Because level four is not just where you start getting paid, but it's where your company really begins to professionalize. It's when it starts to become a lot profitable and just flat out a lot larger. And it's when some of our best stuff, it's when we can finally share some of our best stuff. Because again, you are scale able, you know, you've passed that scalable line, you're ready for it. So if you're there, if you're at level four and you're not in founders board. If we're not working together, be sure to go to scalable Co. You know, check out, get, get signed up. You know let us know. We'd love to meet with you, talk to you because this is fun if you want to get to level four. If you're just wondering, hey how do I know where I am? Go, go to 7levelsofscale.com again 7levelsofscale.com you can take the assessment, figure out where you are in this journey, get a game plan for ascending to the next level and that's also a place where you can learn more about what we got going on here. But yeah, level four. So much dang, so much fun.

Awesome. Well, it was wonderful hanging out with you today and for all of you who hung out with us as well, if you'd like this stuff, we would love it if you would give us a five star review and we would also love it if you would subscribe so that you can hear the rest of the story. So we've covered four levels, now we've got five, six and seven to go. If you are just tuning in for the first time here and hearing this, go back to the couple podcasts that we did before covering the first few levels and and and get caught up and we look forward to seeing you next time.

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