Transcription
Everyone say, "Mervyn's here!" Today, I want to talk about the three stages of a CEO's focus. The reason I want to discuss this is that I often notice that startup founders and entrepreneurs who are just getting started are really confused about what they should be focused on, especially as a CEO. When I say the word "CEO," it can mean lots of different things. You could be the CEO of a one-person business that was started today with zero dollars in revenue, zero customers, and zero products. You're still a CEO, technically. It could be that person, more so like the CEO of a small business than the CEO of, you know, American Airlines or something with thousands of people.
Knowing what the CEO should focus on is extremely important because this is really the most important thing in a business getting started: what should I be focused on, and what am I trying to achieve? I see some CEOs who don’t have product-market fit in the beginning and don’t have customers, yet their focus is on trying to get press or trying to do all of these other things, like trying to raise money. It’s really messed up. Then I see some later-stage CEOs still trying to do all of the marketing and get into the weeds of everything, and that’s messed up too. At different stages, you have to evolve and make a change. I’ve learned these things the hard way myself by basically doing everything wrong and then learning in hindsight when I eventually iterated toward the right answer.
So, these are the three stages: the first one is product-market fit, the second one is distribution, and the third one is culture and talent. Those are the three, and we're going to go into each one of these three, and I'm going to explain them right now.
The first one is product-market fit. If you're not selling a product, this still applies to you because it's just service-market fit. What product-market fit means is that you have the market, which is your niche, and then you have the problem, and the solution to that problem is or should be your product or service. When you first get started, that is basically the premise on which you should start your business. If you want to start up as an issue, you should first of all, number one, find a market. What is this cluster of people, and how do they group together? What is their problem? What do they wake up in the morning saying about and reading? What is that thing? Then, what could be a possible solution to that thing? What is the best possible solution to that thing? Is it a product or a service? It could be either or a combination of the two. That’s what you should be selling as a business.
If you're running a business and you don't know who your market is, and you don't know what their problem is, and you don't see how your product or service fits in as a solution to that, then you really should sort that out. That is the most important thing; an entire business is built on those connections. The better you get that, the better you will be at everything else: the video marketing, the sales, the better your profits will be, the better everything will be. If you get that stuff right, if that stuff's wrong, no amount of good marketing or anything can mask that problem. It's like trying to put a band-aid on a broken femur with the bone sticking out of the skin. It’s just not going to work; you need to fix it.
In the beginning, like product-market fit or service-market fit, you're trying to make sure that you iterate and get your product or your service better or as close to a perfect fit for that problem that the market has. Now, when we first start, we’ve loosely tied our solution or our product or service to the problem, but it's not perfect. It’s like if you get a cleaner for the first time for your house, and you get them to do it, and then you look around afterward and you're irritated because there are some things that the cleaner missed. When you do the cleaning job yourself, there’s a way you like it to be done and a certain way you like everything to be completed. When you get a cleaner for the first time, you might brief them, but they slightly miss a few pieces. That doesn’t mean the cleaner is bad; it just means that you need to communicate that with them, and the cleaner needs to iterate and adapt so that they can get to that perfect product-market fit or service-market fit.
To use a really simple, dumbed-down analogy, just to mention the cleaner one, it’s a classical thing that I see all the time. Someone hires a cleaner for the first time, they get them to do a job, then they look, and there was some dust behind the couch or this thing that they missed, and they think, "Oh, this cleaner is bad; I'm going to just go back to doing it myself." That’s stupid. You want to communicate with the cleaner, and then they will adapt. The same thing is going on with product-market fit in the early stages of a company. You have to, like that cleaner, ask for feedback and keep iterating until you match perfectly with what the market wants because you will not have perfect product-market fit when you first start.
Actually, perfection is something you never actually achieve; there is always more to go. Even if you think you have perfect product-market fit, you don’t. There is way more to go, and if you're not thinking about it, one of your competitors is, and they will overtake you. So, you have to be forever thinking about it, and you have to be forever asking for feedback, collecting that feedback, crunching it, and thinking, "How can we make it better?" That is the first stage of a CEO's focus. It is the most important thing, more important than anything else, and it's the only thing that you should be doing and thinking about when you're starting your business. You shouldn't be worried about press; you shouldn't be worried about marketing; you shouldn't be worried about sales; you shouldn't be worried about raising money; you shouldn't be worried about any of that stuff, even hiring people. You shouldn't even be worried about that. You should just be worried about achieving product-market fit because unless you do that, nothing else is going to happen.
Now, how do you know when you have achieved it? Well, you'll know you have achieved it when things just click. All of a sudden, things get a lot easier. People start telling you that they love your thing; people start telling other people about it, and it’s just like a whole bunch of friction kind of gets removed. It’s a big battle when you're first getting started in business. I refer to it sometimes as trying to push a stationary train. It’s a lot of effort, and you don’t get much action out of the train. But once that thing starts to gain momentum, it starts to be hard to slow down. You’ll know when you’ve achieved product-market fit. People will start coming a lot faster to your product or your service. People will start raving about it; you’ll be getting good reviews. If you’re selling a course or coaching or training, people will start getting amazing results, and they’ll be telling their friends about it too. That’s when you know you’ve got it. That doesn’t mean you should stop looking at it or making it better, but it means that you’ve got it, and you’re ready to go to stage two.
Now, it’s important that I tell you that you still don’t take your eye off the ball with number one. Number one is your sole focus, which is product-market fit. That’s your sole focus as the CEO and founder until you’ve achieved that click and that fit. But then, when you go to stage two, you still have to keep your eye on the ball over here. You can never take your eye off the ball in this part; it’s so important. CEOs that do fail. But now we can move most of our time, you know, back here. I would say, you know, like 90 percent of your time is going to be on product-market fit. Once you go to stage two, I’d say about 80 percent of your time is going to be on stage two and 20 percent still on stage one.
Now, stage two is distribution, and distribution is vital because even if you do achieve a perfect product-market fit and you've got something really good that the market wants and they love it to bits and they're happy to pay for it and they're migrating to it in masses, it still doesn’t mean that you don’t need to do any marketing or sales. This is a massive mistake that a lot of technology companies make. A lot of technology companies think that it’s just the technology that makes people come, but really, if you look back through history, distribution is probably more important than the technology itself.
Now, when you're getting started, that doesn’t mean that you should focus on distribution first. You want to focus on product-market fit first because you have to create some sort of value, and then you focus on distribution. But if you forever stay focused on the product and don’t think at all about distribution, you will still have issues. This is the hard part about being a CEO of a small company. You really do have to do multiple things and be talented and exceptional in multiple areas.
So, what do I mean by distribution? I mean basically the pipelines that you lay so that you can get your product or service to your market. I mentioned back in the old days when you had Rockefeller of Standard Oil Company. Rockefeller was one of the wealthiest men in the world back then; he basically owned the global oil monopoly. His main thing was trying to get oil distributed everywhere. He needed ships to carry the oil, he needed trains to carry the oil, and he also needed pipelines all over the country to pump the oil around because he needed to get this oil distributed. What he noticed quite early on was that distribution was of huge importance, so he actually turned his focus there and made sure that he owned the distribution as well as the oil.
If he just owned the oil and then had to rely on other people for distribution, he could get in a lot of trouble. That’s what they did. The railroads, the people that owned the railroads, started charging higher prices to Rockefeller because they knew that he needed to put his oil on their trains. Rockefeller was really smart, so he started not using their railroads and making losses short to him because he knew that would tank their railroad; it would make them lose a lot of money. Then they’d start losing money, and he’d come around by their stock while the company was worth nothing. They’d need to come back around, and then he would start using them again.
Now that he owned the company, he was so smart that he even started laying pipes all over America so that he could avoid using the railroads altogether because distribution was so important to him. Now, we’re not selling oil, and chances are we’re probably not even selling physical things, but the same is true. Distribution is of extreme importance. Once you’ve got a good product, you need a way to get it to people. If it’s an intangible service or product, like if it’s software or if you’re providing consulting or services or something like that, then you still need distribution because people need to find out about you. They need to be aware that you exist and know that you can help them, and then you need to be able to sell them, converting them from a stranger to a client. Then you need to be able to service them. All of this requires distribution.
While it might not be physical, it’s still virtual on the Internet, and you still need to put a lot of focus and energy into building this distribution system. If you look at Amazon in the modern world, their biggest advantage is distribution. They’ve got all the distribution centers, delivery things; they’ve got a network all over the world so that they can get products to people really fast and really efficiently.
When you’re building distribution, you want to look for the most efficient way to inform people that you exist and get them to come to you. You need to figure out what that is, and chances are it’s going to be online. You want to work on having a website; you want to work on having a funnel that’s going to convert strangers into customers and educate them. Then you need to make sure that you’ve got traffic coming to this funnel. You’re going to need to buy it. What channels will you need to try? The different channels are going to be Facebook and YouTube ads, and then probably some Google ads. You’re probably going to have some organic social media content as well, and then you’re also probably going to send some email broadcasts out to people.
Those are the channels that we’ve got in our company: basically, organic Google, YouTube ads, Facebook ads, Google AdWords, organic social content, and email broadcasts. That’s basically our distribution network on the Internet. That’s how people become aware of us, find their way to us, buy from us, and then get the product from us. It’s all mapped out like that. I would say that I’ve probably spent equal time on product as I have on distribution. If you want to know a rough sort of guide of how my time is being split, I’ve probably spent equal amounts of time. I’ve made sure I have a really good product, but I’ve also made sure I’ve got really good distribution, and it’s given me a really big advantage because there are people out there that I meet who have good products but not good distribution.
In a lot of marketers, I mean, it’s typical of marketers; they’ve got really good distribution but not a good product. You need both; that’s the truth of it. If you’ve got something lousy, it doesn’t matter how efficiently you can get it to someone. If you’ve got something awesome but you have a lousy way of distributing it, it still doesn’t work. You need both. You need distribution and a great product. Product comes first, or your service. Having product-market fit or service-market fit comes first, then distribution. You want to get these two things really going, and you want to make sure that you have a lever in your business that you can pull on to get more customers.
One of my early mentors told me, "Sam, if you don’t have a way to pay money to acquire a customer, you don’t have a business." I really internalized that, took it to heart, and made sure that I could create a way so that I could make that possible. That’s what we have now. I have a way to pay money to acquire a customer. To get a consulting accelerated customer, that’s my main product that we sell a lot of; it’s a $2,000 product. In order to get those customers, I pay about $1,000 to acquire one of those. I put a grand in a machine, two grand comes back, and it comes back fast, reliably, and I can do it at quite an insane scale—scaled a lot of other people have thought you couldn’t really do. But it’s because of solid distribution, and the combination of those two things has given me a huge advantage. If you get those two things nailed too, you’ll have the same.
Now, let’s talk about the third stage, and this is the stage where most entrepreneurs break down. If you get to the second stage, you have product-market fit and distribution, you’re doing really well, but most people can’t make this final jump to stage three. The third stage is focusing on talent and culture. What do I mean by that? I mean hiring great people, training great people, managing great people, forming really good teams, and building a culture at your company so that people all act, think, and behave in one way that supports the overall business goal. I’m not saying all of these people are just carbon copies of each other; you don’t want that. They’re all free-thinking individuals, but they are all optimizing for the same thing. They’re not going in all these different directions. That’s what a really good culture is; they know what they’re here to do, and they’re trying to figure out how to do it better every day, relentlessly.
The reason why most entrepreneurs can’t jump from the second stage to the third stage is that it requires a massive paradigm shift. I’ve just been through this paradigm shift myself, and it was probably the hardest one I’ve ever made compared to all the other things. You come to a realization. For a long time, I was tracking my time: where am I putting my time, how efficient is this task, how efficient is that task? I’d measure everything, and I’d try to be as efficient as humanly possible with my time and where I put it so that I could get the maximum output from every input I put in. I took that to the nth degree to try and get as much leverage as I could.
But then you come to a point where you have this realization: if I spend my time trying to hire really good people, or actually people that are way better than me, then if they’re working and hiring other people that are really good, I’m getting way more leverage on my time by hiring those people and building a great culture than I am doing a task myself. As a startup, the CEO and entrepreneur start out doing everything yourself, and you actually need to be good at doing that to build a business. You don’t want to be a people manager who doesn’t do stuff because then you’ll be a lousy founder of a company.
So, you get really good at doing, and you really fall in love with doing—building the thing, doing the work, being in the trenches. That’s what you’re in love with, and you actually enjoy doing it, and you’re extremely good at it. But then you get to this point where you still are really good at it, but you have to spend your time hiring other people, teaching them to do it so that it can happen without you. You’re spending your time finding those people, managing those people, and then they’re doing the work instead of you doing it yourself all the time. You can still get in, and I still recommend getting in the trenches, but most of your time is spent trying to bring on additional people because unless you do that, you’ll never really grow big.
Jeff Bezos with Amazon has about 600,000 staff right now. Do you think Bezos really built everything himself? He couldn’t have built Amazon doing everything himself without hiring people. At a certain point, he had to make that shift. I’ve read a lot of books and talked to a lot of entrepreneurs and successful people, and they all say that this is where most entrepreneurs fail. They can’t make this final jump; they can’t let go of doing it themselves, and they can’t trust and find other talented people.
If you’re at the stage where your business is successful, it’s making money, you’ve got product-market fit, and you’ve got really good distribution, then to get to that next level, you really need to make this shift. I’m just going through it now myself. We grew our business to about $25-30 million a year before I really started to think a lot about this shift. Up until that point, I was pretty much still spending most of my time doing. I had already hired a lot of people.
Let me make this clear for you: growing to about $3 million a year, I could do pretty much by myself. I probably wouldn’t recommend that; I’d recommend as soon as you get to like a million dollars, hire some other people. But you don’t need to have exceptionally good people when you’re making $3-5 million a year, $10 million a year. But when you start to go above $10 million a year, you need people that you can just let have the thing. If you’re doing Facebook ads or Google Ads, or if they’re building a software product, or if they’re doing the marketing, or if they’re doing customer support, or if they’re doing all the accounting—all of these different functions.
Typically, when a founder starts a business and hires their first few people, they just do what the person tells them to do, and then that breaks down at a point. Those people now can’t ask you what to do; they’ve got to think for themselves. Most people don’t hire people that, you know, well, I wouldn’t say hire people; I’d say they don’t hire, train, and build a culture where people are supposed to free-think for themselves and make decisions for themselves. They build themselves a business where it looks like they’ve got employees and a team, but really it’s just a whole bunch of people that are all still tied by the umbilical cord to the CEO.
This means that it is a team; it’s better than one person, but you’re not going to be able to go to that next level. To go to the next level, like we are making $30 million a year or more, you need people to free-think on their own. You need to trust them; you need to give them everything that they need so that they can do that. To go above that, which is kind of where the waters that I’m venturing into now, you really need people that are smarter than you. As you get more people all around the business, you’re not able to put your attention and focus into these different spots, check things, and all of that. You need to know that these people are capable of making really good decisions and innovating and doing all of this without you.
That’s when you have this realization that you need extremely good people, and that’s kind of the thing that I’m going through now. So, the three stages: number one is product-market fit or service-market fit. It’s your sole focus as a founder until you get it perfect. Then you go to stage two: distribution, laying pipes all over the internet so that people can come to you efficiently and that you can pay money to acquire a customer and scale up and grow your business by just pulling on a lever. You know all of the math; you know how it all works.
When you’re working on distribution, you don’t move to distribution until you’ve nailed product-market fit. When you get to distribution, you’re spending 80 percent of your time here and 20 percent of your time there. Once you’ve got that nailed, distribution and product-market fit, now you go on to culture and talent. You pretty much stay at that stage three forever, but you’re still keeping an eye on distribution, you’re still keeping an eye on product-market fit, and you’re making all three work together in harmony. You never leave one of those stages; you’re still always thinking about it and working on it, but you are spending most of your time up here putting good people into the system so that they can really make this thing grow.
So, that’s my advice to you. If you’re getting started, you know what to do: if you’ve already got a product, focus on distribution. If you’re already quite successful in business, you’ve got product-market fit and distribution, you know what to do: it’s going to be hiring talented people. If you’re stuck at any one of those stages, chances are that you’re mostly stuck at stage two, going to stage three. Most people really get stuck there. I was stuck there for years until I really figured out how to make that jump, and life and business are so much better when you do make that jump. I can tell you that.
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