How to Create a Culture of Transparency in Your Business and Increase Your Bottom-line Profits – with OJ Whatley

OWEN: Hi, my guess today is OJ Whatley, and he’s the owner of Watch U Want Inc. OJ welcome to the show.OJ: Thank you very much. I’m pleased to be here.

OWEN: So let’s dive right in. What exactly does your company do and what big pain or problem do you solve for your customers?

OJ: Sure. So our business, we are the largest buyer of pre-owned luxury watches in world. So we buy brands of watches like Rolex, Cartier, and a number of luxury watch brands. And as a by-product of being the largest buyer of those pre-owned luxury watches, we are one of the largest sellers of those pre-owned luxury watches. And all the watches that we buy and sell are pre-owned so we’re very different from buying watches from a store. And we cater our business and our inventory to watch enthusiasts.

OWEN: Okay. And even during the pre-interview you mentioned that your company, you guys have sold over 15,000 watches and gross of like a $100 million, gross sales so far.

OJ: That’s correct. And we’ve been in business since 2000.

OWEN: Yeah, and you’ve been an entrepreneur for 14 years now. I guess this very business, is it been for 14 years or no?

OJ: Yes. I started buying and selling, and trading watches out of my home in 2000, technically out of my bedroom in 2000.

OWEN: Let’s talk about that too because we’re going to talk about how you systematize your current business but I want to just give listeners the inside as to back then. And then we can talk about now.

OJ: Sure.

OWEN: So how did you start to–?

OJ: Well, I came from the financial services industry. And the biggest challenge in the financial services industry was getting in front of qualified people to talk to and the level of competition that everybody is talking to the same people, wealthy, successful individuals and helping them to manage their money. And I was always passionate about watches and I really wanted to build a business initially that was something that was more– I could put a product out there and wait for people to come that were interested in buying it rather than trying to bang my head against the wall and identifying people that would buy from me.

OWEN: Yeah, so basically say you want to build an e-commerce store where they want to buy something they just go right there and they can buy from you. In this case this would be used watches, right?

OJ: That is correct. And the platforms were eBay and a number of different watch trading, buying and selling forums.

OWEN: Okay. And so my listeners always want to know the scale of your business. How many full-time employees you currently have?

OJ: We have 20 full-time employees.

OWEN: And one thing you also mentioned during the pre-interview is that you guys actually going through a growth expansion this year too, right?

OJ: Absolutely, yes.

OWEN: And that’s a result of the systemization process that you have in place which we’ll be talking about. And so, what was last year’s revenue and what you probably think you can make this year too?

OJ: You know, we were just shy of 15 million last year and we’re hoping to hit 18 million this year.

OWEN: Okay. So let’s talk about your current business right now. What will you say was the lowest point in the business and let’s describe how bad it got.

OJ: Sure. The lowest point in my business was seeing that we’re successful as far as the bottom-line but not really having a grasp on what the drivers to the success of our business on a long-term basis were. And so not being able to repeat it, or know, or understand where our success was coming from. Where we should be applying more pressure on the gas, or applying more pressure on the break. So really, a lack of accountability and transparency.

OWEN: Yeah, and you also mentioned during the pre-interview that one of the difficult aspects of the business was identifying the right person for the job. Can you explain that?

OJ: Absolutely. Well, you know, being that this business, the DNA of this business was me, myself, and I. And I never had to worry about how anyone else would think, or how they would act because it was always me. And as you build your staff and you have to rely on other people, you can’t just hope that they’re going to think, and act, and behave the same way I would do it. Because if you do that you’re going to set yourself up to be eternally disappointed.

OWEN: Another thing you mentioned that was a challenge was also that you started out with a focus more on the product and customer relationship but you didn’t focus on process and scalability.

OJ: Exactly. I focused on buying a watch and waiting for someone to buy it from us.

OWEN: Yeah.

OJ: I didn’t focus on creating a system that would allow us to buy each watch better and sell each watch faster. And be able to sort of rinse and repeat.

OWEN: Can you give an example of maybe like– one of the things I want to do is listen specifics like with examples so that they can hear a story of how back when the business was not systematized the way it is now. Give us that specific example of something that really [Unintelligible 00:05:21] at that time.

OJ: Absolutely, for sure. So we would have a great month in terms of sales revenue, in terms of unit sold. And then inevitably the next month, our sales would be half of that. And I would get on a soap box and sort of crack the whip over my team and say we have to sell more. But what was happening was we weren’t identifying that sales were actually a lagging indicator and the leading indicator was buying. And so, the sales were a result or by-product of doing great buying. But if you weren’t consistently doing great buying then you would have a good month and a bad month. Or you might have 2 bad months in a row because you had 2 bad months of buying in a row. Except 2 bad months of buying in a row doesn’t show up unless you’re tracking those metrics.

OWEN: Yeah, that’s right. So let’s talk about some of the things that you did to solve the problem they had in the lowest point. So, can you walk us back maybe like the very first thing that you remember that came to mind when you made that decision. “Hey, I’m going to have to figure how to systematize this business and become more predictable, and have scalability.”

OJ: Absolutely.

OWEN: What was maybe the very first thing you did?

OJ: So it was all about me and in head knowing exactly what was important. But of course when you ask an entrepreneur what’s important, he can give you 47 bullet points of what’s important. At the end of the day, in order to be able to lead people and align an organization, you have to be able to dumb that down into let’s say, 10 different points. And then be able to communicate each point as it relates to each different department. And that is the basis of our systems and processes because we understand that selling watches is incredibly crucial to our business. But that’s a by-product of buying watches. And so there’s a process to buying watches and being able to buy them at better prices as well as being able to identify which watches to buy, which brands we should buy, what we need to pay to have the best success and of the highest sell rate. But clearly buying and selling are 2 different pieces of the business.

OWEN: Yeah.

OWEN: And you can’t manage selling as a function of buying. You have to manage buying and then be able to look at your buying as a function of your selling. But they are leading and lagging indicators. They’re not sequential because they have to be done both consistently at the same time and you have to keep metrics and maintain an awareness of what’s going on. Because you could have a great month in sales but be setting yourself up for a horrible next 2 months because you didn’t buy enough product.

OWEN: Okay. So I’m putting myself in the shoe of the listener now. Maybe they have an e-commerce business who’s probably experiencing that same problem that you have. And I’m trying to say, okay, in your case buying comes first and based on the buying then you can know how much you’re going to be doing in terms of selling, right?

OJ: Buying is the gasoline.

OWEN: So I’m thinking like the listener now. What was the very first thing you did when you realized this “aha”? What was the first thing you did in regards to being able to create a system first around the buying side and so that system can translate into the selling side as well.

OJ: Absolutely. The first thing we did was to create benchmarks and metrics around our buying efforts, not our selling efforts. Again, sales are the results of buying, but buying is the activity that leads to selling. We’re a phone sales business, so the activity that drives our ability to buy are our number of outgoing calls and number of meaningful conversations with our customers. So you can’t just crack the whip and say we have to sell more. And you can’t look at someone’s results as a function of how many watches they’re buying without correlating it to their activity. Because if you understand the activity that led to the results and you can manage the activity, that’s the basis of the systems and processes to ensure accountability and success.

OWEN: So you mentioned the activity. Let’s get specific. What are the activities that you boiled it down to?

OJ: We boiled it down to outgoing calls, and then from outgoing calls, how many money more than 3-minute long duration conversations you had. And then looking at each of those conversations to see what important data in terms of building a relationship were you able to commemorate in our CRM. So that even if you couldn’t make a sale today, at least you walked away from that interaction knowing more about that customer and putting us in a better position to do business with that customer on the next phone call.

OWEN: By you saying stuff around sales, I’m thinking is this primarily driven by outbound sales calls to specific type of potential sellers of these watches I guess?

OJ: Yes, it is absolutely. In fact, we want to be in front of our customers and planting the seed for them to sell their watches. Because most people don’t understand or know what their options are with regard to selling a pre-owned luxury watch that might 5 or 10 or $20,000. So most people, because there’s not a safe, a confident, a confidential, and secure outlet, they’re just going to sit with those watches and we are absolutely that solution to help watch enthusiasts buy and sell their pre-owned luxury watches. And do it with a value basis where it’s a win-win relationship based connection.

OWEN: Okay. So one of the things that you said you solve was that in order to scale you have to make tough decisions. And part of those tough decisions was realizing that you had to terminate some of the long-time employees that you have. Let’s talk about that. How did that go about and how did you deal with that?

OJ: You know that’s a really good point. So I had never had any experience running a business, I never had any experience with managing organizational behavior aside from the classes that I took in college towards my business degree. So, as I was building my business I structured my business, hiring mostly people that I knew, people that I liked. And inevitably those people that I knew and I liked were just like me. So from a sales perspective and a relationship-based perspective that’s great. But you can’t hire a controller or a director of operations who’s just like me. Because they’re going to be short on detail, or possibly short on follow-up, but high on sense of urgency. So like most entrepreneurs right? Get it done today. I don’t care what it takes. And so the difficult decisions, we’re looking at people who I genuinely liked because I felt a kinship with them and realizing that they were not what I needed in my business because what my business needed was people who work like me to fill the other seats on the bus.

OWEN: Okay. And so now, you figured out you needed to fill all the seats on the bus. And also you mentioned that another thing that was important was the need to make the business more transparent to the employees. Explain that.

OJ: Well, the idea is clarity. And again, most entrepreneurs are usually pulling their hair out of their head and asking themselves, “Well, why don’t these employees think like I do and act like I do?” And inevitably the response to that question is how clear is the information that you’re giving them, and how clear is the framework within which you’re expecting them to behave or act? And if you don’t have the expectations or the clarity in the framework of what’s important as it relates to the company, as it relates to customer service, as it relates to company culture. Then everybody’s going to have a different interpretation of what the CEO wants or expects. And so, you can’t really blame them for acting the way they act because 9 times out of 10 they’re framing what I would do based on their perspective, their personality, and what they think is important. So if you’re not clarifying what’s important with absolute transparency and clarity you have no one to blame when they don’t do it the way they should have as a result.

OWEN: You also mentioned that at this point trying to solve the problem, you also realize that managing the day-to-day process and the operations was not your strong point so you decided you had to bring in a president to come in and handle the daily operations. Talk about that too.

OJ: Absolutely. So, part of the transformation of myself as a CEO, and one of my biggest frustrations was just– the business was my baby and being a certain personality type, i.e. high sense of urgency, do it now, get it down, why can’t we do this today, and sort of being overcome with one idea after another to grow and make the business better. At a certain point you have to prioritize those ideas. And then in order to execute those ideas, you have to clarify exactly what you’re trying to accomplish. And then you need someone who’s going to carry them up, the boots on the ground so to speak.

OWEN: Yeah.

OJ: I was trying to do all those things and being eternally disappointed. And so, the transformation of myself as a CEO was when I hired an integrator who I could fire off all of these ideas to. She could then prioritize them, list them, and we could break them down into either themes, or processes that we could tackle and address those ideas to help make the business better. Never perfect, but better. And the biggest issue was as the guy who’s handling all the day-to-day operations and it’s their baby. Again, you’re eternally disappointed because it’s never perfection and that’s always what you’re striving towards. It’ never good enough and it’s so hard to be able to recognize the good things that people are doing in the face of the things that you’re not accomplishing that you wish you were. And so, my integrator, my president was able to put things in better perspective for me, as well as to give me reason to believe that there was growth going on, substantial and recognizable growth. And achievement, and progress towards our goals going on without me having to demand recognition of those things from my staff.

OWEN: So basically you are now able to focus more on long term stuff and managing the results but not necessarily the process behind how the results were getting there.

OJ: Absolutely. The analogy is I’m now able to stay out of the engine room and keep myself from shovelling coal. Now I’m on the deck of the ship, steering and searching for clearer skies, calmer waters, and possibly make a bigger sale.

OWEN: Okay. So now let’s dive in and start talking about specific systems that you have in place that allow the business to run without you. But before we talk about that I want to also let the listener know that you based the way you systematized the business based on a framework called the Entrepreneurial Operating System, EOS for short. So let’s talk about the framework for it before we now start talking about the specifics of how it applies to your business.

OJ: Absolutely. So the framework is based on total transparency, simplicity, as well as accountability. So for example, each year the company has core goals that are organizational and company based. And each quarter the company has those organizational goals but they’re broken down on a departmental basis as well. And furtherance and in alignment towards those goals. And the idea is that there is one person from our executive management team, our EOS team, who is accountable for the reporting and for the achievement of those goals. And so it sort of like the buck stops there. Everybody knows who’s accountable for reaching these goals, or getting these things done. And if they’re not done then there has to be a reporting and a system to show us why they’re either unrealistic, or impossible to reach, or we need to restructure our thinking. And the idea is it removes any opportunities for excuses or finger pointing. And that’s really what’s key. Not only that but because it’s communicated to  both our executive management team in writing as well as to our entire staff. Everybody knows at the end of the day who’s accountable for those goals and priorities.

OWEN: Okay. And so this framework was originated by– who gets credits for this? I know the name of the author–

OJ: I’ve been working with a CEO Coach for a number of years and we implemented the EOS, the Entrepreneur’s Operating System last year in 2013. So it’s an entrepreneurial coaching system, and it’s an organizational coaching system. And it’s based on the book Traction.

OWEN: Okay, Traction. Okay so now we’ve talked about how the framework itself but now the listener wants to know specifics of how you took that framework and now how you’ve put it into the business. And let’s talk about the different parts in the business. Imagine your business like a conveyor belt now where on one end you have possible someone who has a watch to sell or maybe they have a watch to buy. But on the other end of this conveyor belt is this happy customer who has dealt with you guys and they love you guys. They probably are going to come back again. But behind the scenes there are parts– these gears in the conveyor belt moving around to make that happen. And let’s talk about how this framework is now inside the different parts of your businesses working to make this customer who has not used the service yet transform into that customer that they love you guys. Behind the scenes is what I’m trying to go–

OJ: Uhuh, sure. So the foundation of EOS system, aside from the structure of the executive management team and the annual goals and quarterly goals are the weekly executive team meetings.

OWEN: Yeah.

OJ: And in those weekly executive team meetings, each executive team member has a score card. It’s a report of key performance indicators and relevant metrics that we are tracking on a weekly basis as well as a quarterly basis. And we’re then correlating those score cards to other leading and lagging indicators and other KPI’s. So there’s total transparency when there’s a bad month. Understanding what went into that bad month and what we need to watch and make sure it improves so we don’t get another bad month in front of us. So it’s not the tail wagging the dog, it’s the dog wagging the tail. And the dog are those weekly score cards. And those score cards revolve around daily operations. They revolve around expense management. They revolve around HR expense management. They revolve around company culture. They’re focused on cash flow as well as our buying activities, our selling activities. Even the activities which allow us to buy and sell our incoming inquiries and our conversion ratios. As well as our spend on our digital marketing efforts. So we have 5 executive team members and each one of those is responsible for a weekly EOS report. A score card based on what they oversee within their department.

OWEN: Okay. And so, let’s talk about– I guess it’s much easier now to talk about, to break it back now to the different departments now.

OJ: Sure.

OWEN: The different departments responsible for different things, and within those different departments you have the executive who has a score card based on their department. And then now let’s talk about it, what these departments are and let’s get as specific as possible because the listener needs to know what’s working behind the scenes.

OJ: Sure, absolutely. So for example we’ve got 1 score card that talks about our buying activities, and the buying activities, what we’re measuring is how many watches we’ve bought on a unit volume basis, on an average price point per watch basis, on a total cash flow out basis, how we’re buying those watches. Because sometimes we bring in watches to sell by buying them outright. Sometimes we take them and trade as partial payment towards a watch we’re selling. And other times we’re getting them on consignment from our customers to sell on their behalf. So there needs to be a delicate mix because one of the metrics that we’re tracking is the amount of inventory that we own because that number needs to go up to show that we’re creating equity and value when we’re reinvesting in our inventory. Because when we sell a watch that we don’t own, it’s almost like phantom income. So whereas we might sell a watch we don’t own and generate a higher percentage or profit, we only get to keep the profit. When we sell a watch that we own and we may make, say, a lower percentage of profit we get that entire chunk of money for cash flow.

OWEN: Yeah.

OJ: So we need to be able to manage those metrics so we don’t get too heavy in any one area. As well as to be able to know, “Hey, the watches that we’re consigning were getting a higher percentage profit on, we need to focus on getting more watches for consignment. So those are some of the buying metrics. And we even go so far as to report on the activities of our sales associates on an outgoing call basis, on a connects basis which are phone calls over 3 minutes, as  well as a conversion basis based on those efforts. And again, we are not looking on a per sales associate basis unless the numbers aren’t met. And when the numbers aren’t met or we see declining trends then we can dig deeper.

OWEN: Okay.

OJ: But the idea is to stay higher level because we don’t want to manage the piece, we want to manage the unit. So that’s the buying side, then there’s the selling side. So we can see the corollaries between selling. And are we selling more watches on an outright basis, selling more watches with trades being taken in as partial payment, which dilutes our cash flow? But at the same time allows us to replenish our inventory. Because if all we do is sell watches with trades, it’s going to stifle our cash flow. So again it’s about a balance, and it’s about being able to keep tabs on the activity on a weekly, on a monthly, and on a quarterly basis but staying higher level, staying away from the per unit perspective and looking at it more from an activity perspective.

OWEN: Yeah, so besides the buying side and the selling side I’m thinking there’s more behind the scenes that’s working in the business and let’s talk about that too.

OJ: Absolutely. So for example we have an in-house watch repair department that’s staffed by a professional master watchmaker as well as a professional watch re-finisher. We offer these services to our customers where we generate revenue through the offering of these services, and then we also provide these services to our own in-house watches to be able to maximize the value of the watches when their sold.

OWEN: Yeah.

OJ: So these costs impact our profit margin obviously. And so, one of the scary realizations we made several years ago was that we were paying our sales associates far too much commission based on what we were actually retaining on a profit basis after we sold the watch. And in fact, the money we were paying our sales associates for commissions, we were in the red and losing money on a yearly basis. So it wasn’t until we were able to implement the EOS system that we could really see this with transparency. Because otherwise it was hard to allocate those expenses and to understand where to allocate those expenses towards, or where to get the final number. At the end of the year you’re red but your sales associates are making $150,000 a year, something’s wrong with that. And again, going back to the systems, what we’re managing now on a weekly, on a monthly, on a quarterly basis is the amount of money we’re spending on replacement parts. The different parts that we purchase on a proprietary basis to maximize the value of our watches on resale. Spend $500 for a strap to be able to get $1,500 more for the watch.

OWEN: Okay.

OJ: So we need to be able to keep tabs on these spends because they impact our bottom-line significantly.

OWEN: So what I’m hearing from that is that even though this department, now that which is catering to the actual repairs of the watches, even though it’s not necessarily involving sales per se but you’re tracking the activity back to an activity that actually will drive revenues.

OJ: Yes.

OWEN: Is that what you’re saying?

OJ: Absolutely. So the department, while it generates revenue on an independent basis for watch repair is also our in-house watch repair department. So every watch that we bring in goes through this quality control process, gets overhauled and touched up by our watchmaker and our re-finishers. Everything that we need to do to maximize the value of that watch. We even go out and buy and stock a substantial supply inventory of parts. Whether it’s boxes, and booklets, and straps, to the tune of hundreds of thousands of dollars we’re spending each year. So we have these parts available to maximize the value of our watches. We were carving these costs out from the sales picture because we weren’t tracking them. They were just showing up on our balance sheet as an expense. As oppose to being able to put them in the context of “this is how much we sold the watch for, this is what we paid for a watch, but this is how much we paid in addition to be able to sell the watch for that price.”

OWEN: Okay. So we’ve talked now about sales department for buying watches and the parts for also selling watches. But now we’ve talked about the repair department for repairing those watches. What are the aspects of the business that we are talking about and we love to talk about that as well.

OJ: Well you know a substantial budgetary line out in if you will. Substantial expense is made on our digital marketing efforts because we are a .com company. So we spend hundreds of thousands of dollars a year on digital marketing. And so you can imagine, if you don’t hold the spend accountable for results you could end up throwing good money after bad. You could end up having a budget and spending money every month on your digital marketing efforts without moving the line, which is moving the needle, which is always the objective. If I’m spending X and getting Y, how can I spend X+1 and get Y+5? Without having someone accountable for those marketing efforts and being able to convert those to sales numbers and conversion ratios, you can’t really effectively manage and correlate those numbers. So, one of the executive team members is our director of IT who’s in charge of our digital marketing. He’s in-charge of our PPC campaigns and our website marketing. And the idea is how much did we spend last month and what were our sales? Oh, we had higher sales last month based on, and also it relates very largely to our buying campaigns. Because we’re spending a lot of money to be able to advertise and to be able to catch people when they want to sell their watch. So that they then call our office or send us an email with interest in selling their watch. Well, we need to be able to track our conversion ratios so we can know what each one of those leads cost. And be able to focus on bringing down the cost per lead and the cost per acquisition each month because the goal is to get better each month.

OWEN: And I’m also wondering too is– I’m also thinking there’s going to be like a support department, because especially with the e-commerce type of business too people are calling in, trying to find out what the order is and stuff like that. I’m wondering using your EOS framework, how does that also apply now on the operations side of things too?

OJ: Well, on the operation side we have our director of operations who is responsible for reporting our monthly spend in terms of our shipping, and in terms of our different expenses associated with customer service and the like. Whether we’re sending gifts to our clients and things like that, and measuring the ROI on those expenses. The idea is that there’s a budget allocated for those activities and holding someone, the department head accountable for that budget.

OWEN: Yeah. And a lot of the things you’ve been saying so far is all about tracking, and tracking, and tracking. And we’re leading back to key performance indicators. The person listening to this might start thinking, “Wow, I hear a lot of tracking stuff. What kind of tools do you have in place for that?” And we’re going to get to that point when we talk about the tools you’re using to actually do this. Before we even get there, I’m wondering, what challenges did you experience when you initially try to create the system and how do you even solve them?

OJ: That’s a really good question. What I want to point out Owen is that our business is extremely unique. In the world of independent watch sellers, your average independent watch seller is a 1 or 2 person company. It’s a guy working out of  house like I used to be a long time ago. It’s a husband and wife team, it’s a couple of guys who are buying watches to sell and selling watches to buy.

OWEN: Yeah.

OJ: It’s not an enterprise with clearly communicated core values and a company culture that revolves around what makes us tick. It’s not a group of 20 people all aligned towards providing the highest quality service and product to our customers and knowing exactly who we do and don’t do business with. And so the average person in this business is sort of like a pinball being very responsive. Whereas we try to be very focused and very proactive knowing who our customers are and what is our value proposition to those customers. Again, who we are and who we aren’t, and what makes us tick. What are the watches our customers appreciate? What are the watches that don’t really have relevance or resonance with our customers. And so it’s very different than your average watch seller out there who’s a guy posting watches on eBay. Again, like where I came from which really is what poised the greatest challenge from me who was going from a 1 man operation or a couple of people in an office buying watches which then go on eBay, then they get sold, and hopefully in the interim you’re buying more watches to manage consistent activity at all levels.

OWEN: So one of the challenges that you mentioned during the pre-interview is that the toughest spot was having to do with creating process was choosing the process that work as oppose to just doing anyhow.

OJ: Exactly.

OWEN: Talk about that because I want to give the listeners specifics about it. I don’t want to just– it all works like that. It’s challenges that go with this and I want to give them specifics and we can talk about them too.

OJ: Sure. Well, as an entrepreneur growing a business, there’s really no accountability. All the accountability is that the business owner’s head. And it’s sort of like you do what you need to do and that’s what you do. And if you do it well you become successful to a certain point. And at that point, doing what you did only got you to that level. And so the greatest frustration comes from asking yourself, how am I not growing my business to the next level? How is it that I have plateaued? And inevitably the answer to that question is because you’re doing everything you did to get you to that level but you’re not doing things different from what you were doing, banging your head and expecting a different result so to speak. And so, the idea of those processes and systems is about letting go and assigning accountability with transparency, and responsibility, and authority to do what’s needed below you. To build insulation and layers so that other people can take on greater responsibility and lead their own teams and departments so that you’re multiplying your efforts.

OWEN: Another challenge you mentioned is that with this whole thing of wanted to be transparent and creating kind of the outlying goals and creating scorecards, and then designating tasks people based on the score cards. It easily can run into a thing where there’s going to be a lot of meetings going back and forth just to even make this happen. And you mentioned that this was one of the challenges that you experience with this. So how did you solve that?

OJ: Well, our original EOS meetings when we first started were 4-5 hours.

OWEN: Wow.

OJ: They were gruelling, they were not uplifting, and often times they felt like there was an overwhelming amount of data without actually telling us anything relevant about where we were going or where we came from. So just like in building a process, you start with a much larger set of goals and objectives, and then you start trying to focus and hone in on what’s important. And then allow the people underneath you to sort of interpret and align their actions, their activities, their behavior in alignment with those greater objectives. And so, in terms of our meetings, what we had to do was just ask ourselves, “Why are we looking at that number if we’re not discussing it?” If we’re looking at that number, how does that correlate with some other key performance indicator? So the key is to not just look at a bunch of numbers, but to look at a score card and understand if we had a great week what the things that gave us that great week were on a leading basis so that we can repeat them. Or if we had a bad week, understanding what the things that led up to that bad week were and what the tell-tale signs were from a metrics basis. And identifying those so that they don’t become a declining pattern. We can identify them early and say, “Wait a minute. We now seen 3 weeks of this trend, what’s going on? What are we not doing? What do we need to do differently?” Or how do we do more of this because it’s clearly working.

OWEN: Another thing you mentioned the challenges comes with all these data that you’re getting was being able to visualize it and make use of that– the people who are responsive for it. I’ve seen relevant data and simplify. Talk about that too.

OJ: Sure. Again, started with 2-page spreadsheets that were just a minutia of numbers and we’re now trying to get into more visual line charts, and bar graphs, pie charts and the like  because really, a picture speaks a thousand words. So, we’re trying to sort of– I don’t want to say dumb it down, but definitely create a more visual characterization, a more visual illustration of those key metrics. Because if you look at one number in one week it doesn’t tell you much. But if you look at that number in perspective to the last 6 weeks and what you’re projecting for the next 6 weeks, you can either see where you’ve done what you were trying to do, or you haven’t been able to do what you were looking to do. Or you can see again those leading indicators were that you should have picked up on that gave you the given results. The idea is, again, to be able to identify those things that are working as well as pre-empt those things that aren’t working before they become a bad month or a bad quarter.

OWEN: Okay. So I get how everything is working on this whole framework where there’s a lot of transparency creating score cards, and people are accountable to stuff. But then, I’m kind of– how exactly do your employees know exactly how to get the work done that’s been assigned to them done. What are you doing, how are you documenting how they get stuff done. Are you understanding the question?

OJ: Absolutely. So the first step is in communicating 2 of our employees at a quarterly staff meeting the results of the previous quarter as well as what we’re looking to do in the next quarter. And reinforcing what the annual priorities, what are called rocks are which don’t change for the year. The annual rocks don’t change, the quarterly rocks do change. But again those quarterly rocks are allocated on a per departmental basis. There’s a department head that is responsible for those rocks. And so it’s a top down approach.

OWEN: Okay. And so now they have the goal but I’m trying to figure out how the employees are now able to know exactly what they have to do. Do you understand the question? It’s one thing to know what the goal is but then it’s another thing to know step-by-step how it should be done, right?

OJ: Sure. For example, as part of our director of operations responsibilities, he is tracking our shipping costs for example. And so the idea is if we’re going to sell a watch that’s being shipped internationally we need to account for those international shipping costs along with the international insurance costs. And so, we’re tracking those costs on a monthly, on a weekly, on a quarterly basis and we’re looking at how they change from one month to the other and then looking at how it relates to gross profit margin and net profit for example. And so the idea is if the goal is to manage expenses, well what within each department can we do to manage our expenses? Everybody can do their own fair share, and so it’s up to the department head to communicate those small but meaningful ways that employees can contribute towards that goal.

OWEN: I guess maybe the question I’m trying to ask, and I remember putting this in the listener– say an employee in a specific department leaves today now and you want to replace them. The new person coming in, he has to understand what the goals are because of the transference thing, but how do they know what to do step-by-step. I’m trying to figure out what system you have in place for that.

OJ: Well, the idea is not to give them a step-by-step instruction manual. The idea is to lead by objective and directive.

OWEN: Okay.

OJ: With total transparency. And then assuming you’ve got the right people, they’re going to align their behaviors, activities and attitudes towards those directives and towards those objectives. And so again, the idea is even at the department head basis, is to be able to empower the employees. And the best way to empower them is to be totally clear and transparent with regard to how you’re being measured so they know how they’re being measured. And so they can act accordingly. Does that make sense?

OWEN: Know the rules of the game they’re playing. So it’s turning it into like a game.

OJ: Absolutely.

OWEN: I’ve been hearing you say like score cards and all that. It’s like turning it into a computer game, and if you know the rules of the game then how you achieve your end goal is up to you but at the end of the day, you know the rules of the game, abide by the rules and the framework of the game.

OJ: You know, rather than the rules, how about understand how we’re keeping score. Understand how we’re valuing your results, and what we feel is most important in terms of results. Whether that’s a customer satisfaction ratio, where that’s a number of watches bought, a profit margin, a percentage of watches turned over within a given period of time, or an acceptable number of watches that are aging past 30 days. The more information that’s clear, and that’s not open to interpretation but it’s sort of the– it’s clear. It all leads back to the same thing. And understand what you do impacts the score card.

OWEN: Yeah. And so you mentioned that the very nature of the business you’re in, e-commerce business and you’re selling this amount of product. There tends to be all these data in all these different places for all the different departments. And so you guys had to figure out, unify all the data, and put them in one place so that you can– it’s easy to access and visualize all those data. And you mentioned that you guys are using specific tool for that. Let’s talk about that for the listeners to know.

OJ: Sure. Again, if you look at where I came from and what the majority of the businesses who are buying or selling pre-owned watches primarily on the internet are, there is definitely, it’s a practical approach and probably a technology lacking approach. Because you’re more of a salesman than anything else. And that’s how I got into the watch business, because I was more of a tradesman, and a trader, and a speculator rather than a businessman per se.

OWEN: Yeah.

OJ: And so, the idea was you adopt a very pragmatic approach. For example my first accounting system was to make copies of every check that I got when I got paid for a watch, and that became my invoice system and at the end of the month I give copies of checks to my accountant along with my bank statements say, “Look, I deposited this money in the bank.” And literally, I made copies of the bills I was depositing and said, “Here’s the deal.” So when you get out of that level of accounting and you have to grow a business, and other people have to rely on data, it becomes hugely challenging  because, A, I don’t have a background in systems, or integration, or IT. I have a background in making deals. And at the same time I need to make sure that my people are operating at maximum productivity, making good decisions based on having access to accurate, relevant, and timely information. Well, my approach to that up to this point has been, okay, well QuickBooks says your accounting,

OWEN: Yeah.

OJ: We have an inventory management system that’s an add-on to QuickBooks. And then basically we have another system that we created that allows us to see customer data, transactional data, and data on the watches we buy and sell. Our historical costing and pricing data. But none of that stuff is varied. None of that stuff is on the same platform. And so the reports that we generate are sort of derivative if you will.

OWEN: Yeah. So you guys had to put it all in one place and what did you guys use for that because I want to give the listeners tools that they can also–

OJ: Sure. So we’re using a tool called Tableau, which allows us to export our data, and then be able to put all the data in one place, and then be able to slice and dice it.

OWEN: So it’s like business intelligence tool regardless of where the action is taking place. You are able to remove the data from all the different tools you are you using, like how you mentioned. What’s the accounting tool now?

OJ: Well, there’s QuickBooks and then there’s our inventory management system called Number Cruncher. And there’s a derivative of that called Number Cruncher which ties in customer data with both inventory management and the QuickBooks. And then there’s a CRM program. So what we do is each one of those then exports to Tableau, and we can slice and dice, and we can put data from different source next to each other. Even though the data didn’t come from– For example, you can put customer data with watch data where it was never together before.

OWEN: Okay. I get how this is going to be very important. This kind of business intelligence to us. Especially when your whole framework is based on saying what the goals are and then creating these score card. And this kind of tool now you can now literally see the score of what your input is actually turning into in terms of results. And so, I get the need for using a tool like Tableau, but I also want to talk about all the tools that you have that kind of integrate into this and also part of your daily work. So that the person listening to this can understand how these all works together. So we talked about QuickBooks for accounting, you have– what’s the one for the inventory management? Let’s talk about–

OJ: That’s Number Cruncher.

OWEN: Number Cruncher, okay.

OJ: That’s the inventory management tool that ties to QuickBooks.

OWEN: Okay.

OJ: And then we’ve got a program called Process Manager which is proprietary. And what it does is it allows us to pull up an individual watch by inventory number, or it allows us to pull up a customer by relationship, and be able to see all the transactions associated with it.

OWEN: And that tool is called what?

OJ: That’s called the Watch U Want Process Manager.

OWEN: Oh, you guys created that yourself?

OJ: We created that ourselves.

OWEN: Okay.

OJ: And what it does is it allows to see– in the world of QuickBooks you can only look at either people who sell you watches, or people you sell watches to. And their customers and vendors. But you can’t look at a relationship on the same page based on watches you sold them and based on watches you bought from them. And we have a high number of clients, in fact the backbone of our business is based on a trading model for flexibility and convenience. So that our average customer, while they may buy 5 watches a year, maybe they sell us back 2 of those 5 watches a year. And we need to able to see the relationship as a function of the watches that they bought and they sold on the same piece of paper, or in the same report.

OWEN: That tool also now shows you all the interaction that you guys have been having pay each customer and how it’s leading into–

OJ: So that interaction that you’re talking about is contained in our CRM program called Zoho. And then like I said, from all these various programs we can export data into Tableau, and then slice it and dice it to create reports using first hand information.

OWEN: That’s awesome. I like how it’s all coming together, and I wanted to give the listeners a way which is coming together. So you mentioned that with Tableau now you guys are able to publish information on a secure server that everybody who has access to see what the score cards are based on their own department and stuff like that.

OJ: That’s correct.

OWEN: You also mentioned how they’re able to get daily insight, the team, from Tableau that analyzes their own work, and gives them like performance, or how your performance was compared to now. Talk about that. I was trying to get more insight about that.

OJ: Well, for example our sales manager can go into either Zoho directly or export from Zoho to Tableau, and be able to look at the activities of the sales associates from outgoing calls, looking at outgoing calls, as well as looking at calls in excess of 3 minutes. And then be able to compare that to the data that was inputted into the Zoho CRM.

OWEN: Okay.

OJ: So tomorrow or at the end of the day my sales manager can aggregate this data and present a report to me telling me how much talk time was spent on the phone with customers today.

OWEN: And how that translates to buying of watches. And maybe you have that also translated to selling of watches.

OJ: Exactly. So we can break the activity down based on incoming calls versus outgoing calls. We can track that activity on a per phone number basis and then allocate it towards a customer. And then define that customer as an existing customer or a new customer, and things like that.

OWEN: And so, now that the business can run without you, what will you say is the longest time you’ve been away?

OJ: The longest time I’ve been away was two and a half weeks last summer.

OWEN: Wow, you’re passionate about it, you don’t want to be away that much.

OJ: Well, that’s the longest time but I do take a lot of 1 week vacations and 10-day vacations. And in fact, my goal is to be out of the office on a free day where I’m basically not accessible and not needed, at least 10 days a quarter.

OWEN: Okay,

OJ: That’s part of the strategic coach program that I’m involved in. And the focus is that you started a business to be successful so you could be more independent and have more freedom to be able to spend more time doing the things you love. But as a successful business owner we get drawn into our business more and more. And the focus of the strategic coach program is to say, you got into the business to do the things you love to do. And while you love to do your business, you could do your business a lot better by having time away from the business where you can think more clearly, gather your thoughts. So when you come back to the job, be that much more focused and effective.

OWEN: And so how has your company now will you say has been transformed as a result of systematizing the business the way you have?

OJ: Well, for starters there’s not a line of people outside my door as I’m speaking to you waiting to talk to me and waiting for me to give them advice. That’s number 1. I used to have a line of 5 to 8 people and they would be taking a number or knocking on my door while I’m talking to you on this interview to ask me a question like, “Can we sell this watch for this price? What should we do with this customer, how can we make this deal?” So certainly the idea of systematizing, it creates layers of accountability, of transparency, and of responsibility.

OWEN: And then a question from a personal standpoint, how do you think your personal life has been transformed as a result of systematizing your business?

OJ: It’s certainly a journey and not a destination. And I wish I could say it was the silver bullet and kept me from being frustrated with the lack of growth or progress in my business for example. As a typical entrepreneur it’s never good enough. Except the systems, the reporting all allows me– once I stop becoming focused on this concept of growth to be able to put metrics, and to be able to recognize achievement for what it is. And be able to look at it and frame it in the perspective of where we were a week ago, a month ago, a quarter ago, last year, rounding 12 months, etc.

OWEN: Yeah.

OJ: So the idea of it is, number 1, I can focus on what’s important in my business as the CEO, which is strategy, vision, managing the company culture, and really driving the energy and the new people that are coming.

OWEN: And so, we’re getting to the end of the interview. And so, you mentioned about now you have more time to focus on the stuff that’s important, and the listener right now is probably thinking, what would you consider is stuff that is important for you to focus. I guess maybe I’ll ask you this question in a different way. So now that you have all these free time, what areas of the business do you now focus on most and why?

OJ: Well, for starters I handle very little sales any longer. So I’m not caught up in the day-to-day sales, and if a customer calls me to buy or sell a watch I would typically introduce them to one of our top sales associates and allow them to build the relationship with that customer. So, I’m focused on strategic relationships, on really looking at the landscape of the changing, pre-owned watch industry, and the watch industry at large because it is changing drastically. The level of competition is increasing daily because there really aren’t any barriers to entry. And so part of my focus is that differentiating piece and how we create barriers to entry to be able to differentiate the sellers of the watches, as well as the product, the pre-owned luxury watch. Because it’s not just one product, there are so many different variables in pre-owned luxury watches that it’s becoming dumbed down into new or pre-owned but it’s so much more than that. And how do we communicate and educate our customers on that. How do we stay focused and continue to clarify what’s important to us as a company, what’s important to our customers. Where we’re going and what we want our customers, as well as our employees to know and think about us and what we’re trying to accomplish.

OWEN: I get that. And so what will you say is the very next step that someone who’s been listening to this needs to do in order to take that first step towards being able to get their business to the point where it can run without them or be systematized?

OJ: Well, I think the first step is to really get a handle on those key performance indicators. Those metrics that are the leading and lagging indicators of your business’ success or challenges. And the whole idea is you can’t do it by yourself. If I had to sit down and create these reports by myself, it would take me 2 years and I’d never finish them. So by having an executive management team and on a departmental basis talking about what’s important within their department and perspective to what’s important to the company and how that relates. And then letting them come up with those key performance indicators. And then evolving those score cards to either remove some of the minutia that we felt wasn’t important or relevant, and really focus on those indicators, those metrics that really were important, that’s the key. And again, the biggest challenge, especially from an entrepreneur who’s trying to run a business is you could sit down and write 30 pages about what’s important about your business. And at the end of the day you got 30 pages of what’s important about your business, you don’t have systems for running your business.

OWEN: Yeah.

OJ: And trying to do it yourself is a losing proposition. So the key is, again, to take those 30 pages and condense it into 1 page. And then break it down by department. And then once you’ve broken it down by department, I’ll point department heads to oversee those areas and come up with their own score cards as to what they see is important.

OWEN: Yeah. And on top of that I think one other thing will be is now when we have score cards, get a way which you can see the scores and actually see the numbers. It’s a game, we’re talking about scores and all that. So they have to be able to see the reports, right?  So I guess that’s going to be–

OJ: Absolutely. Well, the whole idea with the score cards is how many businesses do keep score.? It’s kind of like sell more, run faster, lower my expenses. But until you put a fine point on what that means and track it from 3 months, from last quarter, from last year, can you really tell if you’re going in the right direction or not? Can you really tell if you’re improving or not.

OWEN: Yeah. And so, rounding up the question, what book will you say had the most influence on this way of thinking for you?

OJ: Well, there’s that book Traction, I just forgot who the author was. I totally brain farted on that one. But the back is Traction. I love the Gazelle Leadership book which is a great one. And again, oh my god, I’m just blanking out on the authors but I could certainly get them for you.

OWEN: Yeah. Give me the names of the books. We’ll put the links to the actual books later on. So if you can’t remember the name of the book that’s okay.

OJ: Yeah, well there’s Awesomely Simple by John Spence.

OWEN: Okay, why do you like that?

OJ: Because, number 1, it’s about driving organizational behavior. And I think in today’s world, it’s all about having people who are as good if not better than the CEO, and have them thinking like the CEO, which most CEO’s don’t know how they think They just think, and they’re pretty smart, but can they really put a fine point on how they think or what their decision process looks like. And the idea is if you try to micromanage you’re going to always be setting yourself up for failure. But if you can create a framework for what’s important and drive that back to the attitude and the behavior, you’re going to at least have a better insight as to when employees make bad decisions, why they made them, and how to change that behavior to prevent the mistake from happening.

OWEN: So you’re giving us 2 books, any– one more come to mind?

OJ: Yeah, I’ve got it in my– my president has it in her office and it’s called– oh my god, I just finished the book last week. I’ll put the book on there. But again, it goes back to company culture. It goes back to organizational behavior. And one of the things I like about it best was a lot of companies have core values, but when you say a core value like integrity is our core value, integrity is a very relative term. Integrity means something different to everyone. And so, when you ask someone, “Well, were you acting with the best of integrity in your decision?” Again, you’re expecting them to think the way you would think without giving them a framework to think. And so the idea is focusing on the behavior with specificity as oppose to generality.

OWEN: Can you remember that book? That sounds interesting.

OJ: Give me 30 seconds I’ll go get it and show it to you.

OWEN: No problem, we’ll wait.

OJ: Give me 30 seconds. Awesomely Simple by John Spence, loved it.

OWEN: Awesomely Simple by John Spence. And don’t worry, I’ll edit this part out so it works. So the name of the book is Awesomely Simple by John Spence. And so final question for you.

OJ: Let me give you the other one though.

OWEN: Okay.

OJ: The other one that I really love is Fundamentally Different, and that one is by David Friedman. I read this last month, and again, I highlighted a couple of things that I really loved about this book. I’m going to find it now. But it really talks about institutionalizing values. So that values aren’t these broad based thing that’s open to interpretation.

OWEN: Like woo woo stuff, it’s actually concrete.

OJ: Exactly. It’s how do you drive behavior and decision making in a framework.

OWEN: Okay. And so, last question, is there a question that you’re wishing that I ask you during the interview but I didn’t? If so, here’s the chance to pose that question and answer it.

OJ: I’m thinking right now, let’s see. I’m thinking.

OWEN: I must have done a good job then.

OJ: You know, I’m blanking out now but I’m sure I’ll remember it in 5 minutes. I’m sure I’ll think of it in 5 minutes.

OWEN: No problem.

OJ: But the question you asked me in terms of building my business–

OWEN: It doesn’t have to be building a business, whatever you feel like it’s important for the listener to know that you think I should have asked but I didn’t ask.

OJ: I’ll tell you what. I think one of the most important things that I wished I had known and learned early on as a business owner is about the challenges as an entrepreneur. Like sort of validating the challenges and sort of the psyche that you feel and you face as an entrepreneur, i.e. this feeling of this quest for perfection, which is a paradox. Your successful not because your perfect, your successful because you’re good. Yet we all seek perfection and beat ourselves up for not attaining it when perfection is really, number 1, we don’t know what perfection looks like, we just know what it isn’t.

OWEN: It’s a continuous quest of ongoing improvement. It’s kind of what it is, right? You’ll just be okay with continuously improving.

OJ: It’s like perfection goes hand in hand with happiness, what is it? And until you can create a picture of what it is, what it feels like, looks like, taste like, how do you ever know if you’re there? And candidly, you’ll never be there if you don’t know what it looks like.

OWEN: So know what that picture is, paint it out, paint your picture is what you’re saying first?

OJ: Well, the problem is as entrepreneurs we all want perfection, we all want absolutes. So we can’t put a fine point on it. It’s like vision. Oh, I want a great company. Well, what is a great company look like? I don’t know, good people? Okay, what does good people look like? Happy people, productive people, a profitable company? Is it about the bottom-line, what is it? And as a business owner you’re so busy running the business that you never have to address these questions per se. And then when it’s time to address these questions, because that’s going to take your company to the next level, you’re sort of ill-equipped to deal with them.

OWEN: Awesome. And so now let me speak to the person listening to this call. So you’ve been listening so far all the way to this point of the call. And if you’ve enjoyed this interview so far I want you to go and leave a review, hopefully a positive review for us on iTunes. And to do that you go to sweetprocess.com/iTunes, and the reason is when you leave reviews on iTunes more entrepreneurs would read your reviews and come out and check-out the podcast. And the more people checking out our podcast the more we inspire to get more entrepreneurs, successful entrepreneurs like OJ to come in here and breakdown the reasons behind why their business is successful and how they’ve been able to systematize their business. And if you know some other entrepreneur that would benefit from this interview feel free to share with them. And lastly, if you are at that point in your business where you’re tired of being the bottleneck of your business and want to get [Unintelligible 01:09:39] ahead, and document how you get stuff done, sign-up for a free 14-day trial SweetProcess. OJ, thanks for doing the interview.

OJ: Oh, and thank you for your time and I enjoyed it.

OWEN: Wow, we’re done.

OJ: Alright man, thank you.