EP 244 - The 4 Danger Zones Every Business Must Navigate (Michael Walsh, Part 2 of The Freedom Framework) - Paper Napkin Wisdom - Podcast for Entrepreneurs and Leaders

Episode Transcript
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Govindh Jayaraman (00:02):
Michael Walsh. Welcome back to paper napkin wisdom. I'm excited to have you with me today.

Michael Walsh (00:07):
Well, thanks, it's great to be here.

So for people. I did touch on this in the intro, but I'm excited to say this with you as well, Michael.
When we went off the air before we went off the air. We'd sort of teased this idea that you'd be coming back on a regular basis because you've got this great toolbox. It's so valuable, and your ability to express these things is so articulate that

(00:34):
that you would come back on a regular basis to share with the paper napping wisdom community. And we've you've said generously that you're going to do that starting now. So thank you for that and we're going to dive right in because you.
your napkin, shared a squiggly line. You shared a squiggly line with with 5 sort of intersections along that squiggly line and that squiggly line sort of steps its way from right, from left to right, upwards, like a graph

(01:06):
at the bottom. You talk about 4 danger zones, and
the 5 lines are 1 million 2 million 5 million, 10 million, and 20 million, presumably revenue. And the danger zones are at underneath the 2 underneath the 5 underneath the 10, and in the 4.
Why did you share that with me as our as our launching point to this series.

Well, the okay. So just by way of background, back in March of 2020, when Covid joined us.
I actually had a little extra time on my hands, because I've been doing a lot of international travel up until that point in time, and I no longer had to do a bunch of international travel, and I thought, Well, you know what? It's probably not a bad time to write my next book.

(01:56):
and one of the things that I had noticed was that was that once somebody has passed a million in revenue, I mean, it's interesting, because when you have little small companies, everybody wants to hit a million in revenue. That's the 1st goal is, everybody wants to hit a million. And, in fact, I had a company where that I was dealing with where this woman was. She was clear she wanted to hit a million in revenue, and she kept talking that she wanted to hit a million in revenue.

(02:21):
and
when we checked in she was actually already at 1.4. But she still wanted to hit a million around. I mean, a million in revenue is the big deal. Right? So so it's like. And then, when she discovered it, she's like.
Oh.
I'm not quite sure where I want to go now. We had to actually recreate what a future might look like together, and we had kind of fun with that. But a million is there? But it's almost like, you know, you need a million in revenue. It's like those are almost the table stakes, because it's, you know, to survive.

(02:50):
To get a million in revenue is a good chunk of survival in terms of growing a business. But then there's this whole journey that people enter into on the shoulders of that. And what I found was that at each of the major milestones
of growth beyond that 1 million, obviously the 1st one's at 2 million. Then if somebody gets to 2 million, then they've got another milestone at 5 million, and if they get to 5 million they've got another milestone at 10 million, and if they got a 10 million dollar company, then their next milestone naturally is at 20 million. So I thought, Okay, fine. But what I found is that at somewhere around each of those milestones there lurks these underlying

(03:32):
danger zones. And here's what I find. If
entrepreneurs are pretty savvy people. Okay, but find business owners really are pretty smart.
a lot of people smart, but business owners. I find that, you know. If you can see a problem, you can figure out how to deal with it
if you can't see the problem, but you know that it's there

(03:57):
again, you can figure it out, and you can deal with it. I don't have to necessarily see it. If I know it's there, then I know to anticipate it and deal with it. It's the problems that I can't see, and I have no idea they're even there. Those are the ones that as an entrepreneur or business owner I'd be stuck with. And that's where people. What I found is that people struggle.
And so what I found is that each of these milestones. So, for example, as somebody's approaching 2 million, you know, between 1.7 and 2 million, they start to get stuck.

(04:28):
and they just don't know why, and they can't tell why, as far as that's concerned. And then once they get past that one, they figure that out for those who do. Then, just after 5 million, anywhere from about 5 and a quarter to, you know. I've seen it as late as 7, but usually 5 and a quarter 5.5 million. They're stuck again.
you know, completely different set of issues. And then, as somebody approaches 10, got a 3rd set of issues that go. And then there's this chasm between 12 million 20 million, which is like No Man's Land. It's you're too big and too small. And so there's underlying stuff all through that. So those are the 4 areas that I've actually labeled the danger Zones. And part of what I did was it started me on a journey is like, what are the dynamics that are going on there.

(05:13):
How does it that people get stuck? How come we can't see it? And then what is it? What's what's at play? And then how do we deal with it?
So that's what danger zones are about.

That's really cool. And one of the things that I think was really interesting in the way you talked about the danger zones is, you didn't seem to differentiate between service and product industries in talking about those danger zones, is there a difference.

Actually there is. The. What I find is that at some level it plays with with all companies. But what I found was, I spend 90% of my time with service-based businesses or businesses with a strong service component. Specifically, where there's the expertise of the people involved.
So whether it's professional services, like architects, engineers, medical practitioners, people in healthcare, or whether it's skilled trades. Okay, where there's a combination of services and the product. But again, you've got the expertise of the people involved or training and development companies. Things like that. Again, services where there's expertise of the owners is where let's put it this way. This is at its cleanest at those things. Now, when it's a combination of a product or service.

(06:24):
the numbers shift a little bit because I'm you know, if I'm if I'm if there's a pass through of product, then it just inflates the number. The danger zones are there. It's just that they're less predictable, associated with those revenue model, those revenue numbers.

Would it be more of a net revenue thing for those groups, or would it? Is it just totally different model.

It varies by industry.
Like, if I'm if I'm selling kitchen cabinets. Okay, somebody's physically producing them and doing them. Your numbers could be incredibly different than if I'm I'm in stone and tile.
because it depends on how big a factor the thing is, and and and the net revenue.

(07:06):
It's not as clean like. I haven't found a clean ratio for that, because it does vary industry by industry.

Got it. Got it. Okay? So these are the what I wanted to get across is these are guideposts, and they will vary slightly whether you're a product or service company. But this is predominantly we're talking about mostly the expertise of a service or a strong service component. These are these are the. These are the marks. So
let's let's talk about. Let's talk about this, this, this 1st danger zone at 2 million dollars or coming up on it right? So you said around 1.7 people start to get stuck.

Yeah, and.

You know, I've noticed that it, each of these dangerous ones.
You're very right. You don't know what's going on. There's just some resistance. It's like this
force that's holding you back. But it's not a force. It's it's structure, right? It's it's a system.

Well, there are structures that are underneath. But the thing that I found interesting, and this is what I found in common with all of them in each of these zones. Somebody's outstripping a structure somewhere.
except
it's the consequence of the structures that are being outstripped. And and what happens when people try to replicate those structures, or to or to make them more robust, that people get in trouble.

But what does that mean?

Well, I'll give you an example. So if you take a look at what the biggest issues are. For example, in danger zone, one is, you're approaching 2 million.
Okay? Again, thinking of a service based company. Okay, here's the you're spread too thin. Okay, there's too many junior staff there to support.
you know, and there's not enough senior support. And the problems just keep seeming to multiply. You know, you're under 2 million dollars. It's not like you got a bunch of extra money. Have to have a bunch of layers of management, as far as that's concerned. Okay, so you don't have the management support in the business, as far as that's concerned, and any senior company are usually specialist. Senior people are usually specialists.

(09:13):
so they're not. They're not there as managers. They're they're there because they're more accomplished, and they're actually carrying more of the client load everything when you're moving between a million to 2 million. It's still about client delivery, you know, whether I'm an interior design firm, whether I'm an architecture firm, whether I'm an engineering firm or whether I'm a medical practitioner I'm looking at. How do we deliver? You know

(09:33):
I don't need a bunch of managers. If I've got a physiotherapy company I got physiotherapists are actually taking care of my patients. As far as that's concerned, you know. And what I find is that at that size either cash flows tight or
people are worried that cash flow will be.
In other words, there's been enough ups and downs getting to that point that even it may be tight. It may not be tight, but I don't trust the cash flow is going to continue to be there. If I'm not, you know, super vigilant. So I'm really nervous to spend the extra money on talent when I'm not even sure what that talent should look like when I'm talking about somebody with management skills and capabilities.

And it's totally a different kind of talent than has been useful to your business. To this point, right? Because you want really skilled
staff who are delivering more to your clients versus. Now you need to add a layer that wasn't there before, right a layer that's helping you manage this junior staff or other layers. Right? You need to change the way the business is structured.

Well, and usually the place that people go when that happens is they take the most senior person that they've got, and they say, you know what I trust this person. So I've got Maxine. She's taking really good care of the client. She knows exactly how our product works. You know what. She's probably the best person to manage these other people and support these other junior people coming in. Of course, the skills that it takes to accomplish something are very different than the skills that it takes to actually support other people.

(11:03):
As far as that's concerned. So what happens is, it's a technical specialty that gets people into that role. So what you have is a near miss as opposed to a fit. I mean, we're all taught how to generate a result.
But and then you figure well, if you're in management, your job is to generate a bigger result. Well, no, if if my job when I was, you know, in the workforce delivering a direct result was, it was my accountability to deliver that result. If somebody's managing me, then it's still my job to deliver that result. It's not like I give up my accountability, and they're all of a sudden there, although they feel like they're accountable because the boss expects them to be.

(11:40):
And as a result, what happens is the result is what gets managed, and the people are now starting to be treated a little bit like cogs in a system, and it's not good.

No. And and isn't that also like the root of all reverse delegation, too? When when people are are, when you take that, someone who's really good at delivering the result and and graduate them, or, you know, promote them to a manager role. They jump in and take over the result all the time, because that's what they're really freaking good at. Right.

They know how to do.

Right.

I get promoted to management because I know how to get stuff done. Now, I'm being accountable for getting more stuff done so well, people, you know. I obviously know how to do it. They don't know how to do it. I'll just tell them, and if they, if they don't get it. When I tell them I'll show them, and I'll work with them and just do it with them until they figure it out. Doesn't quite work that way.

No. So how. So what? So that's the that's danger zone number one, yeah. And and
what do they have to do? What? What does someone have to do to get through that danger zone?

Well.
let's put it this way. The underlying issue is when you
see the question, I look at it. So that's the presenting symptom. What's the underlying issue? The underlying issue is, whatever the solution is that people start to figure out or try to figure out what they miss is actually what is both the culprit and the solution to all of these danger zones?

Oh, okay.

Okay, the culprit is people, and the solution is people.

So let's talk about an ex like an example of that.

If you tell me what to do, I feel told.

So one of 2 things happens.

Either.
Let's assume that I just trust you, and and that's fine. So you tell me what to do. I just follow what to do what I do in in accepting what you tell me is, I park my thinking at the door, and I just do what you tell me.
because that's that's if somebody's told what to do, they'll go. Oh, okay, and they'll just do that. Well, their brains in the implementation of that, their brains not in thinking through and sorting things out.

(14:04):
We're in a service based environment where the solutions are not obvious. There's not one size fits all. Sometimes there's nuances to the things, and nobody can possibly know all the nuances when they're actually instructing or supporting somebody else. Even if they've had experience based on their background. There's always nuances that the employees going through that may or may not fit exactly, and they may not even be articulate enough to actually identify those details.

(14:31):
So so what happens is, I mean, you know, if I'm doing a product as long as there's consistency in the inputs and consistency in the outcomes, no matter how complicated the algorithm, I can break it down. Because if I'm doing toasters, there's all the toasters have to come out the same. Or if I'm doing cars. All the cars of that model have to come out the same, or if I'm processing steel, all the steel is processed and cut the same way. Whereas if I'm dealing with service based issues where I've got

(14:58):
volatile emotions because somebody else has got schedule compression at the level of the customer, and I've got to deal with that person differently than than you know what my boss was dealing with in another very different situation. I don't necessarily get spoon fed the direction. Yet in being told something, I just literally will follow the instruction. And now that's a little bit simplistic version of it. But it nuances of that are exactly what happens

(15:22):
as far as that side of it's concerned. So the other side of it is is, you see what a boss will do is, they'll actually say, this person who was really organized that really took care of all the details. And as a result they're the best ones to guide these people, yet
they're not necessarily the best ones. Quite often I go in, and and I see that you know Candace was was the person that that you know the boss. There was a situation where there was a woman by the name of Candace, who was actually

(15:53):
she was tasked with actually managing the people.
and this was over in Europe, and she
everybody thought she was a little harsh.
and the boss really loved this woman because the boss decided that, you know, she could really get things done, and her attention to detail and her rigor got things across the line. But other people just started getting a little bit put off.

(16:16):
and what we found was, there was another person, okay, Miriam, who was another project manager, but
she listened for where the employee was at.
and she sort of went there. And so what we found is, well, the boss really loved Candace, you know. I made a suggestion, he said. What about Miriam?

(16:39):
And and she's like Miriam? Well, I said, Yeah, look, look at how many people they just bond in with her. They love working with her.
Yeah, but she's she's cranking out a whole bunch of stuff. I need her to do that. Yeah, I know. But at the same time, look at how productive her people are.
and she's like I never thought of it that way. You're right.
And so what Candace did was Candace became a support in different aspects of the company. But at the same time Miriam actually started supporting the juniors more formally. And what happened was that a lot of the issues they were having

(17:11):
actually just started to dissipate because I had the right person in the role.
you know, and it's just that nobody had ever thought of what makes a good manager at that size.

Yeah. And and isn't that part of the problem? We sort of pick up these antiquated ideas of what makes
a good manager based on history
as opposed to really understanding what's happening around us right now, isn't that part of the issue.

Well, part of the issue, I find is that is, that literally.
if, as an individual, I'm expected to generate a result as a manager. There's this notion that then the manager is accountable for a larger result.
When that's actually just not true. The manager's job is to support the people who generate the result.

(17:57):
So, instead of being accountable for their own result, their job is to support others who are each accountable for their own result, and then, just to make sure that they're coordinated. Now, where it gets kind of hairy is that that manager is usually
also an individual producer at the time, because quite often you don't have enough money at the table so they can just manage others. They're also carrying their own load. And and what happens is that's where they get their satisfaction from is is their personal deliverables. So then they just they'll diminish the support piece, going well, just do it this way, and and because, you know, they're spending their time generating their result.

(18:36):
But if if this same person is supporting 5 different people, there's going to be a you know, a higher actual production value by making sure that the 5 people have what they need, so they can excel, than there is just on this person handling their own, their own production capabilities as far as that side of it's concerned. So so I mean, there's a lot of pieces here.

(18:58):
Yeah, yeah. But but very simply. It's about understanding.

That you know the you said the culprit and solution are both the people right? And and when you get to this 2 million point.
People are spread too thin. They have too much junior staff, and they but they're they're conflicted about delivery versus management and leadership, and the thing that suffers is management and leadership because they it's easier just to deliver. It's easier to go back to what they were strong at

(19:30):
to get to that point right.

Well, and who I choose is somebody who's been good at delivery, not necessarily somebody who's been good at supporting others in delivery.
And so again too often, what will happen is, the boss will pick somebody who's a near miss, or they may not even have somebody yet who can actually step into that role. And the boss doesn't want to step into that role. Because again, quite often, I've seen bosses who actually started their company based on their personal ability to deliver, not necessarily their ability to manage others. And the other thing I found is that

(20:04):
different people have got skills with different types of people. So, for example, you could have one boss who's really good with juniors
is really good at nurturing juniors. You could have another boss who's actually really good with senior people, and they're horrible with juniors because they're just impatient.
So the question is, what kind of person should manage and support the different types of people that are sitting on your team. And a lot of times people don't line up the boss with the people who need the support and make sure that they dovetail together. More often they clash as opposed to dovetail. And so that's another dynamic that's at play.

(20:46):
Yeah, there's a lot of moving parts.

Yeah. So so that's so. So, those are some of the moving parts at at the 2 million part, what changes fundamentally as we approach 5 million.

Well, here's what happened. It's interesting, because once you can get figured that out, and it doesn't take long. You know, people do tend to figure that out, and once they've got somebody that they they know starts to to hit a groove. Then what happens is everything starts to work again.
and they go from 2 to 5 very quickly.
I find, relatively speaking. And then, just on the other side of 5, what happens is that you see things like profits start to dip at that level, for the company. Overall cost overages on projects become a larger issue than they were before quality issues could start to emerge small cracks in what has been stellar service.

(21:33):
and the growth starts to stall out a little bit, or it becomes certainly more challenging to continue, and your net income is a constant battle to address. So it's like you've grown to a certain level and a lot of times. It's just that you've got too many teams going on.
And and so the structures that allowed you to run 2 or 3 teams and generate the numbers. Now that I've got 6 or 7 teams. There's there's these issues are starting to show up.

(22:03):
And and the company's not structured well enough to catch the issues.
Now, here's what people tend to do when this happens is they start bringing in structures. Well, you know, we need, we need. I don't know project based accounting. And we need to see. You know what's the productivity of each thing, and what happens is then people start to put people under their thumb.

(22:29):
Your numbers are slipping
as opposed to saying, Wow! This person's numbers are slipping, or this team's numbers are slipping.
We haven't trained them right? You know. I mean, little things like that. It's it's amazing, because because it's like, well, they, it's like this, this need to make it work as opposed to sitting back and going. Okay, it's not working as well as it has been. What's missing?

(22:55):
Well, 1st thing is, you know, at 2 million you don't need to do a lot of tracking to see how well you're doing. But by the time you get to and past 5 million, all of a sudden, the game's a lot more hairy than it used to be, because you've got more teams at play.
And so, as a result, what happens is that you've got insufficient reporting to see how you're doing. But and then, when people start to bring in reporting, people naturally hesitate because they feel like they're being measured, and they're being judged as opposed to using the information to support people in terms of their growth and development.

Yeah, isn't it? Also, like you talked about the speed of growth, the speed of growth between 2 and 5 is relatively quick. And I've experienced that, too.
And and I find that like a success blanket a little bit right that it like people just say, Oh, we're growing like we're successful. But that growth covers up a lot of
these sort of profitability stalls and product overage costs people, you know. People say, Oh, we'll make it up on the, you know, like, mentally, they're not tracking

(23:58):
things, or it's to your point. It's not as easy to track things.
by looking at them. You have to analyze them. You have to have better data. You have to have a better dashboard.

So let's say you and I are 2 team leaders. You've got your team. I've got my team. You know what we both have grown up in this system, we know how to keep an eye, and if we see something wrong, we know how to clip it so that we can actually fix it, except we're now 2 of 5 people.
And so there's 3 more that don't necessarily have the same eyesight as we do, even though they've been grown up through the ranks, but because they've been going up through the ranks a little bit quicker than we were. We took our time, and we actually learned these things. There's things that they don't know to look for, or things that they don't realize that are happening. Or you might have another junior, and they're not sure what to do with the junior, so they just give them a particular job, and the person is starting to get bored at their existing.

(24:49):
And so what happens is that their attention may wane, or it may be in a situation somebody bored. It just may be somebody that really wants to make things go, and they're very anxious. And and you know they want to do a good job, so they might overdo it on some things, but they're burning hours to get the same result, except the results. Not quite right, because nobody really taught them how to do it. Right. I mean, all these little things

(25:11):
people overlook if you haven't got decent reporting that supports them. But reporting that supports people is very different than reporting that actually is the boss of everything.

What do you mean by the difference? Because I think there's a really big, you're you're using your words carefully. There's a different. There's a significant chasm between supporting people with reporting versus bossing people over, reporting like forcing an outcome right.

Totally.

What? What does it feel like? What's the difference.

Well.
one of the things that that we've identified is that is, that everybody considers the core of the business
to be your ability to generate a result.
And there's and the results, one that generates value for customers and gives you your profit.
So that and then the people actually are the ones that do that. So

(26:11):
if I'm the manager, my attention is going to be on our ability to generate the result, and the people that do it are the people that plug in. So I may have teams that plug into that.
But I don't consider the teams as the core. The core is the ability to generate the result. The people are the ones that do it.
Okay? And if the people are the ones that do it, my focus is on is the result getting generated.

(26:33):
One of the things that I've found is that you actually have to rethink that core. And if if I rethink that core and consider the people
as part of the core. So if a team of knowledge workers is part of that core, it's not just the ability to generate the result. It's the people working together in a team to generate that result. Now, that sounds like, yeah, of course. But it's not, you see, because my value proposition used to be. There's my profit and customer value. But if I put the team as part of that core, then there's my profit, customer value and professional growth of the people.

(27:09):
So all 3 have to be fed. And so the key is that I've got to set it up so that the people are just as important as that ability to generate the result because the people are, in fact the ones to do it. So if do I focus on the result. And I get the people to do it? Or do I focus on the people and support them on and teach them how to generate the result?

Hmm.

If the people are part of the core, I'll support them on how to do it. If the core is the actual ability, then if they don't do it, somebody else will. How many times have I heard your systems are here to stay. People come and people go, but your systems are here to stay. Your systems are what count. The people aren't what count, and I'm like. Are you kidding me with that crap? Who do you think delivers. You know what people come because they actually want to contribute.

(27:54):
but they also come with an expect expectations that not only are they going to get paid. They're actually there to grow professionally.
And so so that's not if that's not just as important as the ability to generate a result. You're going to end up with people becoming cogs to a system.

And what's really.
what's really important is you keep on talking about the core. The core has to be growing the people
at this stage, because if you don't, then
you're stuck. Somebody once said, You know what if I train these people and they go well, what if you don't train these people, and they stay.

(28:34):
and there are untrained people who stay like you don't want that.

And those are the ones who do stay. By the way, the ones that can't find a job somewhere else.

Exactly.

But the other side of that is, it's like, you know, when you start saying, well, the the core is to grow the people. It's like it's not to grow the people at the expense of generating the result. It's got to be a both. And so, if what you find is that if you can. If you if you rethink the core of the business instead of your ability to generate a result, it's it's

(29:04):
your people and their ability to generate the result. You're in a situation where the people become part of the course. So it's a both. And we absolutely need the result. What is it that we grow in terms of our people, their ability to generate the result? That, very specifically, is what they came to work on? That's what we promised them when we hired them. And so it's not just. It's like they get the, you know. It's interesting because I was dealing with

(29:30):
this young man who's a new partner to the firm that I was working with, and he said, Can I just tell him what to do? Can I just like get them to do that stuff.
They're even willing. I said, Yeah, but what you lose is their thinking.
Are you sure? Can we do it in a way that they would just tell them to think, too.
He says it'll be so much easier like he says. I totally understand, but it'd be just so much easier if I just tell them what to do. It's like, okay, try it and see what it goes. He says it's not working very well, because you tell them what to do. Either they either they resist and push back because they got their own ideas, or they're in a situation where they blindly follow what I tell them, and then they don't tell me about some of these nuances that they overlook.

They certainly don't tell you about the things that don't work.

Correct. Well, they can't. They're so busy trying to, you know. Give you what you need. So so it's not like, it's not like.
you know, everybody paints this picture that like, if you tell people what to do, then you're bad or something, and it's like, but I tell people what to do, and they do it. And then it works. So it's like, Okay, but it doesn't work all the time.
And as you get bigger there's more and more cracks that show up because these uncovered areas that you haven't had the chance to work through and explain with. People still show up. So people need to learn how to think through those issues, and as long as they're relying on the boss for instruction, it's like you have my brawn at the table. But you don't have my brain. You basically have to be the brain. And I'm the brawn. Well, that creates an Us. Them.

(30:57):
If we're working together, there's just us, there's no them. And we need it to just be us, because that actually stops things from getting kind of squirrely.

Yeah, so what happens in zone, 3 10 million dollars.

And well, as you approach 10 million dollars. Okay, here's what you find. Is that, okay? So you can get through these, because if you can get reporting that supports people, and that you really can start to see where are people struggling to achieve the types of results that they want? And how do I support them in gaining the training and the support to do that? That's fine. But then, somewhere around, you know, between 8 and 10 million.

(31:35):
What happens is again, you get more inconsistency with project team performance in terms of the quality of the deliverables project profitability or both. It's basically a larger version of the earlier issue, because there's a higher number of teams at work.
There's also very little ongoing training that's formally in place to increase or improve the skills of your people. They figure well, you know, they're professionally trained. That should be enough. Okay, you figure that, you know, on the job. They get the learning that they need. That's fine. But but the truth is, it's usually not enough, and the industry training is insufficient as well. In some fields industry. Training is mandatory, but it's generally not enough to deal with the levels of sophistication that are needed. And

(32:21):
and it's not only the staff, but also managers are left on their own to figure things out. They're into the management role. They should figure this out. People generally don't train managers as well as they need to be trained. You don't feel the need to provide the people with more. People are good, and they don't seem to need anything more, despite the fact that there's some issues that are cropping up. And so the other thing that happens is teams start to get siloed.

(32:48):
Okay? And what you'll find is, some managers get protective, and they find a way to keep their people from being. You know I've got. I've got an extra half a body or an extra full person, but I got to hang on to them, because I know in 2 weeks I'm going to need them again, and if I let go of them. Somebody else is going to take them, and I'm just going to be short staffed. And so what happens is that is that teams starting to get siloed again as you get between 8 and 10 million.

(33:12):
These are the types of things that happen again. It's just it's a similar version. But at a larger scale, and the numbers, you know, sorting out the numbers don't actually sort this thing out.
In other words, you know, giving people reporting doesn't solve this.

And one of the things you said was they should be able to figure this out when talking about managers and talking about senior staff and project leads. But I think the other thing that happens is, and it's a Psyche thing, as I'm thinking back to it is well, I'm paying so much for these people.
they should be able to figure it out. Oh, yeah, this is why I'm paying them.

Yeah.

But that's that's not the whole story. We still got to support them and train them.

Well, if I just paying somebody more, doesn't handle the training need.

Right.

And somebody could have a lot of training and experience in one environment. And so they come in commanding an additional dollar which is fair. They still haven't got it sorted out based on your situation yet per se, or they might have at the level of one or 2 teams. But when you've got a number of different teams participating. The other thing that I find happens is that this is where people fall into the trap of how to measure their people.

(34:25):
Okay, what happens is that up until 5 or 6 or 7 million, you know, everything's been working on teams, especially if there's project work involved. And there's a lot of a lot of industries where there's a lot of project work involved. And so what happens is that but people are coming and going between and among different projects.
Okay, architects have longer projects. Engineers have shorter projects, for example, just to pick on 2 industries, you know where where an architect might have a 2 million dollars fee.

(34:55):
You know, somebody could be on this project for 6 months, equivalent comparable engineering firm on that. They might have
4 or 5 of those in the same that same 6 month timeframe, because they have a much smaller part of that particular building. So what you find is is that teams are constantly forming and reforming and forming and reforming as far as that's concerned, and they're constantly looking at. How do we actually get the right resources for the teams as far as that's concerned. And then what happens is that there's not a way to measure the individual success of the people. Yet they still want raises. They still want promotions. So people switch from.

(35:32):
you know, results based to a competency based model. And they start saying, Well, if you're if you're at this level, you should get this level of competencies or these levels of capabilities, and they start training people on capabilities, and they start paying them based on the capabilities, not the direct results. And so they'll they'll change it by department, or they'll change it, like, you know, all the people that are at level 4 of this have to have all these criteria. And so what happens is you start

(35:57):
eroding the things that actually have employees be unique
because everybody's got to be the same if they're if they're in a similar class.

System structure sips, instructor, yeah, yeah.

And the minute I start, if they're interchangeable, I've lost the X factor of actually having people be bringing their unique skills that actually can make a difference to my profitability, and my clients result.

Incredible.

And their satisfaction.

Yeah, and keep them there.
So what happens in danger? Zone 4.

Danger. Zone. 4.

Now one of the things I really loved, the way you talked about it off the top was, you said, you know.
too big to be little, but too little to be big. That's a big problem in that size, because it's you're you're sort of in the middle of a lot
of opportunity.
But you're too big for the stuff that worked at half the size.

Correct. I've seen people that get to 10 million dollars in their 23% net income.
And then they go to 12 million, and then they go from 12 to 13. And all of a sudden they're at 8% net income. And they're wondering what the heck happened.

Or worse, like in our case it got worse than that. Like we. We went to the negatives badly.

Go a lot lower. Exactly. The basically, what happens is, you know what? At 10 million, I need one set of accounting software at 20 million. I need a whole different set.
There's not an interim set, and if you try to have an interim set now, you're spending a whole bunch of money to do that. You usually got an inadequate Hr. Department at 10 million for a 15 or 20 million dollars company. In other words, all the infrastructure support that you're going to need at 20 million. You've got to put in place at some point, and the truth is, there's not enough money at 10 million to fund all these additional expenses.

(37:45):
Yet there's not the revenue coming in to cover that yet. Yet you still need them as you go, because I promise you. You know, when somebody's at 5 million you probably are going to see 3 accounting systems before you hit 20.

Yeah.

There's the one you got a 5. There's 1 you need somewhere between 5 and 10 or 12, and then there's the one that you need to start heading towards 20 and talk about a disruption.
Okay, your accounting. And I'm not just talking about the financial accounting. I'm talking about management accounting as well, you know. And how do you? How do I deal with my key performance indicators? And and how do I actually, you know, find out the productivities of the different teams. And and how do I support which clients are? Where? And you know, I mean, there's so many different noodles that are going on as far as that side of it is concerned, that

(38:28):
there's something we call the run for the roses.
Once you're 12 or 13 million, you want to get them to 20 within a couple of years, because it's gonna be painful in the meantime. But in the meantime, the other thing you do is, you actually start putting the the infrastructure pieces in for 18 or 20,
and you just realize that that's going to be a net investment. And if I can get myself through that period quicker. Then I'm in a situation where I can. Actually, I can actually live with the investment. And I know within a couple of years. I'm going to get the return right back, because what I find is you grow, and then you invest, which may drop your net. But within a couple of years that's come right back. So if I put it in year, one by year, 2, it's come back, and I put it in year 3, and by year.

(39:10):
before it's come back, except between 12 and 20, you pretty much have to get yourself to 18 or 20 before it comes back as far as that's concerned. But it's also rethinking
how you're supporting your people.
That's the that's the other half of that thing. The other thing is that quite often you deal with when you're dealing between 12 and 20 million. I've seen a lot of professional services firms where they have a number of partners.

(39:32):
Nobody trusts the managing partner. Everybody has to have their voice on it. Everybody's got. There's there's a whole bunch of competing self-interest that go along, and that just makes the whole thing harder. You know I've
how many times have I seen it? Where you promote 3 people and 5 leave.

Yeah.

Every time there's a promotion there's going to be people leave because they got their nose out of joint because they weren't promoted. And you know, and it's like it's like, well, there's actually ways to not have to have to go through that.
But it takes so much conversation with people before you ever get to the promotion stage, and nobody realizes that before they've lost their 1st dose of people.

And that's that Hr infrastructure to some degree. But it also speaks to the leadership and transparency structure like a lot of the stuff that changes between 10 and 20
is felt but not seen. Right? It's it's.

Correct.

But it's underneath everything. It's not
overt. It's not stuff that people necessarily will notice, but it's people people will feel because
it's beneath the layer.

If I have treated our ability to generate the result as the core.
if I treat our people as part of that same core, the individual teams of knowledge workers as part of that core. Then all the way along, 1st of all, I would look at a different model
for how we actually grow the company as opposed to doing it departmentally, and things like that. The second thing is that you really want to make sure that people are supported, and that they feel like their career, and their growth is just as important as the company's end result. Now it can't be more important than the company's end result. But the company's end result can't be more important than that, and most people don't know how to navigate their way through that.

Well, that's that's a huge point that you are making. Neither end of that equation can be more important than the other. But it's a this, and it is truly an equal sign.

And anybody hearing this is gonna go.
How the heck do you do that? Well, like this is not like, you know.

Why this is not a 1 episode, podcast. So
we're we're going to come back. And we're going to pick up on this theme. Michael, I want to. I want to leave it there, because I think this is a great place to start and set the stage about what we're going to be talking about coming up. Thank you so much.

You're welcome.

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EP 244 - The 4 Danger Zones Every Business Must Navigate (Michael Walsh, Part 2 of The Freedom Framework)