Transcription
Entrepreneurship is far more a war of the heart than it is a war of the mind. Like we can understand what we should do, we just don't do it. And I think that's why um we are so much better at giving advice than we are at following it.
The biggest entrepreneurial mistakes I've made in my career have all come from splitting my attention. Every one of them. As soon as I did that, my my revenue started slowing down in growth. Like when you have three things going on, any of them can work, but none of them will work unless you pick only one. And I can promise you the competitor who is going to beat you is only doing that one thing. And you think a third of your time is going to beat theirs. No.
And I think by doing that, you can actually conquer this this cycle and make it past the split where you go uh crash and burn and then restart the doom loop or make it to informed optimism and then eventually to the achievement that you want. Any massive company that you know of has existed for multiple decades. And in order for something to exist for multiple decades, the founder has to stay focused on that thing for the whole time.
And I measure focus by the quantity and quality of things that you say no to. And I measure commitment or I define commitment as the elimination of alternatives. And so if you think of marriage as the ultimate commitment, then it is the ultimate commitment because you've eliminated literally every alternative besides this person. And so I think that many business problems and many entrepreneurs would 5x 10x their business if they simply gave themselves no way out.
This is what I'm doing. And I'm I mean the term, you know, burning the boats, but I'm eliminating all alternatives and structuring my life such that I I make it very difficult to pursue the alternatives.
I think one of the biggest misconceptions when you're an entrepreneur is not understanding the difference between being an owner and being the CEO. And so they might hear that you have a portfolio. They might hear that I have a portfolio and be like, "Okay, well they have a portfolio, so I must model that. That guy's tall. I should play basketball." Doesn't work that way, right? I should be So if I want to be rich, I should fly private. Doesn't work that way, right? Um it's conflating order. And so we must do these things in order uh to get the outcome. We have to concentrate on only one thing in order to get the outsized return. and that spreading of attention, especially when you're newer in the entrepreneurial career, it's like you already don't know so many things. How do you now want to have three sets of unknowns that you want to try and conquer at the same time? And the the fallacy of thinking is that I'm going to try all of them and see which one works, but none of them will work because you're waiting to see which one will work.
There are six stages. You have stage one, which is uninformed optimism. This is where you see your friend or you see something online and it looks like they're making money or it looks like there's some opportunity and you think, "Oh my god, that sounds amazing." And you have optimism because it looks great, but it's uninformed because you have no idea what it entails. So then you dive in and you say, "Okay, I'm going to pursue this this thing, whatever. Is it baking cupcakes or I'm going to I'm going to do lawnmowing or I'm going to do crypto trading, whatever."
Second step is you get into it and you're like, "Oh my god, I don't know. There's so many things involved in this and this is significantly more complicated than I I expected." So then you become an informed pessimist. You now know uh that it's hard or significantly harder than you expected.
The third stage is you have your crisis of meaning or the value of despair. So you're continuing to do this stuff. It's continuing to not work and you keep working and it keeps not working. And so this is the step and this is the this is the point of truth and this is the cycle where the the paths of the entrepreneurs split and the vast majority of people take this next step which is they then say you know what there's that thing over there that my other friend's doing maybe I should do that instead and so then they hop back to uninformed optimism and then they go boom to informed pessimism and they just go around and around and around and they live the same 6 months uh for 20 straight
Now the other path of from the valley of despair is sticking with it. And so then you become an informed optimist because now you understand you still understood all the bad stuff but you also understand the good stuff and how to avoid the bad and maximize the good. And then once you're there you do you stick on that path long enough and you end up achieving what you originally thought was really easy and fast.
I think that the vast vast majority of organizations have no idea how to train and their entire training their their way of getting talent is just uh let's hire 10 and we'll just see who works out rather than being able to take someone and level them up. And I think that the ability to train is one of the largest alphas that exists in organizations because if you can buy talent at at Bkll and get them to A+ then you net the delta and profit between what you had to attract and pay the person to come and what they perform at. If you have to use a picking strategy, then you have to pay for ex for current market rate of the skill. And so you actually eat into margin because you don't know how to train.
There are advantages to speed and sometimes it still makes sense to bring in the talent because maybe the training requires so much time that it's not worth it. And so from a hiring perspective because I we were just talking this is the theme we always want to hire for the smallest skilled efficiency. And so in low skilled labor for example if we have a cupcake uh bakery and I need somebody to work the counter that is pretty low skilled labor. And so if there's a number of skills that are required, being able to be on time, smile, be nice, those things are bundled terms that have many skills underneath of them, right? Whereas teaching someone how to use the register might take like 30 minutes. And so it makes sense to hire for attitude and then train aptitude when you have low skilled labor.
When you have really high skilled labor, I can't teach someone 10 years of being a CFO for M&A. This is an extreme example, right? And so in that instance, we still hire for the smallest skill deficiency, but I can probably teach someone to be nice under these circumstances faster than I can teach them to be a CFO if they have everything that I want here. Obviously, you would want both, but the world isn't perfect. And so we just try to hire for the smallest skill gap. And attitude is a series of skills. And so in instead of thinking of things attitude and aptitude, just think of everything as skills. And then we hire always for the smallest efficiency demonstrations of the difference between a beginner and expert.
A beginner has binary thinking. So they think this worked or it didn't work. And if it didn't work then I need a new idea. Rather than having the nuance thinking of a master or an expert or advanced person who says what about this if I click into it I break it into its component parts. What about this didn't work? Okay. It's not that meta ads don't work or advertising doesn't work. it's that we didn't nail the hook in our ad or that we didn't make our our offer clear enough on the landing page or it was not congruent with the advertisement or um you know it was the offer itself wasn't very compelling or it didn't have it didn't like it was just this we everyone's coming in and saying yeah yeah I kind of want that but this is actually my issue we're not solving the core problem so it's it's always in the in the details it's always in the sifting through the many small things that you find the kernel that ends up fixing uh the business
I I know that uh Facebook was trying to fix their virality issue and they were locked in a room for days trying to figure out how they could get more users to retain on the platform, right? People would sign up but then they wouldn't do anything and then they they drop out. And so finally, um Zuck just said, "Okay, we have some belief that if people have more friends that they will engage." And so they didn't. And here's the thing, like with the uncertainty, they couldn't prove it. He just was like, I feel like that's better than them not having friends. And so he said, "All right, the new goal is 10 friends in 14 days. That's the goal. So we have to create the experience so that we can get it to introduce them to 10 people or connect them with 10 people that they already know on the platform within 14 days." And as soon as that happened, then obviously Facebook took off or continue to grow. And so he wasn't like, "Oh, Facebook doesn't work anymore or social networks aren't going to be a thing." It's it's usually way smaller and way the adjustment you need to make is much more nuanced than what you originally expect.
If the foundational principle of like cutting hair, mowing lawns, whatever, it's like this problem exists and I can charge a certain amount and make a profit on it. Then there's nothing wrong with the business. It's just what is the constraint that's holding us back? and then usually zooming into the constraint and realizing there's 20 things that are contributing to the outcome, not one. And that's where expertise and that and you develop that expertise by trying and failing. Yeah. And that's and that's just the name of the game. And so I think you have to have an incredibly high tolerance for failure without internalizing it and feeling like you yourself are a failure as a result of failure.
The potential of an organization is directly correlated with the aggregate intellectual horsepower of everyone contained within it. And so if you are the smartest person in the business then and you can do everyone's job better than everyone in your company then it means that the limit of the business is purely based on one person's horsepower and one person's life experiences and that will be the cap. And basically it doesn't matter how smart you are. You can't live a 100 lifetimes. Like you can learn quickly. Sure. There's some people who can learn faster than others but you're not going to be able to live a thousand lifetimes. And so as a business grows, more expertise is required.
And I think the easiest litmouth test for this is if you look at the richest people in the world, almost none of them own 100% of their business. So number one, most of them don't even own 50. Like most of them are small percentages. Jensen Wings at 4% for Nvidia. Basos is at 7 or 9% for for Amazon. Uh I think Elon's at 20 for Tesla. Like small percentages. And it's because it takes a lot of horses to take a chariot to the moon, right? And so basically, as you put in more intellectual horsepower, the potential peak of the business goes so much so much higher, so much faster.
Keith Rabois from um he's one of the original PayPal mafia guys has a really good analogy for this and he talks about it in terms of barrels and ammunition. And he says, "So as soon as you get some product market fit, the business starts to grow and you say, okay, we need to start shipping things faster." And this works the same with a services business, a physical products business, software business, the concepts the same. And so what happens is you then hire a lot of people and you assume that your throughput is going to increase proportionally. So we have 10 people, we hire 50, we should 5x our output. And then you quickly realize that that is not the case. And so what happens is uh there are people who are rate limiters for organ or an organization and those are the barrels. So think of like a Civil War barrel, you know, old cannon and you've got these cannonballs next to it. He said most people are ammunition and so you bring more ammunition but you're still going to be limited by the one barrel capacity of how how many shots can get taken by the barrel. And so you need to find more barrels. So you have to go from one barrel to two barrels, two barrels to three barrels. And that becomes an increase in capacity or throughput for the organization. And there are very few of those in a different um I can't remember the law but it's some organizational uh law but the square root of the number of people in a company generate 50% of the work. So you have 100 people in organization 10 people are responsible for 50% of the value that's created. facts, right?
And so the thing is is I think the real game of entrepreneurship is that your standards rise over time and it's unfortunate because we we hear things that other entrepreneurs tell us it's all about the people stupid and then you're like sure but look at my and it's like no you're not hearing it and I don't know there are some I think Williamson talks about this how there's like some lessons that for some reason it's like we have to learn for ourselves. I still believe that that it's like we can operationalize this at a lower level so that we don't have to learn it for ourselves. But like I'm convinced I haven't figured it out yet, but um so every entrepreneur can can can can resonate with this which is every business that I've started I've gotten to the success of the business prior way faster. And I kind of liken it to a video game where it's like you beat level one and then you know you get to level two and it's like you spend months trying to beat this boss. finally figure out how to beat the boss and it's like great and you spend another three months getting beating boss three and let's say you start the game over with a new character it's like you just zoom through level one two and three and then you get to level four and you're like shoot now I got to spend time it's like virgin land like I don't know how to beat this yet and so I think that that happens for archetype finding for skill and talent within an organization and so say that again so if you have functions across an organization there are people who are going to drive results within that function and the first time you hire a salesperson for example, you don't know what you're looking for. And so you just hire a human who says they can sell and maybe they can, maybe they can't. And then you cycle, you try to train them, it doesn't work, does work, whatever. And then finally you, let's say you cycle through three sales guys, and finally you find a killer. And then you have this pattern recognition. You're like, "Okay, that's what I'm looking for." And then all of a sudden you try and approximate that person or that archetype as as much as you can. And so when you start your second company, you're like, "Oh, I can quickly staff up sales cuz I know what I'm looking for." But then you're like, "Shoot, I've never really nailed sales manager yet." And so then you cycle through. You start you start whacking away at the boss and then you have to end up firing the boss at the level because you're like, "Oh god, this didn't work." And then 6 months are gone because you had to find them, recruit them, hire them, train them, then find out they sucked and then start over again. And maybe it takes 18 months to really find the right sales manager. And then you're like, "Okay, I know what that looks like, but I still don't have a director of marketing. What does that look like?" And so it's basically developing this pattern recognition across all functions of the business so that you know what exceptional looks like. And then over time what happens is as a business grows your ability to attract talent increases. And so then your standards also grow. And then you find out that there's even more nuance to this which is that there's a director of sales at a1 to$10 million level which is a different looking person from $10 to $100 million level. And it continues to go all the way up. And so it's basically building this repertoire of identifying patterns. And what if you talk to I would say more experienced entrepreneurs now they don't talk about building businesses. It's like assembling. You just assemble the pieces and you just know that this is how it's all going to flow together. And that fundamentally is basically what I try and decode within the content that I have so that it's like here's a pattern for how you can recognize this. Here's a pattern for a recognize this. so that you can just move faster through the levels um to get to where you want to go.
And so to loop back to the original question, which is how important are people in an organization? People are the organization. And so if you ever want to build enterprise value, it's building the collective consciousness of the organization, the skills, and how they collaborate together towards a specific outcome. And so knowing how to staff that up is the job.
So the simplest way of attracting somebody to your business when you don't know how to do the job or know who to look for is to unfortunately do the job yourself. And then once you can break down the job we follow the 3Ds which is um document, demonstrate, duplicate. That's how we train anybody. So first you have to document everything that you do to successfully do the job and that's step by step into a checklist. Then you demonstrate. So, you do this checklist in front of the person that you're trying to bring on. Then they duplicate, they do the checklist in front of you. What's interesting about that three-step process is that you'll often find when you try to demonstrate following the checklist, you don't follow your checklist. And so then you have to adjust the checklist until you actually follow the checklist. And then when you can consistently follow that checklist and get the output, then you can have them do that checklist. And so I think this is why bootstrap founders uh I think oftentimes will find they they tend to know more about more things because they had to learn them in order to teach them.
Now what's really interesting about what you said about accidentally finding that that star at 3 or four years in is that I think that happens to almost everyone. Well hopefully it h the people who end up making it. It happens to almost everyone. Um because then you realize oh my god like if I had four of these people like we could change the world. was one of the first people that you're like, "Oh my god, I hired that person. It changed everything." So my CFO in Jim Launch um had taken four companies from 0 to 100 million. Um she had done over 40 M&A transactions. Her largest one was 5 billion. Super experience. Um she was the very end of her career. And she was like, I'll take you guys I'll I'll take this one last ride with you guys. And so, you know, mind you, Leila and I'm 26 or 27 at the time. Ila's 23 24. And we're sitting across the table from a very experienced business person being like, "Please help us." And so one of the things that she taught me that I I will never forget is she said the grass is always greener on the other side. You just don't know that it's fertilized. And she and she she's southern so she had this deep southern act. She's like there's all everywhere. And so she's like, I've been in enough businesses to know that all businesses have and so you just have you don't know about and do know about and you're in this business and so this is you know and that has been so profoundly impactful in my life because it was so hard for me to break the cycle really hard for me. Um I mean I gave you my my life story of the many businesses that I've been involved in and so like the entrepreneurial ADD has been so real for me and I've made some of the biggest career mistakes by just pursuing and splitting my attention between multiple endeavors. And the thing is is you actually we have a linear life. And so we that is it's an unfair but true comparison of the opportunity cost. And every exceptionally um successful entrepreneur that I know has just stuck with one thing for such an inordinate amount of time. And I think there's a quote by um I want to say Shane Parish, but he said um success is doing the obvious thing for an extraordinary period of time without believing that you're smarter than you are. And it's just like we know what we need to do. So we don't need to make our lives more complex. Complexity will come with scale. I promise. And so just simply trying to do more of what you're already doing well is already hard enough, don't add anything else. And so like if you need to write some sort of commitment of like I'm just going to stick with this, then do that.
What happens is when we were talking about the levels earlier about like beating the bosses. So what happens is you know how to beat boss one through three of the game and so then you just say okay well I'm just going to start the game over and beat boss I mean this this time it's going to be different but then you just get to level three again and then you're stuck again and so people just keep getting up to level three and new and new and and new endeavors over and over again because they never learn how to get past that boss and so you just have to confront the uncertainty of knowing that you don't know how to do it but that you will figure it out if you keep doing enough repetitions. And that's where you talk to as many people as you can. You see what they said, you consolidate it all, and you say, "I think this is the highest likely path. It might not work." But I do believe fundamentally that if we cut people's hair well and we do it for a long period of time, we will have a thriving business. And if we have a really good model from that thing, we might be able to open up another location. And if we keep our cost down, we might be able to have an actual model that we could either invest our own capital or bring somebody else and take it national, right? All of these like I have yet to find a business that can't get to $100 million a year that has a permutation of it that exists. You're a dry cleaner. Fine. Well, cool. We'll build the model and either we can license the model, we can franchise the model out, we can get outside investors, we can scale it nationally, we can do it. But the crazy goals are only crazy because people have crazy timelines. They're actually very sane goals if you extend the timeline. If you have a a true 10ear goal or a true 20-year goal, almost anything is accomplishable. I mean almost every multi-billion dollar company is about, you know, they get it's usually between like years 6 and 10 when companies get to kind of like those big numbers and most people who are listening to this are 5 years into entrepreneurship, but you're 6 months into the thing that you've been working on right now and you keep restarting the clock for getting to year 10 every time you start over. And I think that's the part that it took me a very long time to figure out and I think it takes a lot of entrepreneurs like everyone messes around with a lot of stuff in the beginning because you just don't know what you're doing. And so in my experience it takes about 5 years for most entrepreneurs that I know to just like find something that works. Like I'm like it takes about 5 years to figure out which way is north. Yeah. Yeah. Right. And then it takes like another 5 years. And a lot of people that's it like they they restart they they go off crash and burn. Um, and it takes another 5 years to build something that can can create generational wealth. So, it's about a 10ear slug.
Here's the really hard truth about it. If you have a job right now, for almost all of that 5 years, you quit your job because you don't want to work as hard as you are and you want to make more money. And as soon as you quit, you will realize that you are now going to work way harder than you were and you're going to make less money for an extended period of time. The one benefit is that you get to claim all responsibility for how little you make and how much you work because you're like, "My boss is an idiot and it's me." But it's the truth. And I think that in some ways having that optimistic ignorance is actually one of the really redeeming traits of entrepreneurs. And one of the really hard parts is that the biggest jump you have to make gets so immediately reinforced from the freedom you have from being able to, you know, chart your own path. But that big success of quitting one thing and starting another, you need to immediately forget. And I think that fundamentally that is why so many entrepreneurs keep doing it is because the first time you do it, it's the biggest rush ever. You quit your job, you do the business, and and you get some some first traction and that that first dollar that you make when the new business is like the best dollar ever, right? But it's such a strong reinforcer that what does it reinforce? It reinforces stopping what you're doing and starting something else. And so I think one of the fundamental errors of entrepreneurship is that sometimes the jumping ship to start this thing is the lesson that you need to immediately unlearn because after that you have to just stick with it for a very long period of time. Heat. Heat. [Music]