The Lazy Millionaire: I Own 40 Companies, But Don't Run Any Of Them

Summary

In this masterclass, Andrew Wilkinson shares his expertise on hiring CEOs for scaling businesses. With experience managing 40 companies, he discusses the importance of finding a CEO who can take a business to the next level, structuring compensation for alignment, and the crucial interview process. Wilkinson emphasizes the need for trust, the right fit, and the willingness to delegate fully to ensure the business thrives under new leadership.

Takeaways

• 😀 Hiring a CEO can be a game-changer for scaling a business and allowing the founder to focus on other interests or projects.
• 💼 It's essential to find a CEO who has experience running a similar business, ideally one that was twice the size of your current business, to ensure they have the right skill set.
• 🔍 Conducting thorough due diligence on potential CEOs is critical to avoid costly hiring mistakes and to ensure a good fit for the company's culture and goals.
• 📝 Transparency in the hiring process, including clear communication about the role and expectations, helps in attracting the right candidates.
• 💰 Structuring compensation for a CEO should involve a balance of base salary, bonuses tied to performance, and potentially equity that reflects a shared risk and reward.
• 🤝 Trust is key when handing over the reins to a new CEO, and founders should be prepared to let go and allow the CEO to lead without constant interference.
• 🚀 Entrepreneurs should consider hiring a CEO if they find themselves yearning for new challenges or if they're not fully invested in the day-to-day operations of their company.
• 🛑 Recognizing when it's time to bring in a CEO is crucial; it often happens when a founder is no longer the best person to lead the company due to changes in their interests or lifestyle.
• 🔑 Understanding a CEO candidate's 'hammer' or core strength is important to ensure it aligns with the company's needs and growth strategy.
• 💡 The hiring process should involve a combination of personal interviews, background checks, and reference verifications to get a holistic view of the candidate.
• 🌐 For businesses that can't afford high recruiter fees or extensive background checks, creative and resourceful DIY methods can be employed to find and vet potential CEOs.

Q & A

Why did the host invite Andrew Wilkinson to the masterclass?

The host invited Andrew Wilkinson to share his experience and knowledge on hiring CEOs, as he has successfully scaled multiple companies and currently oversees a portfolio worth $500 million without being directly involved in day-to-day operations.

What was the host's initial hesitation about hiring a CEO?

The host was hesitant because hiring a CEO felt like giving up control of something he had built from scratch. It seemed easier said than done to find someone trustworthy to take over and grow the business.

What is Andrew Wilkinson's approach to finding a CEO for his companies?

Andrew looks for individuals who have run a similar business that is double the size of his own, often targeting number two executives who have been eager to step up to the CEO role but haven't had the opportunity yet.

Why does Andrew prefer hiring number two executives to be CEOs?

Andrew finds that number two executives, who have been part of a similar business and are eager to become CEOs, are often highly motivated and capable of taking on the new challenge of running a company.

What is the 'Hammer' concept mentioned by Andrew, and why is it important?

The 'Hammer' concept refers to a CEO's primary skill or approach to growing a business, such as marketing, sales, operations, or finance. It's important because it indicates the CEO's likely strategy and whether it aligns with the company's needs.

How does Andrew ensure that a potential CEO is a good fit for the company?

Andrew ensures a good fit by checking for trust and alignment with the company's strategy, observing if the candidate is genuine and not overly slick, and assessing whether they are willing to have skin in the game with equity or other forms of risk-sharing.

What is the significance of the 'rider on an elephant' analogy used by Andrew?

The 'rider on an elephant' analogy signifies that once a CEO is hired, they will lead the company in the direction they believe is best, much like an elephant follows its own path despite having a rider. This highlights the importance of strategic alignment during the hiring process.

Why does Andrew emphasize the importance of walking away after hiring a CEO?

Andrew emphasizes walking away to empower the new CEO and to avoid undermining their authority. Constant interference can lead to a lack of trust and confusion among the team about who is truly in charge.

What is Andrew's view on using recruiters for finding a CEO?

Initially skeptical, Andrew has come to appreciate recruiters as they broaden the search spectrum, save time by conducting initial screenings, and can find candidates that might not be on his radar.

How does Andrew handle the transition period after hiring a new CEO?

Andrew believes in a quick transition, often leaving the company's communication platforms and reducing contact to set check-ins, allowing the new CEO to establish their leadership without interference.

What advice does Andrew give regarding the structure of a CEO's compensation package?

Andrew suggests structuring the compensation with a base salary plus bonuses tied to performance goals, potentially with capped bonuses for exceeding targets. He also prefers candidates who are willing to invest in the company's equity, showing a shared risk.

Outlines

00:00

😀 Masterclass on Hiring a CEO

The speaker introduces a masterclass with Andrew Wilkinson, an expert in hiring CEOs for his 40 companies worth $500 million. Andrew's unique approach to finding, interviewing, and compensating CEOs is discussed, emphasizing the importance of hiring a CEO when you're ready to delegate and scale your business. The talk will cover the process of identifying the right CEO, structuring compensation, and ensuring alignment with business goals.

05:01

🤔 The Realization of Hiring CEOs

The speaker reflects on the realization that overseeing CEOs might not be for everyone, requiring a specific personality type that prefers high-level delegation. Andrew shares his personal journey, from being 'Teflon for tasks' to delegating the running of his businesses. The discussion highlights the importance of understanding whether your business is at a stage where hiring a CEO is viable and beneficial.

10:02

🛠️ Assessing Business Readiness for a CEO

The focus shifts to assessing whether a business is ready to hire a CEO, with criteria such as product-market fit and profitability. Andrew suggests that a business should be making around $300,000 in profit to afford a CEO and incentivize them with bonuses tied to business growth. The conversation delves into the mental preparedness required to let go and trust a CEO with your business.

15:02

🔎 Finding the Right CEO Candidate

The speaker discusses strategies for finding a great CEO, including looking for individuals who have managed similar businesses at a larger scale. The importance of understanding a candidate's 'Hammer' or primary skill set is highlighted, as well as the value of using recruiters to broaden the search. The paragraph also touches on the benefits of hiring a 'number two' from a similar company.

20:02

🤝 Trust and Empowerment in CEO Hiring

The importance of trust and empowerment when hiring a CEO is emphasized. The speaker shares insights on ensuring cultural DNA alignment and avoiding 'big company' candidates who may not adapt well to smaller businesses. The discussion also covers the significance of a CEO's willingness to take risks and have skin in the game, aligning their interests with the business's long-term success.

25:03

🏆 The Art of Transitioning to a New CEO

The speaker discusses the challenges of transitioning to a new CEO, comparing it to passing a baton in a relay race. The advice given is to make a clean break and allow the new CEO to take charge, emphasizing the importance of not undermining their authority. The paragraph also touches on the emotional aspect of letting go and the potential for a business to thrive under new leadership.

30:04

📊 CEO Performance Monitoring and Mistakes

The speaker addresses how to handle a CEO's performance, including setting boundaries for acceptable mistakes. The importance of establishing clear financial controls and communication guidelines is discussed, as well as the need to assess whether a CEO is contributing positively to the business amidst potential external challenges.

35:04

🕵️‍♂️ Rigorous CEO Candidate Diligence

The paragraph delves into the importance of thorough diligence when hiring a CEO, including the use of former CIA agents for background checks. The speaker shares tactics for verifying a candidate's claims and experiences, emphasizing the high cost of a bad hire and the value of deep reference checks.

40:08

🤝 Negotiating CEO Compensation Packages

The speaker provides insights on structuring compensation packages for CEOs, advocating for a high-variable, low-base approach tied to performance. The discussion includes strategies for negotiating equity, with a preference for CEOs who are willing to invest in the business, reflecting a shared risk and commitment to success.

45:08

🔑 Keys to Successful CEO Hiring and Management

The final paragraph summarizes key takeaways from the masterclass, including the importance of finding a CEO with the right 'Hammer' for your business, conducting thorough reference checks, and allowing the CEO autonomy to perform their role effectively. The speaker also mentions a PDF checklist on hiring a CEO available through their newsletter, offering further guidance on the topic.

Keywords

💡CEO

CEO stands for Chief Executive Officer, who is the highest-ranking executive in a company and makes major corporate decisions, manages operations, and represents the company to the public and board of directors. In the video, the theme revolves around the process of hiring a CEO when a business owner feels they are no longer the right fit to lead the company. The script discusses the importance of finding a CEO who can take over and grow the business effectively.

💡Delegation

Delegation refers to the act of entrusting tasks or authority to another person. In the context of the video, the speaker discusses how successful entrepreneurs often reach a point where they delegate tasks to others, and hiring a CEO represents the ultimate level of delegation, where the CEO takes over the day-to-day running of the company.

💡Portfolio

A portfolio in a business context refers to a collection of investments or businesses held by an individual or institution. The video mentions that the guest speaker has a portfolio of 40 companies, emphasizing the scale of his business operations and the importance of effective CEO management across this diverse group of businesses.

💡Compensation

Compensation in this video refers to the total remuneration or payment structure offered to a CEO, which can include base salary, bonuses, and equity. The script discusses how to structure a CEO's compensation package to ensure alignment with the company's growth objectives and to incentivize strong performance.

💡Alignment

Alignment in the video pertains to ensuring that the interests of the CEO are aligned with those of the company and its owners. This is achieved through a compensation structure where the CEO's bonuses are tied to the company's performance, as exemplified by the discussion on bonus structures based on reaching certain profit milestones.

💡Founder

A founder is an individual who starts a company or organization. The video script discusses the challenges founders may face when they no longer wish to run the company they started. It highlights the founder's journey from initial excitement to a potential desire to delegate or sell the business, and the option to hire a CEO as a means to transition away from daily operations.

💡Recruiters

Recruiters are professionals who help companies find the right candidates for job positions. In the video, the use of recruiters is discussed as a valuable tool in finding suitable CEO candidates. The speaker mentions how recruiters can broaden the search spectrum and save time by pre-vetting candidates.

💡Product-Market Fit

Product-Market Fit is a term used to describe a situation where a product satisfies a particular market's demand, enjoying good sales and customer acceptance. The video emphasizes the importance of having achieved product-market fit before hiring a CEO, indicating that the business has a proven value proposition and is ready for scale-up.

💡Hammer

In the video, 'Hammer' is used metaphorically to describe a CEO's primary skill or area of focus, such as marketing, sales, operations, or finance. The speaker advises understanding a CEO candidate's 'Hammer' to ensure it fits the needs of the business, as it often dictates their approach to scaling the company.

💡Diligence

Diligence in this context refers to the thorough investigation or assessment of a CEO candidate's background, qualifications, and fit for the role. The video script describes the importance of conducting due diligence to avoid poor hiring decisions, including the use of former CIA agents for in-depth reference checks.

💡Transition

Transition in the video refers to the process of handing over the responsibilities of running a company from the founder to the newly hired CEO. The script discusses the importance of a clear and decisive transition, where the founder steps back to allow the CEO to take charge and establish their authority within the company.

Highlights

The importance of hiring a CEO when you no longer want to run your company but don't want to sell it either.

Andrew Wilkinson's experience with scaling multiple companies and the value of delegating to CEOs.

The concept of 'product-market fit' as a prerequisite for hiring a CEO and ensuring business scalability.

The financial threshold for considering the hiring of a CEO, with a business needing to be profitable enough to support the role.

The psychological readiness required to let go of control and empower a CEO to make decisions.

The strategy of hiring a CEO who has experience running a business of similar size or industry.

The use of recruiters to broaden the search for potential CEOs and the benefits they bring to the hiring process.

The importance of aligning with the CEO's strategy and understanding their 'hammer' or primary skill set.

The necessity of trust and 'gut feeling' when interviewing potential CEOs and the red flags to watch for.

The process of transitioning to a new CEO, including the importance of a clear handover and stepping back.

The potential downsides of hiring a CEO, including the risk of misalignment with company culture or strategy.

The role of background checks and due diligence in avoiding bad hires and ensuring a good fit.

Negotiating compensation packages for CEOs, emphasizing the importance of aligning incentives with business growth.

The challenges of letting go and allowing a CEO to make mistakes, setting boundaries for acceptable risks.

The benefits of in-person meetings during the hiring process to gauge chemistry and trustworthiness.

The value of a CEO's skin in the game, with discussions on equity and investment in the business.

Andrew's personal approach to scaling businesses and finding the right balance between involvement and delegation.

Transcripts

all right this is a guest master class

with our buddy Andrew Wilkinson we're

inviting him on because if your world

class is something I want to 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

want to run it anymore I was tired I

wasn't the right guy for it I was half

in half out and I was just fantasizing

about selling it or the day where I

wouldn't be running it anymore and he's

like dude you need to hire a CEO and to

me that always felt like something

that's easier said than done hire a CEO

just find somebody to take over my baby

but he's done it this guy's got 40

companies he's got a CEO that runs you

know CEOs that run them he doesn't have

to run any of them day-to-day the

portfolio is worth $500 million so if

there's anybody to learn from it's

Andrew on this and so he comes in and he

shares uh how are he interviews them

what are the questions that he asks who

is he looking for um how does he

structure the compensation so he's very

transparent about you know how he

structures it how much is base comp how

much is variable how to make sure

everybody's aligned uh what to do after

you hire them and so we go into step by

step how to hire a great CEO for your

business this is not for a beginner if

you don't even have a business You'

never done this this not for you this is

for people who actually have a business

and they're scaling it up and maybe it's

year five it's year seven and you're s

starting to realize you don't want to do

this for another five to 10 years and

this that's when you have to have this

conversation to figure out how you can

hire a great CEO to scale your business

it worked for me it's work for Andrew I

hope it works for you so enjoy this

guest master class with Andrew r

[Music]

okay we asked Andrew Wilkinson to come

on and do one specific thing which is

teach us how to hire CEOs he owns Andrew

you own what 40 companies now the total

portfolio is worth almost $500 million

and yet you're a pretty chill guy

whenever I text you you answer you're

always having fun you're not stressed

out overloaded overworked like every

other CEO I know who's a have one

company but you have 40 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 want to learn this from you so

you're here today to teach us that how

did you even realize that you needed to

hire CEOs yeah so I would say um 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 uh 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 um you

know CEO comp packages so I want to say

to begin with you know this is not

necessarily A Greener pasture it's just

a different pasture um and I think it

you you really only want to oversee CEOs

if that's your skill set if you're drawn

to um being super super high level and

hands-off which some people let's be

real they're not they're they're like

they want to be jro from Juro Dreams of

Sushi they don't want to be the guy who

starts Chipotle they want to be on the

line they want to be making food uh 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 uh you

know systems to wash the dishes more so

I had to do less work and so I always

joke that I'm Teflon for tasks and if

you start delegating in your company

which most great entrepreneurs do you

ultimately reach this point where uh you

ask yourself well is 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 10 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 30 or 40

companies do you have 30 or 40 CEOs

reporting to you no the way that we do

it now so it's crazy at first it was

like five companies so I had five direct

reports uh 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 report into us

so for example all of our Digital

Services businesses are run by a guy

named prep I meet with prip kind of

bi-weekly monthly whenever I need to uh

and he oversees a group of like six

companies even if you're not going to

end up with that kind of portfolio 40

company structure I've had this with you

which is I think a more common problem I

remember emailing you saying hey I have

this G business it's working so I can't

there's no there's no reason to shut it

down however I don't want to keep

working on it I liked it at the

beginning I don't love it now I want to

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

zoo and if so where the heck am I going

to find somebody who I could trust to do

this so even on a one company level I

think that's where most Founders are

going to be that uh you know Step One is

abstract yourself out of a single

company so let's let's start with that

you you said something you're like it's

pretty common everyone loves their

business in year one I forgot what's

your exact quote so yeah every time I

talk to a young founder they're like I'm

going to run this till the day I die

doesn't matter what the business is they

think they're going to be you know there

like Mark Zuckerberg for 20 30 years and

then you talk to them in years seven or

eight and almost all of them are just

like how do I escape this hellish waking

nightmare like want to be I'm gonna run

this till I'm 28 till the day I'm

28 totally so and it's really

interesting because um 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 M Island right

uh 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 if you're a 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 metalab which is a design agency

uh about 20 years ago I feel very old to

say that but about 20 years ago um and I

ran it for as CEO for almost 10 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 scrappily

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

eight year nine I didn't want to fly to

San Francisco anymore I didn't want to

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

got to fly to San Francisco every time

you go down down there you Clos like a

million dollars of new projects but I

didn't really want to do it because a I

was exhausted it wasn't new anymore I

didn't want to 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 to

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 San Francisco trip once a

quarter and we'll close what we close

because I don't want to 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'd

never done that before and so for me I

was looking at it and going okay um

running a five person agency versus a 50

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 15 people

comfortably

um but I I wasn't enjoying it when we

were 50 people and I read every book

about management I did courses and I

just kind of Whi myself why am I not a

great manager why can I not be like

Peter Ducker reincarnate 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 uh the buyer would

change the terms or something would go

wrong in the business and so so I was

kind of starting to lose it I didn't

want to be running my company I wanted

out 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 3 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 and we'll get into like the actual

tactics really quick though the green

pasture thing youing it's always Grass

Is Always Green on the other side and

like you and I joke where you're like uh

well I don't want to say what you said

but you'll just like be teasing about uh

running a small company and how that

could be way more fun and being the CEO

of a small company uh for a long period

of Time Versus trying to like go big

what's the grasses Always Greener for

you all right everyone really quick if

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well I mean I think

um I there's a great Bob Seager quote um

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 pokes his head over the

fence and says hey dude can I get a qut

of 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

Todo 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 20 years and you wake up and

you're a lumber magnate you own five

Sawmills 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 is spent doing doing Excel

right I think that is the sadness of

building a large business and delegating

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 loved

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

compan let's let's roleplay it here so I

have a company I want to hire Ace I I've

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 going to find a CEO that I

could trust that's going to 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

want to ask does your business have

product Market fit and can it actually

afford a CEO right is this uh is this a

corner store like where it's kind of an

owner operator kind of business where

you just kind of 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 $300,000 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 based salary and

then you can incentivize them to grow

the business business and so one of the

one of the really interesting things

that people kind of obsess over is they

say well you know a CEO could cost

500,000 my business is only doing $3

million and $300,000 of profit and what

they kind of 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 300K of profit you can basically

take two or 300 K of that invest it 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

align them with your goals so first

thing is my B 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 uh 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 said profit around 300,000 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 a I always call them like an ember

it's not really a fire yet it's an ember

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 um 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 want to take

total risk they want a nice salary they

want bonuses they're not necessarily

willing to risk at all but often they

want to know they can get rich in a in a

CEO way so they can make singled digigit

Millions for the first time ever uh 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 want to know that

you can make someone wealthy with it and

so we'll do the exact comp stuff in a

minute but the second question you have

so first was is the business big enough

and do we have prod fit then you also

said to me once like are you willing to

walk away I think there's a mental side

of it too are 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 fantasized about giving

the keys away to someone else and when I

finally did I was elated 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 his 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 all we're all birthing

these these uh 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 all right I'm going to walk away

is it I'm walking away because this

person's going to to 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 80% 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 going to

sacrifice on the product side a little

bit but you're going to know the

business itself will be so much

healthier and grow um at least from a

financial measure I found that going

from being a checked out founder

operating your business reluctantly 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 consistent with

what I've heard a Founder the other day

was telling me after maybe 8 nine years

of running his business he hires a CEO

he plans to stick I'm hey I'm here I'm

available for the next year transition

he's like yeah they haven't called in a

little while um you know we be we beat

our numbers which I wasn't able to do

the last three years and uh everything

seems to be going really well turns out

uh turns out they didn't need me as much

he's like little hit to the ego but also

wait isn't this exactly what I wanted

and um you know he was 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 do 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 um

selling candles well I I don't

necessarily need to go find a CEO um

who's run a candle business before but I

want to 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 I

admire and then I'll go on link in and

I'll just look for um president coo um

sometimes CEO but usually I will recruit

a number two and it's that person who's

been eagerly awaiting getting you know

kned as the CEO and they haven't stepped

up yet uh I find those are wonderful

people to delegate the business to uh

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 uh recruiters that I've

actually changed over time but yeah you

got I I find broadening the Spectrum

with recruiters can be really helpful we

have to get a quick shout out to Ty

Burke my old roommate and someone I used

to recruit and I know you Ed them as

well you also use like crazy amounts of

uh uh 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 going

to buy the business or we're going to

delegate we we hire a recruiter

immediately now recruiters really pissed

me off before it was like real filters

where I'm going like man why am I paying

this guy $100,000 to open a door for me

I can just go on you know like Zillow

and find the the the house I want to buy

and here's this middleman charging a lot

of money and I kind of 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 10 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 um I've

come around on recruiters there's some

really exceptional recruiters like Ty

Burke who um from search Partners who

Sam introduced me to he's one of my

favorite we also really like Matt

Hollingsworth from Al line um and what

the way I use a recruiter is just to

broaden the Spectrum so even if I'm

going to go on LinkedIn myself and look

for someone I'm might end up bringing

the person to the table who we end up

hiring we now have somebody who's um

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 10 candidates for CEO and

every single one of those candidates

you're going to have to do a zoom with

and that'll take 30 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 30 seconds you

know they're a dingus 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

[ __ ] and so now I have the recruiter

do that call and I get them to record

the zoom and then I just watch the first

couple minutes and if I'm vibing with

the person then I'll move them on to the

next stage so if think about from that

perspective your time is highly valuable

and you've just saved 10 hours of time

what is that worth I think a lot and

then in some instances um we've actually

hired uh people that we brought in

that's fine and I just pay the recruiter

anyway but in other instances they've

brought people in that we never would

have found so the guy that runs

Aeropress Gerard Meyer we found him via

Tha and he was a guy where uh he had run

Soda 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 um

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 um and so I'm

actually a big fan of recruiters now but

you got to 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 uh what

are they running you so usually it's a

percentage of first year salary I think

it's about 20% so you know when you're

hiring a CEO and you've got total comp

of you know 300 Grand 500 Grand it can

be expensive um but I think it's worth

paying for if you can find the right

partner on it and you mentioned uh

looking for a number two who's run a

similar sized or similar uh similar

industry company um here's what I take

that to me you tell me what I what I

miss let's say You're The Candle Company

you don't need somebody who's run a

Candle Company tox the size but maybe

you want e-commerce you want it maybe

where Facebook was their primary Chan

sales Channel maybe you want uh

something like candles like maybe

selling to the similar customer base or

a one-time onetime purchase product not

something that's you know a total

different kind of like buying psychology

um 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 um

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 50 person uh Enterprise

sales team to the marketing people it's

we're going to spend a million dollars a

month on Facebook ads so you want to be

listening 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 going to 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 before I've

taken businesses from a million dollar

in sales to $10 million in sales and

I've done that you know between one in

five times in a similar business so at

this point are you just constantly

collecting people I mean is that kind of

how you look at your job is I'm just

always I mean because if you're having

to talk to all these people constantly

and you have 40 companies that's like

pretty much all your

time I'm always thinking about that I

mean my worst fear is we're going to be

recruiting for a CEO role and I'm going

to 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 um but yeah I'm

always trying to scan the Horizon for

people who are um smart and I can bring

in but interestingly often it is every

process is different and and when we

hire a recruiter um only like 20% of the

time is it someone uh now that we've

brought in often it is someone that they

go Source I love the uh what's their

Hammer question uh because it's so true

that the the more experienced somebody

gets and the more successful somebody

gets they start to develop this hammer

and they 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 um I

think this is a good thing and a Bad

Thing uh I've seen the same advice given

to kind of um YC type of companies or 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 Le growth it's a total mismatch

you might say oh wow they grew that

company from 10 million to 200 million

and that sounds good but if they did it

in a way that's totally different than

yours very few people can repeatably

grow businesses using totally new

methodologies for sales and marketing

and I'm ious also what's your Hammer

like uh if if you're a man if you're a

man with a hammer running around what

what is yours well I would say I'm a man

with a lot of different hammers um I've

gone really broad now because I've seen

so many different ways of growing

businesses and I think um I have a lot

of tools in the toolkit my old Hammer

was product I would always just be like

oh my go 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

going to build the best product in the

world I'm a designer you know I was

really proud of what we're doing uh and

that'll solve everything and I realized

that really doesn't work very well and

now I would say my hammer is finance so

uh or operations so really what I'm

doing is I'm looking at a business 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

the designer from 20 years ago would be

really sad and I still love don't get me

wrong like so when we bought let me give

arero press as an example I I just

unboxed our new Aeropress clear and I

just checked out the designs for a

couple unreleased 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 Aeropress the boring assumption I

made was I'm just going to do really

good um online marketing and e-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 and I get deserve you got you

you need to go throw away your Herman

millich chair and your Birkenstocks and

go put on a vest you nerd you're no

longer I know I know I know I know I

want to self flatulate so I want to I

want to talk about though um some of the

things you have to accept about hiring a

CEO and also when you interview a CEO

what you want to look for um 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 for from apress 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

and 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 going to go

anywhere it 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 going to follow peanuts wherever

wherever wherever it wants to go and so

it's really important that you agree

with their uh 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 uh Hey I was looking at

the business and I really think we need

to go hard into Facebook ads and I would

kind of scratch my head and go well we

already kind of tried that I was kind of

thinking more this is like an email

marketing um you know marketing strategy

that we should deploy and they would all

always just double down right whatever

they say the first time is usually what

they're actually going to end up doing

and they're just going to use their

Hammer um 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 crawlies after you walk away do

you feel in any way any cognitive

dissonance any weirdness does your

stomach feel off

um you know you someone could be

incredibly Charming I often get this um

you know Psychopaths 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 um but I think the most

important thing is you know would you

let them babysit your kids right I think

like you know either you guys I would

let you babysit my kids right but and

that's important you're going to 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 um so they can

be I don't like slick people I like

people who their armpits get really

sweaty in the interview I like people

who get kind of nervous and scratch

their face when you ask them hard

questions I want to see that someone is

a human and when things get tough they

will want to do the right thing um and

so that's that's like really critical um

you know do you walk away energized

right you can really like somebody but

if you don't walk away energized um 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's hiring someone to run Hampton and

uh they say I want a million dollars a

year based salary and you're like okay

well you know could we do some bonuses

do want Equity how could we create

alignment and they just want like

lowrisk cash guaranteed that's not

someone you want to 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 want zero risk and they just

want to make a [ __ ] ton of money and you

got to avoid those people like the

plague have you found any correlation

between um age or where they live like

if they're from a Silicon Valley Company

New York company middle of America or

wherever the equivalent stereotype is of

Canada well I mean I wouldn't say that

there's anything about uh 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 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 um I

always think about it like restaurants

so let's say that you have um you hire

let's say you have one restaurant with

no systems and you go and you hire the

chain restaurant let's 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 um 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 kind of get

that in big company people so you got to

avoid the big company folks one Nuance

that you didn't say but I'm pulling out

is you want somebody who's run a company

2x the size not 20x the size you would

think 20x is better right no no it's not

actually better 2x is kind of The Sweet

Spot of what you're looking for is that

correct totally well there's this funny

uh I I think of it as like there's a a

variety of different skills and if you

let's use Chipotle for some reason I

always go back to Chipotle but um think

about this so there's the guy who

invented the burrito right that's that's

kind of like if you think about it

that's like the founder of the founder

right then there's Steve 's 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 set he went

from one store to say 20 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

uh 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 th000 stores and so I

think you really just want to be

accepting of you're you're almost

running a um what's it called like a you

pass the Baton what what is that a

marathon a relay race yeah and so you

might say the person that you hire the

CEO you hire to take your business from

two to 10 million you know what at 10

million you're probably going to bring

in some new person to run the company

then and they're going to know their

scale and then you keep going through

this and occasionally you're going to

get people who read a lot and learn a

lot and are highly adaptable and can

keep going but usually you know a CEO is

really effective for between five and 10

years and every once in a while you get

the the special cases that can go the

distance and even those exceptions even

Mark Zuckerberg who's been running

Facebook for 20 plus years he has Cheryl

and Cheryl does a bunch of stuff so that

he can keep inventing their next burrito

he's like oh great I'm going to focus on

AI I'm going to focus on metaverse and

somebody else will do you know ad

operations at this point because that's

not what I want to be scaling up or the

Google guys did the same thing with Eric

Schmidt right they bring they brought in

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 um 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 was

basically just bail uh and and and you

were like just talk to him like once a

month and then once a quarter and then

once a year um and I was like well I was

gonna like keep working there and

talking to him every single day and like

G 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 what are those first 100 days

supposed to look like yeah and then and

then after 6 and 12 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 um 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 ERT to your top

Executives this person is in charge and

uh 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 texts

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 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 them

like a guide like are you like compiling

everything in notion like I don't know

like like hamb well maybe maybe not

maybe not quite a guide or something but

you're doing a lot of brain dumps right

you're going to spend a couple days with

them and go through everything but uh

you know business is funny like

everything tastes like chicken like a

competent CEO will be able to jump into

most businesses within five 10 days be

able to kind of get the lay of the land

and get moving um so I don't I don't do

too much of that transition stuff um and

and then fir 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

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's still in charge

I'm just going to go back to Sam and

then the water the stress Finds Its way

back to you so um I'm a big fan of just

being I mean you got to do your

diligence if you're going to give this

person your business baby you got to

know they're not a a epic piece of [ __ ]

right that's very important but if

you've done all that we can talk about

all the diligence stuff so you got to

get comfortable that passing your

business to this person is going to 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 [ __ ] 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 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 um you know you want

Flesh Wounds not mortal wounds so would

I allow a CEO to spend 500,000 on some

R&D boond doggle yeah maybe I don't want

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 uh maybe not

you know I'd probably watch something

like that and ultimately I think it's

important that you say I'll never forget

when I was reading 4our Work Week Tim

Ferris had this whole thing about

anything less than $55,000 doeses not

require my opinion and I think it's

important you set that control with the

CEO so you say anything that that you

want to spend more than $300,000 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 got

to take a drink every time you say a

cute Canadian phrase uh we've got

boondoggle we have Dingus we've got

creepy

Crawley what else you got for us Dingus

Dingus isn't even Canadian it's actually

it's from Tim Tim and Eric do you guys

ever watch Tim and Eric yeah I want I

want more of that go ahead Sean let's do

um let's finish up actually in the

hiring and diligen in stuff so I I have

I have one more on the interview so do

you meet in person or are you trying to

do everything in Zoom do you like spend

spend time you know any extended time

with them yeah I like to meet them in

person yeah um I think there's something

to looking someone in the eye seeing how

they their body language is you just

can't get that same level of diligence I

have hired people sine many times but

for major hires I always want to meet

them in person so in terms of diligence

it 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 um and this is you know anyone

who's hired people at a company knows

this you know check references top

grading there's all these different ways

of doing it um but there's a couple um

you know there's this idea of like trust

but verify right so I'll trust my gut

that's my first screen um 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 we'll assess okay do

we get any creepy crawly 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 um that burned us and so we

actually use these former CIA guys to do

background checks they're called

business intelligence advisers kind of

like CIA but with a b and they are

incredible they will interview they'll

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 um oh I left that

company because XYZ well they'll go and

uh 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 um and then also have they

ever been um you know accused of a crime

have they ever had like a track record

of like not paying bills uh legal

records all that kind of stuff so I

think that's really important and we um

we've made a really bad hire um about 10

years ago and the guy basically was like

full of [ __ ] 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 10 and $20,000

to get this deep reference check done um

and so that I think that's just so

critical that's that's amazing do you uh

sounds like between the recruiter and

the reference check the the background

check people

you might be spending anywhere between

50 and $100,000 of transaction costs in

recruiting a CEO I'm assuming you can't

do that when it's a $300,000 a year

profit business what is the minimum bar

you use when you're gonna when you're

going to pay for both the the the good

recruiter and the the background checks

and what would you do for the if you're

the person who is more at the 300,000 a

year profit um and maybe can't afford

those transaction costs how would you do

it DIY well I would just follow the same

process right so you know you're not

going to be able to hire the recruiter

and afford them and so you're going to

try and cast your net really broad

you're going to 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 snaky

person can find three buddies who can

you know say that they're great or

whatever it is I always try and Scuttle

butt so I'll say Okay um my friend

invest in that company and I'll ask them

to ask the CEO why that person left or

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 worked for and you

say hey I'm doing a reference check on

this person

um 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

such 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 want to [ __ ]

on somebody if they um if you know if

they have anything good to say but if

they have something bad to say it gives

them an out because a lot of people I

found are worried about legal liability

they don't want to go and like you know

say this person's a piece of [ __ ] and

then that person sues them or something

like that dude I'm going to use that

line for any email I want uh I'll just

like ask someone anything like if you

don't if you don't reply I'll assume you

hate yourself and your

family yeah exactly sales guys do that

all the time it's the worst um okay so

you found the person how do you

negotiate and structure the comp package

for the CEO so um I always like to make

the first offer um because ultimately

you kind of know what you're willing to

pay and what makes sense based on who

they are and I think you kind of 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 um they're a VP

marketing but they really have CEO

energy and I'm going to take a chance on

them I'm going to try and um you know

pay less for someone like that I'm not

necessarily going to put them into like

full CEO comp I'm going to try and go

high variable low base um but someone

who's more established you know I'm

going to give them basically what they

what they want and uh and whatever we

think the range is there um 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

$300,000 of profit and I can comfortably

afford a CEO base salary of 150 Grand

right so let's say this person is worth

300 Grand a year 400 Grand a year I'm

going to go to them and I'm going to say

I'm going to pay you 300 Grand a year

but it's going to be $150,000 base and

it's going to be $150,000 bonus and the

bonus is if you get me to $600,000 of

eitaa 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 going to offer you $150,000 a year

plus a bonus because in their head

they're going like no I'm a $300,000 a

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 cap

bonuses so for example let's say the

target is you know $600,000 of eitaa

well if they do $1.2 million of EA I

want them to get double the bonus maybe

even triple the bonus um and that's

worked really well for us so the idea of

saying look I'm gonna offer you $300,000

a year but it might be$ 600,000 it might

be a million dollars a year depending on

how you

perform um and then the other thing is

equity is just hard um 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 to me and they say

okay but I need you know I need Equity I

need skin in the game I'm gonna say

something like okay so you want um

$40,000 of equity per year uh are you

willing to lower your compensation by

$40,000 or are you willing to write a

check you know do you have do 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 want to do

that then sometimes I'll even loan the

money I'll say I will personally loan

you the money and then you're going to

write a check and you're going to 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 the

earnings at the time or whatever it is

how how 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 when they get stock options

they just look at it they don't even

consider it as part of total comp so

let's say that like all here's here's

the kind of thing I'd hear so they say

um I want to make 400 Grand a year and

and I want equity and I'd say well okay

how is the equity going to work they go

well I think I should have 5% and let's

say the business is worth $100 million

so they've now said Okay I want $5

million and you're like okay well you're

you're worth four to five 00k a year

based on your track record and your

experience and all that kind of stuff

how am I supposed to give you $5 million

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 joined my company and the

stock price is $100

and I say here's $100,000 of stock

options at $100 share price if the Shar

is drop to

$50 it's a lotto ticket and it's a zero

it's not worth anything if it goes up

then it's worth a shitload and so you

end up with this kind of binary

situation where they have this lotto

ticket that pays out big or as a zero

and so what that means is if your value

of your business goes down even 10% %

they're basically at a zero and so

they're disincentivized 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 want to go

on crazy vacations they like cash most

of the time quick kind of question as we

round up to what the downside of all

this is is like everything you're saying

I think sounds when I hear it I'm like

this is the

way is a fair argument against this that

founder-led companies typically have

more Innovation 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

metalab 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 want to 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

service 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 it's

the same advice I give to entrepreneurs

they say well should I go and work in a

company or should I be an entrepreneur

and I kind of go well if you have to ask

that question the answer is probably no

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 way and

take the wheel of 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

guilty well dude this is awesome we love

having you come on um what do you think

Sean yeah this is great and it's also um

earned information so this is not

something that you you might be able to

read in a book but a lot of the Nuance

of what you described is from hard

lessons that were you know things that

went right many mistakes of things that

went wrong and the lessons you've

learned so we all got to benefit from

you know your 20 years of experience

kind of going through this process

yourself and um 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 cheat codes oh my God I get the

business is going to do well it's going

to 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 total great

trade for this person because I kind of

didn't really appreciate how many people

are entrepreneurial but maybe not

entrepreneurs they are people who are

great CEOs but they also got two kids

they don't want to take full-on risk so

they they want that kind of medium

upside um low downside and uh 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

2x 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 a

hammer and and you just have to make

sure that that's the right hammer for

your your business um 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 can

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 def fire them what's the balance

there like you leave them alone but you

don't leave them completely alone I

think for you guys they send you what a

f a finance only update every every

month and then 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 on 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 uh there's

certain CEOs we don't even meet because

they're within operating platforms so we

just meet with the CEO of that operating

platform uh usually like monthly or

quarterly and check in um by the way

this is the number one thing I get

emails on like literally like every

single day I get questions about it on

Twitter and on email and so I actually

wrote a PDF on here like a checklist

basically 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.com

newsletter uh I'm gonna post the PDF uh

next week I think awesome okay great I

think that's that's the that's the Pod

everybody should go check it out

never.com what newsletter newsletter

yeah and we'll link to it in yeah we'll

link to it down here um all right dude

thank you that's the pod

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