The Hidden Systems Great CEOs Use Every Day

0:00What if the reason you're not reaching financial independence has nothing to do with how much you earn? But everything to do with how you think. Today, Scott is breaking down his CEO toolkit. Yes, it was originally aimed at people who eventually want to become a leader, but there are tactics every and anyone can take away to become better employees. Welcome to the Bigger Pockets Money Podcast. My name is Mindy Jensen. With me, as always, is my used to be a CEO co-host, Scott Trench. Thanks, Mindy. Great to be here and just love the executive function that you bring to every single one of these podcasts here every day. So yeah, as you said, Mindy, I was a CEO and so I was trained to think like a CEO. There was a little bit, there's some instinctive, I like to think there's some baseline passion for bigger pockets, for the world of personal finance and financial independence that came in and some skills I brought to bear on that. But the toolkit of becoming a CEO was trained in me by my former boss, or by many mentors,

1:04but primarily by a former boss, so I'd like to give a shout out here too. His name was Mike Zawalski and Mike has been a CEO or operating chairman, a CEO coach or boss for many, many years across many different experiences. And I was very fortunate to give a chance to be mentored personally by him for five years. And one of the things he told me to do early on in my career was build my CEO toolkit. The playbook I use, the frameworks I use that I can apply to many situations. And so I thought I'd share that today, heavily inspired by the things he taught me, and say that this is something that I think many more people should do over the course of their careers. This is a hard one toolkit, right? It takes many years to really define and build artifacts, the types of spreadsheets or presentations or those types of things that you use. The decision-making process as you bring for hiring someone, firing someone, managing for developing a strategy or a plan of some kind in your organization. What makes something good or bad and being able to apply that to unknown situations is super valuable.

2:09You will need this if you ever want to lead a product and technology function. If you ever want to lead a finance function, if you ever want to lead an operations function, if you ever want to lead a P&L unit, if you ever want to lead a legal or HR function, you will need some version of this, whatever you call it. And I thought I would show what I've built here today, because I'm passionate about it. The other thing is now that it's been a year since I stepped down, I don't want the skill set to atrophy too much without me being able to review it, if I ever want to draw from it again in the future. And you're just giving it away for free here, a bigger pocket's money. Copping it is very difficult, right? The framework, you will have to build your own, right? And another thing that comes in with the toolkit is your opinion should be brought to bear on this, right? I make decisions in my playbook, right? One thing, you know, I'll talk to somebody from an HR department and they'll say, you should never tie the compensation adjustment to the performance review. And I say, no, the compensation adjustment is directly tied to the performance review. And there's a direct chain from what we said we're going to do this year, how you did and my assessment of your contributions to the compensation change you get.

3:13And some people say it's a bad practice, other people say it's a great practice. I have chosen in my toolkit. And that's one example, for example, that I think will come in from this. And people will and should deviate from each of these items if they were a CEO. And people will have to build their own as that reflects their styles and executive or a leader of any capacity in any organization they run. You just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy, just use Indeed. When it comes to hiring, Indeed is all you need. That means you can stop struggling to get your job notice on other job sites. Indeed's sponsor jobs helps you stand out and hire the right people quickly. Your job post jumps straight to the top of the page where your ideal candidates are looking. And it works. Sponsored jobs on Indeed get 45% more applications than non-sponsored posts. The best part? No monthly subscriptions or long-term contracts. You only pay for results. And speaking of results, in the minute I've been talking to you, 23 people just got hired through Indeed worldwide. There's no need to wait any longer.

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6:16found makes everything easier. Expenses, income, profits, taxes, invoices even. So reclaim your time and your sanity. Open a found account for free at found.com. That's f-o-u-n-d.com. Found is a financial technology company, not a bank. Banking services are provided by lead bank member FDIC. Don't put this one off. Join thousands of small business owners who have streamed like their finances with found. The first I've never been a CEO and I won't ever be a CEO and I'm totally fine with that. But I think there's a lot of people who will listen to this and be like, well, I can't apply all of it to my day-to-day life but I can definitely pick out some doosies that are really going to catapult me up the food chain at work. So I appreciate you doing this for our listener, Scott. And section number one, you have titled Foundational Artifacts. And one of the very first thing is delegation of authority. I really, really like that you are already thinking about delegating your authority on page one, day one of your job as a CEO.

7:19Talk to me about this. Each of the people that I worked for over the years, in various versions, this was a non-issue. Who makes what decisions? But codifying it in a document that says, oh, this person decides whether or not to sell the company. This person chooses the auditing firm. This person sets the board meeting cadence. This person approves the annual budget. This person makes the annual budget. This person makes hiring or firing decisions or raise or promotion decisions up to this threshold beyond which this person makes it. There's a very detailed set of decision making that goes that, you know, a decision making authority that is relative to the size and scale of a business. And just putting that down on paper and going over it and aligning with it with my boss, the board, for example, removes a problem. We actually built this and then never referred to it again, effectively. And that's why it's powerful as a day one artifact, right? But if it didn't exist, there would be that confusion. But because we knew it, every once in a while, I'd go and reference it and there wouldn't be an issue, right? I would just know, oh, this one requires approval from this person. This one does not. We can move forward, right? And so, you know, over time, as trust is built, that's not a non-issue,

8:21but that's like a core day one artifact. There's probably a version of that that could make many people's lives easier that are working right now if it was actually addressed, right? So that's one. The second component here is compensation philosophy, right? There's how are we going to pay the people that work for us? It's a very fundamental item here. And there's different, there's right ways to do it. At an organization that I run, like a bigger pockets, I'm looking for different bands for different skill sets, right? Somebody I'm expecting a fairly administrative role from, I might pay at the 50th percentile, an expected 40-hour full-time effort. And that's it. And we're going to retreat them fairly and give them opportunities to grow in those times of things. But that's what we're going to go. We're going to hire the 50th percentile for that. And executive, I might want to pay at the 65th or 75th percentile and expect much more. Like, we're not going to work. This is not a 40-hour a week job. This is a 50 or 60-hour a week job. We're going to expect you to bring much more, and we're going to expect you to bring a more experience or a proven track record into that position.

9:24And defining that across these roles, I think is really important, right? And like I said, not everyone will agree with that. Different organizations, people will react strongly. No, this is how it should be. Everyone should be paid at the 99th. Everyone should be paid at this level. We should outsource to a different foreign country and go much lower cost. No, this is how I bias the organization and organization that I believe I would run in most cases with a compensation philosophy. And then the third foundational artifact is a definition of strategy. Strategy kills organizations because it's misused. It's talked about, it's like this wishy-washy word that can reflect the pay grade of the person making a decision or the size of a decision. But that's not what strategy is. Strategy is fundamentally about the hard choices of concentrating on a few focused objectives that coherently work together to produce an outcome. Right? It diagnoses, it comprehends what's going on in this company's market.

10:25It provides a guiding policy. Like Costco has a great strategy, right? Their guiding policy is very clear. We're not going to have a fancy smanzy store. We're going to have an open warehouse. We're not going to sell, offer a large selection. We're going to offer a limited selection. We're not going to allow you, we're not going to cover the last mile. We're going to only allow purchases in bulk. We're not going to have premium necessarily artifacts. We're going to have high quality. But we're going to compete with the providers in areas where we think the costs are not low enough because our goal is to drive good quality products at a low price. Like that's a great guiding policy. And it defines what they don't do. Right? IKEA has a very similar, similarly strong strategy. And then there's a set, and then strategy is fundamentally about action as well. Right? A strategy is useless if it cannot be realistically achieved by the organization in there. And so a diagnosis, a guiding policy, a set of coherent actions. This is straight from good strategy, bad strategy by Richard Rumeilt, one of the first books I recommend people read if they ever want to lead. Or in general, if you want to study business books,

11:26you should add to the top of your list because it defines this term. And as you train your brain to think in strategy and dismiss what people are calling strategy falsely and recognize it when even when it's not, you know, when a real strategy comes to you, that's not bound in that term. That's super powerful. So those are the first three things because I don't want to be talking about strategy if it's not meeting this definition because then it's not strategy. It's just something that sounds important. Or there's a large scale decision, but it's not actually what the organization fundamentally needs to do to win. So those are the three kind of day one, day one pieces that come in to the organization. Okay, let's talk about strategic planning next. Strategic planning is a hypothesis, right? So it's a guess. And I believe that almost everyone that comes into an organization, myself included, needs to come in with that guess, right? A lot of people like to wait 90 or 100 days to diagnose. And that's not how I'm going to do it, right?

12:27We're not going to do that. We're going to act much more quickly and get to hypotheses much more quickly and test them much more quickly. So a strategic plan is a 12 to 20 page documents. Not overwhelming. It's not hundreds of pages of detail. It is a simple thought process on how to win in a given industry. A strategic plan is a document that follows that procedure. It diagnoses what the problem is in the organization. What it appears to me, the problem is an organization. It provides a set of guiding policies that would begin to take advantage of the company's strengths, competitive weaknesses, or whatever. Well, sir, is there. And then there's a set of actions that can be undertaken almost immediately that can begin moving towards that strat, that strategic diagnosis and set of guiding policies. And my bias as a CEO is to come in and immediately begin moving towards that direction. I will bring that strategic plan in place and I might spend 30 or 60 days modifying it based on impact from stakeholders around the company or executives

13:28or those types of things. But I have that bias to act almost instantly in most situations. And that makes me a bad fit as a CEO, potentially candidate for some organizations and potentially a great fit for places like what bigger pockets was, where we need to, where we can, there are low stakes to trying things moving quickly through them and then moving on to the next opportunity. And that quick decision making is much more important. I might be a bad fit for someone like a SpaceX. Like a, like a, like a, where you got to lodge a rocket and if you don't get that right, there's a really big problem downstream. It's a one, one shot at success there. So those are kind of the, the, the, that's, that's one of the first things that I would basically say, I'm going to come in, I'm going to come into the interview process or the interview, before I accept the job, I'm going to present that and get alignment from the board of directors and maybe some of the executive team and say, here's my initial hypothesis. It may change, you know, after we conduct our process or strategic planning process, which is a several month detail initiative to refine and test those hypothesis,

14:29the assumptions, this will map up the customer journey, pain points, monetization opportunities and competitive analysis. But that's where I'm going to start with. And this is the bias I come in with. And I believe you must come in with bias in order to do good strategic planning. If you can't, you're going to be way behind the rest of the rest of the bell curve. You're probably not a good candidate for that particular job or role if you do not have a strong bias from day one. Support for the show comes from public.com. You're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic options plays on the side. The point is, you're engaged with your investments and public gets that. That's why they built an investing platform for those who take it seriously. On public, you can put together a multi-asset portfolio for the long haul. Stocks, bonds, options, crypto, it's all there. Plus, industry leading yields on your cash with no fees or minimums. Switch to the platform, built for those who take investing seriously. Go to public.com slash BPM and earn an uncapped 1% bonus when you transfer your portfolio.

15:29That's public.com slash BPM like bigger pockets money. Paid for by public investing. All investing involves the risk of loss, including loss of principle. brokerage services for US listed registered securities, options and bonds in a self-directed account are offered by public investing Inc, Member Finra and SIPC. Complete disclosures available at public.com, slash disclosures. America leads the world in medicine development. It matters. We get new medicines first, nearly three years faster. Five million Americans go to work because we make medicines here at home and not relying on other countries keeps us safe. But China is racing to overtake us. Will we let them? Or will we choose to stay ahead? When America leads, America cures. Let's tell Washington to keep us in the lead. Learn how at AmericaCures.com. Paid for by Farma. Spring starts at the Home Depot and we are bringing the heat to your backyard this season. Fire up the flavor with our wide variety of grills for under $300. Like the next grill for burner gas grill that's perfect for hosting your spring cookout. Then set the scene and turn your outdoor space

16:31into the go-to spot the patio sets for every budget. Bring it this season with grills that deliver flavor and patios that set the vibe from the Home Depot. Start your spring with low prices guaranteed at the Home Depot. Exclusions apply to home Depot.com, slash price match for details. Next up is financial fluency and this feels like a no-brainer. But I like your explanation. Please explain what financial fluency is in regards to the CEO tool kit. There's a couple of truths about business in terms of building a valuable business that I think are really important. So first is revenue quality, right? So someone selling a lifetime membership, for example, has a terrible business from a revenue valuation perspective. This is not a business that can be sold one day. You've collected the cash upfront and you must service it forever. That's a terrible business, right? A one-time service is also relatively low value, right? A recurring service is more valuable.

17:31A product that is sold one-off is more valuable than a one-off service potentially but not as valuable as a recurring product like a subscription. So predictable recurring revenue customers that come back over and over and over again are what build the foundation for a business that can actually sustain paying employees over long periods of time that can actually predictably grow and that can be borrowed again and that creates revenue streams that can be borrowed against. That's a much more valuable business. So revenue quality is a core consideration. If there's opportunities to solve problems in ways that produce predictable recurring revenue at the same rate as other one-time services or one-time products, that's a much more valuable business, right? Next up is unit economics, right? So when we sell a book, right? There are costs that go into selling a book, right? Somebody's got to market the book. Somebody, you know, before we even get to that, when we sell a book, we got to print the book. We got to ship the book, right? Those are hard costs.

18:32There has to be a price that the book sells at above the cost, those hard costs, to even have it be bothered, you know, be worthwhile to print and ship. There are also unit economics that come with a book launch, right? Somebody's got to write the book. Somebody's got to edit the book. Somebody's got to record the audio book, those types of things. And so we have to build maps for each of these types of products that say how profitable is a book launch and how profitable is each incremental book and make sure that we're building a business that actually can generate profits in there because if profits can't be sustained then you cannot continue solving the core customer problem. Cash conversion is another one here. Businesses can have a lot of revenue but not generate a lot of cash. I'll use real estate as an example for a proxy for this, right? So if I have a rental property and I have to, and I get $50,000 in net operating income, right? Because I got $75,000 in rent and I had $25,000 in expenses. That's $50,000 in net operating income. But if I had to replace the roof that year,

19:33that's, I only get $25,000. So it says that my EBITDA, my net operating income or my EBITDA earnings before interest taxes depreciation and amortization are $50,000. But I'm really only making $25,000. That's a problem, especially if next year I got to replete to a foundation repair. And the year after that I got to redo the siding, right? That can kill you. And that's very common problem in businesses that that show EBITDA, earnings before interest taxes depreciation and amortization without actually tracking that through to cash conversion downstream. There's a lot of ways that you can get fooled by profitability that doesn't actually translate to cash flow. So these are basic financial fluency items here and then there's capital allocation, right? You know, if the business generates profits, I've got choices about what to do with that. I can fund more growth, I can hire people or attempt to build more things. We can buy companies, we can pay down debt, we can distribute the cash to shareholders or we can buy back shares from shareholders, right? Those are all valid uses of cash

20:34and how that cash is used has an enormous impact, almost as much impact on return profiles for the business as the actual growth and cash flow initiatives for there. This is something that you need to know on day one of being a CEO. No, you don't need to know as and day one is a CEO. You don't need to know, you don't need to have a complete toolkit when you take the job for an executive position here. But you gotta have components of the toolkit in place, right? This is what I've developed at the end of being a CEO. No way could I have talked like this when I took the job in 2018, right, as a 28-year-old. This was trained for me and learned across. This is part coaching for my boss, part things that I learned and discovered for myself and part the aggregation of the best ideas from books and resources that I read over those years. That's what a good toolkit looks like and this will evolve over time. This will change and evolve and grow as I learn things or get persuaded to move off of the positions

21:37that I currently hold in this. But that's what I think, like, think about if you're going into an interview process and you're able to talk through some of these things, you have a much higher chance of getting the job, I believe, if you're able to go through this kind of thinking in the context of your division leadership, right? Like a CFO who's talking through this stuff is gonna pass test one. There's gonna be other tests down stream, but this is a core test that I wanna look for in financial fluency for a CFO. If they can't talk like this or cover most of these topics missing one or two, that's a problem. They're not ready for that job. Yeah, I think this is a great set of documents and information for somebody who is looking for a leadership role to read through this and pick and choose, oh, okay, for my specific leadership role, I know that I'm gonna need to use these. These are probably not gonna be so important so I don't need to focus on those right now. I can build up my competency in this level and then go and try and find a new job if that's their goal.

22:37Go and pitch myself to be promoted if that's their goal. I think this is a great overview of things that it shows that you're doing the work and you're doing more work than a lot of the people that you're up against. You don't have to master all of these things. You won't have these things mastered by the first time you take a role. But if you've got a hypothesis that you can refine, you can refine that, right? You can bring this to somebody and they can tell you, no, I don't like that. I was gonna call once learning from other CEOs, like a some kind of mastermind and the question was, what happens when an executive leaves, right? And the CEO's response was this. He said, when the executive is terminated for performance, I always conduct an external search to replace them. When the executive is leaving because there be, it's a retirement, it's been a very long run, they've got a great opportunity, some sort of positive departure signal. We almost always promote from within. How the heck do you come into a conversation

23:37with that framework, right? Without having that as a nugget in there? And then, of course, you're gonna disagree with that or whatever, not think through that in your current position. But when you're at that moment in time, at that point in my career, that advice was like, oh, I'm ready for that advice. I'm ready for that as a strong, strong bias in that type of situation. That is brilliant. That is a great tip and not something that I would ever think of. But I can totally see how that is the path that you absolutely should take. Rats and Apple spoils a whole bunch. Maybe, maybe not. But you don't wanna chance that when you're firing somebody for performance, go outside to get somebody else. There's gonna be exceptions to that as a rule, but that instantly clicked as like, yeah, that's likely to happen. And I don't know if that's the right call for somebody who's learning to be the next CEO or whatever in there. But I think you should definitely, if you work at a division and you know that your boss has been terminated for bad performance, that somebody external is coming in and that's gonna shake things up. That could be very good, but that could be very bad.

24:39It's probably going to be a consequence for people who are not willing to change to whatever the new executive comes in with. So you are almost certainly likely to be very much at risk if you are not Johnny on the spot and ready to adapt and that could be a career changing opportunity for you if you are. But that's the kind of thing that comes in there because a CEO who comes in and judges your executive leader not right is going to hire almost certainly an external candidate if they're good as a strong bias in a high percentage of the time. And that is going to create change that is gonna come in. And so hopefully this playbook is helpful to people that are listening not just because they can build their own versions of it over time, but because it'll tell you how CEOs and private equity thinks to some degree in terms of how to run a business. Well, let's talk about running a business. Let's talk about governance and cadence. That's up next in the toolkit. Sure. So there's kind of two cadences that are central to running a business. One is the cadence with my bosses, the board, and the other is with the constituents,

25:39the employees at the company who work at the company, right? So these aren't, my view should be mirrors, right? I try to run what I believe to be as transparent and organization as possible. I literally tell every new employee the strategy in the early days, one-on-one, if I can't have a small company or in batches, if it gets a little larger in there. And we walk through, here's the strategy. Here's how we define strategy. Here's what we're trying to do and what we think we're going to do. Here's our results so far. Here's what the current work and progress is. Here's where you fit in in there, right? So that's kind of how we think about it. But from a cadence level, you'll see two mirrors here, right? One is we have a weekly or semi-weekly, 90 minute, one-on-one with my board chair, right? And I'll go over and accept the agenda and say, here's what I'm working on right now. Here are my problems. Here's the thing I'm struggling with. Here's what, here's some wins on this. Here's some updates on the thing you asked about last week. The second is going to be a weekly KPI package and a 13-week rolling cash flow forecast. So this says, here are the core 20-ish KPI's

26:40that we're looking at, maybe a few builders build-ups to those. Here's the activities that we've promised, that we're doing human activities that we're doing at the organization to drive those numbers. And then here's a forecast for cash flow so that we don't run into any surprises there or have any timing issues that you're going to worry about. And as you do that over and over and over again and revise it every single week, the first few weeks, it could be very bad at predicting cash flow. But by week 13, you're getting much better, right? You're not having massive surprises in there unless there's structural changes in the business. Then there's a monthly financial reporting package and call to go over that. Here's what we said, here's what we thought we're going to be at the end of the, here's what we budgeted for at the beginning of the year. Here's where we thought we'd be at the end of last month and here's what we actually came up and here's what the changes were. Then there's a monthly operating review which is where I bring a executive, one of the executives on a rotation to present a divisional update to the board in there. That's useful for two reasons. One, it gets the executive a chance to talk to the board

27:42and two, it gets the board a chance to assess each executive. And if there's a problem developing and we're trying to coach somebody through it, we can kind of tell whether they're accepting the coaching and feedback and making the changes needed or whether there's a bigger problem brewing. So there's not an event where I'm surprising the board with I got to make a change here at this particular level. Then there's the quarterly board meeting which is a process I drive and push through and say here's what the biggest issues of the company are. We're going to structure it. I try to spend a disproportionate amount of time. I don't spend an hour in each division. I spend 90 minutes or two hours on the biggest issue. Then 30 to 45 minute chunks in the next two and then an update on our mating bits, finances at the end. And then there's an annual business plan and review which is similar to a board meeting, but it kind of says here's, we go through a process there that says here's where we want the shape of the PNL to look next year, kind of like revenue-ish here, profits here, then we go to each division. So that's a top-down, right? Here's the, here's what we're thinking. We look okay with this kind of range-ish.

28:42Great, now we go to the executive team and we say what do you, what are you going to, what do you need to do to make these happen? And they say, oh, we need more money and we need more lower targets. Okay, and we have a negotiation back and forth over time and a line on this one-on-one and as a group and we present that to the board. So that's the board level cadence. And I do almost the exact same thing with the company. I have a weekly or semi-weekly one-on-one with each of my executive team reports. I have a quarterly check-in against our scorecard goals and planning process that builds directly into the board decks. I have year-end compensation reviews and performance reviews. There's a weekly metrics review that all company team members are invited to and that just spits right out to the board. I don't show like 13-week rolling cash flow forecast unless there's a reason to with the employee base in there because that can be held inside the finance team. But the KPI check-in is exact mirror usually of what we send to the board. There's a senior leadership team meeting for 90 minutes monthly internal operating reviews. So that executive, when this is working well, will have their team, their directors present their operating review and they'll use those slides

29:44and give them credit in the boardroom up the chain. We'll just literally rip and repeat them. And then there's the quarterly all hands meeting which is almost always a direct derivative from the board meeting if I can or I'm stealing as many slides as I can so that the team is seeing what we're using at the board level. And you can't always map these perfectly but the more you can, the more you build trust, I believe, over time. And then we have skip levels with direct reports. So this sounds like a lot, but it's really not. It's really about 10, 15 hours a week of cadence. That pulse from time to time and it can get really light when we're not in a board meeting or operating review week. And so my schedule can have 35 unstructured, 30 to 35 unstructured hours in a week with this cadence and yet I've got a very rigorous structure in place. And that free time is very intentional because then I can focus my attention on a problem for a quarter or until it's resolved or until the opportunity is realized or two quarters in some cases if I need more time and then reset and move on to the next thing once that's in place.

30:45So that's kind of the cadence item there. Everyone's got a different cadence. That's the one I settled on as my happy place. Well, I like this cadence and I'm remembering back to the bigger pockets I had your calendar on my calendar so I could schedule podcast recordings and I would see these meetings all the time. I don't know if this is like a no-brainer to anybody else. I wasn't in any of these meetings but knowing that if I was going to be in these meetings, knowing that I had to be there every week and I had to present every week and I had to be present makes me think more about what I'm doing. If you had these once every other month or once a quarter, oh crap, how do I do this again? I can't remember what I'm supposed to be doing. If you are an employee and you want to earn your way into these meetings, start doing some of this stuff that Scott's talking about. Look at your own little job and give your boss a report every week or month and let them know what it is you're doing.

31:46You're showing that you're willing to do the work, you're working over and above what's being asked of you and you want to grow. I'll be really clear. I would change this depending on business context, right? So like if I had a very seasonal business, for example, like we had the Christmas tree lighting business or whatever, like this would be silly to do with that context, right? This is a business that's, this is a media business that had that, right? That Christmas tree business, what I would be doing is I'd be building out a projection of what I thought sales and operations would look like during the season and I'd be really intentional about following that curve, right across there, how am I above or below that curve of sales and interest and operations in there that I thought I would be in? Then I would spend a lot of time reviewing it and they'll probably sit back and work on something strategic or some other lines for the other eight, nine months of the year. But it's mapping this to the context. That's really important here. But I would certainly put in that rigidity to that portion of the seasonal business if that was a 100 person business, you know,

32:46that required the executive oversight to do, not just a single person. So it would be silly for one person Christmas tree lighting business to do. But I'm using as an example of the seasonality, like there would be differences in this approach if the sales process was a monthly subscription product or something like that. Or a tax business, for example. But anyways, I digress there. Next up is the hiring and performance management process, which is the whole key to this. I think this is the job after setting the strategy and saying, what are we gonna do and how do we win and do I understand the customer? It's how do I say, here's my plan, how do I actually get it executed and how do I get the people that I'm hiring to improve upon the plan, right? I should be handing them, I should be handing a draft, a good idea of what I need the CFO to do. And they should take that spirit and improve upon it, right, if things are going well. So this is where, this became central to our process here about what I call the unicorn search, right?

33:47So if I wanna hire an elite CFO for an organization, something that's in a really critical position, what I do is I actually invent a fake person first. Right, I say, if I could write that on piece of paper and invent this person, what would their skill set be, right? Well, they would have experience at several repetitions at businesses just like ours. They would be insanely efficient at closing the books and completing the monthly reporting package. There would be no errors, or the errors would be so infrequent that they'd be memorable in the context of this. That's how strong the basics are. They'd knock out all those basics right away in the first 90 days. I don't have to worry about it, I don't even think about it. I just hit a report every month and it's always right and it tells me what's going on and why. Right, then we move on to value added finance. And this person is a strong operational leader. I can hand off portions of the divisions that are in trouble or that need extra attention to them so I can focus on the next big opportunity

34:48and they're strong executive presence in the room, very rigid, very making sure that things are moving forward there. They're a line, they push back and say, here's what I think, I don't have to babysit them with the board, they go directly to the board. I don't wanna go interface with the board about why this line item was higher or lower last month. I see if I was going directly to them and I trust that relationship because I'm sitting next to them every single day and we're talking about these things on a regular basis. They have an M&A framework, they're very rigorous and thorough but also understand what we're trying to do and are not just conservative cost cutters. They're aggressive revenue opportunities and growth in there. So I'll put that down, right? Those are hard one situations, right? If you're listening to this, are probably thinking about your own boss or your bosses in the past or people that have worked for you and saying, here are the things that they did well and here are the things that I wish they would have done. So invent the perfect person, right? Then once we have the fictional perfect person, I create what's called a set of first round draft picks.

35:48So these are gonna be, if I could, wave a magic wand and poach people from the industry, it would be this person, this person, this person, this person, this person, this person. They're actual people, right? And then we go outbound to those people and invite them to apply for the job, right? That's typically done with an executive recruiter at this level, but you could do this with your HR person. And in fact, Nigel, our old HR guy, used to do this for me in certain roles that didn't warrant an executive recruiter function. We also do a second round draft picks or whatever in there. And then we'll post the job because we may miss people as well and as part of that. So from there, we have an interview process, nothing special about our interview process necessarily in there. This is standard rigorous stuff. We'll have executives talk to people, but the real thing that I think is really important about our interview process or the one I would bring is at the end of it, I asked the executive to use my definition of strategy, diagnosis, guiding principles, specific action. And tell me what they think they need to do in the first 90 days, first year, at the company.

36:49And that's a presentation that's specific and actionable in there. And when I like it, I redraft my job description or the whatever, offer them the job with that. And that's what they go to town executing on. So I don't lose this first 90 days. So common to executive hires where they go in and play this, I'm going to learn in whatever. They're going to learn too. We're not going to go in and just make a big mess right away. But we're going to come in with a clear hypothesis about what to do in the early days. And we're going to align on that with the executive and the board, so that if there's a hiring plan, that's part of the job acceptance. If there's a change in roadmap, that's going to be part of the hiring process. So that's a really critical process for me. And I'm spending a lot of time on it intentionally, because that is such a huge component of the CEO job in particular, such a huge component of executive function as well. And again, one last thing on this, a big part of this is knowing what good looks like in this person. And I try to be very prescriptive about this.

37:51I have what's called a scorecard that is alongside the job description that says, this person's mission is to, for example, bring a culture of value added finance to the entire organization. And then it will be very prescriptive about the outputs. Finance 101 is knocked out after 90 days. We don't talk about it. We don't worry about it. You're not coming to me telling me you can't do important work, like M&A or strategic planning, because you're bogged down and closing the books or building the financial, you know, or building the projection for the next month, you knocking that out in a reasonable period of time, 40 hours a month, 25, 30% of your time, you're spending the rest on driving the business. And if you're not up for that, you're not gonna work out here. That's because that's in the scorecard before we hire Jeff on this. And that then is updated every year with the executive and alignment. And I give a performance review based on how much of that we complete or not. So that's central. That's my whole job, I believe, is refining, is deriving these artifacts, these performance management artifacts

38:52from a central strategy and making sure that they are more or less executed across the year. And yeah, there's pivots and changes from time to time, but that's the job. Scott, that all sounds like that came out of experience. Yeah, I mean, it's opinion, right? What you're getting from me is an opinion about how a business should be run or how I would want to run the business. And not everyone agrees with that opinion, right? So that's what's great. Like traction or EOS or four disciplines of execution or other CEOs that are very creative or sales oriented or whatever are going to have different opinions about how to run a business. And this is my opinion about how it ought to be done. And that's what the toolkit is, right? You bring your opinion to bear on this, right? There's no hedging in these areas, right? I'm very prescriptive about it because I find that advantages of a strong hypothesis and a bias for action to far outweigh the very real consequences of those biases. So one of the things I really appreciated

39:54at bigger pockets was the culture and the values. It wasn't just values on a board and nobody ever looked at them again. It wasn't a culture of, well, however it happens, that's what the culture is now. Talk to me about your ideas on culture and values. Sure. So one of the things I kind of come in and say is, this is not a family. This is a pro sports team, right? We're not a family here. We're here for you if you have an personal emergency or those types of things. But this is a place where we're going to perform and we're going to work hard. And there's a job to be done and that job needs to be done. And that's a requisite for employment on an ongoing basis in there. And in that respect, I don't think that cultures like some poster on the wall or set of stated core values. I think it's an aggregation of what you do every day as the leader or as the executive team. It's what gets rewarded, what gets tolerated, and what gets addressed in the organization. And so I don't really like come in with a bias towards these specific mission statement

40:54or values that are written down necessarily. I'm fine with a wide variety of variations that a team might come up with. But the values that I kind of exhibit in here, bias for action, strong hypothesis, strategy, being accountable, responsive, knowing your business, being able to talk somebody through it. It's not useful if you are really good at your job, but no one understands what you're doing in there. I'm going to probe and find out and you must be able to present what you're doing in some capacity that I can reasonably understand over some period of time. Those are values that the organization will ultimately reflect after with this kind of system or this set of structure in there. And so that comes down to what we do, right? Like showing up time on time or prepared, giving your full attention to the conversation at hand, right, asking questions. Not just asking questions every time when it's unnecessary, but making sure that when there's an operating review that I'm attending, I might ask somebody who's a frontline employee,

41:5410 questions in a row about an important area of the business if that's a leverage point. And if they're not ready to answer that, that's fine, I'm not going to grill them on the spot and say, oh, you've got a good trouble. But I do expect them to know that over time if it's a core leverage area. And I expect everybody to be ready for a question from me on these things. I view it as a term of respect that I'm paying attention and asking questions. And if your review is that it's intimidating, that's probably not a good fit for you, that organization. And you'll probably opt for something else over time in there. So that's kind of the standard there and how I would try to model it. And then it's also about recognition, right? Calling out people who are doing great work and making sure that there's a culture for me to say, say what I'm seeing, making sure that that's rewarded, but also that I'm getting a feedback loop of stuff I can't see from other folks. So that was where we had the gratitude channel or the shout outs at our all hands meetings, for example, that go on for several minutes until there's like a 60 second awkward pause, for example, because I couldn't see, I don't always see

42:56despite this effort to attempt to understand the organization all the things that folks, especially where my attention is not intensely focused. I don't always see what's going on in these other areas. The biggest problem I see in culture in a company and that can absolutely destroy your company by the way as a bad culture is the high performer who is a cultural cancer. This is just part of the course, right? There's always like a, there's always, always almost by definition, somebody who's your best player, right, at a given time, right? Like that's just part of the reality for business, sports, whatever. And that person sometimes behaves wonderfully and sometimes does not behave wonderfully. But almost always down the stack at some point, there's somebody who's behaving poorly who is in the top echelons of performance. And you have a choice, you just know this is a given because it happens at every company and every sports team, eventually, right over time. And it's just how are you gonna handle that situation? And it almost never is the right call

43:58just allow that person an exception environment. And there are a couple times with that backfires and where that, where addressing it can be very unpopular, for example, but it's almost always the right call in the end to address that and hold, say, you're gonna be held to this standard or this is not the right fit for you in there. And again, that is a part of the job that every CEO or every division leader essentially will confront in their career over and over and over and over again. You gotta have a playbook for doing that. So I think the playbook is identify it early, develop contingency and alternatives to this person very quickly and attempt to change the leverage position of that individual. And then if you're going to let it age, which you sometimes have to in certain situations, you name a date by which you're gonna address it, right? It's not I'm gonna come reflect this next year and revisit it, it's by October 31st, we are going to have a decision on this person and then we're gonna give them an ultimatum that that will be you're going to adhere

44:59to these standards that everyone else is or we're gonna change up things. And that's a really difficult task. I am glad I never had to deal with that, but I did have to deal with that. I was the coworker who was dealing with this toxic individual and what's going on? Why is this person allowed to continue to act like this? It feels very frustrating from this point of view. And I have worked at companies where the CEO absolutely did not have this toolkit and they're like, no, they're at top performers. So whatever, you're gonna lose a lot of your other, maybe not top performers, but really good performers. Your consistent employees, the institutional knowledge I've been here for eight years and you're allowing this one person to remove my eight years of institutional knowledge because I can go get another job. I don't need to deal with this person and or I can just leave, you know, I can just retire and be done. Having this toxic person is like having a playbook

46:02for handling a toxic person, I think should be number one, Scott, but I've never been a CEO. I'll allow it to be down here in number six or whatever. Eight or nine times at a time when you handle these situations, you're able to find a good resolution. The person adapts or evolves or concedes to changes that are being imposed on the situation. And one or two times, it's a big problem, right? And so it's like, it's a real risk. Like this is not a situation you can blow over and just say, everyone conforms. You have to have a plan to address these and you will address it over and over and over again across a leadership experience in some form or other. Scott, next up is crisis and scenario management. Can you give me a real quick overview what this means? Part of the job is making sure that profitability targets are hit, revenues hit, those types of things from a budgeting perspective, right? There's a strategy and then there's the constraint of needing to put up the financial performance for the business and that is necessary to sustain the execution towards the strategy. So a big part of that is the contingency plan, right? So what are you gonna do if things go wrong?

47:02You have to do this as part of your budgeting process. And the best first step is the bonus plan, right? So a bonus plan is funded if we hit our profitability target, right? There's a little bit of circularity there, so you have to have a strong CFO to model it. But if you have a model of good bonus plan, if we hit our profit target, the bonus plan funds. It scales if we do better than that or hit certain KPIs, but you must have the profitability target to that. And in that case, if things go poorly, you just begin to lower the bonus plan at the beginning of the year and it's a bonus. So typically employees understand this, but it's actually a really important tool for modeling mild variations to plan in the first bit. After that, there are projects that you will not execute, right, that will get cut on a go forward basis. This is before we get to harder decisions like core contractors or employees. And then there is a premeditated reduction in force or layoff plan that is codified in there and says, this is the amount of headcount. Doesn't necessarily name names, but this is the amount of headcount we will eliminate

48:04if we begin to fall below this target and think we're gonna come in below this. And you have to make that decision in the annual planning process and not at the moment in time because executives cannot be forced to make the hardest decision of their lives for many of them at the worst possible time. So that's, you're making the scenario plan beforehand. These are all playbook items, right? So there are plenty of times when the playbook does not apply and you've got to play ball and figure out what the heck you're gonna do in a situation that you have not planned for, don't have a framework around, but for whatever you can have a framework for, I think it's really powerful, right? Next up is customer and market intelligence. At bigger pockets, we think this was a two-part, two-way street, right? You use detailed analytics and you invest heavily in understanding patterns of customer behavior, what they're saying, what they want. And then you talk to them over and over and over and over again. How many podcasts we don't hear, Mindy? 700 and something. 700 times, I've talked to a customer or someone that this industry touches on this podcast. And then I've also had how many calls with customers, how many times a post of the forums,

49:05how many times in the Facebook group, how many social comments, how many response to the blog posts. So the aggregation of those is essential because it tells you which questions to collect data on. And then the data tells you whether you're right or wrong about that customer insight at scale. And then that informs the next set of questions downstream. So it's a circle that never ends in terms of customer and market intelligence and data feedback, right? You can't do one without the other. There's no analyst that can just design a perfect data collection system. You have to know which question to ask and you have finite resources about how to ask and when to ask those questions. And we got org design. org design is a function of what your business needs. I almost always will bias at this point to a P&L ownership structure, right? There's different schools of thought where marketing handles leads, then sales handles the sales and then the operations handles the support. I'm a big function of, I want the entire P&L from revenue to cost owned by somebody. So I know when revenue is going down who to ask, they can impose that different structure in place.

50:05And I'm fine with the matrices or the complexities or the trade-offs that come with it. But I find that if revenue is not accounted for in a business, then really big problems begin to emerge and it becomes very thorny to unpack them if different parts of the customer experience of the business are owned by different leaders who are not necessarily on the hook for dollars coming in. So the structure is designed first and then people are placed in the structure second. I've got my structure and then I've got my fictional perfect people and then I've got the people who are developing into those roles or who I need to hire to put into those roles inside that structure. The rest of my toolkit is 25 pages or so of scorecards, right? Very prescriptive descriptions of what I think an excellent head of product or head of technology or chief financial officer or head of marketing or CMO or whatever it looks like in great detail,

51:06the qualities that I think they should have, the mission of their role and then the specific example outcomes that I would wanna see in the first year after hiring them and that we will not go through today on there and I may not publish that as a part of this because some of that is hard to do that in an illustrative example without talking about stuff that shouldn't be shared about inner workings of bigger pockets for example or my experiences in there. I also have some certain executive failures that have come up over the years or failure patterns and a failure is not like you get fired if you fail. A failure is like something you need to develop or figure out, right? So mine was for a long time conflict resolution. I was very averse to conflict and I was very skilled at finding ways to not have a hard conversation with somebody and instead promote them or move them off of a problem that was really important and get somebody who could solve it onto the problem and this kind of bloop in my face seven or eight years ago at one point and my boss gave me very clear feedback

52:07about this failure pattern, this avoidance of conflict that I needed to address and it was really life changing for me and very hard for me to accept the feedback as well. But there are many failure patterns like that that we can get into at some point. I'm also posted about that on social. That's the essence of the playbook, right? There's the toolkit, there's also hard artifacts, right? Like what is an example product roadmap or what is an example delegation of authority or those types of things that go along with it? Some of those I have, some of them I need to map out and build at some point, right? But those are, that's it, that's how I would run a business. And you can see like I would not be a good candidate for some businesses, I might be an excellent candidate for other businesses with this playbook. And that I think will help people, you probably disagreed with me in 20 places listening to this or didn't like it or wouldn't want to work for me or maybe love parts of it or whatever. But that's who I am and how I do it. And that will only help you if you can build evolve to something like this in your field, I think, if you're listening to this.

53:07I enjoyed working with you, Scott. I still enjoy working with you. This is what I do, I mean, I still do versions of this like light down versions for bigger pockets money here with what we're talking about. It's just, there's no, I don't have to bring the intensity of the CEO every single day to a situation or put in these like 60 hour weeks in order to do it. But there's always pieces that translate. Yes, there's always pieces that translate. I can see that if I was looking for a new job, I could prepare myself for a job interview so much better than I did the last time I prepared myself for a job interview, which was 11 years ago. Yeah, wow, that was, it's almost 11 years ago now. This would be very helpful for somebody who was looking to level up their career. I think that, I think there's a lot of tips for people in this episode. And I thank you for sharing this because this is not something, this document, I'm looking at the document right now. This is not a document that you can breeze through in five minutes, it's not a document that you breeze through writing in five minutes.

54:09This is absolutely a lot of hard one knowledge. And I think that our listeners will appreciate it too. Thank you, Scott. I think a lot of organizations would hate it, but also benefit greatly from implementation of a structure as rigid as this one. And there's a lot of advantages that come from it, even though it leaves nowhere to hide in the organization around that because the CEO is personally drilling in to the most important lever at almost any given time. And that makes it very difficult in there. And that's not something that a lot of people, that's something that some people really don't like. And I've got feedback about the CEO is directly asking me questions in this. Well, yes, yes, that's gonna happen here, you know, here. Those are the people that don't need to work there anymore. That's this, I am very proud of the hard one knowledge. And I think this is like a core skill set. And I wanted to make sure that before too much time passed, I'd written it down. So in case I ever need to use it again, at some point later in my life. Well, Scott, where can people find this document? Oh, you can find it at bigger pockets money.com slash resources.

55:12I may have been in the future, create a page like CEO, slash CEO toolkit, but for now it's at slash resources. You can download it, it'll be a word doc. You can modify it or you have to inspire things. You can create a list of artifacts. You'll probably need to create spreadsheets or PowerPoint presentations or whatever if you really wanna do this. But what I would recommend as a takeaway from today's show is start doing this. Put a draft together for your job. Do it at work in dead time, right? This is your job. You'll be using it at your job for many years. It'll make you better at your job. And one day, whenever you wanna go interview for that next job, you'll be able to bring this toolkit and translate it in there. And if they don't like your toolkit and your style that you've hard developed, that was the wrong fit for you anyways. Go find somewhere that we'll do it. You're gonna impress way more than you're going to scare away if you come in with a clear opinion on how to do your job. And if you scare away that person, that's not the person you wanna work for anyway. If your toolkit is genuine the excellence, you probably also wanna get a lot of feedback on it. And again, my toolkit, this is not all me, right?

56:14This is not me. I did not come up with this. This is borrowed from EOS, from Fortis Fund's execution, from countless hours of coaching, from various board members, from Josh Dorkins best practices, from Mike Zawalski best practices, from books, from resources, and from Little Nuggets, like that one CEO's comment on some call from years ago, all built up to build this, right? And that's how yours will be, and it will be constantly evolving, right? There will be things about this in 10 years. If I ever use it again, that'll be completely changed. You just suggested people get feedback on their toolkit. I'm gonna ask people to give you feedback on your toolkit. What do you do? Downloaded this, if you've listened to this episode, downloaded the toolkit, and you wanna reach out to Scott, his email is Scott at BiggerPocketsMoney.com, and he would love to hear from you. Yeah, I will also say this, I love this stuff. I don't love the pressure, the tension, the long work week, it's the hard conversations and all those things in this, but I love business, personal finance, all this kind of stuff. So if your organization could benefit from this,

57:16and you want some free, only consulting on pieces of this, I'm happy to also talk about that. I love doing this, and would love to scratch that itch some way and if I can be of help. Just like we answer all the questions, we get from personal finance, folks on a weekly basis here that email us. So please do, we're very accessible on this, and I'll put a stop to that if it gets overwhelming at some point, but for now, we'd love it, and we'd love all that. We're happy to answer any questions. Yes, we are, and if you have a question for me that is not CEO-related, Mindy at biggerpucketsmoney.com. If you have a question for me that's CEO-related, I'm just gonna forward it to Scott. I think this is a great stopping point. Should we get out of here? Let's do it. That wraps up this episode of The Bigger Puckets Money Podcast. He has got trench former CEO. I am Mindy Jensen saying, so long, ping-pong. I love that. Said no one ever. Nobody starts a business thinking, you know what would make this more fun? Calculating quarterly estimated taxes, but somehow, every small business owner ends up doing it. Your dreams of creating, selling, and growing

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