Why More Revenue Can Mean Less Profit: Yarin Gaon on Growth by Subtraction

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I am a firm believer of bootstrapping and having self-funding.

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Build a machine that is so profitable that funds its own growth.

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You don't need to be a behemoth.

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I will take a $50 million business or a $25 million business at a 20% EBITDA, then $100 million business at 5% EBITDA any day.

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That's just a completely different mindset.

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I favor, if you can postpone getting external equity, do it.

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You don't win by following the playbook.

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You win by rewriting it.

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700 episodes deep with the people who actually built something real.

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No theory, no fluff, no shortcuts.

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This is Right About Now with Ryan Alford.

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What's up, y'all, and welcome to Right About Now.

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What's happening, brother?

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I'm happy to be here.

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Thank you for having me, Ryan.

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Hey, man.

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I was looking at the child prodigy because I read your story before I watched your story.

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14, you're doing stuff that a lot of people weren't doing.

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You've come a long way, my friend.

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I appreciate it.

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Thank you.

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Learned a lot along the way, too.

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Where does that come from?

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I mean, I have four boys I consider to be good kids, further along than the average bear, but they weren't 14 and doing what you were doing.

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At 14, I started my first SaaS company.

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How does it happen?

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It's a mixture of enabling parents.

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My father was an accountant.

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My father was also an entrepreneur himself.

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He enabled me because at 14, I couldn't even open a bank account.

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I had to transact for my father's bank account.

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Enabling parents, an interesting problem, and a lot of spare time.

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And a love for money, really.

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Those mixtures, that mix led me on my path.

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I know how many things I have going on that aren't business, and I do a lot with business.

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I go, man, I don't know what clicks for 14s, 13s.

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I mean, if you're into sports, and we keep ours into it so they stay active and not on their computers the whole time.

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But you have more free time at that age.

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So if you can put it together, you do have a lot of opportunity.

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That's a balance, though, of not wanting to take away their child.

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You got plenty of time to work.

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But at the same time, you can do both and get ahead.

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It's all about balance, I guess.

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I loved it.

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It wasn't really work.

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It was building cool shit.

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I was able to monetize it, build cool shit, get money.

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Sounds like a no brainer.

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I remember I was in high school and I remember I had clients, users that were my classmates.

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It was a really interesting experience.

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What made you get largest e-commerce platform for military goods in Israel?

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On the surface, that could sound really big or really small.

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I think I know enough to know that's probably bigger than I think it would be.

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But why military goods?

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And what was the secret to success?

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That was a little later in my journey, not at 14.

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In Israel, there's a military military service for guys about three years.

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I served for three years in the military.

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I was a soldier.

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I found a really interesting problem.

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Two problems.

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One, as you go, we have a mandatory draft, but the army doesn't provide you with enough equipment.

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Well, there's a whole secondary market of parents really shopping for their kids as they're going into the military for socks and shirts and flashlights and watches and all that peripheral equipment.

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The second problem was Israel observes the Shabbos, the Shabbat, meaning that on Saturday, everything is closed.

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So if you are a combat soldier's,

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You get to go home every about two to three weeks for 48 hours.

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You go home Friday, Saturday, everything is closed.

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Sunday, you're back at the base.

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This is really very short time window to purchase equipment.

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When I was ending my mandatory service, I thought to myself, okay, something here is not clicking one.

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Why can't I just buy stuff online and get it shipped to the base?

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It seems so simple these days, but there wasn't anything like this before.

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Why can't I just, while I'm in the base shop on my mobile app on my phone, just have it shipped?

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Problem number one.

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Problem number two is that there wasn't any specialty stores.

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Military equipment were sold by hiking stores like REI type.

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No niche.

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Nobody owned the niche.

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As I finished my service, I was like, okay.

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I had a little bit of coding background from my previous businesses.

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I had a little bit of passion.

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Let's see.

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Let's see what happened.

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I started by selling strings actually.

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And he caught, I just grew it and grew it and grew it.

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And we opened a brick and mortar store or two.

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I sold it for seven years.

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That's my story.

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How old were you then?

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Were you still a teenager?

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I started it at 22.

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I finished my service at 21, played around with it a little bit.

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22, I really put my effort into this.

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And 22 to 29, I grew it.

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At 29, I sold it.

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I moved to the States, finished my MBA.

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I had to sell it.

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I didn't have to, but I didn't want to keep it while I was here.

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Is selling e-commerce in Israel that much different than selling e-commerce anywhere else in the world?

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My biggest challenge was that Shopify didn't exist in Israel back then.

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I had to build my website.

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I built the e-com website.

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I built the e-com.

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When we opened the brick and mortar store, I built the POS system and I built the ERP.

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And a really interesting point came out of it as I was about to sell it.

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I thought to myself, yo, I'm so differentiated.

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I have my own tech stack.

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I have my own systems.

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I'm so much better than anybody else because they were all using shitty Magento stuff.

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Yeah, WordPress with WooCommerce.

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And they're all shit.

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And Hebrew is a right-to-left language.

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So there's a whole component to this.

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And I learned when I sold my business that my tag stack actually became debt.

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That's great that I developed it, but I'm the only one that can actually maintain it.

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When I sold it, the person who bought it or the company that bought it basically had to migrate my website into one of the magenta bullshits.

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I actually took a major price cut recently.

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or a discount because what I thought is a differentiator is actually not.

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It cost me.

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It cost me quite a little bit of dollars when I exited.

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That's an interesting learning lesson.

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I've seen this both in practice and in real world where we think certain things create value, especially in acquisition and sales and things that actually don't.

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And that would be one.

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And then Shopify...

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would have neutralized most of it because it's just the universal platform now for e-commerce.

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Love it or hate it, it is.

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I say more lover than anything else.

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It sort of gets a lot of things out of the way.

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It creates a baseline that a major operation is already streamlined.

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And now you can differentiate on the branding, on the product, on the offer, on the micro-optimization.

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Everybody's playing in the same sandbox.

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What made you get into investments and fractional ownership and what guided you into this area?

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I did my first business at 14, opened my second one at 16.

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Then I drafted.

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Then I did my military website, the army goods website for seven years.

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Then I sold it.

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When I sold it, I moved to the States and I finished my MBA, did my last semester at Kellogg as an exchange student.

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Then I joined a VC and I saw something really interesting.

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I joined a VC as an entrepreneur in residence.

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Basically, I was the in-house entrepreneur and my job was to take all the startups that they finally invested in and kind of usually run out of money and to turn them around.

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That's what I did.

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But as I was doing this, I was also volunteering as a business mentor at SCORE and at the University of Chicago.

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And I saw something really interesting.

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I saw hundreds of companies and I saw difference between bootstrap companies and venture backed companies.

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When I work with startups, they basically got me for free.

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The fund used to send me there.

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I used to come with resources.

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I'm expensive and used to get me for free.

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But at the same time, I was volunteering and I work with smaller business, bootstrap businesses.

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I couldn't really afford me, but needed my help really badly.

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I can only meet them once every six months, every quarter, maybe.

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But these were fantastic businesses.

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Cash flow businesses, businesses that make profit decisions, not just scaling decisions, people that were all in.

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I saw a lot of VC founders play with money that it's really not theirs.

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They make different decisions.

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And I found something really, really interesting in that journey.

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I found why I think a lot of companies stall and get stuck.

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When companies grow, they apply different growth model for different stage.

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As you start, it's all about growth by addition.

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And growth by addition basically means I'm going to say yes to every opportunity that comes in the door.

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I'm going to say yes to different type of customer, different type of product, different type of revenues, different type of channels.

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I really want to see what works.

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And that works really, really well in the early days, up until you get to anywhere between one and $5 million, really up until you find product market fit, what we call traction.

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It works perfectly.

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What happens is once you find that most founders, VC and Bootstrap, will all make the same mistake.

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They keep applying the same growth model of growth by addition.

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They got the $5 million.

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They ask, okay, what else can we develop?

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What else can we build?

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Where else can we sell our product?

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What other type of customer can we acquire?

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What happens is the business becomes very wide and very shallow.

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So it's multiple different departments, multiple different type of customers.

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Complexity goes up, margin goes down, and then the leadership team gets misaligned and they're gonna try to figure out, okay, so we got here, but I'm not really sure what happens.

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What I preach or what I've saw is there's a better way to grow, not forever, but for a specific stage.

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So as you get to anywhere between three to five million dollars and you find something that works, you need to shift or founders need to shift from growth by addition mindset into a growth by subtraction mindset.

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And a growth by subtraction basically say, OK, I built something.

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Something is working.

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What is actually worth doubling down on and what is actually worth scaling from everything that I've built and almost deprioritizing everything else?

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So that looks like one type of customer that I want to focus on.

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one type of product that we want to lead with, one type of revenue stream or channel we want to focus on.

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And when you do this, you basically take all of your resources, which are very small at that stage.

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You probably have a small team, not a lot of cash in the bank, but you direct them to a laser, very, very narrow offer that actually moves the needle.

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And then you rinse and repeat, you scale that version until you get anywhere between 25 to $35 million when you have a business that is stable enough and enough resources so you can now say, okay, let's get another type of client.

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What happens is founders build businesses.

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They build multiple businesses under one umbrella and that creates so much complexity.

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Have you seen that before?

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Oh yeah, I've lived it.

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It's why I'm in the lane I'm in now.

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Choosing a lane.

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Go deep instead of wide.

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That's what we're saying.

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I worked for other people and other brands for 16 years before I ventured out on my own.

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That's the thing I try to preach to people.

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The grass isn't always greener.

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Everybody thinks it's cool to be an entrepreneur.

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No, you're wrong.

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It is cool because you control your life, your time.

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You eat what you kill, all those things.

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But it's also not so bad being under an umbrella if it serves your needs.

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And everyone thinks that their needs only get served if they're calling the shots.

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Or they do it for just even worse reasons, which is I'm cool and I'm an entrepreneur.

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I've been in it now 10 years and the first six, I can get guilty of this even under the lane that we're in now.

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It's part of what makes me great and terrible at the same time as far as ideas and everything.

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That's what, you know, part of it.

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But I've seen it.

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You spread yourself, you spread your team too thin.

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And it stuck with me.

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I read some of your footnotes, some of the things you push, which is creating value versus creating work.

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And I say all the time, activity doesn't mean it's success.

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Correct.

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That's always not a plan.

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It's not.

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I like mine.

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Mine is my favorite.

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Hope is not a strategy.

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All the H's.

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I've seen it.

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I've watched it.

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And I do think that's what happens.

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And I think it's boring growing in the same lane, but it is profitable if you do it right.

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Basically, as business owners or as operators, really, once we get the business off the ground, then we're going to make or break.

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Success is basically based on what I call resource allocation.

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Your job is not to do stuff.

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Your job is to decide what is worth pursuing and how much effort does the organization give to initiative A or initiative B.

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Most times what people do is they don't make a decision at all.

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They're just resources are being spread on all these things that really don't move the needle at all.

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But another thing that I've observed that happens is once people or founders grow to that stage where they start feeling the friction of my business is too wide, their first inclination is let's put more processes and systems in place.

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Let's control the chaos.

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Let's put more processes.

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Let's install EOS or entrepreneurial operating system or scaling up.

232
00:11:32.771 --> 00:11:34.772
We just have to have more better meetings.

233
00:11:35.052 --> 00:11:37.492
And my whole thing is like, okay, that's great.

234
00:11:37.612 --> 00:11:39.313
But before you systemize...

235
00:11:39.613 --> 00:11:41.394
or this is not really the root problem.

236
00:11:41.475 --> 00:11:45.257
The root problem is usually you just haven't made some decisions explicit.

237
00:11:45.297 --> 00:11:51.502
You haven't explicitly chosen where you're taking this business so the people under you are making their own decisions basically.

238
00:11:51.562 --> 00:11:56.466
Step number one is let's design a narrower version of what you have currently, your business.

239
00:11:56.486 --> 00:11:57.407
It's called version two.

240
00:11:57.707 --> 00:12:01.408
And then go and put EOS in place and systems and systemize this.

241
00:12:01.628 --> 00:12:06.549
But don't systemize everything you have because it's like 80% of it is not going to produce anything.

242
00:12:06.569 --> 00:12:10.930
You want to find the 20% that is actually worth saving, then double down on that one.

243
00:12:11.030 --> 00:12:11.910
Did you see that before?

244
00:12:11.930 --> 00:12:13.050
Yeah, 100%.

245
00:12:13.150 --> 00:12:14.111
I'm all about sayings.

246
00:12:14.331 --> 00:12:17.191
Putting a system around chaos equals chaos.

247
00:12:17.491 --> 00:12:18.852
Anything times zero is zero.

248
00:12:18.872 --> 00:12:19.572
You don't get me wrong.

249
00:12:19.592 --> 00:12:21.932
Sometimes there's triage and there's all hands on deck.

250
00:12:21.952 --> 00:12:22.493
Don't get me wrong.

251
00:12:22.513 --> 00:12:24.513
There's a lot of gray in business is the bottom line.

252
00:12:24.613 --> 00:12:27.535
But you can't have so much gray that there's not clarity in the thing.

253
00:12:27.936 --> 00:12:32.639
And if you put these, we need a system around chaos, then it means you don't have a system around a business.

254
00:12:32.659 --> 00:12:34.261
You have a system around chaos.

255
00:12:34.421 --> 00:12:34.781
Good luck.

256
00:12:34.901 --> 00:12:36.082
Chaos has never been controlled.

257
00:12:36.242 --> 00:12:36.422
Yeah.

258
00:12:36.462 --> 00:12:39.745
Chaos really means that a lot of times you just haven't made decisions.

259
00:12:39.965 --> 00:12:46.370
I've gotten a lot better at that, but I've seen it for myself and I see it in a lot of other leaders for sure.

260
00:12:46.530 --> 00:12:50.512
So you asked me earlier, why did I get this fractional ownership and fractional partner?

261
00:12:50.592 --> 00:12:52.152
My role is to be a fractional partner.

262
00:12:52.212 --> 00:12:53.073
Here's what I believe.

263
00:12:53.333 --> 00:13:08.639
I believe after seeing hundreds of companies, if I have a company with a strong team that can execute, so people that can actually get shit done, and they have a product market fit, meaning they have a product that people want to buy, their number one challenge usually is around decision making and strategy.

264
00:13:08.719 --> 00:13:15.962
My whole belief, if I can come in and I can just help you make some decisions as if I was your co-founder, but I'm not your co-founder.

265
00:13:16.142 --> 00:13:23.445
I don't have equity in your business, but if I was, here's where I would focus in your business and take the team and help them kind of narrow down version two.

266
00:13:23.625 --> 00:13:26.166
They don't really need me anymore for execution.

267
00:13:26.346 --> 00:13:29.067
They know how to do their job better than me in their profession.

268
00:13:29.167 --> 00:13:35.510
What they need is sometimes someone external saying, okay, you've built this really cool, wide business.

269
00:13:35.710 --> 00:13:38.551
What is actually worth scaling from everything you've built here?

270
00:13:38.671 --> 00:13:39.812
And what can we let go of?

271
00:13:40.072 --> 00:13:41.973
It's really hard to do it when you're inside it.

272
00:13:42.013 --> 00:13:46.094
It's a little easier to do it when someone external comes in and air quotes forces a process on you.

273
00:13:46.214 --> 00:13:50.156
But I've seen it happens once they kind of narrow it down, they skyrocket.

274
00:13:50.376 --> 00:13:53.257
And it's really cool to see because I haven't touched a product.

275
00:13:53.337 --> 00:13:54.258
I haven't touched a team.

276
00:13:54.518 --> 00:13:58.079
It's just focusing them around a clearer version of what exactly they're scaling.

277
00:13:58.459 --> 00:14:03.161
And is this B2B, B2C, more B2B or B2C type companies that you're counseling?

278
00:14:03.401 --> 00:14:07.503
I work with companies from every different vertical or industry because I don't really care.

279
00:14:07.663 --> 00:14:13.206
It doesn't really matter because my expertise is not in the specific industry.

280
00:14:13.326 --> 00:14:16.988
My expertise is in scaling and growing firms and organizations.

281
00:14:17.068 --> 00:14:19.789
Regardless of your product, that doesn't really matter.

282
00:14:19.889 --> 00:14:21.230
I work with B2C companies.

283
00:14:21.490 --> 00:14:22.710
I work with plumbing companies.

284
00:14:22.850 --> 00:14:28.353
I love the blue collar companies because they are highly executionable and they focus on profit.

285
00:14:28.593 --> 00:14:32.818
and not just growth for the sake of growth, which is a different conversation that I can have a lot to say about.

286
00:14:32.858 --> 00:14:34.160
But we don't wanna grow top line.

287
00:14:34.180 --> 00:14:35.702
Top line is not, is a vanity metric.

288
00:14:35.722 --> 00:14:39.086
That doesn't, you don't feed your kids with sales, feed your kids with profits.

289
00:14:39.367 --> 00:14:42.471
And what happens is profit is the average of all of your activities.

290
00:14:42.711 --> 00:14:44.734
So some of activity is gonna produce a lot of profit.

291
00:14:44.854 --> 00:14:46.456
Some activities take away from your profit.

292
00:14:46.656 --> 00:14:50.678
People hyperfixiate on the top line as the metric for success.

293
00:14:50.958 --> 00:14:55.621
But what we do and when we do it, when we peel the onion and see, okay, what is actually producing profit?

294
00:14:55.641 --> 00:14:56.401
What is taking away?

295
00:14:56.541 --> 00:14:59.143
There's a lot of aha moments that happens in that process.

296
00:15:06.373 --> 00:15:11.299
I think there's some obvious things, not obvious to me, that you probably see, I can imagine.

297
00:15:11.419 --> 00:15:15.724
We've talked about some of them, a lot of the founders, too wide, too many things going on.

298
00:15:15.924 --> 00:15:22.171
But where do you see the opportunities to cut or be more efficient most often?

299
00:15:22.311 --> 00:15:23.793
What's some of the common denominators?

300
00:15:23.893 --> 00:15:26.255
I'll tell you where I don't see opportunity.

301
00:15:26.355 --> 00:15:30.418
Efficiency is great once your business model is tight.

302
00:15:30.758 --> 00:15:34.520
Efficiency is secondary to what I do with companies.

303
00:15:34.661 --> 00:15:38.763
We don't want to make current business efficient because the current business is probably very wide.

304
00:15:38.883 --> 00:15:42.966
We want to first figure out what is the 20% that moves 80% of profit.

305
00:15:43.006 --> 00:15:44.167
So where's the profit center?

306
00:15:44.247 --> 00:15:46.769
Cut everything else and then talk about efficiencies.

307
00:15:46.869 --> 00:15:48.009
Practical terms, okay?

308
00:15:48.109 --> 00:15:50.430
I'm a founder doing $5 million business.

309
00:15:50.570 --> 00:15:51.150
What am I doing?

310
00:15:51.290 --> 00:15:54.111
First, I would start with what we call the profit man.

311
00:15:54.151 --> 00:15:55.831
Let's take all of your revenue in sales.

312
00:15:55.971 --> 00:15:56.451
That's great.

313
00:15:56.511 --> 00:16:03.153
Let's really try to figure out what revenue or revenue stream or a channel or product or a type of customer really brings in the profit.

314
00:16:03.313 --> 00:16:04.694
And you will be surprised.

315
00:16:04.874 --> 00:16:12.415
Almost with every company that I work with, you'll find that some side of the business is actually negative and it's eating away other sides of the business.

316
00:16:12.495 --> 00:16:14.376
The moment you have that realization,

317
00:16:14.676 --> 00:16:16.918
already are ready to cut part of that business.

318
00:16:16.998 --> 00:16:23.464
Again, before you systemize and make efficiency, let's figure out what part of our business model is just not conducive.

319
00:16:23.684 --> 00:16:24.304
Shrink it.

320
00:16:24.605 --> 00:16:26.686
And then we'll talk about, okay, let me give you an example.

321
00:16:26.726 --> 00:16:30.089
I'm working with a plumbing company and they do a home repipe.

322
00:16:30.129 --> 00:16:31.711
They do water heaters.

323
00:16:31.911 --> 00:16:33.512
They do basic plumbing services.

324
00:16:33.532 --> 00:16:34.833
They do filtering, all these stuff.

325
00:16:34.893 --> 00:16:37.556
And as we went through, they are multimillion dollar companies.

326
00:16:37.576 --> 00:16:38.977
They're making very little profit.

327
00:16:39.017 --> 00:16:45.928
And as we dug into the numbers, we saw, we learned that their second best seller, which is Water Heater, actually losing their money.

328
00:16:46.108 --> 00:16:48.412
You see, they lose as much money as the profit makes.

329
00:16:48.512 --> 00:16:51.216
They lose hundreds of thousands of dollars on this side of the business.

330
00:16:51.236 --> 00:16:54.321
The moment you understand this, you can start asking yourself, okay, why?

331
00:16:54.481 --> 00:16:54.881
What's not?

332
00:16:55.081 --> 00:17:07.010
And that's a much more interesting question than let's systemize our CRM or let's put a processes on acquisition, because you might find that the customer that come for the water heater are not good customer like long term.

333
00:17:07.110 --> 00:17:11.594
I really want to focus on customer that are basic plumbing customers that I can build a relationship.

334
00:17:11.654 --> 00:17:14.516
And then I want to systemize my acquisition and retention and all that.

335
00:17:14.596 --> 00:17:16.197
Especially if the company gets bigger.

336
00:17:16.377 --> 00:17:18.238
It's surprising for a lot of people.

337
00:17:18.258 --> 00:17:21.820
I mean, not necessarily for me, but it's surprising that they don't know that.

338
00:17:22.361 --> 00:17:22.861
But you don't.

339
00:17:22.961 --> 00:17:23.581
It's hard.

340
00:17:23.681 --> 00:17:25.282
You run a $10 million business.

341
00:17:25.302 --> 00:17:27.403
You have 50 people inside it, 40 people.

342
00:17:27.584 --> 00:17:29.925
It's hard to know where profit is coming from.

343
00:17:30.165 --> 00:17:33.567
Much easier to look at sales because sales are very simple to look at.

344
00:17:33.727 --> 00:17:35.848
It requires work and it requires alignment.

345
00:17:35.988 --> 00:17:37.089
And there's work involved.

346
00:17:37.109 --> 00:17:40.691
That's why people most of the time just skip it and they just kind of chase.

347
00:17:40.811 --> 00:17:41.772
Okay, profit is down.

348
00:17:41.832 --> 00:17:42.792
What else can we invent?

349
00:17:42.872 --> 00:17:43.713
What else can we do?

350
00:17:43.933 --> 00:17:45.334
It's just easier conceptually.

351
00:17:45.454 --> 00:17:49.737
We're talking very little actually about efficiency and more about strategies for growth.

352
00:17:49.857 --> 00:17:53.559
However, at a certain point, I imagine it becomes about efficiency.

353
00:17:53.579 --> 00:18:01.624
I always like to frame this for guys, girls, specialists, professionals, fractional geniuses like yourself.

354
00:18:01.684 --> 00:18:05.446
Brand marketing is not performance marketing.

355
00:18:05.867 --> 00:18:08.188
And you got to have awareness before you can have demand.

356
00:18:08.468 --> 00:18:11.130
Creating awareness doesn't always create a sale.

357
00:18:11.350 --> 00:18:16.711
Where do you fall on the marketing side of growing businesses when you're evaluating?

358
00:18:16.871 --> 00:18:18.391
I start one step earlier.

359
00:18:18.471 --> 00:18:22.392
What you're talking about is the funnel, is the top funnel, middle funnel, bottom of funnel.

360
00:18:22.612 --> 00:18:25.473
My whole thing is, do you even know who your client is?

361
00:18:25.733 --> 00:18:27.593
Do you know who your perfect client is?

362
00:18:27.673 --> 00:18:39.535
Because when I go, what we do usually with companies, we start with what we call the team alignment challenge, where basically I take leadership team and I ask them the same 40 questions about the business specifically around where you think your client is.

363
00:18:39.535 --> 00:18:41.237
What do you think they really want to buy from you?

364
00:18:41.457 --> 00:18:44.119
And I compare the responses across the team members.

365
00:18:44.159 --> 00:18:48.483
And a lot of times you see that there is no shared definition of who the client is.

366
00:18:48.663 --> 00:18:55.310
And the reason why I'm saying this is because if you don't have a shared definition of who the client is, how would you build an acquisition channel that converts?

367
00:18:55.570 --> 00:18:56.931
How would you nail the messaging?

368
00:18:57.091 --> 00:18:58.573
How would you nail the conversion?

369
00:18:58.713 --> 00:19:00.895
How would you even know where to find them with what hook?

370
00:19:01.235 --> 00:19:09.180
When people come to me and they say, I have a funnel problem, nine times out of 10, it's really, okay, who is your perfect client and how deep do you actually know them?

371
00:19:09.460 --> 00:19:11.821
And you'll find that they don't or they have multiple of them.

372
00:19:12.021 --> 00:19:14.943
If you have multiple of them, it's super hard to actually nail a campaign.

373
00:19:15.083 --> 00:19:15.623
I go back.

374
00:19:15.824 --> 00:19:16.844
Who is the perfect client?

375
00:19:17.024 --> 00:19:18.745
What are they actually trying to buy from you?

376
00:19:18.785 --> 00:19:20.346
And what is preventing them from buying?

377
00:19:20.626 --> 00:19:30.172
Once you have answered these simple but core questions, then let's go back and look at performance marketing and let's look at the funnel with fresh eyes and ask, okay, is the current client?

378
00:19:30.472 --> 00:19:35.314
messaging, creative campaign channels are actually conducive in converting that kind of client.

379
00:19:35.434 --> 00:19:36.515
And you will be surprised.

380
00:19:36.655 --> 00:19:36.875
Yeah.

381
00:19:36.895 --> 00:19:39.776
I mean, because you can't build the plan until you know who you're targeting.

382
00:19:39.796 --> 00:19:41.717
That's another one where I'm shocked when I was walking in there.

383
00:19:41.817 --> 00:19:43.078
I've asked, so who's your customer?

384
00:19:43.178 --> 00:19:44.818
And everybody stares at one another.

385
00:19:44.879 --> 00:19:46.099
This is not a trick question.

386
00:19:46.259 --> 00:19:47.220
How did we get here?

387
00:19:47.360 --> 00:19:50.361
How did we get to where we don't really know who our ideal customer is?

388
00:19:50.521 --> 00:19:54.522
I'll tell you how, Ryan, because we did it by going with the flow.

389
00:19:54.562 --> 00:19:56.823
And that's how you grow at the beginning, where you say yes.

390
00:19:56.843 --> 00:20:01.765
You basically try a bunch of things and you cast a wide net and whoever comes in the net, I'll take.

391
00:20:01.965 --> 00:20:03.025
And that's how you start.

392
00:20:03.225 --> 00:20:09.387
But what happens is, as you grow that net, casting that net becomes more and more expensive and complex.

393
00:20:09.727 --> 00:20:12.908
At some point you need to say, OK, I cast a wide net.

394
00:20:13.129 --> 00:20:14.389
I got a ton of different fish.

395
00:20:14.709 --> 00:20:19.132
which is the fish that I actually want to catch with a hook, not with a net.

396
00:20:19.352 --> 00:20:20.753
It's going back to the resources.

397
00:20:20.853 --> 00:20:23.375
I only have X amount of dollars to spend on acquisition.

398
00:20:23.675 --> 00:20:24.636
Where am I putting it?

399
00:20:24.736 --> 00:20:33.282
And you have to be a little bit more, not a little bit, you have to be much more specific because the budget gets higher and higher and the complexity gets higher and higher as you grow as an organization.

400
00:20:33.442 --> 00:20:39.966
This going with the flow, being reactive approach kind of starts to break where you have $100,000 monthly marketing budget.

401
00:20:41.347 --> 00:20:46.248
The tactics or the strategies that you deploy, I think, are pretty clear to me where we've gotten to.

402
00:20:46.368 --> 00:20:52.269
As we use our last segment here, you work with companies where you know and you've seen it be successful and you've seen it fail.

403
00:20:52.509 --> 00:20:53.349
What does it take?

404
00:20:53.769 --> 00:20:56.290
Obviously, hey, do what you say to do and it will work.

405
00:20:56.330 --> 00:20:59.971
There is makeup and there is a proxy.

406
00:21:00.111 --> 00:21:07.092
What companies are ready to deploy and what are the variables of the people that really shouldn't call you because they're wasting their time, their money and their energy?

407
00:21:07.272 --> 00:21:12.653
I've been this quite a while and I've learned a ton of different companies coming in and this being successful, not being successful.

408
00:21:12.733 --> 00:21:13.353
Here's what I've learned.

409
00:21:13.573 --> 00:21:15.074
One, you have to be profit focused.

410
00:21:15.114 --> 00:21:21.595
If you are hyper focused on scale and cost, this is not going to work for you because I'm going to basically focus you on what produces EBDA.

411
00:21:21.695 --> 00:21:27.917
For context, I built this as a private equity playbook for my own companies that I want to accelerate as my own micro private PE.

412
00:21:28.077 --> 00:21:31.358
I'm not doing that now, but the idea is how can I take a company and make it more profitable?

413
00:21:31.478 --> 00:21:32.578
You have to be profit focused.

414
00:21:32.598 --> 00:21:32.978
That's one.

415
00:21:33.218 --> 00:21:35.679
Second, you have to experience the pain.

416
00:21:35.940 --> 00:21:42.883
So if you're growing and you're happy with what's happening in your company, this is not going to work because I'm going to shrink the bit.

417
00:21:43.123 --> 00:21:45.184
There's going to be a lot of friction.

418
00:21:45.305 --> 00:21:49.827
It needs to be friction for us to fix something because otherwise, they're just not going to buy into this.

419
00:21:50.087 --> 00:21:52.389
Third, I have to have a team that can execute.

420
00:21:52.629 --> 00:21:58.575
If it's just you as a founder, it's not going to be as efficient because we can build amazing strategy.

421
00:21:58.635 --> 00:22:04.361
But unless you have a team that can actually take this and run with this, it's a very expensive piece of document.

422
00:22:04.381 --> 00:22:05.782
It's not producing a lot of value.

423
00:22:05.862 --> 00:22:13.269
I work with companies that were just too small where we built this is the perfect growth strategy for you and they were not able to execute on it.

424
00:22:13.509 --> 00:22:16.211
internally or it took them too long to actually deploy it.

425
00:22:16.392 --> 00:22:19.274
And the last piece is you have to have the team buy-in.

426
00:22:19.654 --> 00:22:23.157
And so I started this with kind of working with the CEO alone.

427
00:22:23.417 --> 00:22:32.485
And very quickly, I've learned that it doesn't work because the decision that we were making together, the CEO and I, they needed to be disseminated or communicated downstream.

428
00:22:32.585 --> 00:22:33.806
And people were like, why?

429
00:22:33.866 --> 00:22:34.327
What the hell?

430
00:22:34.387 --> 00:22:35.528
How did you get to that decision?

431
00:22:35.608 --> 00:22:38.250
So the process then became, okay, let's do it with the team.

432
00:22:38.410 --> 00:22:38.550
Right.

433
00:22:38.570 --> 00:22:45.013
Let's take the whole team and walk you guys on a process together with the CEO kind of in a passenger seat for once.

434
00:22:45.353 --> 00:22:46.214
Here is the question.

435
00:22:46.614 --> 00:22:48.795
We are here today to answer the question.

436
00:22:48.975 --> 00:22:50.236
Who is our perfect customer?

437
00:22:50.396 --> 00:22:51.236
Here's the process.

438
00:22:51.336 --> 00:22:52.056
What do you think?

439
00:22:52.277 --> 00:22:53.017
What do you think?

440
00:22:53.297 --> 00:22:56.779
Going them to the process and coming out with an answer at the end of it.

441
00:22:56.939 --> 00:22:57.299
Great.

442
00:22:57.599 --> 00:23:00.682
Once we have this, we can start answering sequential questions.

443
00:23:00.722 --> 00:23:06.346
The whole idea behind what I've built, which is basically, I want to just share it because it's called the Growth Decisions Canvas.

444
00:23:06.547 --> 00:23:07.327
And it's a free tool.

445
00:23:07.367 --> 00:23:11.531
So all my methodology that I'm sharing with you today is publicly open because I don't believe knowledge should be gated.

446
00:23:11.791 --> 00:23:12.692
I don't even need an email.

447
00:23:12.772 --> 00:23:16.175
So if you go to canvas.fractional.partners, you'll get access to this.

448
00:23:16.255 --> 00:23:18.777
And what this really is, it's a one page that I built.

449
00:23:18.857 --> 00:23:20.198
It's called Growth Decisions Canvas.

450
00:23:20.438 --> 00:23:22.479
All of your growth decisions on one page.

451
00:23:22.660 --> 00:23:36.349
And then the process is how do I answer each question and how does each question guides the next question until we have one page in simple English, everybody in the company can follow and have one version of what we're building.

452
00:23:36.449 --> 00:23:46.496
Again, you go back to resources, laser, if everybody in the team have a single narrow version of what we're building and have a strong team and a product market fit, magic happens.

453
00:23:46.616 --> 00:23:47.656
That's the GDC.

454
00:23:47.936 --> 00:23:51.958
Well, if you want more money, you got to get down with the GDC.

455
00:23:52.118 --> 00:23:52.898
It's just a tool.

456
00:23:52.958 --> 00:23:56.579
It's like a business model canvas, but hyper focused on growth companies.

457
00:23:56.739 --> 00:24:00.160
I've seen what happens when people actually use it, but it doesn't cost anything to use it.

458
00:24:00.220 --> 00:24:04.601
If you are interested in something like this, the first stage would be go create a snapshot.

459
00:24:04.641 --> 00:24:06.842
Basically, I have a questionnaire, 18 questions.

460
00:24:06.962 --> 00:24:09.202
You answer those and that would tell you two things.

461
00:24:09.442 --> 00:24:15.024
It will tell you, it would create really cool heat map of what decisions in your business are preventing you from growing.

462
00:24:15.064 --> 00:24:18.066
Are you not clear on your ICP or is it your acquisition problem?

463
00:24:18.327 --> 00:24:20.929
Or is that you're not clear on where profit is coming from?

464
00:24:21.129 --> 00:24:22.270
Or do you have a vision problem?

465
00:24:22.290 --> 00:24:23.651
It's kind of a map up where.

466
00:24:23.751 --> 00:24:29.575
And the second thing it would do, it will tell you what is the first module that you should be doing with me or without me.

467
00:24:29.635 --> 00:24:30.776
So give you a starting point.

468
00:24:30.916 --> 00:24:31.597
See what happens.

469
00:24:38.824 --> 00:24:44.426
Yaren, I want you to drop that link you mentioned for the GDC and all of your links.

470
00:24:44.766 --> 00:24:45.547
You've been really great.

471
00:24:45.667 --> 00:24:46.147
I appreciate it.

472
00:24:46.167 --> 00:24:47.127
Thank you for having me, Ryan.

473
00:24:47.267 --> 00:24:48.648
My only finishing remarks.

474
00:24:48.788 --> 00:24:52.730
If you are experiencing friction in your growth, don't default to processes.

475
00:24:52.910 --> 00:25:02.494
It's just before we systemize and we install EOS and we spend all this effort in systemizing, let's really figure out what version of your business is worth scaling, then go systemize it.

476
00:25:02.594 --> 00:25:05.735
Get out the eraser before we bring out the multiplication.

477
00:25:06.002 --> 00:25:09.026
If you want to really build something of value that is profitable, yes.

478
00:25:09.086 --> 00:25:13.070
If you want to build a very big, unprofitable business, then keep going as you do.

479
00:25:13.090 --> 00:25:19.858
It sounds like you're a firm believer that if you're gonna become a behemoth in your category, equity, venture capital is necessary.

480
00:25:19.998 --> 00:25:24.243
Venture capital is not the appropriate growth mechanism for a lot of companies.

481
00:25:24.463 --> 00:25:28.066
Venture, here's been two sentences I know because we're almost at time.

482
00:25:28.186 --> 00:25:32.569
Venture capital, or if you get venture, optimizes for a binary result.

483
00:25:32.769 --> 00:25:38.254
Either you're gonna make it behemoth or we don't care, you fail, we're really writing down the investment.

484
00:25:38.334 --> 00:25:39.735
And when they make investments,

485
00:25:39.915 --> 00:25:43.517
They make investments from a position where I'm going to invest in 20 different companies.

486
00:25:43.637 --> 00:25:45.518
I know 16 are going to fail the model.

487
00:25:45.618 --> 00:25:46.718
I know two are going to be okay.

488
00:25:46.758 --> 00:25:49.759
And two, one, two are going to make it basically make for the whole portfolio.

489
00:25:49.779 --> 00:25:50.560
They're going to make it big.

490
00:25:50.600 --> 00:25:58.964
When you optimize for this hyperscale as a founder, you make decisions that are not always profitable and not always make sense.

491
00:25:59.204 --> 00:25:59.724
If any...

492
00:25:59.904 --> 00:26:04.046
I am a firm believer of bootstrapping and having self-funding.

493
00:26:04.166 --> 00:26:08.468
Build a machine that is so profitable that funds its own growth.

494
00:26:08.508 --> 00:26:09.829
You don't need to be a behemoth.

495
00:26:10.109 --> 00:26:18.813
I will take a $50 million business or a $25 million business at a 20% EBITDA, then a $100 million business at 5% EBITDA any day.

496
00:26:18.973 --> 00:26:20.894
That's just a completely different mindset.

497
00:26:21.074 --> 00:26:25.156
I favor, if you can postpone getting external equity, do it.

498
00:26:25.417 --> 00:26:28.278
Basically, when you sell equity, you're selling risk.

499
00:26:28.478 --> 00:26:33.580
The earlier in your journey you bring in investors, the lower your valuation would be because they're buying risk.

500
00:26:33.800 --> 00:26:48.745
If I can first figure out the business model, truly create this version two, and I have a supermodel or a model that I know that predictably prints cash or that I put $1 in and spits out $1.15, then go get investors to accelerate.

501
00:26:48.825 --> 00:26:49.985
People just get it too early.

502
00:26:50.225 --> 00:26:51.185
De-riskify it.

503
00:26:51.205 --> 00:26:52.266
And that's really what this is.

504
00:26:52.446 --> 00:26:56.287
Make it less risky, make it predictable, and then go and search capital.

505
00:26:56.307 --> 00:26:57.407
It doesn't have to be equity.

506
00:26:57.547 --> 00:26:58.567
It can also be debt.

507
00:26:58.727 --> 00:26:59.507
And you can take a loan.

508
00:26:59.547 --> 00:27:05.309
If you have certainty that I'm going to put $1 in, I'm going to get $1.15 out, why would I sell a part of my company?

509
00:27:05.329 --> 00:27:09.190
I'm just going to go to a bank or a lender and get debt and keep my equity.

510
00:27:09.330 --> 00:27:11.270
Equity is participation in risk.

511
00:27:11.370 --> 00:27:15.612
If I can de-risk my company as much as I can, I can have options.

512
00:27:15.972 --> 00:27:17.212
Capital is much more abundant.

513
00:27:17.432 --> 00:27:18.413
That clarity mattered.

514
00:27:18.773 --> 00:27:20.094
And I 100% agree.

515
00:27:20.555 --> 00:27:22.136
I'm following that path myself.

516
00:27:22.156 --> 00:27:23.337
I haven't ever had a partner.

517
00:27:23.478 --> 00:27:24.098
It's nice.

518
00:27:24.158 --> 00:27:25.139
You get optionality.

519
00:27:25.159 --> 00:27:27.962
You get to run faster, keep more of your company.

520
00:27:28.242 --> 00:27:30.684
Why would I get investors if I don't really have to?

521
00:27:30.724 --> 00:27:31.805
There's a time for it.

522
00:27:31.945 --> 00:27:32.466
You nailed it.

523
00:27:32.526 --> 00:27:33.667
Depends on a lot of variables.

524
00:27:33.747 --> 00:27:34.668
Think of it as like this.

525
00:27:34.768 --> 00:27:36.190
Capital is gas.

526
00:27:36.570 --> 00:27:41.535
If your machine or your car is not fully built and you pour gas on it, it would light on fire.

527
00:27:41.595 --> 00:27:42.156
That's true.

528
00:27:42.256 --> 00:27:44.899
Because there's expectation because capital comes with expectation.

529
00:27:44.979 --> 00:27:49.784
But once the machine is built enough or the car is built enough and you put gas in the tank, then it flies.

530
00:27:50.024 --> 00:27:53.528
Make sure you get the gas when the machine is actually built.

531
00:27:53.688 --> 00:27:54.309
Then you'll fly.

532
00:27:54.349 --> 00:27:56.111
Otherwise, you're just going to light yourself on fire.

533
00:27:56.191 --> 00:27:58.792
Drop those links and ways to reach you.

534
00:27:58.872 --> 00:28:00.373
First step, just take the snapshot.

535
00:28:00.413 --> 00:28:02.774
The snapshot.fractionalpartners will drop the link.

536
00:28:02.994 --> 00:28:03.835
Take the assessment.

537
00:28:04.055 --> 00:28:04.335
See.

538
00:28:04.455 --> 00:28:05.996
You can invite your team to do it too.

539
00:28:06.116 --> 00:28:09.358
Just see what's not clear around your business model and your decisions.

540
00:28:09.538 --> 00:28:10.578
What decision needs to be made.

541
00:28:10.698 --> 00:28:11.939
Yarn, it's been a pleasure, man.

542
00:28:11.979 --> 00:28:14.060
Appreciate all your insights and for coming on the show.

543
00:28:14.200 --> 00:28:14.940
Thanks for having me, Ryan.

544
00:28:14.960 --> 00:28:16.140
Hey, guys, you're going to find us.

545
00:28:16.320 --> 00:28:17.541
RyanIsWright.com.

546
00:28:17.561 --> 00:28:25.343
You'll find highlight clips of this episode, the full episode in audio and video, and of course, links to Yaren's GDC.

547
00:28:25.623 --> 00:28:26.883
Growth Decisions Canvas.

548
00:28:26.963 --> 00:28:27.323
Yes.

549
00:28:27.543 --> 00:28:29.764
Growth Decisions Canvas.

550
00:28:29.884 --> 00:28:35.225
Get the blueprint to what he's doing, and we appreciate his graciousness in offering that to everyone.

551
00:28:35.245 --> 00:28:36.145
So take advantage of it.

552
00:28:36.165 --> 00:28:37.145
Those tools are out there.

553
00:28:37.205 --> 00:28:38.086
He's done the experience.

554
00:28:38.106 --> 00:28:40.266
He's done the hard work, and he's a smart guy.

555
00:28:40.326 --> 00:28:41.086
So learn from him.

556
00:28:44.327 --> 00:28:45.609
See you next time, right about now.

557
00:29:01.330 --> 00:29:03.813
Build what you keep talking about building.

558
00:29:04.533 --> 00:29:09.238
For more, follow Ryan Alford on Instagram, at Ryan Alford.

559
00:29:09.879 --> 00:29:14.864
And watch or listen to every episode at RyanIsRight.com.

560
00:29:15.445 --> 00:29:17.307
This is Right About Now.

561
00:29:18.027 --> 00:29:19.088
Now quit waiting.

562
00:29:19.609 --> 00:29:20.310
Go win.