MFM x Trends: How to Hire a CEO to Run Your Company with Andrew Wilkinson

hey what's happening this is a special episode so here's what we do folks with trends trends is our subscription service which you can go to trends that code to learn all about it but it's our community it's our research program it's basically kinda like my first million where we brainstorm and stuff it just it's way more in depth and we show numbers and and do all this stuff and normally every podcast we do for my first million is free but with trends we have a ton of stuff that's for paying subscribers only and today i wanted to actually give you about ten or fifteen minutes of a free episode that we did so today's interview is with andrew wilkinson andrew wilkinson you've heard him on this podcast he's a friend of mine friend sean we roll up we we really love andrew and andrew has about twenty companies that he owns and he installs an or hire ceos for each company this is something that i'm in the process of doing because i wanna work at my company but i don't wanna be the ceo i just wanna be creative and and an individual contributor so andrew taught me how to hire a ceo and in this interview i asked him everything about that and i've actually used it i've actually hired someone who will announce soon but i wanted to give you about the first ten or fifteen minutes of this episode for free so if you like it go to trends dot c and sign up and you can get the entire episode it's well over an hour and it's really cool and when you sign up you'll get act us to this episode as well as a ton more as well as our library of research and all the companies that we've d constructed and broken down and all the trends that we're looking at and you're also gonna get access to the community where i'm am part of and i pretty much live in that community and we have tested over ten thousand people who are also part of that like the founders of hubspot the founders of grasshopper which sold for two hundred million dollars all types of interesting people harley who was on this most recent podcast is in is in the group as well he's is the president of shopify so all types of incredibly fascinating people building really cool companies so again today's episode you're gonna get ten fifteen minutes of free stuff just so you can kinda get a feeling and we can provide some value for you and if you want the rest and if you wanna join a community and be part of our research program it's a dollar to sign up if you cancel in those fourteen days it's free so you just or you only have lost a dollar and you'll still get to hear the episode but if we can provide value and convince you how amazing this is it's two hundred two hundred ninety nine dollars so not a big price tag but we would love to have you check it out trends dot c right after for signing up you'll see this episode so enjoy these next ten or fifteen minutes and we will see you soon so the only folks who are going to listen to this and we're live now the only folks who are going to listen to this are the trend subscribers so we say if you don't wanna talk about something just say you don't wanna talk about something but i'm gonna ask a lot of details but this will not be i mean it's gonna be public right if they listen to it but it won't be like public public yeah like a little more a little more wall i i i can be a little more candid than so i just tweeted out so we kinda plan this a little less minute and we were gonna do a normal podcast sean couldn't make it so i said let's try this you wanted me to do it so i said we'll do it so i just posted actually on twitter and i got a lot of replies i'm gonna see which i ask people if they wanna talk about buying or del do you have a is there one that you think is more interesting i think they're both very interesting and i think they're they're actually one in insane if you think about it well let's talk about start yeah so let's talk about del i actually am in the process of hiring a ceo and i'm gonna work i wanna work at my company but i just don't wanna be the ceo and i did it partially because of you when how did you learn or when did you first decide that you didn't wanna be the ceo well i i actually never wanted to be the ceo i am i i grew up reading biographies of steve jobs and worship him and you know thinking i want to be that kind of person and then as i read more and more biographies i realized that often those kind of creative genius ceos who blow their brains out working have kind of bad lives or bad dads you know are somewhat unhappy people day to day and so you know i i kind of gravitate more towards you know starting businesses that weren't didn't require that level of discipline and time commitment and stuff but even then i found that what i what i would do is i'd kind of beat myself up for not being the perfect ceo so i actually didn't enjoy managing large large groups of people i like managing about five people ten people max and anything beyond that you start to have to be you know a quote unquote like ceo like you've got a do talks you've got a set culture you have to write blog post about what you think and all that kind of stuff and i really didn't enjoy that but i didn't realize that i had an alternative and so i would just constantly beat myself up for not being a better manager for always getting distracted and you know going down rabbit trails trying to start new businesses and new products and that kind of stuff and then finally probably around twenty twelve twenty thirteen i started realizing that you can actually delegate the operations of an entire company and hire a ceo and to be honest i feel guilty doing it it feels like the first time you delegate a hard task you feel guilty and it's hard to trust somebody to do it but i realized pretty quick that when i delegated to someone else they did a better job because they were better at that phase of the business and once i saw that i was like this is an amazing life hack because you actually make more money by hiring a ceo who can execute unless you're truly the best possible ceo for your business how many ceos have you hired or like dial fifteen fifteen fifteen twenty twenty five something like that we've gone through there's a few businesses where we've gone through different leaders what percentage what's your hit rate for success i would say probably sixty percent seventy percent something like that did you okay so when you hired someone at meta lab what year were you in that was man probably like seven seven years in but what i i didn't hire a formal ceo officially until seven years in but within the first year i actually had like a general manager i hired my college roommate and he ran the business day today so i was very disengaged i would only do kind of high level stuff or make big decisions if they needed to be made so so i've always naturally kind of drifted towards having someone else do a lot of the day to day stuff so okay so i just googled you so this is none of i've and i'm i'm just reading it off the off i i i just wanted you to know this is no insider information i just it it was the top thing that came up and it's and by your seventh year business you had seven million in profit according to this article on like colin k dot com to so you you had a good sized business do you remember what you paid this first person so i think that would be global across all the businesses yes and i think i paid that person maybe two hundred and fifty k base plus some couple a couple hundred thousand of variable as well to be honest though i really didn't know what i was doing in the early days in terms of comp like i didn't really know how to structure it properly so i think it was like a very poorly structured comp that paid out in a major way it wait it hurt you no no like it it paid out for even like unacceptable results right whereas i've learned like it let's say like a business is already growing your earnings like fifteen percent annually you wanna incentivize them to at least grow that fast because that's what you're already doing and setting that bar whereas i think what i did was i said i i had something like you know you get five percent of profit or something like that which is not a good comp model because then they don't really need to grow the business they can just keep kind of being lazy and enjoying the five percent they're gonna get at the current level you don't give equity though right or you prefer to i i sometimes do it depends on the state of the business so if the business is more of a startup up where there's not a lot of profits which we sometimes will buy then we will consider equity mostly we'll do that if we think that there's a possibility like a good possibility of an eventual sale so there's some of our businesses where when we bought them it was all about growth versus optimizing in the short term for profits those are some of the instances where we've done equity we're moving towards doing more phantom equity if we do do it because it's really complicated in a conglomerate like we have where you have you know forty or so corporate entities to not be able to move stuff around and you know slam companies in into one another for tax purposes and stuff so we're moving more towards phantom equity if we do it but if a company at scale you know already doing tens of millions of dollars of revenue and profitable i i wouldn't give equity unless the plan is to sell the business do you phantom equity can only be done with an llc can't it you can do it in anything i mean what you're doing is effectively just mimicking equity right so you're saying like if the business sells you own you know x percent whatever x percent of the outcome is you're gonna get it so resolution and other stuff yeah phantom equity is basically a promise that you get a percentage of proceeds right or dividends or dividends but it's not actually equity you don't actually own the business but you do get many of most of the perks of like a royalty yeah it's a it's i would say it's effectively like owning equity and there's some tax differences and other stuff the reason that we do it is we just don't like the complexity here's an example let's say we have a ceo and they own three percent of the business and tiny has to inject money into the business like loan business money or something there's a lot of complexity when you have outside shareholders where you go to the shareholder like the ceo and you say hey we're loan a hundred thousand dollars can you chip in three percent or you know three k and they're like what the fuck and then you have to dilute them and it just gets kind of complicated so that's why we're moving towards phantom equity so for let's say i'm you do you know what the average size of one of your company like let's say maybe i'll i'll guess that your average company maybe does ten million in revenue or we could use ten million dollars in revenue so ten million dollars in revenue one to two million dollars in profit a year what do you pay as ceo well i think at a hundred percent depends on who the ceo is and what their expectation is and where they come from i'd say the less proven and the less experience the lower the comp and the other thing that you have to think a lot a lot about is risk so if somebody is willing to take a lot of risk then i'm willing to pay them a lot more in total comp so what i mean by that is if someone comes to me and they say look you know i wanna make five hundred k a year i would say okay well how much do you want to be salary and base salary versus variable comp and bonus and if they're willing to take more of that in variable comp and bonus then we can move those numbers up to be bigger than five hundred k if they came to me and they said look i only want a hundred k salary and i want everything to be variable bonus maybe i would give them way more and then the other thing we'll often do is we'll say if we set a target let's say our target is ten million dollars of of eb and you exceed that let's say you do fifteen then we're gonna give you a hundred and fifty percent of your variable target or your variable bonus so as the business does better and better and better they still make you know more and more money it doesn't cut off do you meta lab i imagine is one of the bigger companies in your portfolio but like what would the what would the highest comp ceo be can you tell me not who but like i can't say underneath that you're i what do you making some bigger yes we do got it and that's interesting you know like this the person i'm gonna hire i'm gonna pay them more than than i make a lot more than i make does that ever rub strangely well i always think i own the business so i you know all the profits are mine or you know chris and i so i i don't really think about it in terms of of like what salary i would have made when i when i was working in the business and was ceo i barely paid myself anything just because you know i prefer to just take dividends as the business was doing well so no i don't i don't really think about that i mean the big thing is it sucks when you pay someone a lot of money and they don't measure up but when they do measure up and they kick ass i'm happy to pay them the money i love paying huge bonus checks because if i'm paying a big bonus check that means that the business is doing well and we're hitting our targets and they're growing faster than i expected to a lot of people get caught up when they hear you know oh my god i'm gonna pay this person you know four hundred grand let's say a year look i'm saying an at scale business let's say it's four hundred k total comp and they forget that what that really means is a hundred and eighty two hundred and two fifty in base and the rest and variable and you're only paying the variable and bonus if they're hitting targets in the business is growing the way you want it to so i think of it as like that's a magnet to whatever outcome you want and having someone who's even more incentivized than you are and more diligent than you are where the money is more meaningful because let's say you've been making tons of money for last five years or whatever it's amazing how effective it can be at growing the business more so than what you can do personally what's your interview process well it's changed over time what i used to do is i would meet someone and i'd like them and i hired them on the spot and that's how i met chris who was originally my cfo and in that instance it obviously worked out incredible where you know basically best friends and business partners for the last ten years that said i've also made all sorts of very very stupid hires where i would have it in my head that i really needed to hire someone and the problem was annoying me i didn't like having to deal with the problem or the business and so i would make a a quick decision whoever came in when i've changed that to is a much more diligent process where we will either have you know four or five of our own candidates that we've sourced or we'll go to a corporate recruiter and have them bring in a whole bunch of candidates we'll go through a lot of interviews and then we will before we actually sign with someone we will usually especially if it's a larger business we'll do a really deep background check and the problem with background checks that and reference checks that most people do is they call the people that they give you and they call the people that are on linkedin right so someone says hey call my through your references they're not gonna tell you about the job where they got fired and you know they had a horrible you know relationship with their boss and they let a bunch of people down they're gonna give you the best possible story so we have a firm that we use it's very expensive i think it's about fifteen or twenty grand but they will literally get on the phone with the person and they'll validate they'll write down every single claim they may walk through their employment history where they went to and they're they'll validate it if you email me i'll i'll send it you i don't wanna overwhelm them they're they're pretty booked up and i don't wanna lose them that's a are there other services that do that there's tons yeah i mean most one good one that we don't use as much but they are very good as okay sorry to be a tease but that's the end of your preview if you want this entire episode it's over an hour long so if you want this entire episode and if you wanna hang out and talk to people who are implementing what you just listen to with andrew's podcast podcasts go to trends dot c and sign up you'll be able to hang out with the founders of hubspot the president of shopify me sean all types of people so go to trends dot c and sign up it's a dollar to start if you like it it's gonna cost you two hundred ninety nine dollars a year if you don't like it just cancel before your trials up and we will see you there i will i will see you there and talk soon