A Masterclass On Hiring A CEO To Run Your Company ft. Andrew Wilkinson

0:00:02 All right, this is a guest masterclass
0:00:03 with our buddy, Andrew Wilkinson.
0:00:06 We’re inviting him on because if you’re world class
0:00:07 and something I want to learn from you,
0:00:09 in fact, I had emailed Andrew a while back
0:00:12 being like, hey, I have this company, it’s working.
0:00:15 We had scaled into the tens of millions in revenue,
0:00:16 but I just didn’t want to run it anymore.
0:00:19 I was tired, I wasn’t the right guy for it.
0:00:20 I was half in, half out,
0:00:22 and I was just fantasizing about selling it
0:00:25 or the day where I wouldn’t be running it anymore.
0:00:27 And he’s like, dude, you need to hire a CEO.
0:00:28 And to me, that always felt like something
0:00:29 that’s easier said than done.
0:00:32 Hire a CEO, just find somebody to take over my baby.
0:00:33 But he’s done it.
0:00:35 This guy’s got 40 companies.
0:00:36 He’s got CEOs that run them.
0:00:38 He doesn’t have to run any of them day to day.
0:00:40 The portfolio is worth $500 million.
0:00:42 So if there’s anybody to learn from, it’s Andrew on this.
0:00:44 And so he comes in and he shares,
0:00:45 how are you interviews them?
0:00:47 Who is he looking for?
0:00:48 And how does he structure the compensation?
0:00:50 And so we go into step by step,
0:00:53 how to hire a great CEO for your business.
0:00:55 It worked for me, for Andrew, I hope it works for you.
0:00:58 So enjoy this guest masterclass with Andrew Wilkinson.
0:01:00 ♪ I feel like I can rule the world ♪
0:01:03 ♪ I know I could be what I want to ♪
0:01:06 ♪ Put my all in it like the days on ♪
0:01:09 – Okay, we asked Andrew Wilkinson to come on
0:01:10 and do one specific thing,
0:01:13 which is teach us how to hire CEOs.
0:01:17 He owns Andrew, you own what, 40 companies now.
0:01:20 The total portfolio is worth almost $500 million.
0:01:22 And yet you’re a pretty chill guy.
0:01:24 Whenever I text you, your answer, you’re always having fun.
0:01:27 You’re not stressed out, overloaded, overworked,
0:01:28 like every other CEO I know.
0:01:30 Who’s a CEO of one company, but you have 40.
0:01:33 And so I think the way you’ve been able to do that
0:01:35 is by hiring great CEOs for all your companies.
0:01:36 And it’s actually worked.
0:01:38 Me and Sam want to learn this from you.
0:01:40 So you’re here today to teach us that.
0:01:43 How did you even realize that you needed to hire CEOs?
0:01:47 – Yeah, so I would say it’s not that it’s less,
0:01:49 it’s not less stressful, it’s just different, right?
0:01:51 So I just have different problems.
0:01:55 So someone running a company might be putting out a fire
0:01:57 that’s burning that day.
0:02:01 I put out fires that burn over the course of a month or two
0:02:02 and they’re bigger fires.
0:02:05 And then someone else might spend a lot of time
0:02:07 dealing with company politics.
0:02:10 I end up dealing with CEO comp packages.
0:02:12 So I want to say to begin with,
0:02:15 this is not necessarily a greener pastor,
0:02:16 it’s just a different pastor.
0:02:19 And I think you really only want to oversee CEOs
0:02:21 if that’s your skill set.
0:02:24 If you’re drawn to being super, super high level
0:02:27 and hands off, which some people, let’s be real, they’re not.
0:02:29 They’re like, they want to be Jiro
0:02:31 from Jiro Dreams of Sushi.
0:02:33 They don’t want to be the guy who starts Chipotle.
0:02:34 They want to be on the line.
0:02:36 They want to be making food.
0:02:39 And so it ultimately comes down to your personality.
0:02:41 And for me, my personality has always been,
0:02:43 I’m incredibly lazy.
0:02:47 So from the time that my mom told me to wash the dishes,
0:02:48 I was furious.
0:02:52 I was always trying to find ways to pay my brothers to do it,
0:02:56 find systems to wash the dishes more effectively.
0:02:57 So I had to do less work.
0:03:01 And so I always joke that I’m Teflon for tasks.
0:03:03 And if you start delegating in your company,
0:03:05 which most great entrepreneurs do,
0:03:09 you ultimately reach this point where you ask yourself,
0:03:11 was there anything else I can delegate?
0:03:13 And that final level of delegation,
0:03:17 that final level of abstraction, that’s hiring a CEO,
0:03:19 that’s hiring one to hire 10.
0:03:21 They go and they run the entire company
0:03:25 and you just talk to them quarterly, sometimes annually.
0:03:27 And there’s some CEOs I have that I haven’t even
0:03:29 talked to in two or three years.
0:03:33 – All right, I want to tell you about a really cool feature
0:03:35 in HubSpot that I don’t think most people know about.
0:03:37 It’s called the marketing and content hub.
0:03:39 All right, so here’s how it works.
0:03:40 You’re doing content marketing.
0:03:41 That’s what I do.
0:03:42 That’s how many brands do.
0:03:43 It works really, really well,
0:03:44 but it can be very time consuming.
0:03:47 So what they do is they have tools like content remix,
0:03:48 which will take one piece of content
0:03:51 and immediately turn it into a bunch of pieces
0:03:53 for all the different platforms in one click.
0:03:54 Or they have lead scoring,
0:03:55 which will basically shine a light on
0:03:58 which leads that you have, or most likely to purchase.
0:03:59 And then they have the analytics suite.
0:04:03 So you get reports, KPIs and all kinds of AI-powered insights
0:04:04 that you can share with your team
0:04:06 and not be flying blind anymore.
0:04:07 So if you’re doing content marketing,
0:04:09 highly recommend you check out the content hub
0:04:11 and marketing hub for HubSpot.
0:04:14 You can visit hubspot.com to get started for free.
0:04:15 Back to this episode.
0:04:17 – You have something between 30 or 40 companies.
0:04:21 Do you have 30 or 40 CEOs reporting to you?
0:04:23 – No, the way that we do it now,
0:04:24 so it’s crazy.
0:04:26 At first it was like five companies.
0:04:30 So I had five direct reports that are CEOs, no big deal.
0:04:32 And then over time, as we’ve scaled up,
0:04:34 we’ve had to form operating groups.
0:04:36 And so we have these operating groups
0:04:38 and they have their own CEOs who report into us.
0:04:41 So for example, all of our digital services businesses
0:04:42 are run by a guy named Pradeep.
0:04:46 I meet with Pradeep kind of bi-weekly, monthly,
0:04:47 whenever I need to.
0:04:50 And he oversees a group of like six companies.
0:04:52 Even if you’re not gonna end up with that kind of portfolio,
0:04:55 40 company structure, I’ve had this with you,
0:04:56 which is I think a more common problem.
0:04:58 I remember emailing you saying,
0:05:01 hey, I have this great business, it’s working.
0:05:04 So I can’t, there’s no reason to shut it down.
0:05:06 However, I don’t wanna keep working on it.
0:05:07 I liked it at the beginning.
0:05:08 I don’t love it now.
0:05:10 I wanna go on and do new things.
0:05:11 How do I do this?
0:05:12 Do I have to sell this?
0:05:13 Like, should I just sell the company?
0:05:14 Do I, can I hire a CEO?
0:05:16 And if so, where the heck am I gonna find somebody
0:05:18 who I could trust to do this?
0:05:20 So even on a one company level,
0:05:22 I think that’s where most founders are gonna be
0:05:26 that step one is abstract yourself out of a single company.
0:05:27 So let’s start with that.
0:05:29 You said something you’re like, it’s pretty common.
0:05:30 Everyone loves their business and you’re one.
0:05:32 I forgot, what’s your exact quote?
0:05:35 – So yeah, every time I talk to a young founder,
0:05:37 they’re like, I’m gonna run this till the day I die.
0:05:39 It doesn’t matter what the business is.
0:05:42 They think they’re gonna be there like Mark Zuckerberg
0:05:44 for 20, 30 years.
0:05:47 And then you talk to them in year seven or eight
0:05:49 and almost all of them are just like,
0:05:51 how do I escape this hellish waking nightmare?
0:05:53 Like what they should be saying is,
0:05:56 I’m gonna run this till I’m 28, till the day I’m 28.
0:05:58 – Totally.
0:06:00 So, and it’s really interesting
0:06:03 because people generally think about it
0:06:04 in a very binary way.
0:06:06 They’re like, okay, there’s two doors.
0:06:08 Door one, keep running my company.
0:06:13 Door two, sell, get rich and live on Mojito Island, right?
0:06:15 But there’s actually a door three
0:06:17 and door three is hiring a CEO, right?
0:06:22 So you’re in a marathon and you can either ditch the marathon
0:06:23 or keep running it.
0:06:26 Well, it turns out that you can actually incentivize
0:06:29 someone else to keep running the marathon on your behalf.
0:06:30 And I mean, this just goes back
0:06:32 to what I was talking about before, right?
0:06:34 So there’s all these different levels of delegation
0:06:37 and we all understand, at least if you’re a good entrepreneur,
0:06:39 that if you don’t like accounting,
0:06:40 you just hire an accountant.
0:06:42 Well, if you don’t like running your company,
0:06:45 door three is you just hire a CEO.
0:06:49 So my story on this is I started Metalab,
0:06:52 which is a design agency about 20 years ago.
0:06:55 I feel very old to say that, but about 20 years ago
0:06:58 and I ran it as CEO for almost 10 years
0:06:59 and I had a great exec team.
0:07:01 Like I was able to delegate quite a bit of it.
0:07:04 I was running other companies at the same time,
0:07:06 but ultimately the buck stopped with me.
0:07:08 And for the first three to five years,
0:07:09 it was really exciting.
0:07:12 Like I was learning new skills all the time.
0:07:15 I was scrappily sending the invoices
0:07:17 and negotiating deals with clients
0:07:19 and I was flying all over the world.
0:07:21 And it was all new and exciting.
0:07:25 But at a certain point, after like year eight, year nine,
0:07:28 I didn’t wanna fly to San Francisco anymore.
0:07:31 I didn’t wanna have to shake hands and kiss babies
0:07:32 and do that.
0:07:34 And I remember Chris, my now business partner
0:07:37 and at the time CFO would come to me and be like,
0:07:39 dude, you gotta fly to San Francisco.
0:07:41 Every time you go down there,
0:07:43 you close like a million dollars of new projects,
0:07:44 but I didn’t really wanna do it
0:07:46 because AO is exhausted.
0:07:48 It wasn’t new anymore.
0:07:49 I didn’t wanna travel.
0:07:50 It didn’t suit my lifestyle.
0:07:53 But also I was already rich.
0:07:54 I was already making enough money.
0:07:57 And so the business was kind of starting the plateau
0:08:00 because I wasn’t willing to go that extra mile.
0:08:01 I was just saying, you know what?
0:08:03 We’ll just do whatever comes in.
0:08:06 I’ll do a San Francisco trip once a quarter
0:08:07 and we’ll close what we close
0:08:09 because I don’t wanna do that.
0:08:13 Well, the beautiful thing was there were young, scrappy people
0:08:16 who to them, the idea of flying to San Francisco
0:08:18 and taking a client out for a steak dinner
0:08:19 was a dream come true.
0:08:21 They’d never done that before.
0:08:24 And so for me, I was looking at it and going,
0:08:27 okay, running a five person agency versus a 50 person
0:08:30 agency, it’s a very different job.
0:08:32 And it was a job that I sucked at.
0:08:35 You know, I really to this day love running
0:08:36 five person companies.
0:08:39 I love running, you know, I can get to about 15 people
0:08:43 comfortably, but I wasn’t enjoying it when we’re 50 people.
0:08:45 And I read every book about management.
0:08:49 I did courses and I just kind of whip myself.
0:08:51 Why am I not a great manager?
0:08:54 Why can I not be like Peter Drucker reincarnate?
0:08:57 And so I would always just fantasize about selling.
0:09:00 And I kept trying to sell the business.
0:09:03 And then we’d be like right at the last month.
0:09:06 And then the buyer would change the terms
0:09:09 or something would go wrong in the business.
0:09:11 And so I was kind of starting to lose it.
0:09:13 I didn’t want to be running my company.
0:09:15 I wanted out, but I couldn’t sell it.
0:09:18 And so around that time I ended up reading a book
0:09:22 about Warren Buffett and I found out about door three.
0:09:22 And here we are.
0:09:24 I started hiring CEOs.
0:09:26 I made a ton of mistakes, which I’ll talk about,
0:09:28 but it’s enabled me to create tiny,
0:09:30 which I never would have done before.
0:09:33 I’d probably still be either miserably running my business
0:09:36 or I would have sold for a much smaller amount of money.
0:09:38 – We’ll get into the actual tactics.
0:09:40 Really quick though, the green pasture thing.
0:09:42 It’s always grass is always greener on the other side.
0:09:45 And you and I joke where you’re like,
0:09:47 well, I don’t want to say what you said,
0:09:50 but you’ll just be teasing about running a small company
0:09:52 and how that could be way more fun
0:09:54 and being the CEO of a small company
0:09:57 for a long period of time versus trying to go big.
0:10:00 What’s the grass is always greener for you?
0:10:05 – Well, I mean, I think there’s a great Bob Seeger quote,
0:10:07 which is, I wish I didn’t know now
0:10:09 what I didn’t know then, right?
0:10:13 So for me, I think about it like this.
0:10:15 I might’ve given this example before,
0:10:18 but imagine if you love chopping wood, right?
0:10:19 You just do it ’cause it’s fun.
0:10:21 You’re in your backyard chopping wood.
0:10:23 And then your neighbor pokes his head over the fence
0:10:26 and says, hey, dude, can I get a quart of wood?
0:10:27 I’ll pay you for it.
0:10:29 And you realize, oh my God, this is a business.
0:10:32 I’ve taken my passion and I’ve created a business.
0:10:34 And now I’m selling wood door-to-door.
0:10:36 I’m working with my five best friends.
0:10:37 It’s a blast, right?
0:10:38 I’m suddenly making money.
0:10:40 I can afford to go to the bar.
0:10:41 Life is good.
0:10:44 And then you flash forward 20 years
0:10:47 and you wake up and you’re a lumber magnate.
0:10:48 You own five sawmills.
0:10:50 And all you do every day is you sit
0:10:52 in a little air-conditioned box
0:10:54 looking down at the floor.
0:10:56 You have all these robots working for you
0:10:57 and all these hundreds of employees.
0:11:01 And most of your time is spent doing Excel, right?
0:11:03 I think that is the sadness
0:11:06 of building a large business and delegating.
0:11:08 Your hands are not on the tools anymore.
0:11:13 And so for me, what’s been sad about building the machine
0:11:16 is I’ve built the machine that’s freed me to do what I want.
0:11:19 But the irony is I end up doing things I don’t want
0:11:23 as a result because ultimately I was a designer.
0:11:26 I love putting on headphones and being in Photoshop
0:11:28 and designing websites and writing.
0:11:30 And so for me, it’s been searching,
0:11:31 where do I get the flow state
0:11:34 that I used to get running a five-person company?
0:11:36 Let’s role play it here.
0:11:37 So I have a company.
0:11:38 I want to hire a CEO.
0:11:41 I realize I can do this third door.
0:11:42 And I’m like, you know what?
0:11:43 That’s the right move.
0:11:45 I should hire a CEO.
0:11:47 But where the heck am I gonna find a CEO
0:11:49 that I could trust that’s gonna not only not ruin it,
0:11:52 but actually hopefully grow the business in some way?
0:11:53 What’s the, what’s step one?
0:11:57 So step one, you have to really assess
0:11:59 is your business big enough, right?
0:12:00 Is this the right thing?
0:12:02 Is this the right time?
0:12:03 So ultimately you want to ask,
0:12:06 does your business have product market fit?
0:12:08 And can it actually afford a CEO, right?
0:12:11 Is this a corner store?
0:12:14 Like where it’s kind of an owner-operator kind of business
0:12:15 where you just kind of have to run it.
0:12:19 And if you leave, all the profit gets eaten up
0:12:20 by somebody else.
0:12:22 Or is this something that’s really scalable?
0:12:25 So I generally as a rule of thumb will say,
0:12:27 you probably shouldn’t hire a CEO
0:12:31 until your business is doing $300,000 or so of profit.
0:12:35 And if it is, that means that you can swap yourself out
0:12:39 and you can afford to hire someone a reasonable based salary.
0:12:42 And then you can incentivize them to grow the business.
0:12:44 And so one of the, one of the really interesting things
0:12:47 that people kind of obsess over is they say,
0:12:50 well, you know, a CEO could cost 500,000.
0:12:53 My business is only doing $3,000,000
0:12:56 and $300,000 of profit.
0:12:57 And what they kind of miss is that,
0:13:00 generally a CEO has paid a base salary,
0:13:02 but most of their comp comes from bonuses.
0:13:05 And the bonuses are based on the business growing.
0:13:07 And so it’s one of those things where it’s like,
0:13:10 if your business is doing 300K of profit,
0:13:12 you can basically take two or 300K of that,
0:13:15 invest it in the base salary for the CEO,
0:13:17 and then all of their additional comp
0:13:19 will come from the growth of the business.
0:13:22 And so you’ve aligned them with your goals.
0:13:24 So first thing is my business big enough.
0:13:26 So you said two criteria, product, market fit,
0:13:28 meaning we know what the hell we’re doing.
0:13:30 We’re not in the figure it out, figure out the product,
0:13:32 figure out the market, figure out the,
0:13:35 what is the offering and changing that every three weeks
0:13:36 ’cause it’s not working.
0:13:38 Like you have a reasonable continuous cycle
0:13:41 of supply and demand for what you’re doing.
0:13:44 And then you said profit around 300,000 as the kind of,
0:13:45 that’s the minimum bar.
0:13:47 I would say so in there.
0:13:48 I mean, occasionally you can,
0:13:51 let’s say you’ve got a friend who’s super scrappy,
0:13:53 who wants to sink their teeth into something,
0:13:56 and you’ve got a small business that’s like,
0:13:57 I always call them like an ember.
0:13:58 It’s not really a fire yet.
0:14:01 It’s an ember and someone needs to come blow on it.
0:14:02 You could do that,
0:14:03 but I think there’s a lot more risk there.
0:14:06 You really want a machine that’s operating.
0:14:08 You want a car that can drive on the road
0:14:10 before you put someone in.
0:14:11 And then the other question is,
0:14:14 can you make someone rich, right?
0:14:17 Because ultimately people who are good,
0:14:19 great exceptional CEOs,
0:14:21 they’re looking for opportunity and upside.
0:14:25 And by nature, the fact that they’re a hired gun CEO
0:14:27 tells me they’re not necessarily an entrepreneur.
0:14:29 They don’t want to take total risk.
0:14:30 They want a nice salary.
0:14:31 They want bonuses.
0:14:33 They’re not necessarily willing to risk it all,
0:14:37 but often they want to know they can get rich in a CEO way.
0:14:40 So they can make single digit millions
0:14:43 for the first time ever if everything plays out.
0:14:44 Or maybe they can get a big payout
0:14:47 if the business sells or gets to a large scale
0:14:48 or whatever it is,
0:14:50 but ultimately you want to know
0:14:53 that you can make someone wealthy with it.
0:14:55 – And so we’ll do the exact comp stuff in a minute,
0:14:56 but the second question you have.
0:14:58 So first was, is the business big enough
0:14:59 and do we have product market fit?
0:15:01 Then you also said to me once like,
0:15:03 are you willing to walk away?
0:15:04 I think there’s a mental side of it too.
0:15:07 Are you ready to hire a CEO?
0:15:08 – Yeah, and that’s really hard.
0:15:11 I mean, do you…
0:15:13 I remember I got to the point where I fantasized
0:15:15 about giving the keys away to someone else.
0:15:19 And when I finally did, I was elated.
0:15:21 But there’s a lot of people who aren’t like that.
0:15:22 I can think of one of my friends,
0:15:25 to him, his business is his baby.
0:15:27 And when people mess with his baby,
0:15:30 he gets really angry and he doesn’t like it.
0:15:32 And so you need to be willing to walk away
0:15:34 and effectively look at it this way.
0:15:39 As entrepreneurs, we’re all birthing these business babies
0:15:42 and now you’re giving them to a foster parent.
0:15:43 Can you tolerate that?
0:15:46 Can you cope with that someone else parenting your child?
0:15:48 ‘Cause that’s really what it is.
0:15:50 And not only that, but you have to be disciplined
0:15:51 for it to work.
0:15:53 You need to either be all in or all out.
0:15:55 You have to empower this person.
0:15:57 You can’t be sitting there looking over their shoulder.
0:15:59 So I think those are the two kind of fundamental
0:16:00 questions to this, right?
0:16:02 Are you, is your business big enough
0:16:04 and are you willing to walk away?
0:16:07 – But when you’re accepting the, when you’re saying,
0:16:08 all right, I’m gonna walk away.
0:16:10 Is it, I’m walking away because this person
0:16:12 is gonna make everything greater than I could?
0:16:15 Or are you walking away thinking to yourself,
0:16:18 I know it’s not going to be as good with me in it,
0:16:21 but it could be 80% as good
0:16:23 and I won’t have to worry about it.
0:16:25 – Well, let me put it this way.
0:16:28 Let’s say that you’re an exceptional product person.
0:16:30 You’ll know the product won’t be quite as good
0:16:32 because generally people who are good at marketing
0:16:35 and sales and operations and finance
0:16:36 are just not as good at product.
0:16:39 So you’re gonna sacrifice on the product side a little bit,
0:16:41 but you’re gonna know the business itself
0:16:43 will be so much healthier and grow,
0:16:45 at least from a financial measure.
0:16:48 I found that going from being a checked out founder,
0:16:50 operating your business reluctantly
0:16:53 to somebody who’s highly incentivized for growth,
0:16:54 who’s excited to do it,
0:16:57 almost always the business like doubles in the first year.
0:16:59 I’ve been astounded by how much
0:17:01 I had been holding back my business.
0:17:03 – Yeah, that’s a great question, great answer.
0:17:06 That seems pretty consistent with what I’ve heard.
0:17:08 A founder the other day was telling me
0:17:11 after maybe eight, nine years of running his business,
0:17:13 he hires a CEO, he plans to stick.
0:17:15 Hey, I’m here, I’m available for the next year transition.
0:17:18 He’s like, yeah, they haven’t called in a little while.
0:17:20 You know, we beat our numbers,
0:17:22 which I wasn’t able to do the last three years
0:17:24 and everything seems to be going really well.
0:17:26 Turns out they didn’t need me as much.
0:17:28 He’s like a little hit to the ego,
0:17:30 but also wait, isn’t this exactly what I wanted?
0:17:32 And you know, he was sort of pleasantly surprised
0:17:34 on the upside of there.
0:17:36 So let’s talk about finding the right person.
0:17:39 How do you actually find a great CEO?
0:17:40 What are you looking for?
0:17:43 – So generally I like to find someone
0:17:47 who’s run a same or similar business that’s double the size.
0:17:52 So let’s say I have an e-commerce brand selling candles.
0:17:55 Well, I don’t necessarily need to go find a CEO
0:17:57 who’s run a candle business before,
0:17:59 but I wanna find someone who’s sold
0:18:01 a similar product online.
0:18:05 And I will generally think about who are my competitors
0:18:07 or what companies do I admire?
0:18:08 And then I’ll go on LinkedIn
0:18:13 and I’ll just look for president, COO, sometimes CEO,
0:18:16 but usually I will recruit a number two.
0:18:18 And it’s that person who’s been eagerly awaiting,
0:18:21 getting, you know, knighted as the CEO
0:18:23 and they haven’t stepped up yet.
0:18:25 I find those are wonderful people
0:18:26 to delegate the business to.
0:18:29 And then separately, recruiters.
0:18:31 And that’s a topic we can dig into.
0:18:32 People have a lot of opinions.
0:18:34 I had a lot of opinions about recruiters
0:18:35 that I’ve actually changed over time.
0:18:39 But yeah, you gotta, I find like broadening the spectrum
0:18:40 with recruiters can be really helpful.
0:18:42 – We have to get a quick shout out to Ty Burke,
0:18:44 my old roommate and someone I used to recruit.
0:18:46 And I know you use them as well.
0:18:50 You also use like crazy amounts of reference checks.
0:18:52 – So here’s what we do.
0:18:55 So we buy the business and as we’re buying the business,
0:18:56 we start asking the question.
0:18:58 As soon as we know we’re gonna buy the business
0:19:02 or we’re gonna delegate, we hire a recruiter immediately.
0:19:06 Now, recruiters really pissed me off before.
0:19:08 It was like realtors where I’m going like,
0:19:13 man, why am I paying this guy $100,000 to open a door for me?
0:19:15 I can just go on, you know, like Zillow
0:19:18 and find the house I wanna buy.
0:19:20 And here’s this middleman charging a lot of money.
0:19:23 And I kind of felt like, why would I pay some guy
0:19:25 to go on LinkedIn and message a bunch of people for me?
0:19:26 I can do that myself.
0:19:29 But I realized that I’m distracted.
0:19:31 And when I need to hire someone,
0:19:35 I will often just go on LinkedIn or whatever for 10 minutes.
0:19:37 I’ll text a bunch of my friends.
0:19:40 I’ll try and think of people that I have like in an Apple note
0:19:42 that might be a good CEO.
0:19:43 I’m not going broad.
0:19:47 And so basically I’ve come around on recruiters.
0:19:49 There’s some really exceptional recruiters
0:19:51 like Ty Burke from search partners
0:19:53 who Sam introduced me to, he’s one of my favorite.
0:19:56 We also really like Matt Hollingsworth from Align.
0:19:58 And the way I use a recruiter
0:20:00 is just to broaden the spectrum.
0:20:03 So even if I’m gonna go on LinkedIn myself
0:20:06 and look for someone, I might end up bringing the person
0:20:08 to the table who we end up hiring.
0:20:12 We now have somebody who’s reaching out to people
0:20:14 I never would have spoken to.
0:20:16 And then they’re also handling a lot of that administrative
0:20:19 work of pushing the process along.
0:20:21 They’re doing the initial interview.
0:20:22 And one really fascinating thing
0:20:24 that I didn’t contemplate before
0:20:26 is a recruiter saves you an insane amount of time.
0:20:29 Let’s say that you have 10 candidates for CEO
0:20:31 and every single one of those candidates
0:20:33 you’re gonna have to do a Zoom with
0:20:36 and that’ll take 30 minutes to an hour.
0:20:37 Well, I think we all know.
0:20:38 You’ve all had that experience
0:20:40 where you interview someone
0:20:43 and in the first 30 seconds you know they’re a dingus, right?
0:20:45 And then you’re just desperately thinking like,
0:20:48 okay, how can I get off the phone as quickly as possible,
0:20:51 not waste time, but not have this person think
0:20:52 I’m a total asshole.
0:20:55 And so now I have the recruiter do that call
0:20:58 and I get them to record the Zoom.
0:21:00 And then I just watch the first couple minutes.
0:21:02 And if I’m vibing with the person,
0:21:04 then I’ll move them on to the next stage.
0:21:06 So if you think about from that perspective,
0:21:08 your time is highly valuable
0:21:10 and you’ve just saved 10 hours of time.
0:21:11 What is that worth?
0:21:12 I think a lot.
0:21:14 And then in some instances,
0:21:18 we’ve actually hired people that we brought in.
0:21:18 That’s fine.
0:21:21 And I just pay the recruiter anyway.
0:21:22 But in other instances,
0:21:24 they’ve brought people in that we never would have found.
0:21:26 So the guy that runs AeroPress,
0:21:30 Gerard Meyer, we found him via tie.
0:21:33 And he was a guy where he had run Soda Stream US
0:21:35 and he just wasn’t on my radar whatsoever.
0:21:37 And he’s one of our best CEOs.
0:21:39 So I kind of look at the recruiters
0:21:41 as a time-saving mechanism.
0:21:44 They broaden out the people you look at,
0:21:47 but ultimately it’s just like a tax I pay
0:21:49 to have someone else be incentivized
0:21:51 to push everything along.
0:21:53 And so I’m actually a big fan of recruiters now,
0:21:55 but you’ve got to use the right people.
0:21:57 I find there’s a lot of terrible recruiting firms
0:22:00 and we’ve used a lot of really bad ones over the years.
0:22:04 And the recruiting firm, what do they run you?
0:22:07 So usually it’s a percentage of first year salary.
0:22:09 I think it’s about 20%.
0:22:11 So when you’re hiring a CEO
0:22:16 and you’ve got total comp of 300 grand, 500 grand,
0:22:17 it can be expensive,
0:22:18 but I think it’s worth paying for
0:22:21 if you can find the right partner on it.
0:22:22 Mm-hmm.
0:22:24 And you mentioned looking for a number two
0:22:29 who’s run a similar sized or similar industry company.
0:22:30 Here’s what I take that to mean.
0:22:31 You tell me what I miss.
0:22:33 So let’s say you’re the candle company.
0:22:34 You don’t need somebody
0:22:36 who’s run a candle company to exercise,
0:22:38 but maybe you want the commerce.
0:22:42 You want it maybe where Facebook was their primary sales channel.
0:22:44 Maybe you want something like candles,
0:22:46 like maybe selling to a similar customer base
0:22:49 or a one-time purchase product,
0:22:52 not something that’s a total differently,
0:22:54 kind of like buying psychology.
0:22:56 Is that right, just first on that part?
0:22:58 Yeah, you want someone who understands
0:22:59 roughly how the customer thinks
0:23:03 and then also the channels by which that product is sold.
0:23:06 So one fascinating thing I’ll add to
0:23:08 is when I’m interviewing them,
0:23:12 I always ask myself, what is this person’s hammer?
0:23:13 So there’s that great quote,
0:23:16 “To a man with a hammer, everything looks like a nail.”
0:23:20 And what I’ve seen with CEOs is their hammer
0:23:25 is either marketing, sales, operations, or finance, right?
0:23:27 They go to one or product.
0:23:28 They go to one of those things
0:23:31 and to the product person,
0:23:33 we’ve released the most beautiful product in the world.
0:23:36 And if you build it, they will come to the sales person.
0:23:40 It’s let’s build a 50-person enterprise sales team.
0:23:41 To the marketing people,
0:23:42 it’s we’re going to spend a million dollars a month
0:23:44 on Facebook ads.
0:23:46 So you want to be listening incredibly carefully
0:23:49 to what is the mechanism by which they grow companies?
0:23:51 Because usually that’s the one,
0:23:52 if they did it at their last company,
0:23:54 they’re probably going to try and repeat it.
0:23:56 And so what you want them to do
0:23:58 is when they look at your company, they go,
0:24:00 “Oh my God, this is so easy.
0:24:01 I’ve done this a million times before.
0:24:05 I’ve taken businesses from a million dollars in sales
0:24:06 to $10 million in sales.
0:24:09 I’ve done that between one and five times
0:24:10 in a similar business.”
0:24:14 – So at this point, are you just constantly collecting people?
0:24:15 I mean, is that kind of how you look at your job
0:24:18 is I’m just always, I mean,
0:24:20 ’cause if you’re having to talk to all these people
0:24:21 constantly and you have 40 companies,
0:24:24 that’s like pretty much all your time.
0:24:25 – I’m always thinking about that.
0:24:27 I mean, my worst fear is we’re going to be recruiting
0:24:30 for a CEO role and I’m going to forget about that guy
0:24:33 I met at that conference five years ago or whatever.
0:24:36 So Chris and I have an Apple Notes that we share
0:24:38 and we just keep writing down names
0:24:39 of people we think are interesting,
0:24:41 that are executives.
0:24:42 Sometimes even within our companies,
0:24:44 it’ll be people that are up and coming
0:24:47 in one of our other businesses that we’ve thought
0:24:49 might be a good CEO for another business.
0:24:51 But yeah, I’m always trying to scan the horizon
0:24:54 for people who are smart and I can bring in.
0:24:59 But interestingly, often it is every process is different.
0:25:00 And when we hire a recruiter,
0:25:04 only like 20% of the time is it someone now
0:25:05 that we’ve brought in.
0:25:07 Often it is someone that they go source.
0:25:10 – I love the, what’s their hammer question
0:25:13 because it’s so true that the more experience
0:25:15 somebody gets and the more successful somebody gets,
0:25:16 they start to develop this hammer
0:25:19 and to try to, they go run around looking for ways
0:25:22 that they can apply that thing they know to everything,
0:25:24 whether it’s the right thing or not.
0:25:26 I think this is a good thing and a bad thing.
0:25:30 I’ve seen the same advice given to kind of YCE type companies
0:25:33 or in Silicon Valley where when you hire a CEO,
0:25:36 if you hire a CEO that grew their previous company
0:25:39 by creating a giant sales army,
0:25:41 but you’re trying to do product led growth,
0:25:42 it’s a total mismatch.
0:25:44 You might say, oh wow, they grew that company
0:25:47 from 10 million to 200 million and that sounds good.
0:25:49 But if they did it in a way that’s totally different
0:25:53 than yours, very few people can repeatedly grow businesses
0:25:56 using totally new methodologies for sales and marketing.
0:25:58 And I’m curious also, what’s your hammer?
0:26:02 Like if you’re a man with a hammer running around,
0:26:03 what is yours?
0:26:07 – Well, I would say I’m a man with a lot of different hammers.
0:26:09 I’ve gone really broad now because I’ve seen
0:26:12 so many different ways of growing businesses.
0:26:14 And I think I have a lot of tools in the toolkit.
0:26:17 My old hammer was product.
0:26:19 I would always just be like, oh my,
0:26:20 actually you know what, I do have a hammer.
0:26:23 Okay, so my old hammer was product.
0:26:26 So I would always do field of dreams marketing.
0:26:29 I would say we’re gonna build the best product in the world.
0:26:32 I’m a designer, I was really proud of what we’re doing
0:26:34 and that’ll solve everything.
0:26:36 And I realized that really doesn’t work very well.
0:26:41 And now I would say my hammer is finance or operations.
0:26:44 So really what I’m doing is I’m looking at a business
0:26:47 and I’m going, if we could just change one thing,
0:26:48 what would that one thing be
0:26:50 that would give the business leverage?
0:26:52 And often it’s something really simple.
0:26:54 It’s like, oh pricing, right?
0:26:56 Or they’re just not selling ads properly.
0:26:57 Something really boring.
0:27:00 And to be honest, I feel a little depressed as I say that
0:27:02 because- – You’re a sell out, bro.
0:27:03 You’re a sell out.
0:27:06 – The designer from 20 years ago would be really sad.
0:27:09 And I still love, don’t get me wrong, like,
0:27:12 so when we bought, let me give the AeroPress as an example.
0:27:16 I just unboxed our new AeroPress Clear.
0:27:18 And I just checked out the designs
0:27:20 for a couple unreleased products.
0:27:23 And that was the best day of my month, right?
0:27:25 I love building great products.
0:27:27 I love being involved with that
0:27:29 and knowing that if we hadn’t bought that business
0:27:30 that wouldn’t have happened.
0:27:32 But when we bought AeroPress,
0:27:35 the boring assumption I made was
0:27:38 I’m just gonna do really good online marketing
0:27:39 and e-commerce.
0:27:40 It’s really simple.
0:27:42 They didn’t sell online.
0:27:43 That was my one insight.
0:27:44 That was my hammer on that deal.
0:27:46 And now the bonus, the gravy,
0:27:48 is we get to do amazing products.
0:27:51 – You don’t deserve, you need to go throw away
0:27:53 your Herman Miller chair and your Birkenstocks
0:27:55 and go put on a vest, you nerd.
0:27:56 You’re no longer- – I know, I know.
0:27:58 I know, I know, I know.
0:27:59 I wanna self-flagellate.
0:28:05 I wanna talk about though some of the things
0:28:06 you have to accept about hiring a CEO.
0:28:08 And also when you interview a CEO,
0:28:10 what you wanna look for.
0:28:11 ‘Cause I think that’s probably one
0:28:13 of the most important things.
0:28:17 One of the, so to go back to this whole hammer thing.
0:28:19 So when I interview a CEO,
0:28:22 I’m looking for whether or not I nod along.
0:28:26 When I interviewed Gerard from AeroPress,
0:28:28 he told me what he wanted to do with the company.
0:28:30 And I already had a lot of those same thoughts.
0:28:31 And I was nodding along and going,
0:28:34 “Oh my God, he’s putting it better than I ever could.”
0:28:36 And the reason that’s important
0:28:38 is because when you hire a CEO,
0:28:41 you are a rider on an elephant, right?
0:28:44 So when you’re a rider on an elephant,
0:28:46 the elephant is gonna go anywhere it wants
0:28:47 and you’re just stuck.
0:28:49 You can’t tell an elephant where to go.
0:28:50 It’s way bigger than you.
0:28:52 And ultimately it’s gonna follow peanuts,
0:28:55 wherever it wants to go.
0:28:57 And so it’s really important
0:29:00 that you agree with their strategy.
0:29:02 And one of the ways that this has failed for us
0:29:05 is I’ve loved the CEO candidate
0:29:07 and they’ve said something like,
0:29:09 “Hey, I was looking at the business
0:29:13 “and I really think we need to go hard into Facebook ads.”
0:29:15 And I would kind of scratch my head and go,
0:29:17 “Well, we already kind of tried that.
0:29:21 “I was kind of thinking more of this as an email marketing,
0:29:23 “marketing strategy that we should deploy.”
0:29:26 And they would always just double down, right?
0:29:27 Whatever they say the first time
0:29:30 is usually what they’re actually gonna end up doing.
0:29:32 And they’re just gonna use their hammer.
0:29:33 So that’s incredibly important
0:29:36 is having that alignment and that fit with…
0:29:38 What else are you looking for in that interview?
0:29:41 Not along, what’s their hammer, what else?
0:29:43 So, I mean, the most important question is,
0:29:46 do you get the creepy crawlies after you walk away?
0:29:50 Do you feel in any way, any cognitive dissonance,
0:29:54 any weirdness, does your stomach feel off?
0:29:56 Someone could be incredibly charming.
0:29:58 I often get this.
0:30:01 Psychopaths, for example, they’re very charming people.
0:30:03 They are wonderful to hang out with.
0:30:04 But you might walk away and be like,
0:30:07 “There’s just something off, like something in their eyes.”
0:30:07 – Have you had that?
0:30:10 – Yeah, yeah, and I’ll tell some stories.
0:30:12 But I think the most important thing is,
0:30:14 would you let them babysit your kids, right?
0:30:16 I think either of you guys,
0:30:18 I would let you babysit my kids, right?
0:30:20 But, and that’s important.
0:30:22 You’re gonna hand over your company, your baby,
0:30:24 to this person.
0:30:25 So you have to have profound trust.
0:30:29 And so often Chris and I, we look for people who are real.
0:30:32 So they can be, I don’t like slick people.
0:30:34 I like people who, their armpits get really sweaty
0:30:35 in the interview.
0:30:38 I like people who get kind of nervous and scratch their face
0:30:40 when you ask them hard questions.
0:30:42 I wanna see that someone is a human.
0:30:45 And when things get tough,
0:30:47 they will wanna do the right thing.
0:30:49 And so that’s really critical.
0:30:50 Do you walk away energized, right?
0:30:52 You can really like somebody.
0:30:55 But if you don’t walk away energized, that’s not great.
0:30:58 And then also, are they down to have alignment?
0:31:00 Are they down to have skin in the game?
0:31:03 Because ultimately, the worst type of CEO would be this.
0:31:07 So let’s say Sam’s hiring someone to run Hampton.
0:31:11 And they say, I want a million dollars a year based salary.
0:31:13 And you’re like, okay, well,
0:31:15 could we do some bonuses?
0:31:16 Do you want equity?
0:31:17 How could we create alignment?
0:31:21 And they just want like low risk cash guaranteed.
0:31:23 That’s not someone you wanna be working with.
0:31:26 You want someone who is willing to have skin in the game
0:31:29 and risk with you and work on the longterm.
0:31:32 And there’s a lot of very shiny, fancy executives
0:31:34 that basically want zero risk
0:31:36 and they just wanna make a shit ton of money.
0:31:38 And you gotta avoid those people like the plague.
0:31:41 – Have you found any correlation between age
0:31:45 or where they live, like if they’re from a Silicon Valley
0:31:47 company or New York company, Middle America
0:31:50 or wherever the equivalent stereotype is of Canada?
0:31:53 – Well, I mean, I wouldn’t say that there’s anything
0:31:56 about where they’re from or even what they look like
0:31:58 or how they dress or anything like that.
0:32:00 Although I’ll talk about that and the importance
0:32:04 of matching your cultural DNA with their DNA.
0:32:07 But the number one thing is the big company people, right?
0:32:10 You really don’t want the flashy person
0:32:15 who’s got the LinkedIn with five years at Accenture,
0:32:21 followed by IBM, followed by whatever executive role.
0:32:24 I find that when you take a big company person
0:32:26 and you put them in a smaller company,
0:32:28 they just don’t know how to function.
0:32:30 They’re not bad, there’s nothing wrong with those people.
0:32:31 They just don’t know how to function.
0:32:33 They’re used to having like, you know,
0:32:36 an army of people doing everything for them.
0:32:38 And it’s kind of like, I always think about it like restaurants.
0:32:40 So let’s say that you have, you hire,
0:32:43 let’s say you have one restaurant with no systems
0:32:45 and you go and you hire the chain restaurant.
0:32:48 Let’s say you find a guy who runs like an Olive Garden
0:32:50 and you’re like, oh my God, this guy really understands
0:32:54 how to run like a tight ship and all the systems and stuff.
0:32:57 You put them back in, you know, your restaurant
0:33:00 and they’re like, well, I don’t know how to build the systems.
0:33:01 I didn’t do this.
0:33:03 I just go to my handbook, my Olive Garden handbook
0:33:05 and they tell me how to do everything.
0:33:07 So you kind of get that in big company people.
0:33:09 So you got to avoid the big company folks.
0:33:12 – One nuance that you didn’t say pulling out is,
0:33:15 you want somebody who’s running a company two X the size,
0:33:18 not 20 X the size, you would think 20 X is better, right?
0:33:20 No, no, no, it’s not actually better.
0:33:21 Two X is kind of the sweet spot
0:33:23 of what you’re looking for, is that correct?
0:33:25 – Totally, well, there’s this funny,
0:33:29 I think of it as like there’s a variety of different skills.
0:33:31 And if you think, let’s use Chipotle.
0:33:33 For some reason, I always go back to Chipotle,
0:33:34 but think about this.
0:33:37 So there’s the guy who invented the burrito, right?
0:33:40 That’s kind of like, if you think about it,
0:33:42 that’s like the founder of the founder, right?
0:33:46 Then there’s Steve Ells, the guy that started Chipotle.
0:33:48 He went, hey, burritos are a great food.
0:33:50 Let’s scale this up.
0:33:53 Let’s turn this into a fast casual concept.
0:33:56 Then there’s someone who came in and scaled it
0:33:57 to a bunch of stores, right?
0:33:58 I think that was still Steve.
0:34:00 That’s kind of a different skill set.
0:34:03 He went from one store to say 20 stores,
0:34:06 and then they scaled it to like thousands of stores,
0:34:08 and then they managed a public company.
0:34:10 These are all different skill sets, right?
0:34:14 Each of those levels are some, you know,
0:34:15 a whole different set of skills, right?
0:34:18 The guy who invented the burrito is very different
0:34:21 than the person who would be great at scaling Chipotle
0:34:22 to a thousand stores.
0:34:25 And so I think you really just want to be accepting of,
0:34:27 you’re almost running a, what’s it called?
0:34:29 Like a, you pass the baton.
0:34:31 What is that, a marathon?
0:34:32 – A relay race.
0:34:33 – Yeah.
0:34:35 And so you might say, the person that you hire,
0:34:37 the CEO you hire to take your business
0:34:39 from two to 10 million, you know what?
0:34:42 At 10 million, you’re probably gonna bring in
0:34:44 some new person to run the company then,
0:34:45 and they’re gonna know their scale.
0:34:47 And then you keep going through this.
0:34:50 And occasionally you’re gonna get people who read a lot
0:34:52 and learn a lot and are highly adaptable
0:34:53 and can keep going.
0:34:56 But usually, you know, a CEO is really effective
0:34:58 for between five and 10 years.
0:34:59 And every once in a while you get this,
0:35:02 the special cases that can go the distance.
0:35:03 – And even those exceptions,
0:35:05 even Mark Zuckerberg who’s been running Facebook
0:35:08 for 20 plus years, he has Cheryl.
0:35:09 And Cheryl does a bunch of stuff
0:35:11 so that he can keep inventing their next burrito.
0:35:13 He’s like, great, I’m gonna focus on AI.
0:35:15 I’m gonna focus on metaverse.
0:35:16 And somebody else will do, you know,
0:35:17 add operations at this point.
0:35:19 Cause that’s not what I want to be scaling up.
0:35:22 Or the Google guys did the same thing with Eric Schmidt,
0:35:23 right?
0:35:26 They brought in effectively, you know, a CEO to run that
0:35:29 so that they could keep going and creating the next Chipotle.
0:35:31 – Can you talk about transitioning?
0:35:33 I think this is actually the hardest part
0:35:35 of all this is transitioning.
0:35:38 And like, you have always given me advice.
0:35:40 And whenever, and I believe your advice was right
0:35:42 and I’ve followed it, but at first,
0:35:45 your advice is basically just bail.
0:35:49 And you’re like, just talk to him like once a month,
0:35:51 at that once a quarter, at that once a year.
0:35:55 And I was like, well, I was gonna like keep working there
0:35:56 and talking to him every single day
0:35:59 and like give feedback constantly
0:36:00 and be in all these meetings.
0:36:01 And you’re like, no.
0:36:03 – So Sam, is the question like,
0:36:06 you’ve hired the CEO, what are those first hundred days
0:36:07 supposed to look like?
0:36:11 – Yeah. And then, and then after six and 12 months,
0:36:12 what’s it look like?
0:36:15 Because it’s, this is the hard part where emotion
0:36:16 typically takes over logic.
0:36:17 – Totally.
0:36:20 It’s terrifying to use the baby analogy.
0:36:23 You know, you imagine you have this beloved baby
0:36:25 and then you watch the foster parent
0:36:27 and they’re playing a little rough with your kid
0:36:29 and you don’t quite like what they’re feeding them.
0:36:32 And well, they don’t really know the nap time routine, right?
0:36:36 So it’s a little bit scary passing off your business baby
0:36:37 to somebody else.
0:36:39 What I think you do have to rip the bandaid
0:36:42 and let them jump in the pool.
0:36:43 I think it’s incredibly important
0:36:46 that you assert to your top executives,
0:36:48 this person is in charge
0:36:52 and you can’t come to me anymore, right?
0:36:55 So what I like to do, what I would do in the early days
0:36:57 is I would make the announcement,
0:36:59 explain why I’m making the announcement,
0:37:01 why I’m making the change.
0:37:04 And then I would literally leave Slack,
0:37:07 I would stop responding to texts from the executives,
0:37:09 I wouldn’t respond to email
0:37:11 and I would say to the CEO, look, you know,
0:37:14 you’re in charge, let’s do a check in in a month.
0:37:17 And then I would just completely check out.
0:37:19 And I’d say, you know, look, if you want,
0:37:20 if there’s any emergencies,
0:37:22 you can always call me and get an opinion.
0:37:24 – But do you give them like a guide?
0:37:27 Like, are you like compiling everything in Notion?
0:37:28 Like, I don’t know.
0:37:30 – Yeah, you’re spending, yeah.
0:37:33 Well, maybe not, maybe not quite a guide or something,
0:37:35 but you’re doing a lot of brain dumps, right?
0:37:36 You’re gonna spend a couple of days with them
0:37:38 and go through everything.
0:37:39 But, you know, business is funny.
0:37:41 Like everything tastes like chicken,
0:37:43 like a competent CEO will be able to jump
0:37:46 into most businesses within five, 10 days,
0:37:49 be able to kind of get the lay of the land and get moving.
0:37:52 So I don’t do too much of that transition stuff.
0:37:57 And then, so first you’re checking in maybe every two weeks,
0:37:59 then you’re checking in every four weeks,
0:38:01 then you’re checking in every three months.
0:38:04 And then if you want, you can go to six months or a year.
0:38:07 And I really think that the worst thing you can do
0:38:10 is have them writing you a whole bunch of reports
0:38:12 and constantly text them and engaging them
0:38:14 and making them feel they don’t have power.
0:38:17 And then worse than that, the swoop and poop, right?
0:38:22 Like so you bypass them, you text your old VP of marketing,
0:38:25 you say, I noticed you guys stopped A/B testing this
0:38:28 on the homepage, what’s going on with this?
0:38:29 And then before you know it,
0:38:31 your CEO feels you’re undermining them
0:38:33 and all the executives go,
0:38:35 well, I see who’s still pulling the strings.
0:38:37 You know, Sam’s still in charge.
0:38:39 I’m just gonna go back to Sam.
0:38:42 And then the water, the stress finds its way back to you.
0:38:44 So I’m a big fan of just being,
0:38:46 I mean, you gotta do your diligence.
0:38:49 If you’re gonna give this person your business, baby,
0:38:52 you gotta know they’re not a epic piece of shit, right?
0:38:53 That’s very important.
0:38:54 But if you’ve done all that,
0:38:56 we can talk about all the diligence stuff.
0:38:57 So you gotta get comfortable
0:39:01 that passing your business to this person is gonna be okay.
0:39:03 – All right, if you’re listening to this pod,
0:39:05 I already know something about you.
0:39:07 You, my friend, are nosy.
0:39:08 You wanna know the numbers
0:39:11 behind all of these things that we’re talking about,
0:39:12 how much money people make,
0:39:13 how much money people spend,
0:39:15 how much money businesses make.
0:39:16 You wanna know all of this.
0:39:18 People’s net worth, all of it.
0:39:19 Well, I’ve got good news for you.
0:39:20 So my company, Hampton,
0:39:23 we’re a private community for CEOs.
0:39:25 We do this thing where we survey our members
0:39:26 and we ask them all types of information,
0:39:29 like how much money they’re paying themselves,
0:39:30 how much money they’re paying a lot of their employees,
0:39:32 what their team-wide bonuses are,
0:39:34 what their net worth is, what their portfolio looks like.
0:39:37 We ask all these questions, but we do it anonymously.
0:39:39 And so people are willing to reveal
0:39:40 all types of amazing information.
0:39:41 So if you really cannot Google,
0:39:42 you can’t find anywhere else.
0:39:45 And you could check it out at joinhampton.com,
0:39:47 click the report section on the menu,
0:39:50 click the salary and compensation report.
0:39:51 It’s gonna blow your mind.
0:39:52 You’re gonna love this stuff.
0:39:53 Check it out.
0:39:54 Now, back to the pod.
0:39:57 Well, how many months or quarters of mistakes
0:39:58 or misses do you let them have?
0:40:00 – Well, it depends.
0:40:03 I mean, you know, is it a hard business or an easy business?
0:40:04 How stark is it?
0:40:06 You know, was it the moment they started?
0:40:09 Within a month, the performance went to shit.
0:40:10 Is there a good reason for that?
0:40:12 I think it’s a really hard question.
0:40:15 I mean, we’ve had very, very competent CEOs
0:40:17 join hard businesses and the business
0:40:19 gets worse under their purview.
0:40:21 Doesn’t necessarily mean they’re doing a bad job.
0:40:23 It could be a macro problem
0:40:24 or there could be some other headwind.
0:40:27 So I think that’s up to you to assess.
0:40:30 I always say, you know, you want flesh wounds,
0:40:31 not mortal wounds.
0:40:36 So would I allow a CEO to spend $500,000
0:40:40 on some R&D boondoggle?
0:40:40 – Yeah, maybe.
0:40:43 I don’t want them to feel that I’m holding them back,
0:40:47 but would I allow them to announce to all the employees
0:40:49 that they’re changing the business model
0:40:53 and shutting down some critical revenue line?
0:40:54 Maybe not.
0:40:56 You know, I’d probably watch something like that.
0:40:58 And ultimately, I think it’s important that you say,
0:41:00 I’ll never forget when I was reading for our work week,
0:41:02 Tim Ferriss had this whole thing
0:41:05 about anything less than $5,000
0:41:07 does not require my opinion.
0:41:09 And I think it’s important you set that control
0:41:10 with the CEO.
0:41:13 So you say, anything that you want to spend
0:41:17 more than $300,000 on, I want you to come to me.
0:41:18 I want you to discuss, right?
0:41:21 So you can kind of build a bit of a bounding box around that.
0:41:23 – We got to take a drink every time you say
0:41:25 a cute Canadian phrase.
0:41:28 We’ve got boondoggle, we have dingus,
0:41:29 we’ve got creepy crawly.
0:41:33 What else you got for us?
0:41:35 – Dingus, dingus isn’t even Canadian.
0:41:38 It’s actually, it’s from Tim and Eric.
0:41:39 – Do you guys ever watch Tim and Eric?
0:41:43 – Yeah, I want more of that, go ahead Sean.
0:41:45 – Let’s finish up actually in the hiring
0:41:46 and diligence and stuff.
0:41:48 So I have one more on the interview.
0:41:50 So do you meet in person
0:41:51 or are you trying to do everything in Zoom?
0:41:53 Do you like spend time, you know,
0:41:55 in extended time with them?
0:41:57 – Yeah, I like to meet them in person.
0:42:00 I think there’s something to looking someone in the eye,
0:42:02 seeing how they, their body language is,
0:42:05 you just can’t get that same level of diligence.
0:42:08 I have hired people site unseen many times,
0:42:11 but for major hires, I always want to meet them in person.
0:42:15 So in terms of diligence, this is the most critical thing.
0:42:18 And this is where we’ve made the most mistakes, right?
0:42:21 You can avoid endless pain
0:42:24 if you just diligence people carefully.
0:42:26 And this is, you know, anyone who’s hired people
0:42:28 at a company knows this, you know,
0:42:30 check references, top grading,
0:42:32 there’s all these different ways of doing it.
0:42:33 But there’s a couple, you know,
0:42:36 there’s this idea of like trust but verify, right?
0:42:39 So I’ll trust my gut, that’s my first screen.
0:42:41 And then I’ll perhaps introduce them
0:42:43 to like one or two other people I trust.
0:42:45 So like Chris might talk to the CEO as well,
0:42:48 someone else from our team will assess,
0:42:51 okay, do we get any creepy crawly vibes?
0:42:53 If that’s not the case, if we don’t,
0:42:56 then we’ll move into actual diligence.
0:42:58 And we’ve learned the hard way,
0:43:01 we’ve made a couple really bad hires that burned us.
0:43:05 And so we actually use these former CIA guys
0:43:06 to do background checks.
0:43:08 They’re called business intelligence advisors,
0:43:11 kind of like CIA, but with a B.
0:43:12 And they’re incredible.
0:43:15 They will interview, so they’ll call up the person,
0:43:18 they’ll talk to them for an hour or so,
0:43:20 and they’ll write down every single thing they say.
0:43:23 So if they say, oh, in college I was an athlete,
0:43:25 they’ll verify that.
0:43:29 If they say, oh, I left that company because XYZ,
0:43:31 well, they’ll go and look up that company
0:43:33 and they’ll message five people
0:43:34 who might have worked with them.
0:43:37 And so you end up getting this dossier on the person
0:43:39 that gives you a high level thing
0:43:42 of what are the positives, what are the negatives?
0:43:47 And then also, have they ever been accused of a crime?
0:43:49 Have they ever had like a track record
0:43:52 of like not paying bills, legal records,
0:43:53 all that kind of stuff?
0:43:55 So I think that’s really important.
0:44:00 And we’ve made a really bad hire about 10 years ago.
0:44:03 And the guy basically was like full of shit
0:44:05 about a whole bunch of stuff on his resume
0:44:08 and it ended up being a nightmare.
0:44:10 And so after going through that experience,
0:44:14 I think it’s well worth paying between 10 and $20,000
0:44:17 to get this deep reference check done.
0:44:20 And so I think that’s just so critical.
0:44:20 – That’s amazing.
0:44:23 Do you, it sounds like between the recruiter
0:44:26 and the reference check, the background check people,
0:44:30 you might be spending anywhere between $50 and $100,000
0:44:33 of transaction costs in recruiting a CEO.
0:44:35 I’m assuming you can’t do that
0:44:39 when it’s a $300,000 a year profit business.
0:44:42 What is the minimum bar you use
0:44:45 when you’re gonna pay for both the good recruiter
0:44:47 and the background checks?
0:44:49 And what would you do if you’re the person
0:44:53 who is more at the 300,000 a year profit
0:44:55 and maybe can’t afford those transaction costs?
0:44:56 How would you do it, DIY?
0:44:58 – Well, I would just follow the same process, right?
0:45:02 So you’re not gonna be able to hire the recruiter
0:45:03 and afford them.
0:45:06 And so you’re gonna try and cast your net really broad.
0:45:08 You’re gonna talk to a lot of different people.
0:45:12 When it comes to verifying what the person tells you,
0:45:13 the number one thing is never call
0:45:15 the references they give you, right?
0:45:18 Any snakey person can find three buddies
0:45:21 who can say that they’re great or whatever it is.
0:45:23 I always try and scuttle butt.
0:45:26 So I’ll say, okay, my friend invested in that company
0:45:30 and I’ll ask them to ask the CEO why that person left
0:45:31 or if they recommend.
0:45:32 I also have this trick.
0:45:35 I don’t remember where I got it, but I love this one.
0:45:39 You email a whole bunch of people who used to work with them
0:45:41 or the former CEO they worked for,
0:45:44 and you say, hey, I’m doing a reference check
0:45:46 on this person.
0:45:48 I’d love to talk to you about them.
0:45:50 If you don’t respond to this email,
0:45:52 I’ll take it as you didn’t have a good experience.
0:45:53 – Oh, eyes cold.
0:45:56 That is an eyes cold. – It’s such a great trick.
0:45:59 It’s such a great trick ’cause if they don’t respond,
0:46:01 people will almost always respond
0:46:03 ’cause they don’t wanna shit on somebody.
0:46:05 If they have anything good to say,
0:46:07 but if they have something bad to say, it gives them an out
0:46:09 ’cause a lot of people I found are worried
0:46:10 about legal liability.
0:46:13 They don’t wanna go and say this person’s a piece of shit
0:46:16 and then that person sues them or something like that.
0:46:19 – Dude, I’m gonna use that line for any email I want.
0:46:21 I’ll just ask someone anything.
0:46:25 If you don’t reply, I’ll assume you hate yourself
0:46:26 and your family.
0:46:28 – Yeah, exactly.
0:46:30 Sales guys do that all the time.
0:46:31 That’s the worst.
0:46:34 Okay, so you found the person.
0:46:37 How do you negotiate and structure the comp package
0:46:38 for the CEO?
0:46:41 – So I always like to make the first offer
0:46:43 ’cause ultimately you kind of know what you’re willing
0:46:46 to pay and what makes sense based on who they are.
0:46:48 And I think you kind of have to scale up or down
0:46:49 based on their experience.
0:46:52 So there’s times where I’ve taken a risk
0:46:53 where I’ve said, you know what?
0:46:56 This person was, they’re a VP marketing,
0:46:58 but they really have CEO energy
0:46:59 and I’m gonna take a chance on them.
0:47:02 I’m gonna try and pay less for someone like that.
0:47:05 I’m not necessarily gonna put them into full CEO comp.
0:47:07 I’m gonna try and go high variable low base,
0:47:09 but someone who’s more established,
0:47:12 I’m gonna give them basically what they want
0:47:16 and whatever we think the range is there.
0:47:17 And then the most important thing
0:47:19 is to use total compensation.
0:47:20 So when you make the offer,
0:47:22 so let’s say I have a business
0:47:26 that’s doing $300,000 a profit
0:47:30 and I can comfortably afford a CEO base salary
0:47:33 of 150 grand, right?
0:47:36 So let’s say this person is worth 300 grand a year,
0:47:38 400 grand a year.
0:47:39 I’m gonna go to them and I’m gonna say,
0:47:42 I’m gonna pay you 300 grand a year,
0:47:44 but it’s gonna be a $150,000 base
0:47:46 and it’s gonna be a $150,000 bonus.
0:47:51 And the bonus is if you get me to $600,000 of EBITDA, right?
0:47:55 And so you’re basically using the profits
0:47:58 that they’ve created to pay them the bonus
0:48:00 and you’ve created alignment between the two of you.
0:48:02 But it’s important never to just say,
0:48:06 well, I’m gonna offer you $150,000 a year plus a bonus.
0:48:07 ‘Cause in their head, they’re going like,
0:48:10 no, I’m a $300,000 a year person, right?
0:48:13 So I always lead with what’s the total compensation
0:48:14 and then what needs to be true
0:48:16 to achieve that compensation.
0:48:19 I’m also a big fan of uncapped bonuses.
0:48:24 So for example, let’s say the target is $600,000 of EBITDA.
0:48:28 Well, if they do $1.2 million of EBITDA,
0:48:29 I want them to get double the bonus,
0:48:31 maybe even triple the bonus.
0:48:32 And that’s worked really well for us.
0:48:34 So the idea of saying, look,
0:48:36 I’m gonna offer you $300,000 a year,
0:48:37 but it might be $600,000.
0:48:39 It might be a million dollars a year,
0:48:41 depending on how you perform.
0:48:43 And then the other thing is equity is just hard.
0:48:46 I’m not a big fan of stock options.
0:48:49 I like to try and find people who are willing to,
0:48:52 if they want equity, they’re willing to write a check.
0:48:55 So if a CEO comes to me and they say, okay,
0:48:57 but I need equity, I need skin in the game,
0:48:59 I’m gonna say something like, okay,
0:49:04 so you want $40,000 of equity per year.
0:49:08 Are you willing to lower your compensation by $40,000?
0:49:12 Or are you willing to write a check?
0:49:15 Do you have a stock portfolio you can sell
0:49:17 and you can inject the money into the business
0:49:20 and I’ll let you buy in at a really great valuation?
0:49:22 And if they don’t wanna do that,
0:49:23 then sometimes I’ll even loan the money.
0:49:26 I’ll say, I will personally loan you the money
0:49:27 and then you’re gonna write a check
0:49:28 and you’re gonna buy it.
0:49:30 And I have the right to buy back your,
0:49:33 if you leave, I have the right to buy back your stock
0:49:36 at whatever multiple of the earnings at the time
0:49:37 or whatever it is.
0:49:39 – How do people react to that conversation?
0:49:41 Because that’s very different than where
0:49:42 a lot of people are probably coming from.
0:49:44 – Well, I want them to value the equity
0:49:45 and they don’t value the equity
0:49:46 when they get stock options.
0:49:47 They just look at it.
0:49:49 They don’t even consider it as part of total comp.
0:49:53 So let’s say that, here’s the kind of thing I’d hear.
0:49:57 So they say, I wanna make 400 grand a year
0:49:59 and I want equity.
0:50:00 And I’d say, well, okay,
0:50:01 how is the equity gonna work?
0:50:04 And they go, well, I think I should have 5%.
0:50:07 And let’s say the business is worth $100 million.
0:50:10 So they’ve now said, okay, I want $5 million.
0:50:13 And you’re like, okay, well, you’re worth
0:50:17 four to 500K a year based on your track record
0:50:19 and your experience and all that kind of stuff.
0:50:23 How am I supposed to give you $5 million of equity?
0:50:24 That just doesn’t make sense.
0:50:26 And so I always try and talk about it
0:50:29 in terms of what’s the cash value of the equity
0:50:30 that they’re receiving?
0:50:32 And how do we create a scenario
0:50:33 where we have shared downside?
0:50:36 And a lot of people in Silicon Valley
0:50:38 are used to stock options.
0:50:40 And the way stock options work is,
0:50:42 let’s say Sam, you joined my company
0:50:44 and the stock price is $100.
0:50:48 And I say, here’s $100,000 of stock options
0:50:51 at $100 share price.
0:50:54 If the shares drop to $50,
0:50:56 it’s a lotto ticket and it’s a zero.
0:50:59 It’s not worth anything.
0:51:02 If it goes up, then it’s worth a shit load.
0:51:04 And so you end up with this kind of binary situation
0:51:07 where they have this lotto ticket
0:51:09 that pays out big or as a zero.
0:51:11 And so what that means is
0:51:14 if your value of your business goes down even 10%,
0:51:16 they’re basically at a zero.
0:51:18 And so they’re disincentivized.
0:51:20 So I just, I don’t love stock options.
0:51:22 And in general, I only like giving equity
0:51:25 to people who are willing to sacrifice something for it.
0:51:29 Otherwise, why wouldn’t I just pay you a really fat bonus?
0:51:32 If you get down to it, that’s usually what executives want.
0:51:34 They want to do an addition to their house.
0:51:36 They want to go on crazy vacations.
0:51:38 They like cash most of the time.
0:51:39 – Well, a quick kind of question
0:51:42 is when you round up to what the downside of all this is,
0:51:45 is like everything you’re saying, I think sounds,
0:51:47 when I hear, I’m like, this is the way.
0:51:51 Is a fair argument against this
0:51:55 that founder led companies typically have more innovation
0:51:57 or more soul and things like that,
0:52:00 and that it’s better to have one thing go big
0:52:04 versus many things that are potentially okay.
0:52:05 Is that a fair argument?
0:52:06 Do you think or no?
0:52:10 – Yeah, but I think, like I said in the beginning,
0:52:12 I think it comes down to personality.
0:52:14 Like I think if you’re,
0:52:16 so for me, when I was running MetaLab,
0:52:20 I started five other companies in the first three years
0:52:22 ’cause it was irresistible to me, right?
0:52:24 Now I knew the right thing to do
0:52:26 might’ve been to focus on the business,
0:52:30 but my personality is that I want to go do other stuff.
0:52:33 So Sam, like you seem super focused, right?
0:52:35 And maybe you’re better off just having one focus.
0:52:38 You wake up every day, you think about one thing,
0:52:40 but if you start finding yourself
0:52:42 getting drawn into other businesses,
0:52:44 it would be a huge disservice
0:52:46 to continue to run that business, right?
0:52:47 So I think ultimately it comes down to
0:52:49 being true to yourself.
0:52:52 You shouldn’t, if you’re listening to this, go,
0:52:54 oh, I should go do this.
0:52:56 You should only go do this if you’re drawn to it.
0:52:58 It’s the same advice I give to entrepreneurs.
0:53:00 They say, well, should I go and work at a company
0:53:02 or should I be an entrepreneur?
0:53:04 And I kind of go, well, if you have to ask that question,
0:53:06 the answer is probably no, right?
0:53:08 ‘Cause for me, I could never consider
0:53:10 working for someone else.
0:53:11 If I, whenever I had a job,
0:53:14 I just wanted to shove the boss out of the way
0:53:16 and take the wheel of the business.
0:53:18 So I think to me, it’s just, it’ll be obvious.
0:53:21 If this is something that appeals to you, you’ll know.
0:53:23 You’ll be listening to this nodding along and going,
0:53:25 oh my God, I can do this.
0:53:28 I just didn’t know I could do it and not feel guilty.
0:53:31 – Well dude, this is awesome.
0:53:33 We love having you come on.
0:53:34 What do you think, Sean?
0:53:36 – Yeah, this is great.
0:53:38 And it’s also earned information.
0:53:41 So this is not something that you,
0:53:42 you might be able to read in a book,
0:53:45 but a lot of the nuance of what you described
0:53:49 is from hard lessons that were things that went right,
0:53:51 many mistakes of things that went wrong
0:53:52 and the lessons you’ve learned.
0:53:55 So we all got to benefit from your 20 years of experience
0:53:58 kind of going through this process yourself.
0:54:01 And I know for me, it was a huge unlock
0:54:04 to be able to hire a CEO and do that successfully.
0:54:06 And I was like, wow, this is cheat codes.
0:54:08 Oh my God, I get, the business is gonna do well.
0:54:09 It’s gonna do better than if I was doing it.
0:54:13 You know, I get all of the reward without any of that work.
0:54:15 And it’s a total of great trade for this person.
0:54:18 ‘Cause I kind of didn’t really appreciate
0:54:21 how many people are entrepreneurial,
0:54:23 but maybe not entrepreneurs.
0:54:25 They’re people who are great CEOs,
0:54:27 but they also got two kids.
0:54:28 They don’t want to take full on risk.
0:54:33 So they want that kind of medium upside, low downside.
0:54:37 And finding that fit has been pretty huge for me.
0:54:39 So I think that’s great.
0:54:40 A lot of the things that you said that stood out to me,
0:54:44 the golden nuggets for me was find the number two
0:54:46 at a business that’s two X bigger,
0:54:49 but similar to the one you’re in right now.
0:54:51 Figure out what’s their hammer.
0:54:53 ‘Cause that’s probably it.
0:54:54 Everybody’s a man with a hammer.
0:54:55 And you just have to make sure
0:54:57 that that’s the right hammer for your business.
0:55:01 And then pay up on the reference checks
0:55:02 and the recruiter to make sure
0:55:03 that you get enough candidates
0:55:05 and then you find the right person
0:55:08 because it’s a necessary tax you have to pay
0:55:11 once the business is big enough that you can support this.
0:55:12 – And then leave them alone.
0:55:13 That’s the other thing.
0:55:15 Most people don’t leave them alone.
0:55:16 They say, “Well, it didn’t work.”
0:55:17 In the first two weeks,
0:55:19 they did something I didn’t agree with.
0:55:20 So I had to fire them.
0:55:21 – Well, what’s the balance there?
0:55:22 Like you leave them alone,
0:55:23 but you don’t leave them completely alone.
0:55:24 I think for you guys,
0:55:28 they send you what, a finance only update every month.
0:55:30 And then is there anything else to it?
0:55:32 Like a strategy planning thing,
0:55:33 or do you do anything else?
0:55:34 – So what we used to do
0:55:36 is we do a report every single month
0:55:37 and they would write like,
0:55:39 “Here’s what’s going on in the business.
0:55:40 “Here’s the numbers.”
0:55:41 And that was just crazy.
0:55:42 We couldn’t keep up
0:55:44 and it also wasted a lot of their time.
0:55:46 Now we get just the numbers to head office
0:55:48 and we meet the CEOs annually.
0:55:52 And then often there’s certain CEOs we don’t even meet
0:55:54 because they’re within operating platforms.
0:55:57 So we just meet with the CEO of that operating platform,
0:56:00 usually like monthly or quarterly in check-in.
0:56:04 By the way, this is the number one thing I get emails on,
0:56:05 like literally like every single day,
0:56:08 I get questions about it on Twitter and on email.
0:56:11 And so I actually wrote a PDF on here,
0:56:12 like a checklist based on,
0:56:15 “Are you ready to hire a CEO and how to hire a CEO?”
0:56:17 And if you sign up for my newsletter,
0:56:20 it’s neverenough.com/newsletter.
0:56:24 I’m gonna post the PDF next week, I think.
0:56:25 Awesome.
0:56:26 Okay, great.
0:56:28 I think that’s the pod.
0:56:31 Everybody should go check it out, neverenough.com/ what?
0:56:32 Newsletter?
0:56:33 – Newsletter, yeah.
0:56:35 – And we’ll link to it in, yeah.
0:56:36 We’ll link to it down here.
0:56:37 All right, dude.
0:56:38 Thank you.
0:56:39 That’s the pod.
0:56:40 ♪ I feel like I can rule the world ♪
0:56:43 ♪ I know I could be what I want to ♪
0:56:45 ♪ I put my all in it like no days off ♪
0:56:48 ♪ On a road let’s travel never looking back ♪
0:56:51 (upbeat music)
0:57:01 [BLANK_AUDIO]