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Fractional Chief Operations Officer Gene Naftulyev joined me for an hour-long discussion about the role of the second-in-command in any business, the COO. Gene’s tenure as a COO has shaped the way he sees business. Knowing that processes produce predictable results, Gene champions the Goldilocks approach to defining SOPs and processes inside organizations. Pulling from his experience with blue chip companies like PepsiCo and Proctor & Gamble, Gene’s system-specific focus is now being applied to small businesses – those making less than $10M a year.
If you’re a business owner and want to have more simplicity in your work, spending more time creating value instead of spinning wheels, you need to listen to Gene’s thoughts and get some strategic operations support!
Transcription of the Episode
Casey: Hey Gene, thanks for joining me. Are you calling in from Austin?
Gene: Yes sir. I’m an Austin, Texas. How are you?
Casey: Hey, I’m doing great. I’m out in Philly today. Excited to talk about this COO. And from what I understand, a COO is kind of like the vice president, they call it the second in command. Um, can you just like lay out what the day to day kind of responsibilities are or the overarching responsibilities for a COO?
Gene: Sure. And actually I’m, I’ll give you a little story to kind of put it into context. And the how I ended up liking this role, uh, when I was in my twenties, I decided someone on there to run for, uh, Minnesota House of Representatives. So I was living in Minneapolis at the time. So, uh, obviously that was the, the place to run. And you know, I, I started taking the campaign more seriously, um, taking a lot of time for it. But during that process of being sort of the face, I started realizing that, um, I’m not really enjoying that as much as I am. The stuff I do that doesn’t involve people, which isn’t sort of the back room decision making and strategy and that kind of thing. So by the end of that campaign, which I lost by the way, but um, uh, certainly, uh, in my twenties was a great experience.
Gene: Um, I realized I really liked being the guy behind the guy and let somebody else be the face of the thing or the product or the company. Let them be the person that, oh, it looks at five year plans and does projections for the next several years. Um, because what I like doing is actually running the business, uh, or the, the group, that operation and whatever you want to call it. Right. So really what the CEO role entails is the person that does the overall supervising, uh, oh, I’m not going to say all the staff in the business, but the majority of the staff in the business, um, it’s what most things roll up to is the COO role. And then the CEO will generally get directions strategy from the CEO along with, you know, meeting, uh, the, the rest of the C staff. Uh, the CTR folks.
Gene: Um, but anything that has to do with the day to day operations of the business, uh, the how you get things done, that’s all handled by the CEO. I’m leaving the CEO a lot more free time to not focus on details and really work on things that fall within their purview. Like strategy, like doing, looking at the mergers or acquisitions of other businesses. Ah, looking at doing strategic business relationships and partnerships. So things that that are potential things the company can be involved in, things that really steered the direction of the company fall in the CEO role and then the running of the company, the operations falls to the CEO.
Casey: Yeah, that makes sense. So I’m sensing here though that in a lot of the CEOs that I’ve spoken to or that our team has worked with, those CEOs are actually CEO, COO, CMO, CFO right there. We’re holding all those hats and they’re trying to do everything. And because of that, they’re being a pretty poor CEO. They’re not charting the direction
Gene: that’s, that’s absolutely correct. And it really depends on the size of the business, of course. Right? So you wouldn’t expect the company with three people, you have a CEO who doesn’t do anything, they’re just purely looking at strategy. That’s not realistic. But, um, as the size of the business increases as the company, it starts to, uh, you know, grow and be able to afford to hire more experts and more people. That’s where the CEO role should really start being done by somebody that is not tied into the, they activities. A lot of people have the title of CEO purely because they are founder of the business, not because they’re qualified for it, not because they want to be doing it, but simply because they’re the founder and in their minds, if they don’t do it, then who else will, but that’s one of the things I talk about in, in, in my book.
Casey: Yeah. And it feels to me like there’s a lot of humility that it takes for a CEO to say, you know what, I am the founder. I’m the creator behind this. I’m the inventor or the, um, the thought leader, uh, and I’ve built a business around this, but I no longer should hold the reins of these components of the business. And that potentially means the CEO reins or it means the COO rains. So I’m wondering at what point does it make sense for a business that doesn’t have a COO to bring in a COO and what’s the path that makes sense to they start with a project manager and then move up to director of ops? Or do they have an ops guy and then finally c o or, or what do you think is the right in the path?
Gene: I think that there’s, there’s certainly a need. Do you have somebody that’s able to manage the day to day ops of the company? Um, fairly early on. Uh, again, I, I wouldn’t say it three people, but maybe maybe your fifth or sixth hire is a director of operations or you know, a operations manager, somebody that can fulfill that role of essentially taking over the day to day responsibilities from the founder of the business. Um, now there could certainly be a circumstance where the founder enjoys that aspect and they’re like, you know, more able to be, uh, effective in that role. And maybe at that point it would make sense, uh, for them to look, to hire a professional, experienced CEO to look at strategic relationships, maybe getting more funding for the business, you know, things like that.
Casey: Sure. And what are the initial tasks or responsibilities that an ops director can take off of the CEO?
Gene: Well anything having to do really with managing schedules and also implementing standards and procedures, processes within the business? Um, no, I, I do want to put a little asterisk and caveat in there that, um, I’d say 90% of the businesses out there are, have insufficiently documented processes, um, and probably about seven or 8% have adequately documented breasts. And what I’ve come to realize is there’s actually one or 2% out there that have gone way overboard on the process side. And I have actually, uh, over documented or overly built out the processes that they’re using to the point where, uh, they’ve got gridlock essentially are their employees because they’re, they’re really not leaving anything to, uh, people to make decisions on their, they’re essentially having them follow, well for what amounts to computer code, except it’s for people, right? It’s, it’s if then statements, if this happens, do this. If you see this, go to this page. And there’s certainly a downside to having too much of that as well.
Casey: Sure. Yeah, that makes sense. Uh, when it comes to the storage of those systems, what have you seen as being adequate ways to store that? Are they systems and Google documents on a Wiki that’s internal to the site? Is there an internal knowledge base? How do you see that?
Gene: That certainly depends again, on the size of the business. Uh, Google apps has been a huge boon for small business. Um, there, there’s no easier pathway and the no cheaper pathway to having a, an organized set of documents then using Google docs and on the rest of the Google apps that they make available are very, very low pricing. I mean prior to that, um, cause I’ve been doing this for over 30 years. Uh, but prior to that we certainly have seen, um, people living on the Microsoft platform before everything became cloud-based. Um, you know, when they exchange server and sharepoint server using those for storage of, uh, of documents and then in the very, very early days just using file servers. Um, but at this point, a very good start before you really start spending any money on and custom solutions having to do with procedure management, which certainly exists out there. And for companies that are in regulated spaces, anything having to do, uh, with medical or with, uh, financial, uh, they’ll typically have more regulatory requirements on what they use and the types of systems that have built insecurity and, uh, auditing capabilities. But for most smaller businesses, Google docs is a great way to start.
Casey: Yeah, that makes sense. Um, so Google docs is where you would store that. And it seems to me like the, the need for processes is when there is a process and that process needs to be completed multiple times. Um, for instance, when a newsletter goes out or when a new customer gets onboarded, those things can be, uh, built into a process and then those processes can have, can be assigned to different individuals and those individuals can be hired or fired or quit or be promoted. And the process is still can happen. So is it appropriate just to start with anything that’s mission critical? Um, and the business that you do more than once, all of those things should start with documentation and processes.
Gene: The simplest way to do it really is to look at what types of processes are repeated the most in your company. And so if you’re starting at nothing, look at what has the highest rate of repeatability, even if your people already are familiar with it and then, uh, document that and slowly work your way. I’ll do things that maybe happen less frequently, like you mentioned, um, new hire procedures, right? So that is certainly a repeatable process. However, it’s not nearly as useful as a lot of people would think. Because if you’re a small company and by small company, I mean anybody doing under 10 million a year, uh, anywhere from, you know, to, to, uh, 15 employees. If you’re in that size range, how many new hires do you really have per month? Maybe it’s not even one. It might be one every three months. So is it worth it to right away, create a process that gets utilized four times a year? I Dunno, I think there might be things in the company that actually would benefit more from uh, being a well-defined before that process is.
Casey: Um, so is there any type of, uh, is there anything that’s kind of hidden that people wouldn’t expect that you’re always surprised that people don’t have processes for?
Gene: Uh, well yeah, it’s, it’s not going to be the answer you think it is. So essentially the closer you get to the activities that the CEO does, the less defined processes there are including for things that clearly they could offload to somebody else. And this is one of those sort of explanations I give founders slash CEOs. There’s one that role is, it’s like here’s your homework. Um, go, go through last week, look at your calendar, look at the activities that you did and then think if you had somebody that you could truly trust in doing these tasks, uh, mark those tasks that you perform last week, which you could offload to somebody else. Because generally, and the reason I say that is cause the, the most common excuse that founders have for not offloading tasks on other people is, well, I just, I really just don’t have anybody that I trust to do that as well as I do it myself.
Gene: And sometimes it’s perception. Sometimes it’s reality, right? It could certainly be reality, but then then we have to look at their hiring practices. Like who are these people that they brought into the, they don’t trust in their companies. But um, if you go through and you find those tasks that could be done by somebody else but are down by the, the, the CEO or the founder currently, those are certainly a good examples of things that that should be documented. Because of course if you are going to offload tasks on somebody else, it’s great to take that opportunity to document those tasks so that they’re there now described both for that person and for the company in general. Should that person not be available, somebody else needs to backfill. They, you know, quit or they get fired or they get hit by a truck or whatever it happens.
Gene: Um, change certainly happens and usually not when we expected. Uh, and having those processes and procedures written down is great, but also realistically you have to keep in mind that just because something is documented doesn’t mean it’s particularly easy for somebody else to jump in and do that process if they’ve never done before. Yeah, that’s a great point. So this is going to be like an education and build up time before that day that new person can do it confidently and produce the result that’s needed. Right? Yeah. Confidence. It really depends a lot on personalities as well, but uh, being able to execute and produce the result that’s expected consistently. That’s something that really only happens when you have a, a combination of both a, a well documented process, adequately documented. And, and just to put a side note on that, a most common thing I see is a process that’s a very detailed, has a lot of steps and then inevitably it’s missing some single vital step because the software, maybe it’s cloud software or something else that they’re relying on changed, right?
Gene: Things get updated, things get upgraded. And so you’ve got this process that’s like three pages long and about two thirds of the way through. It tells you to do something which is impossible to do because that no longer exists compared to when the process was built. Now people that, that do it on a regular basis, they know this and they’ve uh, they’ve been able to adapt and adjust obviously. Um, but this brings me into my next thing, which is simply processes is just half the battle. Maintaining them to be relevant and up to date is actually a harder task.
Casey: Yes. And I can, I can think of examples where I’ve tried to follow processes and they’re out of date and it’s more frustrating than just trying to figure it out on my own. Exactly.
Gene: Because you keep hitting your head against the wall and you’re thinking, what am I doing wrong? This should work.
Casey: Right, right. Exactly. So the maintaining of those processes, uh, how has that accomplished? Is that accomplished through, um, like a quarterly checking and review of those processes and assigning them to someone to own? Is it a regular review? Is it a weekly review?
Gene: Yeah, and this, this is something that is a generally a big black hole. Um, even companies that have spent the time to document and, and, um, great processes for things that are repeatable. Most of them don’t update these things unless something happens to make them update them. Uh, there’s very few companies that proactively go through that type of effort and the ones that do, they do it because they have a, you know, a continuous improvement program in place of some type that requires you to go through and update these processes. Um, so it, it’s a, it’s something that is absolutely a cost to the business. It doesn’t create any more sales. Uh, it, it uses, um, time that people could be doing other things. Um, so for large companies they just have dedicated, uh, you know, project managers or other roles whose responsibility is to and some sort of a regular schedule to go through with the people that are, um, the most capable of, uh, understanding what the requirements are to go through and make sure that the processes are up to date.
Gene: But for smaller companies, like you’re not going to have those roles with that type of dedication simply spend to updating. So in smaller companies, the typical solution is simply to assign processes to the most senior person of the group that that process belongs to and then have them on a monthly or maybe even sometimes a weekly. Although I think monthly is probably more common schedule. Um, do you have them review the current processes, notate any differences, changes, make updates, and then create a new version of that document? But again, now what I’m describing happens in probably about seven or 8% of the businesses. Uh, the vast majority of companies just never do that.
Casey: Right. And, and I can certainly think of a majority of the companies that we’ve worked with that don’t have any kind of Wiki or internal processes that they haven’t, everything is inventive and new and different. And I’m consuming, excuse
Gene: Me, incidentally, let me just point out the reason why we want to do this, right? Because it seems like, oh, it’s just a bunch of busy work that bureaucrats like to do, right? The reason that we want to create processes is because we want to separate the people that work for us in our companies, from the tasks that they are doing. Um, what you want to avoid is a situation that I see quite frequently, which is saying, oh, uh, that’s uh, that’s Jim’s function. Jim Can tell you how to do that. Oh, well, Jim’s on vacation. So how do I find out how to do that? Oh, um, maybe we can text him or something, you know, having a name as an answer to a question of how do you do this is not a valid response. What you need to do is say that the role that Jim is in, uh, it should be documented to some extent so that if Jim gets promoted, well, what’s the new guy?
Gene: What, how are they going to learn that role? Right? Are they gonna have to take half of Jim’s time now that Jim’s been promoted in order for gym to train that person in? That’s, that’s very inefficient. Um, what you really want is to be able to have each role in the company have some sort of a documented, a set of processes that that role is responsible for so that when a new person comes in, there’s look there, they’re certainly not going to purely learn by reading a bunch of documents or watching couple of videos, but they, they can use that material to help them get into the role faster and be able to maybe make fewer mistakes. They’re still going to need to have Jim be available to provide guidance to some things. But the difference between having nothing and a new person coming into a role and learning that role through osmosis from other people versus coming into a role that is defined and has processes, procedures in place and they’re able to access those themselves is huge.
Gene: You’re probably shaving off months worth of training, buying, being able to do that in a documented fashion. Not to mention it’s repeatable. So if you hire one person, then you hire another person and the department starts growing and if you’ve got all that documented, um, you know it’s a raid there, it already exists. Versus if, if you’re a company that never documents anything, doesn’t have any processes defined, then the, the people that know what they’re doing, I have to take time away from doing their jobs, making you money and actually have to teach the new people a one on one on exactly what they need to know. And, and that process is always a lot slower.
Casey: Yeah, absolutely. Slower time consuming and it takes longer to get an ROI from that employee. All right, so as we’re talking about this, you mentioned a continuous improvement strategy. Is that a known thing is a continuous improvement strategy is something that businesses know about and likely are doing or do you feel like that is a, um, maybe a less known strategy to improve?
Gene: Yeah, it’s certainly well known to larger companies, right? Um, continual improvement or continuous improvement strategies. There’s a lot of different names for it. Um, this is really something that started in the 1950s so it really like 70 years ago and, and for all I know there may be a variance of that that go back a lot further back as well. But, um, through my, uh, learning about it, it’s really something that kind of started in the 50s, maybe right after World War II and then kept going. The idea being that there is no perfect state for business, there’s always room to improve. And so what you want to do is you want to always be looking for things that can be tweaked, improved, optimized, standardized to make the business run faster, smoother, and make more money. Uh, and, and, um, a lot of that, a lot of that is done by large corporations in my experience.
Gene: Um, the company that I work with that absolutely is the most committed to that kind of a ideals is proctor and gamble. Um, you know, they make a lot of products that people use that nobody really knows who they are, but I think they make like Colgate toothpaste and a bunch of, you know, mouth fresheners and uh, razors and all kinds of little things like that. Uh, so the tons of products and then company, but there they’re definitely one of the companies that, that is really good about standards and processes and procedures and, and uh, doing continuous improvement. Um, but there’s, there are certainly plenty of examples of smaller businesses doing that. Um, I think a lot of people probably heard of six sigma oh organization. Some people will put that on the resumes, you know, six sigma certified. That is another example of a Oh, you know, continuous improvement, uh, process, uh, um, organizations, sort of that, that allows people to learn how to do that and then certifies them in that.
Gene: I’m sure a lot of people have heard of like ISO, ISO 9,001. There’s a lot of different isos out there, but, uh, international standards organization, a big part of that is, is again, like if you want to be ISO 9,001 certified as the company, you have to show that you have processes in place, that you have standards and procedures and that there’s a regular updating time period between them, that they are always kept up to date. Um, because what you’re looking for is reduction in error rate if you’re a physical products manufacturer for example, um, or an increase in efficiency. And, um, uh, there’s a guy named Edward Deming that was really the father of the, he’s an American guy, but he really, I think he was a professor. If I’m a right, I’m going off memory. I’m like, look, I could be off. But he, he ended up going to Japan and, uh, really helping create the Japanese, uh, manufacturing wave that swept through our country in the seventies and eighties and early nays.
Gene: Um, because the Japanese loved what he had to say. Uh, the whole, the whole idea of continuous improvement and it’s really, I mean, it’s now it’s referred to as the Deming cycle. Um, it’s something that they greatly, uh, believe them culturally. I think it made a good connection and that is just the cycle that is essentially looking at, um, you know, check, verify, improve, uh, optimize. And again, I’m going off memory, so there there official names for each of these categories, but if you could just imagine sort of a four arrows in a circle, each Arrow pointing to the tail of the next Arrow, uh, and that, that cycle, that process, it’s something that should be completely ongoing over the course of time within the company. And, uh, and looking at, uh, reducing error rates, increasing, uh, you know, optimizing the ability of the business to do their job and ultimately leading to a higher profitability and lower cost of, uh, operations, lower cost of taken care of problems because there’s fewer problems. So, um, yeah. Does that answer your question?
Casey: Yeah, sure does. And this, what’s really interesting here is, um, how you’re applying, uh, big business operational strategies and how smaller businesses can start taking those on businesses under 10,000, excuse me, 10 million a year can start applying these practices instead of continuing to reinvent the wheel. Um, they can do things that are obviously working for big businesses and don’t really have a huge startup cost outside of some time for process documentation and then regular review at some cadence.
Gene: Yeah. And part of that process of where I got to where I am doing this, which is working with smaller companies, um, is because I did spend a lot of time working with fortune 500 and uh, what I learned in the, in a large degree working with fortune 500 companies and big companies, everyone’s heard of like target corporation, Pepsico. Um, you know, like I mentioned Procter and gamble, companies like that is seeing a lot of mistakes and seeing a lot of money and time and effort spent on fixing things. And those are, you know, there is a lot of time, money and effort because there are large companies, right? It’s like steering the titanic. Yeah. It takes a long time to plot the course around the iceberg and it takes no effort at all to crash into it. So, uh, if w my, my conclusion from that is if I can take that knowledge and help founders that are running smaller businesses, be able to avoid those mistakes in the first place, I can do that.
Gene: Just think of how much wasted time and energy is going to be saved when those companies get bigger. Um, so that was sort of the, you know, the, the rationale behind the, the, this latest book beyond sales that that makes a lot of sense. Uh, helping these smaller companies before they reach a point where, uh, it’s expensive to fix their mistakes. Um, and with smaller companies, I’m sure just being more nimble, they’re going to get better results in less time. And that’s also gotta be probably more fun to be working with. Oh, absolutely. Yeah. I will, I make no, uh, you know, uh, and what’s the phrase that, well, I, I definitely, uh, tell everybody that can, it’s a lot more fun working with small businesses because you get to make an impact right away. You know, in a large company what you do is one out of thousands of projects that are running it may have an impact.
Gene: It makes save the, the um, uh, the stockholders, uh, you know, a lot of money in the long run, but you really never get to see any results from that. Then things take a very long time. Small Business, you can come in and within 30 days make an impact that saves the company time or money or allows them to hire some new folks, um, literally within a 30 day time period. So it’s, it’s a lot more fun being able to see the end results instead of assuming there’s an end result but never really sticking around to see it. Yeah, yeah, absolutely. So I want to talk about the role of the COO and the fractional role. So this is something that I think is pretty interesting. Fractional c-suite is kind of a buzz word these days. And I think the role leading that charge is the fractional CFO, the fractional chief financial officer because right.
Gene: Most companies don’t need a full time CFO, but they need more than a bookkeeper exempt. I think the fractional CMO, which is my company and the Fractional COO, which is your company. Um, I, I think we’re kind of like tied next, uh, as far as like where the buzz is. Would you agree with that? Yeah, I think we’re addressing needs that maybe in the past have not really been recognized as much. And I’ll use the CFO just simply because it’s the easiest one to really, um, too explain cause it’s been around for a long time. Um, and I just had the conversation with one of my clients very recently about that exact thing is what, what, why have a fractional CFO or CFO at all? So if you’ve got a company and let’s say they’re doing 10, 15 million, um, let’s say maybe even 5 million, right? It doesn’t really matter, but somewhere under 20 million for sure.
Gene: Um, that companies need for a full time person, uh, who has got 20 years plus of industry knowledge, uh, someone who may be a certified CPA, somebody that, um, whose job is going to be really to look at the fine cause as a company, as well as work on, uh, finding new money for the business. You know, that person’s probably going to be making a quarter million a year or more and then certainly a lot more with, uh, but once you throw in options and bonuses in there, um, so the real question is, does a company need that? Do they need it 10 million? Do they need a 5 million? Do they mean that 2 million? And the answer for most businesses in the past has been, well, we don’t really need that because that’s too damn much money for us throw away cause that money is coming right out of the CEO’s pocket.
Gene: That would be profit otherwise, because they’re, they’re usually playing. The biggest need we have is simply for a bookkeeper. And I would agree with that. I think most companies, first and foremost need a bookkeeper just to do, uh, the finances. The difference between a bookkeeper and a CFO, whether it’s a fractional CFO or whether it’s a full time person, is the knowledge and the experience to bring strategy into the equation. The CFO isn’t just simply an overpaid bookkeeper. The CFO is somebody that can take the data coming from the bookkeeper, um, and then analyze it through the view of the CEO and the strategy that they’re working on and then come back with the right mix of recommendations, their own financial strategy and a pathway from getting from point a to point B. And a bookkeeper is never going to be able to do that.
Gene: That’s not their role. Um, the CEOs typically the founders of the business, um, while they certainly should have a good understanding of finance, uh, they’re typically coming from some other particular background. You know, most people that start companies, um, amazingly, uh, are not business people. They are people that created products or ideas and they were really good at whatever they did before they started the company. So, um, you know, whether whether they were graphic artists, whether they were programmers, whatever they were, they were good enough to be able to say, you know what, I can make more money doing this on my own. Ah, very, very, very rarely do do I talk to somebody that’s a founder of a business. They say, what’s your background? Well, my background is I went to college, then I got an MBA and then I came into a start.
Gene: Um, uh, being a, an assistant to a c CEO and then I became a CEO. Like that doesn’t happen. See all is not a natural path for somebody to go from college to being a CEO. And so, uh, the founder slash CEO person, he is absolutely who has other skills that they brought to the table. So same thing with the CFO. Uh, again, whether fractional for time, is there somebody that’s bringing the financial skills but at a high level, at a strategic level. So having somebody that is at a level at which you maybe can’t afford, but for sure you probably shouldn’t afford as a full time role. Having that availability through the use of a fractional CFO or fractional CMO, fractional COO allows you to still have the ability to have somebody who’s coming in on that strategic level and bringing you in, not just the raw data but processing that data into a very concise and um, uh, no experience based recommendations. Is what makes this super attractive to a lot of companies right now. Um, so you don’t have to go out and spend a quarter million dollars a year on the salary. You could maybe do this for, you know, five, 10, $15,000 a month depending inside of their business and have somebody that’s available to you but not sitting in an office in your company full time. Well link their thumbs because your company’s still too small to really utilize them 100%.
Casey: Yeah, I think this is huge. So what I’m sensing too is, is the value in having someone who is a great ops person, a great COO, and that fractional COO is someone who’s dedicated their career to becoming a COO and becoming great at it. Not someone who was rising through the ranks. So you’re going to get someone who’s experienced, who’s being able to pull in, um, similar or different problems from other businesses that they’re currently working on or have worked with in the past and were able to apply those ideas instead of just hoping this COO that you hired is going to figure it out if it’s their first time.
Gene: Yeah. And, and you bring up a very good point. Um, so thanks for reminding me, which is, and that’s something I usually try and address is this idea of a concurrent experience with other clients is a natural reaction. Some business people not all have is, well, you know, if this guy’s working for multiple companies, I’m not going to be their top priority and I want to be somebody’s top priority. So should I hire somebody as an employee? And the reason that that that is completely nonsense is because a, it’s not about being the top priority, it’s about having the guy with the best experience and able to provide the best strategy for you. If you look at a law firm as an example, would you rather work with a one man law office where you are their best clients because you, you generate the most invoices for them, right? Rather work with a top tier law firm that has hundreds of lawyers where you’re getting maybe uh, an hour a week with a partner and then they’ve got availability of other associates that can, can take care of the work that the partner
Casey: Doesn’t need to take care of.
Gene: So, you know, in my mind there’s no comparison. Obviously you want to work with a big firm, you want to have the availability of a whole bunch of experts within different areas of law available to you instead of one guy who a generalist. And that’s kind of the difference between working just the hiring and employee. It’s like the one man law office, right? Or having a affirm with multiple lawyers, each one focusing on different aspects available to your business depending on what type of work is required. And the other benefit of that that law firm has is they have multiple clients, so they’re getting the benefit of seeing lessons learned from one client’s issues and then being able to apply them to all the rest of their clients. Whereas the one man shop, which was more like the employee, you know, they maybe have two or three clients and you’re the biggest one they have. And so what lessons exactly are they learning from their other clients that they could be bringing, applying to you? Not many, if any.
Casey: Yeah, great points. And also if you have that, uh, one person in your company that’s running operations, where are they going to get educated from? They’re going to get educated from the same places. Every other competitor of yours has a one person operations guy from like they’re reading the same books, they’re attending the same conferences. There’s no edge that you’re receiving from that person because they’re getting outside information that’s been prepackaged that they can purchase and learn. And no real boots on the ground experiential education that they can apply to your business?
Gene: Absolutely. You know, I’ve, I’ve been a consultant for the majority of my life and I’ve been in well over a hundred companies, but I’ve been saying that for about a decade. So it’s probably more like 180 companies at this point. And, uh, so at some point I’ll move to the saying over 200 companies, but a lot of businesses where I’ve seen their insides, I’ve seen a lot of companies that have a and absolutely great public image that, that talk about how awesome they are and how smart they are. And Oh, they, they do everything right all the time, except that I’ve actually worked with them and they’ve paid me to come in and fix problems that they’re having and keep my mouth shut. And so there’s a, uh, believe me, nobody’s perfect. Every great company you can think of has problems and it’s actively addressing those problems by bringing in somebody from the outside.
Gene: Um, you can’t fix problems by doing everything internally. Uh, it just doesn’t work. You can absolutely leverage internal people to help with fixing problems. But having that external perspective, having somebody that that’s been in over a hundred companies that seen how things are done and being able to instantly tell you, um, you know, you guys are doing this and I’ve seen this done this way before and here’s why you should stop, right? You need to change how you do that particular thing because otherwise you’re going to end up having the same problem that I’ve seen over and over in other businesses that is invaluable and that you just literally cannot get if you simply hire employees. Because most people who are looking for, uh, employment status, they’re looking to get hired, including c level folks, right? If you look at their resumes, what you’re gonna find is they’ve worked and probably five to 10 company, and if they worked in 10 companies, let’s say somebody in their forties, they worked in, you know, a dozen companies, let’s say, um, only their last two or three jobs are going to be close enough to the role you’re hiring them for to make a difference.
Gene: So at no cost, they’re going to bring the experience. I’ve having worked in a similar role in the last three companies versus a consultant that’s got the same number of years of experience, but is doing it company after company after company, they’ve seen over a hundred. So compare that three to a hundred, 150. Uh, there’s no comparison. I mean, and that’s why it’s okay to pay people coming in as consultants or as, as a fractional person in my mind, by the way. And then tell me what you think of this Casey. But in my mind, all, all I am as a fractional COO is a consultant with a longterm contract to help that business.
Casey: Right. Okay, great. That’s your job and it’s to use your unique process that you’ve developed and your ability to identify problems and solve them and the views of operations, just like our job is to do the same thing and in the lens of, you know, marketing and marketing as it relates to sales.
Gene: Right, right. And I, I certainly, I expect the company to be able to, you know, take the strategy, take the advice, take the a direction that I’m giving and be able to implement it and it’s going to take some time and it may take some man hours from other staff. Um, so in, in, you know, larger companies say companies over 10 million, I’ll typically work there with their in house. Um, uh, either there project management team or their in house operations person. If they’ve got one of those, um, in smaller businesses, they may not. So I’m relying on the founder to like delegate things that are coming, uh, as takeaways from me to different folks in the company. Um, so I, I also want to be very crystal clear that, you know, when you work with a, a, somebody who’s doing fractional CIO work, you’re not magically going to have everything be done for you.
Gene: But in one day per week, that’s not the way that works. What you’re getting is a high level person who you could not afford, nor should you justify affording otherwise, but you’re getting their benefit, their experience and their ability to give you the right strategy, make the right decisions, but those things will still require implementation and support from within the organization beyond simply that person. So it’s not, it’s not like you’re, you’ve got a contract guy who’s just taking care of and doing that stuff, just like you wouldn’t expect a fractional CFO to also be your bookkeeper. You’ve got your bookkeeper and you’ve got your fractional CFO or your full time CFO for that matter, but it’s not the same guy. And anybody who is, has a person that has the title CFO and they’re your bookkeeper as well. Hey, guess what? You don’t really have a CFO.
Casey: That’s for sure. Yeah, that’s a great point. Oh, one of the, one of the terms that I like to use is headless. A lot of organizations that I work with have a headless marketing department. They’ve got talented people that are willing to do whatever you tell them to do, but they need someone to give them direction. No one is on the, on the edge of what’s working right now and how to apply to your business. I assume that’s the same on the operation side. You’ve got employees that are eager to see the company grow and they’d love to, especially if they had, you know, stock options, they’d love to see those increase in value. So they show up every day and they say, what should I do today? And I feel like a fractional COO is the person to give them that direction that they need to put the head on that department so they can actually deliver enough value to grow the company. And um, oh, they’re there
Gene: for it. They’re, they’re, they’re really craving that. I’ve had instances where, you know, I’ve, I’ve, I’ve come into a company, I’d been hired by the owners to, uh, do an assessment of the business and then to start making improvements and changes, improving efficiency, improving profitability, which is, you know, the key thing that I focus on is not how like, um, you know, you guys on the, on the sales side and marketing side, you’re looking at, or you increased the amount of money coming into the business. I don’t deal with any of that. I deal with of the money that already came in. How do we keep more, how do we improve profitability by reducing, uh, you know, uh, unnecessary overhead, operational costs. It’s really all about the efficiency. But employees getting back to the original point are, are craving for this. They like, they’d like to help the company be more successful.
Gene: And, uh, I’ve, I’ve commanded to companies work, you know, after people kind of talk to me a little bit, find out what I’m doing. Like they go out and buy my book on their own. Their boss isn’t telling him, here, buy this guy’s book. They’re doing it on their own and then coming back to me with questions. I love that because it’s, it’s like that just demonstrates your employees commitment to the company and the quite often, yeah, management doesn’t see that they’re all they’re looking at is what’s say on product. The employee is doing well. Have you enabled them to do a better job? What have you done as management, as the c suite to empower the employees to do a better job for the business? And the answer usually is nothing.
Casey: Yes, that’s, that’s totally the case. I see that happen often. What are the questions that we ask in our kind of onboarding questionnaire is we asked the CEO how much money they took home in the last year, and we do that because they say things to us like, I want to see the company grow by 30% or 50% or I want to double the revenue in the company over the next year. And that question helps us understand why we’ve worked with companies that do 50 million a year, but then they can’t afford to pay their CEO and founder $100,000 a year. Yup. And it, they’re trying to solve that with marketing and sales when it sounds to me like it’s an operational issue.
Gene: Yeah. And that, that’s a very good point. And I think often that is the case is that people get so caught up with the big number and, and that’s kind of what I’ve heard to it. It’s like if you’re gonna tell somebody how big your company is, you don’t tell them the number of employees you have. You certainly don’t tell them how much profit you had at the end of the year. You tell them the biggest number that you can coming out of your financial statements. And that number is the sales number. Oh, we did 10 million. Oh, we did 50 million last year. We did. Great. How much did you spend? What was your expense side? Oh, we spent 52 million. Well, right, the last machine. Yeah. And it happens. I mean these are real life examples is I’m just pulling stuff out of my ass here. This is, this is what you actually get quite often as people bragging about how great they’re doing and their sales are up 25% every single year, but their expenses are up 30% every single year.
Casey: Yeah, yeah. That’s wild. So a COO was going to help keep the finances in check. They’re going to help reduce the spend, increase the profitability, but also it sounds like increased the throughput of the team, working with the project manager, working on systems, working on processes so that things can continue to happen with less reliance on an individual and more reliance on a role that can be replaced as needed. Uh, it seems like a COO is a critical role.
Gene: Yeah, I mean you, you pretty much knock that out right there. That’s exactly it. And I think for a lot of companies, the reason that they don’t have a CEO’s in either full time or fractional is simply because the, the founders of the business don’t really understand like, what would that person do if I’m already doing blah, blah, blah, blah. Well, it’s sort of like, that’s the whole point, man. If you’re the founder, you’re the CEO of the company. Let somebody else take like 80% of the stuff you’re doing off your plate. So you can spend, instead of spending 20% on a strategy, spending like 90% on strategy, uh, and really trying to make the business grow. Cause the, your job as a CEO is really to be accountable to the owner. And if you happen to be the owner and the CEO, well then your job is to be accountable to yourself, which means how much money did you take home last year?
Casey: Yeah, man, that goes to your point. And there’s a lot of people that are running quote unquote successful companies
Casey: taking home barely a hundred thousand dollars, maybe 120,000. You know, they’re lucky. Yeah, they’re, they’re doing. Um, no better then, uh, people who are never been an entrepreneur that are working jobs somewhere for somebody else make an exact same amount of money. It’s sort of like if you’re going to be an entrepreneur and we all know as an entrepreneur, yes. What, you don’t work 40 hours a week, you work from whenever there’s work to do until their work is mostly done, which is could be 50, 60, or 120 hours a week, right? It all depends on the week. Um, so, uh, if you’re, if you’re going to put yourself through that, put yourself through that uncertainty of not having a paycheck. Putting yourself through, paying yourself last after all your employees because that’s the right thing to do when you run a company, right? Shouldn’t you also be the ones who make two, three, four, $500,000 a year?
Casey: I mean, if I’m, if I’m going to work hard and I’m going to kind of face my own demons as an entrepreneur, right? I think entrepreneurs is the greatest, uh, thing that you can do for self discovery. Like you see your weaknesses. You see all this childhood trauma or all of your shortcomings and they’re all just like staring at you in the face every single day is you’re going to go up and battle for that. It’s gotta be worth some kind of outcome. And if that outcome is a lifestyle or if it’s a whole bunch of money in your pocket, you gotta be aiming for that. And too many business owners are satisfied with this idea that their business is doing over $1 million or a couple million dollars, $10 million, but they can’t afford anything and they have this enormous risk on their back of taking out loans or making payroll and not paying themselves, um, taking calls on the weekends, you know, jumping in and saving the day, being a Batman in their business.
Casey: And that’s only worth it if the outcome is worth it. And I think you’re making a great point here. And to add to your point, a lot of people listening to this, again, you may be the founder, you may be the CEO, but you’re not the longterm CEO. Potentially consider if you really are a CEO or not. Do you have what it takes to be a CEO or do you have what it takes to be a product creator? And you have a company that you can get another CEO to run. You can own the company and be a product creator. You can own the company and be the operations person, but you don’t have to be the CEO if that’s not your strengths. And there’s no shame in that, you know, you’re gonna make more money and have more impact doing the thing that you’re great at instead of trying to own the company and run it. Would you agree? Absolutely. And I mean, I, I’ve in this, uh, in beyond sales in my book, I talk about the example of Steve Jobs, an example everybody knows and the fact that Steve Jobs had to be fired from apple to be able to learn more. And by the way he admitted to this like
Gene: this is, it’s actually him talking about this and videos you can find online that him having to go out and start next and learning a lot of lessons in order for him to be able to come back. And not just save apple but turn it into the, the most valuable company in the world, um, is absolutely something that could not have happened according to him. And he never left apple had he not been fired. Um, you need to have the ability to learn from a lot of different experiences to be able to get to that next level. And if you just start a business and you keep running it for 20 years and you’re still the CEO, the only person you’re hurting there is yourself. Uh, you’re, you’re getting to control a business fully, but you’re also limiting your income. You’re limiting the ability of the company to grow.
Gene: You’re limiting the number of employees at the company could be employing. Um, you’re, you’re absolutely the most self limiting factor there. And uh, one thing that’s interesting, if you talk to people that have had success starting businesses, guys that maybe started a company or two when they were in their twenties or early thirties, and actually managed to grow that company to 50 a hundred million and then sell it. None of these people when they start their next venture is the CEO. Right. The first thing they do when they talk with partners about starting a new business and new venture is they start looking for who’s going to be the CEO of this company. It’s not going to be them. They did that already and they know that that’s a hard job to do and it’s absolutely not a job that they need to ever repeat doing again. And the only people that live really want to be CEOs and want to hold down to it and don’t want to let go. Are People doing it for the first time?
Casey: Yeah, great point. Great Point. Because they think that it helps them build their identity. Saying that your CEO or I hate seeing this online, I’m a founder, come to the founders meeting, the founders club. I don’t know. I feel like that. Right.
Gene: Well and that, I mean, let’s be honest, like saying CEO on Your Business Card does have a lot of cachet in the first time that you’ve done it may or may not open doors for you, but it sure feels like it opens doors for you.
Casey: Yeah, that’s a good point. That’s a good point. So I have one last question here for you, which is just around exit strategies. This is a question number 11 that you discussed in your book and what is a CEO need to know the answer to a, around their exit plan? Like are they lifestyle in the business or are they actually growing for acquisition? And then how does that influence how they onboard operation support? You know, this is one of the most.
Gene: Stressful questions that I ask when I work with a client. Um, and I mean it’s not stressful for me, but the look on the client’s face is one of sheer terror usually because, uh, talking about exit strategy is sort of like talking about your funeral to most people. Well, how would you like your funeral to look? Who would you like to have there? Would you like to speak at it? If people just don’t want to think about that, I’m going to live forever. I’m going to be a CEO of this company forever. What are you talking about? Exit Strategy and again, with people that are starting their second, third or fourth business, we start with the conversation about accent first. A company that I, I started with Adam Curry and a couple of other guys, um, a couple of years ago, which was to build an audio device like in our first meeting as a group of investors and founders in the business.
Gene: Uh, in that first meeting our conversation was about exit strategy, timelines, expectations. No, that’s not how most companies start. Most companies start by having people decide that, screw my boss, I don’t like them. They’re taking all my money. I can do it better myself. It’s like those three reasons are the most typical reasons people start businesses and then they work like dogs. They built the company up and they don’t ever think about giving that up because the reason that they did it is to show somebody that they could. So for a lot of people, I think exit strategy has a certain connotation of like, well that means I’m kind of quitting, right? I’m like, okay, even if I sell it, I get money, but I’m Kinda like I’m done with the business I’m showing. I can’t really grow it any further. It’s a hard conversation to have, but it’s an important one to have because exit strategy, we’ll define to some extent how you run the company.
Gene: Um, I, I’ve bought and sold multiple companies for other people. So again, I, I’m the guy behind the guy, right? So I work with people that have either the money or the companies and help them go through the acquisition or the, uh, the sale of the business. And I’ve done that for a number of folks. And, um, in that process, uh, what you learn is that if you’re going to be selling company, what the buyer’s going to want our three to five years of clean audit financial records, they’re going to look at, uh, your, um, use of credit within the business are going to obviously look at your inventory. Uh, the inventory turn rates, they’re going to look, if you haven’t started at all, they’re going to look at your employee stability. They’re going to look at a whole bunch of things, which you actually will, uh, not necessarily not look at it, but you’re going to act very differently if you have no interest in selling company or five to 10 years.
Gene: So things that will actually lower the cost of your company if you’re trying to sell it, are things that allow you to take more money out, be more aggressive, and potentially grow the company faster. So the question is, do you want to do things that’ll get the company growing faster in the next two, three years? Or do you want to do things that’ll make for the highest valuation in the next two, three years? And those are different paths. Like they’re not the same thing. You can’t overlay one on top of the other. You have to decide which one you’re going to go on or what most companies do. They don’t make the decision. They just go on one of those and then they realize, oh shoot, we’re on the wrong path. We should have taken the other path like three or four years ago. Hey Gene, how do we fix this?
Gene: And that’s complicated and it may mean, hey, um, we’re going to take your business off the market for the next 18 months and then we’re going to put it back on the market after we fixed some of these things. They don’t like hearing that. But that’s the reality. If you want to get the most money out of your company, if you’re selling it, uh, unless you followed the right path for the last four years or so, you may end up having to delay when you sold the business. And if you sell the business sooner, you’re absolutely guaranteeing you’re not going to get top dollar for it.
Casey: Yeah, that’s a great point. So it sounds like the business owner needs to start with the end in mind and know where they’re going and know what they want to do with the business and then work with someone who’s experienced in operations to make sure that the business is attractive to buyers and they’ve done everything they can to maximize the perceived value of the business so they can sell it for top dollar. Does that sound right? That’s absolutely right. Awesome. This has been really informative. I’ve learned a ton about operations and how operations can be applied to a business. The biggest takeaway that I have is just how much a CEO is probably in the COO role and how this hire can offload a lot of that responsibility. Um, you reminded me the value and importance of having systems in a business and how those systems, uh, not only need to be created, but also need to be maintained and that maintenance comes through some kind of continuous improvement strategy.
Casey: Uh, we talked about how the fractional COO is better than hiring internally and promoting someone to COO because you want someone who doesn’t have just a few instances of being in an operational role, but you want someone with a myriad of experiences so they can kind of pull from that lattice work of experience, uh, and apply those different maybe mental models onto the business and problem at hand that feels really novel and it feels like I’m the business owner and the business in general is going to get a better outcome because of that. We also talked about, um, in your book beyond sales, how exit strategies matter and how the business owner can be, um, better situated for a profitable exit using an operations person. So I think this is super valuable. If someone wanted to learn more about you or maybe get in touch, which would they do?
Gene: Sure. The, the simplest thing is either to go to the company website, which is https://www.companyoverhaul.com/. Uh, and that has a contact link for me as well. Um, otherwise just, uh, hit me up on LinkedIn. I mean, I, I’m on LinkedIn almost every day and I will reply to people that actually, you know, that don’t look like salespeople that look like they’re actually asking me a question, not like, hey, we look like we have people in common, then we should connect. I don’t, I don’t accept those, but anybody actually asking questions or talking about the book or anything else like that. And I’m happy to have conversations in through LinkedIn and then, um, potentially offline as well. But my last name as you’re aware of is difficult to spell even though that’s my company name enough. Totally of LLC. Yeah. So I don’t even bother trying to use that as a email address or, uh, a website for people. Just have them go to https://www.companyoverhaul.com/
Casey: Wonderful. And then they can also grab your books on Amazon by searching for your last name, which is N. A. F. T. U. L. Y. E. V.
Gene: Yes. Yeah, no, that’s absolutely true. Books are an Amazon, a audio book coming soon, but right now just a paperback and kindle versions on there as well. And of course I’m working on the new book, so, um, we’ll let you know once that’s out as well.
Casey: Well, that’s exciting. All right, Jean, thank you for your time. I appreciate it.