Why I've Been Stuck At ~$30MYr for 3 Years Ep 229

Summary Notes


In this insightful discussion, the host delves into the challenges of scaling a business, referencing the "Chinese rule of three and ten" which suggests systems break every time you triple in size. He shares his company's revenue growth, expressing frustration at the plateau around $30 million, despite various strategic changes. By analyzing four core beliefs—increased ad spending, higher pricing, more salespeople, and better talent acquisition—he identifies talent as the key area hindering further growth. The host emphasizes the importance of having a team capable of proactive thinking and data analysis to predict and prevent problems, acknowledging his current focus on developing such leadership and systems. This introspective breakdown showcases the complexities of business expansion and the critical role of human resources and strategic foresight in overcoming growth barriers.

Summary Notes

Chinese Rule of Three and Ten

  • The concept suggests that systems tend to break every time their scale triples.
  • It's a framework to understand the growth and scaling challenges in business.
  • Speaker A uses this rule to analyze their own business growth trajectory.

"The jumps that happen in business are called the Chinese rule of three and ten, right? So systems break essentially every time you triple them."

This quote explains the 'Chinese Rule of Three and Ten' as a pattern where businesses face significant challenges at every tripling of their size or revenue.

Business Growth and Revenue Plateaus

  • Speaker A discusses the stagnation in business revenue despite various strategic changes.
  • The frustration stems from the business not being able to break past a certain revenue threshold.
  • The speaker reflects on the company's revenue over the past few years, indicating a plateau around $30 million.

"But two years ago, three years ago, we did 28 million. Last year we did 37 million. And this year we're on pace for right around 30 again."

The quote provides context to the speaker's concern about their business revenue plateauing despite attempts to grow.

Beliefs That Drive Business Growth

  • Speaker A plans to share beliefs that have contributed to their business success and one that is holding them back.
  • The discussion is intended to be tactical and helpful for the audience.
  • Four key beliefs are identified, with the first being the willingness to spend more on advertising.

"And so the four big beliefs up to this point that I will consistently break for people who are at a million and trying to get to three, or at three and trying to get to ten or at ten and trying to get to 30 is first that they need to spend more on advertising."

This quote introduces the first of four beliefs that Speaker A considers crucial for scaling a business from one revenue milestone to the next.

Advertising Spend and Marketing Investment

  • Speaker A emphasizes the importance of being willing to invest in marketing, even at a loss initially.
  • The speaker shares their experience of spending on marketing leading to greater returns than immediately measurable.
  • The concept of going negative in customer acquisition is discussed as beneficial in the long run.

"From every single time that we have tracked data over an extended period of time, what we get back on our marketing is far greater than what we can immediately measure."

The quote highlights the speaker's belief in the long-term value of advertising spend, which may not always show immediate returns but pays off over time.

Perception of Peers and Competitive Influence

  • Observing peers in business and their spending can influence one's own beliefs about what is necessary to succeed.
  • Speaker A talks about the impact of seeing a peer spend more on marketing and the pressure it creates to match that spend.
  • Breaking the belief in what's possible is crucial for scaling up advertising spend.

"But it's like, for some reason, it's only when someone's like a peer of yours and then, then they start doing it that all of a sudden you start doing it too."

This quote reflects on the psychological effect of seeing peers increase their marketing spend, which can lead to a reassessment of one's own marketing budget.

Pricing Strategies and Profitability

  • Speaker A discusses the second belief around pricing and the potential to charge more for services.
  • The concept that profit precedes growth and is necessary for it is explained.
  • Raising prices can lead to more profit, which in turn can be invested in marketing and talent to foster growth.

"You actually raise your price because then you have profit to invest in marketing, in hiring talent, to then grow afterwards."

The quote conveys the strategy of increasing prices to boost profit margins, which is contrary to the common belief that lowering prices will attract more customers and lead to growth.

Hiring More Salespeople

  • The increase in sales staff directly correlates to increased revenue.
  • Salespeople are motivated by their need to earn, leading to more sales.
  • There is often a hesitation or limiting belief in expanding sales teams.
  • More salespeople necessitate higher ad spend to provide enough work.

I cannot tell you the amount of times that I've seen that the more salespeople you hire, the more money you make.

This quote emphasizes the observed positive correlation between the number of salespeople and the company's revenue.

And so they will find ways to make more sales for you to feed themselves.

This quote highlights the intrinsic motivation of salespeople to increase sales due to their personal financial needs.

And so a lot of times there's limiting beliefs around like, well, I have two salespeople. It's like, well, why don't you have five? Why don't you have ten?

The quote addresses the common hesitancy among entrepreneurs to expand their sales teams, questioning the basis for such limiting beliefs.

And then it also will force you to increase your ad spend because you have to feed more people.

This quote explains how an increase in sales staff leads to increased advertising expenditure to support the larger team.

Talent Acquisition and Management

  • Talent development is critical at every business level.
  • Entrepreneurs initially attempt to perform all tasks themselves.
  • Eventually, others can perform certain tasks better, leading to delegation.
  • Acquiring high-level talent often requires increased compensation.
  • Outsourcing begins with the 'doing' tasks, followed by management and leadership.
  • Management involves tracking metrics and detail-oriented work.
  • Leadership requires different skills and is harder to develop internally.
  • The progression from individual contributors to managers, then to leaders, is challenging.
  • External recruitment is often necessary for strong leadership.
  • People problems, not technical or strategic issues, tend to be the main obstacle to growth.

And this one is the thing that has been holding me back for the last three years.

This quote identifies talent acquisition and management as a significant barrier to the speaker's business growth.

You will find somebody who's better at one thing, not all things, than you are, and then they can replace that function from you, right?

This quote acknowledges that while entrepreneurs may initially be the best at all tasks, there will be individuals who can perform specific tasks better, justifying delegation.

The first thing that you outsource is doing, right. So the first thing that you stop doing is you outsource all of the doing of things, right.

The quote outlines the initial stage of delegation, which is outsourcing the execution of tasks.

Go from three to 10 million, you start outsourcing the leadership of those people.

This quote explains the transition in business growth that requires outsourcing leadership roles to continue scaling.

They could make one of those jumps, but not usually two of them, and then they would break and they'd breeze to their level of, they'd get up to their level of incompetence and they just couldn't go, and they'd flounder.

The quote illustrates the Peter Principle, where individuals may excel at one level of promotion but fail when elevated beyond their competence level.

It's not an excel problem, it's a people problem.

This quote simplifies the core issue in business scaling, emphasizing that beyond a certain point, growth is more about managing people than optimizing systems or strategies.

The Importance of a Smart Team

  • Business growth beyond certain revenue milestones is heavily dependent on the team.
  • Billionaires often credit their teams for their success.
  • It's challenging to hire people who are smarter than oneself.
  • Specialization and expertise are necessary in large corporations.
  • Delegating the 'thinking' aspect of business is a current challenge for the speaker.
  • The speaker is seeking to improve the team's proactive approach to growth and initiative.

And when I talk to guys who have done a billion, when I talk to guys who have done several hundred million, they look at me in the eyes and they're like, you need a smarter team. You need people smarter than you.

This quote conveys advice from highly successful individuals, emphasizing the need for a team with greater intelligence and capability than the leader.

And it's easy to say, but it's hard to do, because sometimes it's also intimidating to hire someone who's smarter than you.

The quote reflects the psychological barrier leaders face when considering hiring individuals who may surpass their own expertise.

But what a CEO does, what an executive does, is that they take the d

This incomplete quote suggests the speaker was about to discuss the distinct roles and responsibilities of a CEO or executive, likely in the context of strategic thinking and decision-making.

Data-Driven Problem Prediction

  • The ability to use data to predict and preemptively address business issues.
  • Engaging leadership to prevent problems before they escalate.
  • The importance of relinquishing control and delegating tasks as a business grows.
  • The speaker's current challenge is to improve data reporting, which is currently manual and not automated.

"They're able to look into the future using data and extrapolate out where a problem exists and then engage the leadership to try and figure out how we can prevent this problem from happening before it actually escalates."

This quote emphasizes the proactive use of data to identify potential problems and the need for leadership to work on solutions before issues become critical.

"The level of control that I have not relinquished yet, and I'm now currently working on it, I'm not there yet, is being able to either find someone who can think that way or can duplicate the mental thought process that I go through."

The speaker acknowledges the difficulty in finding someone who can replicate their thought process and the struggle with letting go of certain levels of control in the business.

"My data reporting is not good enough. It's not clean enough, it's still pool based."

The speaker identifies a key problem in their business: the current data reporting system is inadequate and requires manual effort to gather statistics.

Business Model and Growth Metrics

  • The necessity of having a clear business model and growth projections.
  • Reverse engineering goals to create a realistic path to achieve them.
  • The importance of using experience and existing data to set realistic growth numbers.
  • The CEO's role in holding the team accountable to the model and growth metrics.

"If you have not reverse engineered what your goal is and how to achieve it, then it will never work."

The speaker stresses the importance of planning and understanding the steps required to reach business goals.

"You have to build the model first and the projections out of how long it's going to take you to get to that number once you have the model."

This quote underlines the need for a business model and timeline projections as foundational elements for achieving growth targets.

"And I believe that if we can just increase this front end, then we should hit this level of total revenue and profit within two months, six months, ten months, et cetera."

The speaker expresses confidence that by focusing on increasing customer acquisition, the business can meet its revenue and profit goals within a specified timeframe.

Accountability and Metrics

  • The CEO's responsibility to monitor business metrics and hold the team accountable.
  • The challenge of not having automated data reporting, resulting in the CEO manually pulling metrics.
  • The need for a more efficient system to have key metrics available on a regular basis.

"Your job as CEO, or at least this is how I perceive the job to be, is to hold the team accountable to that."

The speaker defines the CEO's role as ensuring that the team adheres to the business model and meets the set metrics.

"I'm literally pulling these metrics in real time rather than having them already displayed to me every day."

The speaker highlights a personal challenge: the need to manually gather real-time metrics instead of having an automated system to display them regularly.

Identifying and Addressing Execution Problems

  • Determining whether issues in the business are due to execution problems.
  • Identifying the three potential causes of execution problems: motivation, training, and communication.
  • The role of leadership, expectation setting, and training quality in resolving execution issues.

"If it's an execution problem, then it's one of three things. The team isn't motivated, they're not well trained, or there's something that's unclear about communication."

This quote breaks down execution problems into three categories, highlighting the areas that need to be addressed to improve team performance.

"And so each of those things can be from poor leadership, they can come from expectations that have not been repeated or been clear they can come from poor training or not repeated training for them in terms of what's the quality of the training we put people through?"

The speaker suggests that execution problems often stem from leadership and training deficiencies or unclear communication and expectations.

System Evaluation

  • Assessing whether the business is facing system problems.
  • Analyzing the process to determine if it is too complex, simple, or flawed.
  • Evaluating the system's ease of execution on a continuous basis.

"Is the process that we are following not a good process? Is it too complex? Is it too simple? Is it leaving things out? Is it something that is too difficult for someone to execute on a continuous basis?"

The speaker considers whether the current business process is appropriate and sustainable for consistent execution, highlighting the need for system evaluation.

Marketing and Acquisition

  • Assessing marketing strategies is crucial before considering changing the product offer.
  • The message, creative content, funnel layout, and post-funnel processes must be evaluated for effectiveness.
  • The product should only be changed if all other marketing elements are confirmed to be correct.

Is the message correct? Is the creative correct? Is the funnel and the layout correct? Is the process that comes after the funnel correct? And makes sense?

This quote emphasizes the importance of reviewing the entire marketing strategy, from the initial message to the post-funnel process, to ensure they align with the objectives before considering a change to the product offer.

Product Offer and Business Impact

  • Changing the product offer is a significant decision as it can alter the entire business.
  • Before changing the offer, other factors such as acquisition, marketing, and funnel processes should be thoroughly reviewed.

So very rarely do you want to change the offer because it means you change the entire business.

The quote highlights the gravity of altering the product offer, implying it should be a last resort after all other strategies have been optimized.

Backend Analysis

  • If sales are satisfactory but revenue is not meeting targets, the issue may lie in the backend.
  • Backend analysis includes examining pricing, customer churn, and the lifetime value of the customer.
  • Identifying backend issues involves investigating execution, motivation, skills, training, and support systems.

But all of that. So you can just reverse engineer. We should be getting this many sales, right?

Speaker A suggests using a reverse engineering approach to identify where the discrepancies in expected sales versus revenue lie, indicating a potential backend problem if sales are as expected.

Product Performance and Beta Testing

  • Regular beta testing is crucial to improve the product and ensure consistent delivery of desired results.
  • The product must consistently deliver results for all users to maintain customer satisfaction and lifetime value.

We consistently run beta tests to improve the mousetrap, to improve the product that we're ultimately selling.

The quote indicates the ongoing process of product refinement through beta testing to enhance the product's effectiveness and reliability.

Leadership and Data-Driven Decision Making

  • The speaker acknowledges a personal shortfall in training or finding someone who can think critically and proactively about business data.
  • The goal is to develop a leader who can analyze data and predict issues without disrupting the team.
  • Systems that support data dashboards and collection are necessary for effective decision-making.

And so what I'm going to be working on right now over the next two quarters is how can I either find or create the leader that has this skill set.

Speaker A outlines a plan to develop leadership within the company that can manage data effectively, recognizing the need for this skill set to advance the business.

Hiring Philosophy and Business Growth

  • Hiring quality personnel is a critical belief that should be continuously challenged and improved.
  • Steve Jobs is cited as an example of excellent talent recruitment and motivation, despite being considered ruthless.
  • The speaker sees talent management as a billion-dollar skill set and a personal strength, yet also a weakness due to the difficulty in outsourcing or duplicating this skill.

Steve Jobs is known as being one of the best talent recruiters and motivators of all time.

This quote is used to illustrate the high value of recruiting and motivating talent, as exemplified by Steve Jobs, and to reflect on the speaker's similar challenge in their entrepreneurial journey.

The Complete Loop of Business Management

  • A comprehensive approach to business management includes identifying discrepancies, proactive problem solving, and creating solutions before issues arise.
  • Effective leadership involves delegating responsibilities to management and ensuring tasks are tracked and executed properly.
  • The speaker is focused on finding or training individuals who can complete this loop in their business.

Can this person find data, pull it, proactively identify problems before they arise and solve them?

Speaker A describes the ideal qualities of a leader who can complete the "complete loop" of business management, emphasizing the importance of proactive data analysis and problem-solving.

Audience Engagement and Content Value

  • The speaker hopes the audience finds the content valuable, despite it not being a straightforward, tactical discussion.
  • There is an invitation for the audience to leave reviews and likes to help the speaker understand what content is preferred.
  • The speaker is committed to documenting the entrepreneurial journey and sharing insights with the audience.

Hopefully it just gets you to think about the types of people that you're bringing in.

This quote encourages the audience to reflect on their hiring decisions and the impact those decisions have on their business's ability to grow and manage issues proactively.

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