Speakers: Sam Parr (host), Shaan Puri (host)
[00:00:00] The Founder’s Bottleneck: The More Valuable You Are, the Less Valuable the Company Is
Sam Parr: So, I’ve been running businesses for 15 years and I’ve hit this wall multiple times. It’s somewhere around seven, eight, nine, 10 million in revenue where suddenly your biggest problem is not a lack of ideas. It’s an issue with you. You’re the bottleneck. I’ve got this buddy named Ryan Deiss. He’s got this amazing quote. He says, “The more valuable you are, the less valuable the company is.” I read that quote in one of his books a while ago, and it changed my game on how I thought about business.
I decided to have Ryan come on and talk about this simple but very effective framework he has for running companies. It’s changed my life and maybe it could change yours. On this podcast, he shared everything. He shared his whiteboard, his spreadsheets, and his flowcharts with his employees. It’s basically a 30-minute MBA, which is pretty insane and very valuable. So check it out. Let me know what you think in the comments. All right, let’s get into it.
You have two things that I like. One is you have this quote, which is: “The more valuable you are at your company, the less valuable your company is.” I think for every entrepreneur, you will hit this point, especially when you want to sell, where it felt really good to be the man, to be the one creating all the value, taking all the shots, and having your name, your face, and your fingerprints all over the business. It does feel good from an ego perspective. It does feel good to have control, but it sucks if you ever want to go on vacation or sell your business because the more valuable you are to the business, the less valuable the business is.
Guest (Ryan Deiss): Yeah. You have to decide. Do you want to be down on the court hitting the last-minute jump shot to win the game, or do you want to be up in the owner’s box? That is the choice that you make. You’re either going to be the most valuable player or you’re going to own the team. Most entrepreneurs would much rather be valuable. They would rather do the things that enable them to get started than do the things that are going to enable them to actually achieve the things that they say they want, but really they like being important. They like being valuable. I think you have to decide what do you actually want. The nice thing is it’s your business, so you get to decide.
Shaan Puri: Yeah. But a lot of times the problem is impulse control.
Guest (Ryan Deiss): He says as he cuts you off. [laughter]
Shaan Puri: It’s impulse control. I can say that I want something and I do truly want it, but 20 years of previous behaviors have to be broken and it’s incredibly challenging to actually do that. Evolving as a person, as we actually just did an episode on the other day, is way more challenging than a lot of people think. I like this graphic you had here of the before and after. I think the messy entrepreneur, which I’ve been guilty of many of these things, is working 80 hours a week, you’re in the weeds, and if you ask who owns this, the answer is “me” for each area. The whole team is asking you, “Hey, got a minute to talk about X?” 200 times a day. You’re missing soccer games, you can’t sell the business because it’s too dependent on you, and the business owns you rather than you owning the business.
Then you have the ideal outcome at the end, which is an hour a week for you. The team executes without you, the team optimizes without you, the team decides without you, you can take a 30-day vacation, you break revenue records while you’re gone, and you’re exit-ready if you want to be. This is for an entrepreneur who wants to exit or wants to build what is insultingly called a lifestyle business, but is the main type of business I’m interested in. I use business to have a good lifestyle. So yes, that’s what I want. What’s the process? How do you do that transformation? How do you go from player to the owner’s box?
[00:03:15] Establishing Defaults and Identifying Constraints
Guest (Ryan Deiss): The way that you begin to implement it is you have to establish defaults. You have to establish certain default constraints. “I’m going to leave at 5:30 every day.” I’m just going to do that and I’m not going to show up until 9:00. What do you know? Magically, I got my work done in that block of time because I did. Just the prioritization of that is going to do it. I think that’s the first thing that is then going to force you to at least stack rank your priorities because you can’t do everything. You’re right; we have a million different ideas, but what are the ones that we’re going to do first?
I like to say our ideas are like chocolate cake, not cotton candy. You can only eat so much chocolate cake. It’s delicious, but you can only eat so much of it. What are those things that you’re going to do to begin to stack rank those? It does come down to getting really good at constraint identification. We can do everything; there’s all this stuff that we could potentially do as entrepreneurs. We are trained and adept at identifying problems. We see them everywhere. We will never not see them, but we certainly can’t fix them all at once. So, what’s the one we’re going to do next? That’s the only question I’m ever asking. What is my right next thing?
Every problem in business is going to come down to one of two things. Is it a supply constraint or a demand constraint? Demand constraints: I just need more leads and sales. Supply constraint: please don’t give me more leads and sales, I can’t fulfill the ones that I got. Once I’ve identified that category, now I just need to say, “Okay, how do we get this done?” If it’s not going to be me that does it, who do I need to bring in to do it? Ultimately, what it’s going to look like is bringing somebody in who is better than me at one aspect of this. I’m not going to find somebody who’s better than me at everything, but I can almost certainly find multiple people who are better than me at one aspect of that. That’s what assembling a leadership team looks like.
[00:05:30] Visualizing the Growth Engine through Process Mapping
Guest (Ryan Deiss): What you have to first do is map and visualize what are the core value drivers of the business. Every business does three things: you make stuff, you sell stuff, and you fulfill stuff. If you will create a visual map of how that happens—we do this with visual process mapping—we literally will go to a whiteboard and get sticky notes and we’ll say, “Okay, how do we get customers?” Let’s sticky note this out in flowchart form.
Shaan Puri: You’re basically creating like assembly lines that connect. Is that the right way to think about this? It’s literally like a pipeline. Something comes in at the start, then what happens to it, then it gets handed off over here, then it gets handed off over here. That’s what you’re doing.
Guest (Ryan Deiss): Exactly. This is an example of one that we would do in sticky note version. This is an example of the growth engine. Where we would start is how do we generate initial awareness? For this business, they run Facebook and Instagram ads, they run Google ads, and they’re doing reels and stories.
Shaan Puri: Yeah.
Guest (Ryan Deiss): We’re going to start here and then we’re going to say, “Okay, cool. Then what happens?” For this particular business, they’re driving traffic to an email challenge. They’re going to have people sign up for that challenge page, and then all you’re doing is just saying, “Then what happens?”
Shaan Puri: Well, do they register? If not, then we’re going to retarget. If yes, we’re going to deliver it.
Guest (Ryan Deiss): And all you do in this process is you just keep saying, “Okay, then what? Then what? Then what?” If you just will map the process—and I didn’t invent this, this is called business process mapping—if you will just say where does it start and where does it end, and you create a business process map for everything that you do as a company, specifically for how you get customers, what you do with them once you have them, and how you create your products, then you have visualized the core value creation aspect of your business. Have you ever done this, Shaan?
Shaan Puri: Yeah, but the question is what are you doing it for? There’s a couple different ways you can look at that. One is you look at it and you identify where the constraint is. The problem is this part’s working well. What we would do is overlay some numbers. We would say, “Great, so how much are we spending on those Facebook ads? How many clicks are those driving?” I would have little numbers written on the arrows, and then we would circle the one where there is a leak in our bucket. This is where we feel weak. We have a lot of demand, but maybe we’re breaking in terms of how many we can fulfill. There’s a long waitlist, or they’re not coming back. Why aren’t they coming back? You try to identify the constraint. Is that why you do the business process map, or is that the first thing you do there? What are the different things you do once you create the map?
[00:08:45] Hiring Functional Leaders vs. Helpers
Guest (Ryan Deiss): This is a digital example of the growth engine I just showed you. This would be their fulfillment engine. What I would do is take this growth engine and one of the first things that we would do is say, “Which of these can we really not afford to screw up?” One of the biggest mistakes that companies make when they’re trying to systemize is they try to document everything. Don’t do that. Just document the ones that are really, really important.
The second thing that we do is this is how we figure out who we need to hire. We create this thing called a high output team canvas. Every single one of the sticky notes, every single step or stage on here, we’re going to say, “Okay, this one right here, Facebook and Instagram ads, who is uniquely responsible for this one?” Then we will create this canvas. I’ll go down to the marketing team and I’ll say, “Okay, you’ve got John here. John is going to collaborate with agencies to establish those budgets, but ultimately it’s going to be our agency that’s going to manage and optimize these.” Every single sticky note, every single box, is going to have corresponding what we would call critical accountability bullets. This is how we begin to assign roles and responsibilities.
That’s the second thing that we do with this. It becomes interesting because as you go through these, instead of going to people and saying, “Okay, what does Betty do? What does Lloyd do? What does Carly do?” you start with your value creation processes and you assign stuff to the people. When you’re done, you realize who has all the things and who has none of the things. You can see on your team who is overburdened with work that actually matters and who is underburdened with work that actually matters.
To the point that you made, this is how we create our scorecards. For our scorecards, every single one of the different squares, every single sticky note, is going to have one or more corresponding metrics on the scorecard. This is how we know that we’re actually tracking the metrics that matter. When you look at our scorecards, if you work top to bottom, that’s going to visualize what we’re seeing as we work across here.
Sam Parr: When I see things like this, it’s like reading the book How to Win Friends and Influence People where you’re saying stuff and I’m like, “Oh yeah, that’s obvious. That makes sense.” And yet, I don’t do it. I would love to do this. I should do this. What mistakes am I likely to make when I see this stuff? Because to me, as someone—what do they say? It’s easy to sell water to a guy in hell. To me, this is where I am now where it’s like, “Yeah, I need this.” I see there’s five or 10 of these types of frameworks and I’m like, “I want all of them. I need all of them.”
Shaan Puri: So after this, Sam’s going to go run off and do it. What’s the first place he’s going to stub his toe?
Guest (Ryan Deiss): Where am I going to screw this up? Let’s first talk about the hiring component because that is one of the things that I see entrepreneurs as they’re scaling screw up. They typically make one of two really big mistakes. The first is they hire helpers, or they want to try to hire somebody just like them. It’s these two opposite ends. They either try to hire a bunch of helpers to just do the stuff that they don’t want to do, or they’re like, “If only I could hire somebody just like me. If I could hire an integrator.”
That is one of the biggest lies ever perpetrated on the entrepreneurial community: this concept of “I as the visionary snowflake can just hire this one magical integrator who’ll just do all the crap that I don’t want to do.” It just does not work. It makes for a very good book; it just doesn’t work in practice. It’s not about you changing necessarily. What it’s about is you getting really good at identifying what is the single biggest constraint right now in my business for us to grow to the next level. It’s never ideas.
As entrepreneurs and business owners, what gets us going is, “I have an idea.” That’s the hammer that we take to every single nail. The last thing at some point that your business needs is another new idea. It doesn’t need another new thing to implement. What it needs to figure out is what is the thing that is holding us back from the level of growth that you need. The first shift that needs to happen is shifting from “I have an idea” to constraint identification.
Once you have shifted from idea generation to constraint identification, then the answer becomes, “Okay, what’s the best way to solve for this constraint?” It’s almost always system and people-related, but it’s almost never “hire a bunch of helpers.” When you hire helpers, what you actually did is you gave yourself a new job called management, which is even harder. Or “let me hire somebody just like me,” because somebody just like you doesn’t want to work for you. What you need to typically do is realize that that constraint is solved by a functional leader.
You need to get good at hiring very good and talented functional leaders: head of sales, head of marketing, head of product. This is the thing that most entrepreneurs aren’t as good at as they’re scaling. They’re good at hiring a bunch of little helpers. They think they’re good at hiring a COO, although nobody actually knows what that is. If you can get really good at hiring a functional leader and building a team of those, team leadership becomes a lot easier when you have three or four actually talented, skilled people working for you. They have massive capacity because they’ll build the teams under them to execute all your ideas.
Sam Parr: Shaan, two years ago, you were like, “I just hired this VP of marketing” or CMO, I forget the title. You were like, “Why didn’t I do this sooner?” I remember thinking, “Oh man, you found a winner.” That’s the highest leverage thing that we can do is just find winners, and it’s so challenging. I remember you talked about finding this person and your frame was broken.
Shaan Puri: Yeah. There’s a new test for whether this person is a good hire or not, which is you basically switch from “I wish this would happen” or “I hope this would happen” to fear that this person will leave. “Oh my god, this person is so good and they are so transformative to the business and I just don’t have to worry about that. If they ever left, I would have to worry about that area of the business again.”
I think we had John Morgan on last week and he has this phrase called “send and delete people.” He’s like, “There’s people in your company that you could just forward them the email and then you can delete the email because you know it’s going to get handled.” Ryan, this thing you just said is so true. I actually was talking about this last week about helpers. I was talking to somebody on my team. I was like, “Are you going to be a helper? So far this has worked because I needed you as my helper, but now I’m asking you to drive, but you still are acting like a helper. You want to be a driver and we need a driver, so it’s time to be a driver.”
Whether that person can make that adjustment or not is always just about that person and their own goals and self-development. It’s so true that it’s very tempting to hire other entrepreneurial people like me. Great, now I have another shiny object syndrome idea guy in the room that doesn’t help. Or I have a helper who, as long as I’m directing everything, helps me get stuff done. But that means I always have to keep my eye on that area because I’m the one coming up with the plan and I’m the one driving the execution and they’re just there to help. I’ve definitely felt this problem firsthand.
[00:12:30] The Swamp of Scale: Bridging the Gap from 10M to 100M
Guest (Ryan Deiss): The biggest mistake that people make when they map their business process maps is they will map what they wish were true instead of mapping what actually is. You have to map what actually is happening today, not, “Well, what we should be doing is this.” That’s generally unhelpful. You need to see all of those as points of future optimization because we have to get a picture of what it is today because that’s what’s going to inform what all of the people are actually doing or what they should be doing.
What are the metrics that we do need to track? The other thing that you want to make sure that you’re doing is that you are starting from the audit of those value engines. You don’t want to just say, “I’m going to build out my scorecard because that looks cool.” Okay, but what are the metrics that you’re picking? If the metrics that you’re tracking don’t all link back to a step or stage on one of those business process maps, then you could very well be tracking something that doesn’t matter.
I’ll give you an example. When we rolled out our scorecards to our team, we had somebody at our company who was like, “Hey, we don’t currently have any metrics for our email newsletter. Why don’t we have that?” I was like, “Well, show me where the newsletter feeds into anything.” They said, “Oh, well, it’s good for awareness and engagement of the list.” I’m like, “Okay, but how does it drive into anything?” The answer was it didn’t because the newsletter didn’t show up as a sticky note on any of our growth engines. At no point in the newsletter did we ever link off to anything that was meaningful. It never showed up as a sticky note on anything. That’s why it never showed up on the scorecard. We’re not tracking the metrics.
I had to say to the person, “Look, if you can show us where this actually has an impact on our growth engine, then you’ll get some metrics to track. Until then, you won’t. And if you don’t, then we’re going to stop doing it completely.” There are so many orphaned activities that companies are doing because you’re doing things that don’t have a sticky note represented anywhere. That’s the other mistake I’d say that people are making.
Sam Parr: I think I read somewhere that someone said—I think it was Jason Lemkin—he was like, “If you get to 10 million in revenue, your business can 100% get to 100 million in revenue.” Do you think that what stops people from growing from 10 to 100 million is being better operators and being systemized?
Guest (Ryan Deiss): Yeah, it’s almost always systems at the end of the day. I think it happens earlier; really the swamp of scale happens at four to six million. That’s no man’s land. That’s when you probably need three people that you absolutely can’t possibly afford. There are three VP-level roles that you can’t afford yet, but if you could get them, they would take you up to 20 million. At that point, you would have the margin and the cash flow to be able to get the rest of the people to then be able to scale to the next level.
The only way that you can bridge that gap is through systems. You’re not going to be able to bridge it through brute force or through just chewing rocks. That’s what’s going to get you from a million to two million, and like you said, maybe for really motivated people up to seven, eight, or 10, but it is not going to get you beyond that. You’re going to have to get really talented people, and really talented people are expensive. The only way you’re going to be able to create that margin is through systems.
Also, really talented people want to work for good companies. One of my least favorite pieces of advice is, “Oh, just go hire talented people.” That’s like saying to your sad, lonely, pathetic friend, “Oh, just only date tens.” [laughter] That’s not helpful. You have to become the kind of person that a ten would want to date. It’s the same if you want to attract talent as a business. You have to become the kind of business that A-players want to come and work for.
My goal is not to hire rockstars and A-players. My goal is to build a company that doesn’t require them because I know that that’s the kind of company that rockstars and A-players want to come and work for. That happens through better systems. If you can put those in place, then great people want to come and work there. It’s why big companies get even bigger.
[00:15:00] The Scalable Business Model and Deal Flow
Sam Parr: Is the company of selling this license of the scalability company going to be the best business that you’ve ever founded? I mean, is it going to be like EOS? I heard EOS, which is an operational framework, sold for I think $90 million.
Guest (Ryan Deiss): Yeah, it won’t be from that perspective because we talked about doing the licensed practitioner model with it. We don’t want to. Our model is when we work with clients, we do it all internally. We’re somewhat limited in terms of what we can do. But that’s because, for us, this is us getting paid to do due diligence because we want to basically have access to the deal flow. If we were to license our model to other coaches and consultants like EOS did, it would be a simpler business. It would arguably be more scalable, but we would lose out on all the deal flow. We talked about it, but we don’t do it.
On one hand, Scalable this year is going to do just right at about $10 million in revenue, which is good and it’s really good healthy margins, but what we generate from the deal flow is way better than that. There’s one deal that we’re going to have that we got from it—it won’t happen this year, but it should be this next year—a $300 million company. We’re not going to get 20% of it; it’ll be a much smaller percentage of that with a baseline. But if this business winds up going public in a couple of years, let’s just say that’s a couple of EOSs for me.
Sam Parr: Dude, this is why you’re fascinating to me. Shaan uses this phrase “generative.” I use the phrase “prolific.” You’ve been doing stuff for 20 or 30 years now.
Guest (Ryan Deiss): Yeah. No, and look, a lot of it is just being old, having been around for 20-plus years and being in the game for a long time. That’s why I tell people so much of this is patience and just getting in the stuff and doing it. Again, the first thing that I sold online was an ebook on how to make your own baby food for $14. Your first thing does not have to be, “I went out there, I had an idea, I flew out to San Francisco, I was in the YC batch and next thing you know, I’m a billionaire.” That’s not how it has to be. It’s not how it is for most people. It can start pretty humbly.
[00:17:30] Wealth, Fear, and Being “Coin Operated”
Shaan Puri: When did you first feel rich?
Guest (Ryan Deiss): I still don’t feel very rich.
Shaan Puri: Why not?
Guest (Ryan Deiss): Part of it is because we still live relatively below our means. I’ve got four kids and I never wanted to live in a place where they weren’t around normal kids, if that makes sense. I’ve seen some of my other friends who, when they hit it big, moved to very ritzy areas and there were no kids there for their kids to play with. My wife and I talked about that; we just stayed in the same place that we were in the whole time. I haven’t really expanded my lifestyle that much.
Shaan Puri: Are you still chasing money?
Guest (Ryan Deiss): Yeah, I think the main reason, though, is I still live in the perpetual fear that it’s all going to go away.
Shaan Puri: I appreciate the honesty. I feel like most people aren’t honest with themselves or others about that. Sam just asked, “Are you chasing money?” I think most people would reflexively deny that. “No, I just love what I do, blah blah blah.” And then it’s like, but everything you do is about making money, and if there was no money, you wouldn’t do it. I appreciate the honesty.
Guest (Ryan Deiss): I am completely coin-operated. I’m in this for the money. I acknowledge the brokenness of it too, by the way. I wish there was some number, and it’s also one of those things like I don’t even know how much I have. I don’t look at it because it’s not about stacking those kind of things. It’s the same even with the businesses. I can tell you more about the businesses we have that are broken than I can the ones that are working well. For whatever reason, my focus is always on the things that aren’t quite right than on the things that are.
Shaan Puri: You’re interesting to me because you come off like a fairly conservative person, meaning super well-operated, and yet there’s this other side of you that comes off like a gunslinger, like “screw it, put it all on red, let’s do it.” You look like a guy who I’ll see at church every weekend, but also has a bookie who calls him and it’s like, “Whoa, okay, great.” I like it. [laughter]
Guest (Ryan Deiss): Very close to home, Shaan. Thank you. All right, that’s it. That’s a five.