Scaling a Business? Here is the Secret You Need to Know!

Announcer: Welcome to the Process Breakdown Podcast, where we talk about streamlining and scaling operations of your company, getting rid of bottlenecks, and giving your employees all the information they need to be successful at their jobs. Now let’s get started with the show.

John Corcoran: All right. Welcome, everyone. John Corcoran here, host of the Process Breakdown Podcast, where we talk about streamlining and scaling operations of your company, getting rid of bottlenecks and giving your staff everything they need to be successful at their job. And I’m excited today because I’ve got David Finkel, who’s the CEO of Maui Mastermind, one of the world’s premier business coaching companies, got thousands of clients worldwide.

John Corcoran: He’s also Wall Street Journal bestselling author of 11 books, including Scale, which was co-authored with the co-founder of Priceline, Jeff Hoffman. Also, the Freedom Formula, his most recent book, How to Succeed in Business Without Sacrificing Your Family, Health, Or Life, and his syndicated articles. Business articles can be seen on ink.com, fastcompany.com, forbes.com, and have garnered millions of readers.

John Corcoran: His work has also been featured in several prestigious media outlets, including The Wall Street Journal, Bloomberg Businessweek, Fox Business, MSNBC, Inc magazine. He has helped hundreds of thousands of business leaders to grow their companies and get their lives back. He lives in Jackson Hole, Wyoming, with his wife and three sons. And before we get into this, this episode is brought to you by SweetProcess.

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John Corcoran: All right, David, so I’m excited to talk to you all about scaling up businesses, increasing your own personal freedom, your own business freedom. You’ve got a lot of different concepts and principles around this. But first, now you’ve got a long career in entrepreneurship were you the kind of kid who is out there knocking on doors, selling chocolate bars in your entire neighborhood, or setting up lemonade stands on the weekends. Or are you one of these who fell into entrepreneurship once you reach adulthood?

David Finkel: I would be one of those young entrepreneurs. I found a better way to sell candy than door-to-door. I snuck it into school and sold it in elementary school. I buy a pack of Now and Later, which is the candy of hot flavor back then and-

John Corcoran: That was a good one.

David Finkel: Buy it for 10 cents, and then sell each individual for a nickel, and that would be about 45 cents, if I remember correctly, when I sold the whole amount: Pretty good markup, decent gross profit margin. But yeah, I’ve been an entrepreneur probably most of my life.

John Corcoran: Wow. And what were some of your early business endeavors when you started to reach adulthood? Or were you in high school starting your own businesses?

David Finkel: Yeah, I mean, my first real serious business, I flopped. It was a nutritional company that was wholesaling vitamins and minerals. And I didn’t know what I was doing. Wonderful learning experience. 21-years-old dropped out of college, told my family, "I’m starting this company." Everyone told me how crazy I was. "You’re nuts. You’re an idiot."

David Finkel: My parents were befuddled, shaking their heads, and they’re right. I mean, 10 months later, I was out of business. I learned all kinds of good stuff. I subleased office space. Never occurred to me that I could pay my rent, but the person who was on the lease wasn’t paying her rent. And as a result when she got evicted, so did I. And lots of wonderful lessons like that.

David Finkel: And thereafter, I started other companies that were quite successful, and I’ve sold several companies and started others that I still own. I had a few more flops, but most of them worked out pretty well.

John Corcoran: Now you had took away a lot of lessons from that. You also were really involved in sports. When you were younger, you were an ex Olympic level athlete.

David Finkel: Yeah.

John Corcoran: Now talk a little bit about what you learn from sports, and what that experience was like.

David Finkel: Yeah, I mean, I played on the US National Field Hockey team for about almost 10 years, eight and a half years. I captain the team for a period of time, and then I got hurt before the ’96 Olympics. And 1995, I ended up having surgery on my hip, and I had a tumor in my hip that was pressing on a nerve, which kept me out of the Olympics.

David Finkel: The best thing I think I would have learned from sports… The unhealthy thing I learned was that competitive drive, which I put straight into business because it was hard for me to feel empty without sports. So I put it right to business. The healthy thing I learned was a real respect for process. I found for me as long as I’m making progress towards something that matters, and I can chart that progress visually in sports. Did I do my workout today? Great. How many sprints did I run? How many hours of training sessions did I do this week? If I could visually see that and I would tick it off on these visual charts, I’d have on the wall. It was really helpful.

David Finkel: A lot of my sports career was spent away from my team. In the US for us to get better. We had to go overseas and play for club teams. And so I would, in many respects, be responsible for my own training. And that still carries with me today. If you could see in my office, in the back corner, I have a blackboard over there where I have different categories of my business, and in my personal life I’m a little bit anal-retentive about that, where when I do certain things in certain categories, I give myself a little tick mark. And at the end of the week, it makes me feel the progress that I’ve made. And that really I find is very self-motivating to be clean on the process of how I go about growing my company.

John Corcoran: It’s a brilliant idea. And you like the old school, so this isn’t software, this is an old school. It’s a board on the wall.

David Finkel: Yes, you’re right. I love the feel, and I like to be able to look at it, now, could I put it up on the computer and I have a screen over there with big screen? Yeah, I could, I like the tangible concreteness. Now, I’m about to turn 50 this year, so maybe there’s a little bit happy with that. Thank you. But I still just, there’s something about writing it, a little tick mark. That little mark just gives me a little shot of dopamine. I like it.

John Corcoran: Yeah. Now you are an expert in scaling up businesses and so let’s talk a little bit about that. First, let’s start with mistakes. What’s one of the bigger or the biggest mistake that you see when it comes to either companies or at the department level, within a company or a team when they’re struggling to scale up? What are they, what do you often see?

David Finkel: It’s a great question, and I was reading about this in my recent book, Freedom Formula. One of the things we talked about, whether you’re the head of a department, the COO of a company, or you run the whole show. There’s a medical condition that really stops people from scaling and growing something beyond themselves. It’s called control-itis. It’s the inflammation of their control gland. And all kidding aside, let’s face it, most of us as ambitious business people, we hold on way too tightly. We’ve, I mean, I’ll speak for myself. I’ve had experiences where I’ve handed off, and because it didn’t go well, the lesson I learned from that improperly likely was I need to hold on tight. If you want something done right, do it yourself, and that’s the wrong lesson.

David Finkel: What I should be learning. And this is probably been something in the last 10 years. That, for me, has been very clear in my business career where it wasn’t in the first 15 years, where I was very controlling. How much of my problems with handing off to other people wasn’t that they failed or made a mistake. I was just not a very good leader. I wasn’t a great manager. I didn’t hand it off. I didn’t shrink the units of accountability. I didn’t take into account what was the capability level of the person I was handing off to relative to this project, task, or responsibility.

David Finkel: And so I have to ask the question, am I the issue? And if I hold on too tightly, by definition, I am constraining the growth of my team or my company, and I’m the big bottleneck there. I’ve got to be willing to get over that psychological hurdle of letting go of control intelligently, not just advocating, but intelligently, incrementally, and structurally handing over bit by bit to other people for functional areas of responsibility, not just for me to say do this task, do that task, but handing over functional areas of responsibility.

John Corcoran: Now one of the struggles that businesses have is the idea of what to focus on. And there’s this principle, the Pareto principle, which has been popular, also known as the 80/20 principle. First, explain for everyone listening what that is, what it means to you, and then how business owners should be applying it.

David Finkel: Yeah, it’s interesting. So for years, I subscribed to this idea of this 80/20 rule. 80% of what I do is very low value. It delivers only 20% of my result, and 20% of my activities generate a leveraged result and create 80% of the result. And that’s called Pareto’s principle. Italian economist of the 1800s.

David Finkel: Let’s take that to the most productive extreme. And this is something that for me when I look at the best entrepreneurs, the best C-suite executives, they really get this. So if 80% of what I do gives me 20% of the result, what’s called that D-time, by definition, it’s a low value.

David Finkel: C-time is that 20% that gives me 80% of the result. Think about that. Four times less input generates four times more output. That means every one hour of C-time is 16 times more valuable than an hour of D-activities. And the math isn’t exact, but I think as a place we can take that to its extreme, well if 20% of what I do gives me 80% of the result, then 20% of the 20% gives me 80% of the 80%, and so that 4% sweet spot, which we call in my company B-time, gives me 64% of the output. That’s amazing.

David Finkel: One hour of B-time is 64 times more valuable than an hour of D-time. And if I do it one more math moment here, 20% of the 20% of the 20% gives me 80% of the 80% of 80% and here’s what the math, there’s that magic 1%. Technically it would be 0.8%, but we’ll call it 1% gives me half the result.

David Finkel: And again, I don’t think it’s exact, but I think it shows the relative magnitudes. I can spend 20 hours like, for example, earlier today, I was doing a Webinar for my clients. We were working with maybe about 70 or so 80 of our clients, and I did a quick survey. How many hours per week, on average, were they spent doing email? The answer is the lowest person was two to three hours, but the median, we’re somewhere between seven and eight hours, and the highest was 25 hours per week, even at seven, eight hours. That’s one full working day, 20% of a typical workweek doing email.

David Finkel: Most email is D-activities, possibly some is C-activities, low value. That’s very different. I can spend 10 hours in my inbox and not get as much done as one hour of a key client conversation or strategic decision I make about pricing. For example, one law firm that we worked with, they changed their pricing model for their paralegal staff. They priced their partners and senior partners quite aggressively, their associate quite aggressively per hour. But their paralegals, they were well below the market norm. They ended up increasing their bottom-line firm profit by over half a million dollars simply by going from 125 to 150 or 125 to 175 an hour for the equivalent of their mid-level staff that were paralegals and legal secretaries.

David Finkel: Huge deal. It took them probably four hours to make the decision, gathering of facts, change it in the billing system, four hours to make half a million dollars. That’s A-time. And most people don’t think that way. They focus on the C and the D-level activities. But we need finer distinctions around how value is created.

David Finkel: And so what I would tell anyone that’s listening to this podcast, please write down on paper what are your A and B level activities. Maybe you don’t know which is which, maybe it’s blurry right now, but what are the things that you do that create the most value for your company, and what do you do that creates the least value? Later on, maybe we’ll talk about it, but I rob from D-time I diminish, delete, defer, or design out the four Ds as many of those D-level activities as I can so that I get more A and B level time in my work week.

John Corcoran: And I imagine you’re also trying to find stuff that gives you energy as well. But then again, if it’s revenue-producing, it probably creates an energy. But it’s interesting because for the law firm, if you ask them, they probably would have said that billing, billing client time would be the A-level time.

David Finkel: Ain’t that crazy It’s almost never. It’s almost never their highest value use, but they don’t think about that ever. They don’t ever think about that. Bringing in a new client, creating a new referral partner, billing strategies, creating a good hire for bringing in another legal, creating a system whereby your associate attorneys and paralegals have better quality control when they deliver legal work that they’re doing.

David Finkel: All these are things that make a firm a lot more money than just me doing billable work. Even if I’m charging 800 bucks an hour, it’s still very linear time, A and B, I get magnitudes of return, C-time I get a good healthy linear return, and D-time I get a diminished return. I get less than linear.

John Corcoran: Yeah. Now let’s talk about systems.

David Finkel: Please.

John Corcoran: Because you’re not a fan of systems that just get written down on a piece of paper, stuffed in a drawer somewhere, and no one follows them, but you have this concept of UBS, which stands for Ultimate Business Systems. Talk a little about that and how that is something that will actually get used.

David Finkel: Yeah. 22-years-ago I was building a company with a partner, and we made a decision. We said, "We’re going to build this business so that it could be independent of us. We’re going to build this business as if we could sell it. And then we were going to make the decision every year. Do we want to buy it or not ourselves? And if we didn’t, we’re going to sell it. And if we did, we’re still enjoying it. Fulfilled by it, feel good about it. We keep it."

David Finkel: Well, we started coming up with all these different systems to create the company, and we were loving acronyms. So the acronym for a business system is not really good. So we took the word ultimate and put it in front of B and S.

John Corcoran: I just got that. It took me a second.

David Finkel: Yeah, no problem, no problem. So, that’s where UBS came from. And I’ve been doing it for over two decades now. And so here’s the thing. Most companies that create systems, they’re created from on high, or somebody separate to the company leave their department for a day, a week, a month creates this big system. It comes back like on high, like Moses from Mount Sinai "[Shaha 00:14:57]" and delivers these stone tablets of these policies and procedures manual.

David Finkel: And then they wonder why, number one, no one wants to do it. There’s resistance. Number two, the more resistance, the less it’s used, the more it becomes out of date very quickly, which means more resistance to using it. And pretty soon it’s a downward spiral.

David Finkel: So the UBS is a framework by which you create the system for how you’re going to create a store, edit, refine, cross-train, and when need be delete systems. So one easy way to think about it would be as a cloud-based system of hierarchy of folders on a Dropbox or a company server. And for example, let’s say we have 1.0 sales, 2.0 marketing, 3.0 and operations, 4.0 finance, 5.0 team.

David Finkel: So I start off by just creating this hierarchy folders. And I pick one area to start with. For example, I was working with a medical group just earlier this week. They do 20 medical clinics in Texas. They do orthopedic work. And so they started, and they chose to do their clinical is the place that they’re starting. One of their folders was for clinical at the clinic level, and they’re starting to work on the process of front desk, how they do patient intake all the way through to providing their orthopedic services. Great.

David Finkel: So we start off by organizing what do we already have or, the systems, what are good, and the junk stuff would get rid of. And then each month, each quarter I add one more new system to that. Here’s the thing I would really say, John, when it comes to systems, systems cannot be driven by an individual. The only way systems are real, is they become part of the culture that in our company we create, we use, we store, we correctly name, we put back, we cross-train on systems. That’s just part of how we do it.

David Finkel: And the only way to do that is 1000 taps, not one great big fell swoop of a hammer. I can’t leave for a month, come back, and deliver all my systems. I’ve got to do a bit by bit because not only am I maturing the systems, but I’ve got a mature, my staff, to have a voice and a sense of commitment to those systems as we go. And if I don’t do that along the way, the systems are dead, and I’ve just wasted resources, it’s worse than not even having them.

John Corcoran: That’s interesting philosophy. So then final question I’m going to ask you about is how do you leverage better design and the creation of all your processes, all your procedures, all your systems? How do you really operationalize your workflow?

David Finkel: Sure. So let’s take an example. Let’s imagine you’re running a service business, and let’s say you’re a $42 million year company. So you’re a good size, small business, not quite there as a mid-cap company yet, but you’re doing well. And in this business, you have a certain process by which you deliver service offerings. So now leveraging better design, what we’re doing there is we’re going back and looking at the process and finding ways to make it faster, cheaper, higher-quality, greater value, more consistent. By doing that, what happens is bit by bit, I am optimizing it. So I start with a process, and it’s really quite straight forward. I just need to chart it out some way.

David Finkel: Some people will put it linear. Step one, step two, step three. I find if I want to optimize, I’m better getting a great big whiteboard or a big poster board and I’m going to lay it out as flow boxes and arrows, and I get the steps there, and I asked myself questions like, "How could I reduce the number of steps and still get the same or greater value? How could I combine steps? Is there any step that’s missing that I could add? Can I automate some of these steps? Can I template some of these steps? Can I reduce the number of linkages."

David Finkel: Anytime I have two or more people in a flow of a process, especially across functional areas, sales to finance, finance to operations. Those are called critical linkages. And the more critical linkages, just like in a relay race, it’s a point failure. Anytime I have to hand the baton from one person to the next, especially across functional areas, the odds of me doing it successfully decline, I’m going to drop that sometimes. So the more I can reduce the number of handoffs or the very least, can I reinforce those critical linkages in the design.

David Finkel: And so let’s give a couple of examples, "Oh gosh, my company were complaining about how sometimes our new clients don’t understand. Yeah, they have the same 10 questions over and over again." Okay. So I can design the process to answer those 10 questions after they come up. I can script out so that my project coordinators know how to answer all 10 of those questions. I can role play it. I can quality control their phone calls to make sure they’re answering it the company way. That’s pretty poor design.

David Finkel: Better design says if something happens again and again, how do I design it out? Can I make the sales process part educational so that that doesn’t come up? Can I incorporate an automated sequence of steps that includes some videos that go to educate my clients?

David Finkel: If I have, like for example, one of the people we work with, every new client that they go to their consultant company starts off with a pre client engagement questionnaire, and it’s intimidating. It’s like 50, 60 questions. It probably takes two or three hours for their client to answer, and that was their trigger for when they set up their first intake conversation. That’s a pretty poor design.

David Finkel: Half the people who they had purchased their service would have a delay of over three to four weeks before they finish that audit document. That design, I’m going to have ticked off people who paid money to my company. I shouldn’t do that. Instead, the design might be, "Okay, I give them the audit document, but if they’re not going to respond within seven days, nine days, I go ahead and set the first session, and I make the first section where I take those questions right there a limited amount of them, and I do it right there with them."

David Finkel: Or again, I’m going to design things better so that the things in the past that were manual or variable, I can design them out. I can make it a higher value. Maybe, for example, one of the financial service companies that we coach, they’ve just recently shifted to have all their clients be virtual. Of course, with all the remain in place orders that are going on right now. Well, they have 17 clients that are really high-end clients that are older that don’t do virtual. They just don’t know how to do the technology.

David Finkel: So we suggested, "Well yeah, buy him an iPad, preset it up, only have one thing on there, Zoom for the meetings and have everything set up with an instructional video. So there’s only two things on the desktop, Zoom and the instructional video. That is it." You think about it, it cost him probably 1000 bucks, maybe 1200 bucks to buy and set those up and send it out.

John Corcoran: Right. But it’s going to save them losing a client.

David Finkel: Quarter a million dollars to half a million-dollar clients, no brainer. That was them adding something that created a lot of extra value. And I’ll just mention one more thing on the value-

John Corcoran: And it’s well factor too. Even if someone’s older, maybe they tell their kid about it or something, and the kid is blown away their children.

David Finkel: That means it’s simple to delight a client. I, I’m curious John, I mean, you’ve been doing business for a long time. Have you ever had this situation where you created a Phantom deliverable where you think you promise something or your client thinks you promise something, but it’s low value, but you get stuck doing it anyway?

John Corcoran: Oh, yeah.

David Finkel: Pretty creepy, it kills your margins. So I have to be careful in process design for the expectations of the customer or a client as well.

John Corcoran: Right, you have to be careful with those expectations. That’s a big piece. Well, David, this has been wonderful. We’ve been talking with David Finkel, CEO of Maui Mastermind, author of The Freedom Formula: How to Succeed in Business Without Sacrificing Your Family, Health, Or Life. And you can also go check him out at freedomtoolkit.com, right? And mauimastermind.com as well. Where else can people connect with you or learn more about you, David?

David Finkel: Yeah, I mean, freedomtoolkit.com would be great. Any bookstore that they’re in, they can find one of our books. The Freedom too. Yeah, Freedom Formula for sure. Amazon nowadays would be probably the easier place since no one’s going to a bookstore right now.

John Corcoran: Right.

David Finkel: Or barnesandnoble.com or in the Indigo Books right now, but any of those places would be great.

John Corcoran: Excellent. All right. Thanks so much, David.

David Finkel: Thank you very much, John.

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