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

alright this is a guest masterclass with our buddy andrew wilkinson we're inviting him on because if your world class is something i wanna learn from you in fact i had emailed andrew a while back being like hey i have this company it's working we had scaled into the tens of millions in revenue but i just didn't wanna run it anymore i was tired i wasn't the right guy for it i was half in half out and i was just fan about selling it or the day where i wouldn't be running it anymore and he's like dude did you need to hire a ceo and to me that i always felt like something that's easier said than done hire ceo just find somebody to take over my baby but he's done it this guy's got forty companies he's got ceos that run them he doesn't have to run any of them day to day the portfolio is worth five hundred million dollars so if there's anybody to learn from it's andrew on this and so he comes in any shares how we you interview them who is he looking for how does he structure the compensation and so we go into step by step how to hire a great ceo for your business it worked for me for andrew i hope it works for you so enjoy this guest masterclass pass with andrew wilkins i feel like i could rude where i know i could be what i want to from at all in and like a days off on a road okay we asked andrew will consider to come on and do one specific thing which is teach us how to hire ceos he owns and you own what forty companies now the total portfolios worth almost five hundred million dollars and yet you're a pretty chill guy whenever i text you your answer you're always having fun you're not stressed out overloaded overworked like every other ceo i know who's a ceo of one company but you have forty and so i think the way you've been able to do that is by hiring great ceos for all your companies and it's actually worked me and sam wanna learn this from you so you're here today to teach us that how'd do you even realize that you needed to hire ceos yeah so i would say it's not that it's less it's not less stressful it's just different right so i just have different problems so someone running a company might be you know putting out a fire that's that's burning that day i put out fires that burn over the course of a month or two and they're bigger fires and then someone else might spend a lot of time dealing with company politics i end up dealing with you know ceo comp packages so i wanna say to begin with you know this is not necessarily a greener pasture it's just a different pasture and i think you really only wanna oversee ceos if that's your skill set if you're drawn to being super super high level and hands off which some people it's be real they're not they're they're like they wanna be gi from joe dreams of sushi don't wanna be the guy who starts chipotle they wanna be on the line they wanna be making food and so it ultimately comes down to your personality and for me my personality has always been i'm incredibly lazy so from the time that my mom told me to wash the dishes i was furious i was always trying to find ways to you know pay my brothers to do it find you know systems to wash the dishes or effectively so i to do less work and so i always joke that i'm teflon for tasks and if you start del in your company which most great entrepreneurs do you ultimately reach this point where you ask yourself was there anything else i can delegate and that final level of delegation that final level of abstraction that's hiring a ceo that's hiring one to hire ten they go and they run the entire company and you just talk to them quarterly sometimes annually and there's some ceos i have that i haven't even talked to in two or three years you have something between thirty or forty companies do you have thirty or forty ceos reporting to you no the way that we do it now so it was crazy at first it was like five companies so i had five direct reports that are ceos no big deal and then over time as we've scaled up we've had to form operating groups and so we have these operating groups and they have their own ceos who are report to us so for example all of our digital services businesses are run by a guy named par deep i meet with pretty deep kind of bi weekly monthly whenever i need to and he oversees a group of like six companies even if you're not gonna end up with that kind of portfolio forty company structure i've had this with you which is i think a more common problem i remember emailing you saying i have this christmas business it's working so i i can't there's no there's no reason to shut it down however i don't wanna keep working on it i liked it at the beginning i don't love it now i wanna go on and do new things how do i do this do i have to sell this like should i just sell the company do i can i hire you and if so where the heck am i gonna find somebody who i could trust to do this so even on a one company level i think that's where most founders are gonna be that you know step one is abstract yourself out of a single company so let's let's start with that you you said some of you're like it's pretty common and everyone loves her business in you're one not what's your exact quote so yeah every time i talk to a young founder they're like i'm gonna run this till the day i die it doesn't matter what the business is they think they're gonna be you know there like mark zuckerberg for twenty thirty years and then you talk to them in your seven or eight and almost all of them are just like how do i escape this hell ish waking nightmare like they wanna be there i'm gonna run this till i'm twenty eight till the day on twenty eight totally so and it's really interesting because people generally think about it in a very binary way they're like okay there's two doors door one keep running my company door two sell get rich and live on mo island right but there's actually a door three and door three is hiring a ceo right so you're you're in a marathon and you can either ditch the marathon or keep running it well it turns out that you can actually incentivize someone else to keep running the marathon on your behalf and i mean this just goes back to what i was talking about before right so there's there's all these different levels of delegation and we all understand at least you're good entrepreneur that if you don't like accounting you just hire an accountant well if you don't like running your company door three is you just hire a ceo so you know my my story on this is i started meta lab which is a design agency about twenty years ago i feel very old to say that but about twenty years ago and i ran it for as ceo for almost ten years and i had a great exec team like i was able to delegate quite a bit of it i was running other companies at the same time but ultimately the buck stopped with me and for the first three to five years it was really exciting like i was learning new skills all the time i was sc like you know sending the invoices and negotiating deals with clients and i was flying all over the world and it was all new and and exciting but you know at a certain point you know after like year a year nine i didn't wanna fly to san francisco anymore i didn't wanna have to like shake hands and kiss babies and do that and i remember chris my now business partner and at the time cfo would come to me and be like dude you gotta fly to san francisco every time you go down there you close like a million dollars of new projects but i didn't really wanna do it because ao is exhausted it wasn't new anymore i didn't wanna travel it didn't suit my lifestyle but also i was already rich i was already making enough money and so the business was kind of starting the plateau because i wasn't willing to go that extra mile i was just saying you know what we'll just do whatever comes in i'll do a a san francisco trip once a quarter and we'll close what we close because i don't wanna do that well the beautiful thing was there were young scrappy people who to them the idea of flying to san francisco and taking a client out for a steak dinner was a dream come true they've never done that before and so for me i was looking at it and going okay running a five person agency versus the fifty person agency it's a very different job and it was a job that i sucked at you know i really to this day love running five person companies i love running you know i can get to about fifteen people comfortably but i i wasn't enjoying it when we're fifty people and i read every book about management i did courses and i just kind of whip myself why am i not a great manager why can i not be like peter dr rein and so i would always just fantasize about selling and i i kept trying to sell the business and then we'd be like right at the last month and then the the buyer would change the terms or something would go wrong in the business and so i was kind of starting to lose it i didn't wanna be running my company i wanted to know but i i i couldn't sell it and so around that time i ended up reading a book about warren buffett and i found out about door three and here we are i started hiring ceos i made a ton of mistakes which i'll talk about but it's it's enabled me to create tiny which i never would have done before i'd probably still be either miserably running my business or i would have sold for you know a much smaller amount of money it we'll get into like the actual tactics really quick though the green pasture or thing you doing is it's always grass is always greener on the other side and like you and i joke where you're like lot i don't wanna say what you said but you'll just like be teasing about running a small company and how that could be way more fun and being the ceo of a small company for a long period of time versus trying to like go big what's the grass is always greener for you well i mean i think i there's a great bob sig quote which is i wish i didn't know now what i didn't know then right so for me i i think think about it like this i might have given this example before but imagine if you love chopping wood right you just do it because it's fun you're in your backyard chopping wood and then your neighbor poke his head over the fence and says hey dude can i get a cord wood i'll pay you for it and you realize oh my god this is a business i've taken my passion and i've created a business and now i'm selling wood door to door i'm working with my five best friends it's a blast right i'm suddenly making money i can afford to go to the bar life is good and then you flash forward twenty years and you wake up and you're a lumbar magna you own five saw and all you do every day is you sit in a little air conditioned box looking down at the the floor you have all these robots working for you and all these hundreds of employees and most of your time has spent doing doing excel right i think that is the sadness of building a large business and del your hands are not on the tools anymore and so for me what's been sad about building the machine is i've built the machine that's freed me to do what i want but the irony is i end up doing things i don't want as a result because ultimately i was a designer i love putting on headphones and being in photoshop and designing websites and writing and so for me it's been searching where do i get the flow state that i used to get running a five person company let's less role play it here so i have a company i wanna hire a receipt i i realized i can do this third door and i'm like you know what that's the right move i should hire a ceo but where the heck am i gonna find a ceo that i could trust that's gonna not only not ruin it but actually you know hopefully grow the business in some way what's the what's step one so step one you have to really assess is your business big enough right is this the right thing is this the right time so ultimately you wanna ask does your business have product market fit and can it actually afford a ceo right is this is this a corner store like where it's kind of an owner operator kind of business where you just kinda have to run it and if you leave all the profit gets eaten up by somebody else or is this something that's really scalable so i generally as a rule of thumb will say you probably shouldn't hire a ceo until your business is doing three hundred thousand dollars or so of profit and if it is that means that you can swap yourself out and you can afford to hire someone a reasonable base salary and then you can incentivize them to grow the business and so one of the one of the really interesting things that people kind of ob assess over is they say well you know a ceo could cost five hundred thousand by business is only doing three million dollars and three hundred thousand dollars of profit and what they kind miss is that generally a ceo has paid a base salary but most of their comp comes from bonuses and the bonuses are based on the business growing and so it's one of those things where it's like if your business is doing three hundred k of profit you can basically take two or three hundred k of that invest in the base salary for the ceo and then all of their additional comp will come from the growth of the business and so you've aligned them with your goals so first thing is my business business big enough so you said two two criteria product market fit meaning we we know what the hell we're doing we're not in the figure it out figure out the product figure out the market figure out the what is the offering and changing that every three weeks because it's not working like you have a reasonable continuous cycle of supply and demand for what you're doing and then you said profit around three hundred thousand as the kind of that's the minimum bar i would say so in there i mean occasionally you can let's say you've got a friend who's super scrappy who wants to sink their teeth into something and you've got a small business that's like i was call them like an em it's not really a fire yet it's an em and someone needs to come blow on it you could do that but i think there's a lot more risk there you really want a machine that's operating you want a car that can drive on the road before you put someone in and then the other question is can you make someone rich right because ultimately people who are good great exceptional ceos they're looking for opportunity and upside and by nature the fact that they're a hired gun ceo tells me they're not necessarily an entrepreneur they don't wanna take total risk they want a nice salary they want bonuses they're not necessarily willing to risk at all but often they wanna know they can get rich in a in a ceo way so they can make single digit millions for the first time ever if everything plays out or maybe they can get a big payout if the business sells or gets to a large scale or whatever it is but ultimately you wanna know that you can make someone wealthy with it so we'll do the exact comp stuff in a minute but the second question you have so first was is the biz big enough and to be a product market fit then you also said to me once it's like are you willing to walk away i think there's a mental side of it too are you are you ready to hire a ceo yeah and that's really hard i mean you know do you i remember i got to the point where i fantasize about giving the keys away to someone else and when i finally did i was el elected you know but there's a lot of people who aren't like that i can think of one of my friends to him his business is his baby and when people mess with this baby he gets really angry and he doesn't like it and so you need to be willing to walk away and effectively look at it this way as entrepreneurs we are all we're all birthing these these business babies and now you're giving them to a foster parent can you tolerate that you know can you cope with that someone else parenting your child because that's really what it is and not only that but you have to be disciplined for it to work you need to either be all in or all out you have to empower this person you can't be sitting there looking over their shoulder so i think those are the two kind of fundamental questions to this right are you are you is your business big enough and are you willing to walk away but but when you're accepting the when you're saying alright i'm gonna walk away is it i'm walking away because this person's gonna make everything greater than i could or are you walking away thinking to yourself i know it's not going to be as good with me in it but it could be eighty percent as good and i won't have to worry about it well let let me put it this way the let's say that you're an exceptional product person you'll know the product won't be quite as good because generally people who are good at marketing and sales and operations and finance are just not as good at product so you're gonna sacrifice on the product side a little bit but you're gonna know the business itself will be so much healthier and grow at least from a financial measure i found that going from being a checked out founder operating your business reluctant to somebody who's highly incentivized for growth who's excited to do it almost always the business like doubles in the first year i've been astounded by how much i had been holding back my business yeah that's a great question great answer that seems pretty con consistent with what i've heard i found her the other day was telling me after maybe eight nine years of running his business he hires a ceo he plans to stick hey i'm here i'm available for the next year transition he's like yeah they haven't a called in a little while you know we beat we beat our numbers which i wasn't able to do the last three years and everything's seems to be going really well turns out turns out they didn't need me as much he's like a little hit to the ego but also wait isn't this exactly what i wanted and you know he he was sort of pleasantly surprised on the upside from there so let's talk about finding the right person how do you actually find a great ceo what are you looking for so generally i like to i like to find someone who's run a same or similar business that's double the size so let's say i have an e commerce brand selling candles well i want i don't necessarily need to go find a ceo who's run a candle business before but i wanna find someone who's sold a similar product online and i will generally think about who are my who are my competitors or what companies do admire and then i'll go on linkedin and i'll just look for president coo sometimes ceo but usually i will recruit a number two and it's that person who's been eagerly awaiting getting you know united as the ceo and they haven't stepped up yet i find those are wonderful people to delegate the business to and then separately recruiters and that's a topic we can dig into people have a lot of opinions i had a lot of opinions about recruiters that i've actually changed over time but yeah you gotta i i find like broadening the spectrum with recruiters can be really helpful we have to get a quick shout at the tie burke my roommate and someone when i used to recruit and i know you use them as well you also use like crazy amounts of reference checks so here's what we do so we buy the business and as we're buying the business we start asking the question as soon as we know we're gonna buy the business or we're gonna delegate we we hire a recruiter immediately now recruiters really pissed me off before it was like realtors where i'm going like man why am i paying this guy a hundred thousand dollars to open a door for me i can just go on you know like zillow and find the the the house i wanna buy and here's this middleman man charging a lot of money and i kinda felt like why would i pay some guy to go on linkedin and message a bunch of people for me i can do that myself but i realized that i'm distracted and when i need to hire someone i will often just go on linkedin or whatever for ten minutes i'll text a bunch of my friends i'll try and think of people that i have like in an apple note that might be a good ceo i'm not going broad and so basically i've come around on recruiters there's some really exceptional recruiters like ty burke from search partners who sam introduced me to he's one of my favorite we also really like matt h from a line and what the way i use a recruiter is just to broaden the spectrum so even if i'm gonna go on linkedin myself and look for someone i might end up bringing the person to the table who we end up hiring we now have somebody who's reaching out to people i never would have spoken to and then they're also handling a lot of that administrative work of pushing the process along they're doing the initial interview and one really fascinating thing i didn't contemplate before is a recruiter saves you an insane amount of time let's say that you have ten candidates for ceo and every single one of those candidates you're gonna have to do a zoom with and that'll take thirty minutes to an hour well i think we all know we you've all had that experience where you interview someone and in the first thirty seconds you know they're ding right and then you're just desperately thinking like okay how can i get off the phone as quickly as possible not waste time but not have this person think i'm a total asshole and so now i have the recruiter do that call and i get them to record the zoom and then i just watched the first couple minutes and if i'm vi with the person then i'll move them on to the next stage so if you think about from that perspective your time is highly valuable and you've just saved ten hours of time what is that worth i think a lot and then in some instances we've actually hired people that we brought in that's fine and i just pay the recruiter anyway but in other instances they brought people in that we never would have found so the guy that runs aero press gerard me we found him via ty and he was a guy where he had run sodas stream us and he just wasn't on my radar whatsoever and he's one of our best ceos so i kind of look at the recruiters as a time saving mechanism they broad note the the people you look at but ultimately it's just like a tax i pay to have someone else be incentivized to push everything along and so i'm actually a big fan of recruiters now but you've gotta use the right people i find there's a lot of terrible recruiting firms and we've used a lot of really bad ones over the years and the recruiting firm what do they run you so usually it's a percentage of first year salary i think it's about twenty percent so you know when you're hiring a ceo and you've got total comp of you know three hundred grand five hundred grand it can be expensive but i think it's worth paying for if you can find the right partner on it mh and you mentioned looking for a number two who's run a similar sized or similar similar industry company here's what i take that to me you tell me what i what i missed so let's say you're the candle company you don't need somebody who's run a candle company to the exercise but maybe you want e commerce you want it maybe where facebook was their primary chan sales channel maybe you want something like candles like maybe selling to the similar customer base or a one time one time purchase product not something that's you know a total different kinda like buying psychology is that right just first on that part yeah you want someone who understands roughly how the customer thinks and then also the channels by which that product is sold right so one one fascinating thing i'll add to is when i'm interviewing them i always ask myself what is this person's hammer right so there's that great quote to a man with a hammer everything looks like a nail and what i've seen with with ceos is their hammer is either marketing sales operations or finance right they go to one of or or product they go to one of those things and you know to the product person we released the most beautiful product in the world and if you build it they will come to the salesperson it's let's build a fifty person enterprise sales team to the marketing people it's we're gonna spend a million dollars a month on facebook ads so you wanna be listing incredibly carefully to what is the mechanism by which they grow companies because usually that's the one if they did it at their last company they're probably gonna try and repeat it right and so what you want them to do is when they look at your company they go oh my god like this is so easy i've done this a million times for i've taken businesses from a million dollars in sales to ten million dollars in sales and i've done that you know between one and five times in a similar business so at this point are you just constantly collecting people i mean that kinda how you look at your job is is i'm just always i mean because if you're having to talk to all these people constantly and you have forty companies that's like pretty much all your time i'm always thinking about that i mean my worst fear is we're gonna be recruiting for a ceo role and i'm gonna forget about that guy i met at that conference you know five years ago or whatever so chris and i have a apple notes that we share and we just keep writing down names of people we think are interesting that are executives sometimes or even within our companies it'll be people that are come up and coming in one of our other businesses that we've thought might be a good ceo for another business but yeah i'm always trying to scan the horizon for people who are smart and i can bring in but interestingly often it is every process is different and when we hire a recruiter only like twenty percent of the time is that someone now that we've brought in often it is someone that they go source i love the what's their hammer question because it's so true that the the more experience somebody gets and more successful somebody gets they start to develop this hammer and to try to they go run around looking for for ways that they can apply that thing they know to everything whether it's the right thing or not i think this is a good thing and a bad thing i've seen the same advice given to its kind of yc type of companies are in the in silicon valley where when you hire a ceo if you hire a ceo that grew their previous company by creating a giant sales army but you're trying to do product led growth it's a total mismatch you might say oh wow they grew that company from ten million to two hundred million and that sounds good but if they did it in a way that's totally different than yours very few people can repeatedly grow businesses using new totally new methodologies for sales and marketing and i'm curious also what's your hammer like if it if you're a man if you're a man or a hammer running around what what is yours well i would say i'm a man with a lot of different hammers i've gone really broad now because i've seen so many different ways of growing businesses and i think i have a lot of tools in the toolkit my old hammer was product i would always just be like oh my actually you know what i do have a hammer okay so so my old hammer was product so i would always do field of dreams marketing i would say we're gonna build the best product in the world i'm a designer you know i was really proud of what we're doing and then i'll solve everything and i realized that really doesn't work very well and now i would say my hammer is finance so or operations so really what i'm doing is i'm looking at a business and i'm going if one if we could just change one thing what would that one thing be that would give the business leverage and often it's something really simple it's like oh pricing right or they're just not selling ads properly something really boring and to to be honest i feel a little depressed as i say that because you're a sellout bro you're a sellout out the designer from twenty years ago would be really sad and i still love don't get me wrong like so when we bought let me give aero press as an example i i just unboxed our new aero press clear and i just checked up the designs for a couple un lease products and that was the best day of my month right i love building great products i love being involved with that knowing that if we hadn't bought that business that wouldn't have happened but when we bought aero press the boring assumption i made was i'm just gonna do really good online marketing and commerce it's really simple they didn't sell online that was my one insight that was my hammer on that deal and now the bonus the gravy is we get to do amazing products i get deserve you got you you need to go throw away your herman chair and your bur stock and go put on a vest new nerd you're not i know i know i know i know i wanna self flag so i wanna i wanna talk about though some of the things you have to accept about hiring a ceo and also when you interview a ceo what you wanna look for because i think that's probably one of the most important things one of the so to go back to this whole hammer thing so when i interview a ceo i'm looking for whether or not i not along when i when i interviewed gerard from aero press he told me what he wanted to do with the company and i already had a lot of those same thoughts and i was nodding along i'm going oh my god he's putting it better than i ever could and the reason that's important is because when you hire a ceo you are a rider on an elephant right so when you're a rider on an elephant the elephant is gonna go anywhere at wants and you're just stuck you can't tell an elephant where to go it's way bigger than you and ultimately it's gonna follow peanuts wherever wherever wherever it wants to go and so it's really important that you agree with their strategy and one of the ways that this has failed for us is i've loved the ceo candidate and they've said something like hey i was looking at the business and i really think we need to go hard into facebook ads and i would kinda scratch my head and go well we already kinda tried that i was kinda thinking more this is like an email marketing you know marketing strategy that we should deploy and they would always just double down right whatever they say the first time is usually what they're actually gonna end up doing and they're just gonna use their hammer so that's incredibly important is having that alignment and the fit with what else are you looking for in that interview not along what's their hammer what else so i mean the most important question is do you get the creepy crawl after you walk away do you feel in any way any cognitive dissonance any weirdness does your stomach feel off you know you someone could be incredibly charming i often get this you know psycho pass for example they're very charming people they are wonderful to hang out with but you might walk away and be like there's just something off like something in their eyes or have you had that yeah yeah and i'll tell some stories but i think the most important thing is you know would you let them babysit say your kids right i think like you know either of you guys i would let you babysit my kids right but and that's important you're gonna hand over your company your baby to this person so you have to have profound trust and so often chris and i we look for people who are real so they can be i don't like slick people i like people who their arm pits get really sweaty in the interview i like people who get kinda nervous and scratch their face when you ask them hard questions i wanna see that someone is a human and when things get tough they will wanna do the right thing and so that's that's like really critical you know do you walk away energized right you can really like somebody but if you don't walk away energized you know that's that's not great and then also are they down to have alignment are they down to have skin in the game because ultimately you know the worst type of ceo would be this so let's say sam hiring someone to run hampton and they say i want a million dollars year base salary and you're like okay well you know we do some bonuses do want equity how quick create alignment and they just want like low risk cash guaranteed that's not someone you wanna be working with you want someone who is willing to have skin in the game and risk with you and work on the long term and there's a lot of very shiny fancy executives that basically wants zero risk and they just wanna make a shit ton of money and you gotta avoid those people like the plague have you found any correlation between age or where they live like if they're from a silicon valley company newer company middle america or wherever the equivalent stereotype is of canada well i mean they i wouldn't say that there's anything about where they're from or even what they look like or how they dress or anything like that although i'll talk about that and the importance of matching your cultural dna with their dna but the number one thing is the big company people right you you really don't want the flashy person who's got the the you know the linkedin with five years at accenture followed by ibm ip followed by you know whatever executive role i find that when you take a big a big company person and you put them in a smaller company they just don't know how to function they're not bad there's nothing wrong with those people they just don't know how to function they're used to having like you know an army of people doing everything for them and it's kind of like i always think about it like restaurants so let's say that you have you hire let's say you have one restaurant with no systems and you go and you hire the chain restaurant let's see say you find a guy who runs like an olive garden and you're like oh my god this guy really understands how to run like a tight tight ship and all the systems and stuff you put them back in you know your restaurant and they're like well i don't know how to build the systems i didn't do this i just go to my handbook my olive garden handbook and they tell me how to do everything so you kinda get that in big company people so you gotta avoid the big company folks one nuance that you didn't say but i'm pulling out is want somebody who's running a company to exercise not twenty exercise you would think twenty x is better right no no it's not actually better two x is kind of the sweet spot of what you're looking for is that correct totally well there's this funny i i think of it as like there's a a variety of different skills and if you think let's use chipotle for some reason i always go back to chipotle but think about this so there's the guy who invented the burrito right that's that's kinda like if you think about it that's like the founder of the founder right then there's steve ellis the guy that started chipotle he went hey burritos are a great food let's scale this up let's turn this into a fast casual concept then there's someone who came in and scaled it to a bunch of stores right i think that was still steve that's a kind of a different skill study he went from one store to say twenty stores and then they scaled it to like thousands of stores and then they managed a public company these are all different skill sets right each of those levels are some you know a whole different set of skills right the guy who invented the burrito is very different than the person who would be great at scaling chipotle to a thousand stores and so i think you really just wanna be accepting of you're you're almost running a what's it called like a you passed the baton what what is that a a marathon a relay erased yeah and so you might say the person that you hire the ceo you hire to take your business from two to ten million you know what at ten million you're probably gonna bring in some new person to run the company then and they're gonna know their scale and then you keep going through this and occasionally you're gonna get people who read a lot and learn a lot and are highly adaptable and can keep going but usually you know as ceo is really effective for between five and ten years and every once while you get these the special cases that can go to the distance and even those exceptions even mark zuckerberg has been running facebook for twenty plus years he has cheryl and cheryl does a bunch of stuff so that he can keep inventing their next burrito he's like great i'm gonna focus on ai i'm gonna focus on med and somebody else will do you know add operations at this point because that's not what i wanna be scaling up or the google guys did the same thing with eric schmidt right they bring they brought in this effectively you know a ceo to to run that so that they could keep going and creating the next chipotle can you talk about transitioning i think this is actually the hardest part of all this is transitioning and like you have always given me advice and whenever and i believe your advice was right and i followed it but at first your advice is basically just bail and and and you were like just talk to him like once a month and then once a quarter and then once a year and i was like well i was gonna like keep working there and talk to him every single day and like give feedback constantly and be in all these meetings and you're like no so sam is the question like you've hired the ceo what are what are those first hundred days supposed to look like yeah and then and then after six and twelve months what's it look like because it's this is the hard part where emotion typically takes over logic totally and it's terrifying to use the baby analogy you know you imagine you're you have this beloved baby and then you watch the foster parent and they're playing a little rough with your kid and you don't quite like what they're they're feeding them and well they don't really know the nap time routine right so it's a little bit scary passing off your business baby to somebody else what i what i think you do have to rip the band aid and let them jump in the pool i think it's incredibly important that you assert to your top executives this person is in charge and you can't come to me anymore right so what i what i like to do what i would do in the early days is i would make the announcement explain why i'm making the announcement why i'm making the change and then i would i would literally leave slack i would stop responding to text from the executives i wouldn't respond to email and i would say to the ceo look you know you're in charge let's do a check in a month and then i would just completely check out and i'd say you know look if you want if there's any emergencies you can always call me and get get an opinion but do you give like that like are you like comp everything in notion that like i don't know like why you're still making handles yeah well maybe maybe not maybe not quite a guide or something but you're doing a lot of brain dumps right you're gonna spend a couple days with them and go through everything but you know business is funny like everything tastes like chicken like a competent ceo will be able to jump into most businesses within five ten days be able to kind of get the lay of the land and get moving so i don't i don't do too much of that transition stuff and and then for so first you're checking in maybe every two weeks then you're checking in every four weeks then you're checking in every three months and then if you want you can go to six months or a year and i really think that the worst thing you can do is have them writing you a whole bunch of reports and constantly text them and engaging them and making them feel they don't have power and then worse than that the swoop and poop right like so you bypass them you text your old vp of marketing you say i noticed you guys stopped ab b testing this on the homepage what's going on with this and then before you know what your ceo feels you're undermining them and all the executives go well i see who's still pulling the strings you know sam still in charge i'm just gonna go back to sam mh and then the water the stress finds its way back to you so i'm a big fan of just being i mean you gotta do your diligence if you're gonna give this person your business baby you gotta know they're not a a epic piece of shit right that's very important but if you've done all that we can talk about all the diligence stuff so you gotta get comfortable that passing your business to this person is gonna be okay well how many months or quarters of mistakes or misses do you let them have well it depends i mean you know is it a hard business or an easy business how stark is it you know was it the moment they started within a month the performance went to shit is there a good reason for that i think it's a really hard question i mean we've had very very competent ceos join hard businesses and the business gets worse under their purview doesn't necessarily you mean they're doing a bad job it could be a macro problem or there could be some other headwind so i think that's up to you to assess i always say you know you want flesh wounds not mortal wounds so would i allow a ceo to spend five hundred thousand on some r and d bun yeah maybe i don't wanna them to feel that i'm holding them back but would i allow them to announce to all the employees that they're changing the business model and shutting down some critical revenue line maybe not you know i'd probably watch something like that and ultimately i think it's important that you say i i'll never forget out when i was reading for our work tim ferris had this whole thing about anything less than five thousand dollars does not require my opinion and i think it's important you set that control with the ceo so you say anything that that you wanna spend more than three hundred thousand dollars on i want you to come to me i want you to discuss right so you can kind of build a bit of a bounding box around that we gotta take a training every time you say acute canadian phrase we've got boom we have ding we've got creepy crawl what else do you got for ding ding ding is even canadian it's actually it's from tim tim eric do you guys have watched tim and eric yeah why i'll want more of that go ahead shop well let's finish up actually in the hiring and d stuff so i i am i have one more on the interview so do you meet in person or you trying to do everything in zoom do you like spend spend time you know in extended time with them yeah i like to meet them in person yeah i think there's something to looking someone in the eye seeing how they their body language you just can't get that same level of diligence i have hired people sight seen many times but for major hires i always wanna beat them in person so in terms of diligence if this is the most critical thing and this is where we've made the most mistakes right you can avoid endless pain if you just diligence people carefully and this is you know anyone who's hired people at a company knows this you know check references top grading there's always different ways of doing it but there's a couple you know there's this idea of like trust but verify right so i'll trust my gut that's my first screen and then i'll perhaps introduce them to like one or two other people i trust so like chris might talk to the ceo as well someone else from our team will assess okay do we get any creepy crawl vibes if that's not the case if we don't then we'll move into actual diligence and we've learned the hard way we've made a couple really bad hires that burned us and so we actually use these former cia guys to do background checks they're called business intelligence advisors kind of like cia but with a b and they're incredible they will interview the so they'll call up the person they'll talk to them for an hour or so and they'll write down every single thing they say so if they say oh in college i was a athlete they'll they'll verify that if they say oh i left that company because x y z well they'll go and look up that company and they'll message five people who might have worked with them and so you end up getting this dossier on the person that gives you a high level thing of what are the what are the positives what are the negatives and then also have they ever been you know accused of a crime have they ever had like a track record of like not paying bills legal records all that kind of stuff so i think that's really important and we we've made a really bad hire about ten years ago and the guy basically was like full of shit about a whole bunch of stuff on his resume and it ended up being a nightmare and so after going through that experience i think it's well worth paying between ten thousand and twenty thousand dollars to get this deep reference check done and so that i think that's just so critical that's that's amazing do you it sounds like between the recruiter and the reference check the the background check people you might be spending anywhere between fifty and a hundred thousand dollars of transaction costs in recruiting a ceo or assuming you can't do that when it's a three hundred thousand dollar a year profit business what is the minimum bar you use when you're gonna when you're gonna pay for both the the you know the good recruiter and the the background checks and what would you do for the if you're the person who is is more at the three hundred thousand a year profit and maybe can't afford those transaction costs how would you do diy well i would just follow the same process right so you know you're not gonna be able to hire the recruiter and afford them and so you're gonna try and cast your really broad you're gonna talk to a lot of different people when it comes to verifying what the person tells you the number one thing is never call the references they give you right any sneaky person can find three buddies who can you know say that they're great or whatever it is i always try and sc butt so i'll say okay my friend invest in that company and i'll ask them to ask the ceo why that person left where if they recommend i also have this trick i don't remember where i got it but i love this one you email a whole bunch of people who used to work with them or the former ceo they work for and you say hey i'm doing a reference check on this person i'd love to talk to you about them if you don't respond to this email i'll take it as you didn't have a good experience oh eyes cold and it's that's a great it's such a great trick it's such a great trick because if they don't respond people will almost always respond because they don't wanna shit on somebody if you know if they have anything good to say but if they have something bad to say gives them an out because a lot of people i found are worried about legal liability they don't wanna go and like you know say this person's a piece of shit and then that person sue them or something like that dude i'm gonna use that line for any email i want i'll just like ask someone to anything like if you don't rip if you don't reply i'll assume you hate yourself and your family yeah exactly think sales guys do that all the time that's the worst okay so do you found the person how do you negotiate and structure the comp package for the ceo so i always like to make the first offer because ultimately you kinda know what you're willing to pay and what makes sense based on who they are and i think you kinda have to scale up or down based on their experience so there's times where i've taken a risk where i've said you know what this person was they're a vp marketing but they really have ceo energy and i'm gonna to take a chance on them i'm gonna try and you know pay less for someone like that i'm not necessarily you're gonna put them into like full ceo comp i'm gonna try and go high variable low base but someone who's more established you know i'm gonna give them basically what they what they want and and whatever we think the range is there and then the most important thing is to use total compensation so when you make the offer so let's say let's say i have a business that's doing three hundred thousand dollars of profit and i can comfortably afford a ceo base salary of a hundred and fifty grand right so let's say this person is worth three hundred grand a year four hundred grand a year i'm gonna go to them and i'm gonna say i'm gonna pay you three hundred grand a year but it's gonna be a hundred and fifty thousand dollar base and it's gonna be a hundred and fifty thousand dollar bonus and the bonus is if you get me to six hundred thousand dollars of eb right and so you're basically using the profits that they've created to pay them the bonus and you've created alignment between the two of you but it's important never to just say well i'm gonna offer you a hundred and fifty thousand dollars a year plus a bonus because in their head they're going like no i'm a three hundred thousand dollar year person right so i always lead with what's the total compensation and then what needs to be true to achieve that compensation i'm also a big fan of un uncut bonuses so for example let's say the target is you know you six hundred thousand dollars of eb well if they do one point two million dollars of eb i want them to get double the bonus maybe even triple the bonus and that's works really well for us so the idea of saying look i'm gonna offer you three hundred thousand dollars year but it might be six hundred thousand it might be a million dollars here depending on how you perform and then the other thing is equity is just hard i'm not a big fan of stock options i like to try and find people who are willing to if they want equity they're willing to write a check so if a ceo comes me and they say okay but i need you know i need equity i need to skin in the game i'm gonna say something like okay so you want forty thousand dollars of equity per year are you willing to lower your compensation by forty thousand dollars or are you willing to write a check you know do you have you have a stock portfolio you can sell and you can inject the money into the business and i'll let you buy in at a really great valuation and if they don't wanna do that then sometimes i'll even loan the money i'll say i will personally loan you the money and then you're gonna write a check and you're gonna buy it and i have the right to buy back your if you leave i have the right to buy back your stock at whatever multiple of their earnings at the time or whatever it is how do how do people react to that conversation because that's very different than where a lot of people are probably coming from well i want them to value the equity and they don't value the equity and they get stock options they just look at it they don't even considered as part of total comp so let's say that like here's something here's the kind of thing i'd hear so they say i wanna make four hundred grand a year and and i want equity and i'd say well okay how is the equity gonna work they well i think i have five percent and let's say the business is worth a hundred million dollars so they've now said okay i want five million dollars and you're like okay well you're you're worth four to five hundred k year based on your track record and your experience and all that kind of stuff how am i supposed to give you five million dollars of equity that just doesn't make sense and so i always try and talk about it in terms of what's the cash value of the equity that they're receiving and how do we create a scenario where we have shared downside and a lot of people in silicon valley are used to stock options and the way stock options work is let's say sam you join my company and the stock price is a hundred dollars and i say here's a hundred thousand dollars of stock options at a hundred dollar share price if the shares dropped to fifty dollars it's a lot ticket and it's a zero it's not worth anything if it goes up then it's worth a shit load and so you end up with this kind of binary situation where they have this lot ticket that pays out big or as a zero and so what that means is if your value of your business goes down even ten percent they're basically at a zero and so they're dis incentivized so i just i don't love stock options and in general i only like giving equity to people who are willing to sacrifice something for it otherwise you know why why wouldn't i just pay you a really fat bonus if you get down to it that's usually what executives want they want to do an addition to their house they wanna go on crazy vacations they like cash most of the time a quick kind of question is we you round up to what the downside of all this is is like everything you're saying i think sounds when i hear i'm like this is the way is a fair argument against this that founder led companies typically have more innovative or more soul and things like that and that it's better to have one thing go big versus many things that are potentially okay is that a fair argument do you think or no yeah but i think like i said in the beginning i think it comes down to personality like i think if you're so for me when i was running meta lab i started five other companies in the first three years because it was irresistible to me right now i knew the right thing to do might have been to focus on the business but my personality is that i wanna go do other stuff so sam like you seem super focused right and maybe you're better off just having one focus you wake up every day you you think about one thing but if you start finding yourself getting drawn into other businesses it would be a huge disservice to continue to run that business right so i think ultimately it comes down to being true to yourself you shouldn't if you're listening to this go oh i should go do this you should only go do this if you're drawn to it is the same advice i give entrepreneurs is they say well should i go and work at a company or should i be an entrepreneur and i kinda go well if you have to ask that question the answer is probably know right because for me i could never consider working for someone else i if i whenever i had a job i just wanted to shove the boss out of the way and take the wheel the business so i think to me it's just it'll be obvious if this is something that appeals to you you'll know you'll be listening to this nodding along and going oh my god i can i can do this i just didn't know i could do it and not feel that guilty well dude this is awesome we love having you come on what do you think sean yeah this is great and it's also earned information so this is not something that you you might be able to read in a book but lot of the nuance of what you described is from hard lessons that were you know things that went right benny mistakes of things that went wrong and the lessons you've learned so we all got to benefit from you know your twenty years of experience kind of going through this process yourself and i know for me it was a huge unlock to be able to hire a ceo and do that successfully and i was like wow this is cheap codes oh my god i get the business is gonna do well it's gonna do better than if i was doing it you know i get all of the reward without any of that work and it's a totally great trade for this person because i kinda didn't really appreciate how many people are entrepreneur entrepreneurial but maybe not entrepreneurs their people who are great ceos but they also got two kids they don't wanna take full on risk so they they want that kinda of medium upside low downside and finding that fit has been pretty huge for me so i think that's great a lot of the things that you said that stood out to me the golden nuggets for me was find the find the number two at a business that's two two x bigger but similar to to the one you're in right now figure out what's their hammer because that that's probably it everybody's a man with the hammer and and you just have to make sure that that's the right hammer for your your business and then pay up on the on the reference checks and the recruiter to make sure that you you get enough candidates and then you find the right person because that's a it's a necessary tax you have to pay once the business is big enough that you could support this and then leave them alone that's the other thing most people don't leave them alone they say well it didn't work you know in the first two weeks they did something i didn't agree with so i defer well what's the balance there like you leave them alone but you don't even them completely alone i think for you guys they send you what a a only update every every month and then yeah is there anything else to it like a strategy planning thing or do you do anything else so what we used to do is we do a report every single month and they would write like here's what's going in the business here's the numbers and that was just crazy we couldn't keep up and it also wasted a lot of their time now we get just the numbers to head office and we meet the ceos annually and then often there's certain ceos as we don't even meet because they're within operating platforms so we just meet with the ceo of that operating platform usually like monthly or quarterly and check by the way this is the number one thing i get emails on like literally like every single day i got questions about it on twitter and on email and so i actually wrote a pdf on here like a checklist based on are you ready to hire a ceo and how to hire a ceo and if you sign up for my newsletter it's never enough dot com slash newsletter i'm gonna post the pdf next week i think awesome okay great i think that's that's the that's the pod ever everybody should go china out never enough dot com slash what newsletter use newsletter yeah and we'll link to it in yeah we'll link to it down here alright dude thank you that's a pod i feel like got could rude to work to i know why i could be what i want to from at all in it like a days off on a go less travel never looking back