If you don’t have time to watch the entire 35-minute interview, you can get the highlights and biggest takeaways from this article.
— How to use the Christmas break to get into the right mentality for 2018 and how to motivate your team to understand the new priorities;
— Why Verne didn’t find his MBA useful;
— How two Australians became billionaires within the last 2 years by scaling up their software company, Atlassian (you might be familiar with it);
— What was one of the best pieces of advice Verne got from Richard Branson that helped him create a great relationship with his kids;
— And much more.
Let’s dive in.
Daniel Marcos: In this Facebook Live we're going to talk about two things. First about “scaling up”. How can you scale up your company in 2018? We'll get a lot of ideas from Verne on what your can change in your business now and what's the right thing you have to do in your business in December while everything's a little bit down and you could have some time to think. What are the right questions you have to ask yourself to go to the next level and have a great 2018?
We're also going to talk about the Scaling Up Master Business Course. We've been launching this program for the last couple of months. It's sold much faster than we expected. We got over 100 applications. The first cohort is already closed and today we're opening seats for the next cohort starting on January 22nd. We already have 10 people that wanted to sign up for December that were unable to register in time and got pushed to January. So if you want to be part of the January cohort this is the right time and we're just opening applications today.
Let's get deeper into this session. How do you scale your company in 2018? Verne, tell us a little bit about the four decisions that CEOs have to take right to grow their company.
Verne Harnish: There are absolutely four areas — decisions — you've got to get right. That is around the people — that is the relationships that you choose to, kind of, surround the business. The strategy — if you don't get the strategy right, you're going to waste the next three to five years of execution. You can have the right answers but if you don't get it right with the execution, it doesn't go well. Then look, you can get by with decent people, decent strategy, decent execution, but not a day without cash. If you can nail those four areas and market timing, you've got a good chance to scale in 2018.
Daniel: We'll talk about market timing. It's very important. You recently wrote an article about trends in 2018. We have to get them right. Verne, how do you motivate your team to understand the new priorities and where you want to drive? You've been talking about this theme that you've been teaching us for 30 years. Why is it so important?
Verne: Well first, before we get into that let me share a couple of results and case studies so that folks have a reason to kind of pay attention to these ideas. Does this stuff really work? First of all, I'm excited about today. Literally it was two years ago and two days that Atlassian went public. That was Scott and Mike down in Australia. They managed to hold on to 70% of the company. Scott was kind enough to endorse the back of the book Scaling Up. They went out in public at AUD$4.2 billion. The two new legitimate billionaires down in Australia — and I just checked the stock — which is their scorecard. They're over $10 billion now in just 24 months and two days. So big deal for us and super excited about the impact our tools have had on that amazing company.
And then we were talking just as we were getting ready to do the broadcast. It's not Facebook or Google but there's a chain of medical spas called Allure Medical Spa in Detroit. Not necessarily seen over the last few years as one of the really hot-spot growth areas. Dr. Charles Mok got actively involved in getting these tools to his people. There's three of his folks in our Master of Business Dynamics and he always has this massive team of 15 at our Scale Up Summits that we do with Fortune Magazine.
They decided to really engage all their employees in our process and one of the end results is they were able to save about $300,000 a month. They were able to find what wasn't there before because as he was scaling up, we know growth sucks cash, and he didn't want to go out and raise a bunch of money. They needed to figure out a way to generate the cash internally, which is what we really recommend for companies. How do you use our tools (which they do) to generate the kind of cash you need to fuel your own growth? He found a way to the $300,000 . That obviously has made a huge difference in their trajectory.
They also followed our advice — a combination of engaging everyone to really improve the productivity of the business and upping their game in marketing, around the ideas that we share. They are now, again, opening one spa every 90 days.
Dr. Mok really understood this idea that the only way you can really 10X a company is to 10X the knowledge of your employees. I have an MBA, not that it's been real useful. It supposedly helps you manage or “administrate” large companies, but the curriculum necessary to get you up that S-curve is non-existent. We were therefore forced to create it through that MIT program that I founded. We then codified it in the first book, and we've updated it now into this Scaling Up class. Today 40,000 companies are using these tools in order to scale.
Daniel: How do you recommend entrepreneurs take this month or couple of weeks on vacation to really get the right mentality and tone — internally and with their team — so they can have a great 2018?
Verne: This is the time for you to get introspective — and that's why we created the One-Page Strategic Plan, which is a worksheet that feeds into our One-Page Vision Summary. You can hit the ground running January 2nd with a really clear idea of what your core values are — I like to think about it as the gamification of the business. Let’s look at it like American Football. First, there needs to be a purpose more than just making you rich. It's a little tough for the employees to get motivated if there isn't a bigger reason. So we'll lay out what that purpose is. Then you've got to set the white lines. In any kind of a game/competition, we’ve got to know what the boundaries are. That is your Core Values. Those are the “judgement calls”. We have referees who determine whether or not that was a late hit or not. Then you've got to be clear, measurably, what the white lines that we can look at are — those are what we call the three Brand Promises. Simply, what are the three main reasons somebody should buy your product. Three works better than two or four or a list of 10 according to the godfather of influence, Robert Cialdini.
Then you want to decide, “Alright, where are we going to take this thing over the next 10 years?” My wife's got a new olive oil business, into her first year now. She's clear where she wants this thing to be in the next 10 years. Once you line that out you've got to sit down and say, "Okay, given that clear vision — core values, purpose, brand promises, BHAG — what's the next step? What do I have to do over the next 90 days? What do I have to do from January to March 31st? What do I have to do then in all of 2018? Then what do I have to do over the next three to five years?"
You want to set very clear measurable priorities around those, particularly on what you are going to do over the next 90 days. Ask yourself what’s keeping you from getting up that hill — that’s what we’ll address first. I remember early on I needed to really focus on my growths margin —it's your cost-per-click if you're on Facebook. What's that critical number that you've got to get laser-focused on and improve over the next 90 days? That'll be your important step moving towards your big goal.
Daniel: By the way, Robert is saying, "I love the piano in the background. I thought I was the only one with a piano in my office." You're not in your office. Tell us where you are.
Verne: No, no. I took some advice from Richard Branson years ago when we hosted him in Barcelona for YPO 60th Anniversary. He said, look, one of the reasons he feels he has a great relationship with his two children is he's always worked from home. So yes, I'm taking jazz piano lessons, getting back up to speed on piano. Here's where all the money's made. There's my money chair right there and looking out over the pool and that kind of stuff. We just moved from Barcelona to Willmington and we found this beautiful place just a couple of blocks from GH Prep School.
Daniel: Can you talk about growth and scale — what's the difference?
Verne: We talk about the difference between 2X-ing the business and 10X-ing the business. If you want to just think about doubling it, it's actually harder, because it's trying to figure out incrementally what we've got to do a little more of or a little less of. But when you start out thinking here towards the end of year and wonder what it take to 10X your business... that doesn't mean revenue or locations. It could be profitability, reduce dramatically the time it takes for me to spend time in the company. What is that significant change you would like to see? It's interesting if you start with that mindset. I was on the phone yesterday with Dan Sullivan and we're working through the mindsets scorecard for the Scale-Up U course. That mindset's powerful — to think 10X instead of 2X. That's the difference, I think, between growth and scale.
Daniel: What are the top five trends you see for 2018 that people have to focus on?
Verne: I saw the question come in and I do a column every year. I'm actually not allowed to tell you yet since it hasn't been submitted, but I can tell you 2017 and I've got it right here. Here's a column I did and it flows on in. Number one was the importance of figuring out how you can apply artificial intelligence to your business. A lot of folks are saying, "Isn't that something for big companies?" But right now you see Amazon web services, they are advertising everywhere, at every small business you can imagine.
The second one was to join a learning group. I think that's applicable to this course. One of our partners is Dan Hoffman with Circl.es. We find that it's really helpful for you to be able to get in kind of a form-life experience.
Daniel: If you join the master class you also get circl.es that's led by an entrepreneurs. I'm leading some of the circles and Bruce is leading the rest of the circles from New York. There's going to be smaller groups of five to eight people to really have a discussion how to implement correctly.
Verne: Yeah. That small group is important. It naturally happens, we saw it at the MIT program. They would kind of gather up and say, "We're going to stay in touch now every week to support each other," and they're the ones that were able to scale further faster.
Then last of the five that I'll mention here was I've been pointing out to folks that it takes on average 25 years before you really scale and that we may be creative in our 20s but we're twice that in our 50s. One of the trends is that people are really pushing back retirement. If you look at Peter Drucker who wrote 39 books, only 13 of those are written before his 65th birthday. He did twice the load of his work after. Picasso, the same way. We may have a very young crowd out there. If you're creative now, just know life is like great wine, you're only going to age and get better.
I want to give one little practical tip for those who've hung here all the way to the end. It’s the very first idea that was ever taught me and it was considered the best question Bill Gates said he had ever been asked. That is, “What are the top 25 people, relationships, that you need to bolt on to in this business if you're really going to scale in 2018?” I think of Tony Hartl when he launched his tanning salons in Dallas and he managed to partner with the Dallas Cowboy cheerleaders and then he got Mark Cuban, the famous multi-billionaire, to be a spokesperson on radio. You take your tanning salon and you bolt those two brands to it, like I took YEO and bolted on MIT and Inc. and you're going to scale much further, faster.
My 14-year-old daughter has got a little body butter business. We've set her down and she knows who are the top YouTubers. One is Joe Biden's daughter who we've now networked to and set up a way for them to meet. That's how. It's through other people and their influence that you're able to scale yourself, whether it's local or global. Make that list and work on it over the holidays.
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