A Masterclass On Hiring A CEO To Run Your Company ft. Andrew Wilkinson

All right, this is a guest master class with our buddy Andrew Wilkinson. We're inviting him on because If your world class is something I want to learn from you, in fact I had emailed Andrew a while back being like, Hey, I have this company, it's working. We had scaled into the tens of millions in revenue. But I just didn't want to run it anymore. I was tired.

I wasn't the right guy for it. I was half in, half out, and I was just fantasizing about selling it or the day where I wouldn't be running it anymore. And he's like, dude, you need to hire a CEO. And to me, that always felt like something that's easier said than done. Hire a CEO, just find somebody to take over my baby. But he's done it. This guy's got forty companies. He's got CEOs that run them. He doesn't have to run any of them day to day.

The portfolio is worth five hundred million dollars. So if there's anybody to learn from, it's Andrew on this. And so he comes in and he shares Uh how he interviews them. Who is he looking for? How does he structure the compensation? And so we go into step by step how to hire a great CEO for your business. It worked for me, work for Andrew, I hope it works for you. So enjoy this guest master class with Andrew Wins. I feel like I could rule the world. I know I could be what I want to. I put my law in it like my day song on the bowl. Okay, we asked Andrew Wilkinson to come on.

And do one specific thing, which is teach us how to hire CEOs. He owns Andrew, you own what, forty companies now? The total portfolio is worth almost five hundred million dollars. And yet you're a pretty chill guy. Whenever I text you, you answer, you're always having fun. You're not Stressed out, overloaded, overworked, like every other CEO I know who's a CEO of one company, but you have forty. And so

I think the way you've been able to do that is by hiring great CEOs for all your companies. And it's actually worked. Me and Sam wanna learn this from you. So you're here today. To teach us that. How did you even realize that you needed to hire CEOs?

Yeah, so I would say It's not that it's less It's not less stressful, it's just different. Right. So I just have different problems. So someone running a company might be

uh you know putting out a fire that's that's burning that day. I put out fires that burn over the course of a month or two and they're bigger fires. And then someone else might spend a lot of time dealing with company politics. I end up dealing with You know, CEO comp packages. So I want to say To begin with, you know, this is not necessarily a greener pasture, it's just a different pasture.

And I think you really only want to oversee CEOs if that's your skill set. If you're drawn to being super, super high level and hands off, which some people, let's be real, they're not. They're they're like They wanna be Jiro from Jiro Dreams of Sushi. They don't want to be the guy who starts Chipotle. They wanna be on the line. They wanna be making food. Uh, and so it ultimately comes down to your personality. And for me, my personality has always been I'm incredibly lazy.

So from the time that my mom told me to wash the dishes I was furious. I was always trying to find ways to, you know, pay my brothers to do it, find uh, you know, systems to wash the dishes more effectively. So I had to do less work. And so I always joke that I'm Teflon for tasks. And if you start delegating in your company, which most great entrepreneurs do.

You ultimately reach this point where Uh, you ask yourself, Well, is there anything else I can delegate? And that final level of delegation, that final level of abstraction. That's hiring a CEO. That's hiring one to hire ten.

They go and they run the entire company and you just talk to them. Quarterly. Sometimes annually. And there's some CEOs I have that I haven't even talked to in two or three years. You have something between thirty or forty companies. Do you have thirty or forty CEOs reporting to you?

No, the way that we do it now, uh so it's crazy. At first it was like five companies, so I had five direct reports. uh that are CEOs, no big deal. And then over time as we've scaled up, we've had to form operating groups. And so we have these operating groups and they have their own CEOs who report into us. So for example, all of our digital services businesses are run by a guy named Pradeep. I meet with Pradeep.

kind of bi weekly, monthly, whenever I need to. Uh and he oversees a group of like six companies. Even if you're not gonna end up with that kind of portfolio forty company structure, I've had this with you, which is I think a more common problem. I remember emailing you saying Hey I have this Christm business.

It's working. So I can't There's no there's no reason to shut it down. However. I don't want to keep working on it. I liked it at the beginning. I don't love it now. I want to go on and do new things. How do I do this? Do I have to sell this?

Like should I just sell the company? Do I can I hire a CO? And if so, where the heck am I gonna find somebody who I could trust? to do this. So even on a one company level I think that's where most founders are gonna be. that uh step one is Abstract yourself out of a single company. So let's let's start with that. You said something you're like, it's pretty common. Everyone loves their business in year one. I forgot. What's your exact quote?

So Yeah, every time I talk to a young founder, they're like, I'm gonna run this till the day I die. Doesn't matter what the business is, they think they're gonna be, you know, there like uh Mark Zuckerberg for twenty, thirty years. And then you talk to them in year seven or eight, and almost all of them are just like, How do I escape this hellish waking nightmare? Like they should be there. I'm gonna run this till I'm 28. Till the day I'm 28. Totally. So and it's really interesting because Um, people generally think about it in a very binary way.

They're like, Okay, there's two doors. Door one. Keep running my company. Door two. Sell, get rich, and live on Mojito Island, right? Uh, but there's actually a door three.

And door three is hiring a CEO. Right. So you're you're in a marathon. And you can either Ditch the marathon or keep running it. Well, it turns out that you can actually incentivise someone else to keep running the marathon on your behalf. And I mean, this just goes back to what I was talking about before, right? So there's there's all these different levels of delegation, and we all understand, at least if you're a good entrepreneur, that if you don't like accounting, you just hire an accountant.

Well, if you don't like running your company Door three is you just hire a CEO. So you know, my my story on this is I started MetaLab, which is a design agency uh about twenty years ago. I feel very old to say that, but about twenty years ago. And I ran it for s as CEO for almost 10 years.

And I had a great exec team. Like I was able to delegate quite a bit of it. I was running other companies at the same time, but ultimately the buck stopped with me. And for the first three to five years, it was really exciting. Like I was learning new skills all the time. I was scrappy, like, you know, sending the invoices and negotiating deals with clients. I was flying all over the world. And it was all new and and exciting, but You know at a certain point You know, after like year eight, year nine

I didn't want to fly to San Francisco anymore. I didn't want to have to like shake hands and kiss babies and do that. And I remember Chris my now business partner and at the time CFO would come to me and be like, Dude.

You gotta fly to San Francisco. Every time you go down there, you close like a million dollars of new projects. But I didn't really want to do it because A I was exhausted. It wasn't new anymore. I didn't want to travel, it didn't suit my lifestyle. But also I was already rich. I was already making enough money. And so the business was kind of starting to plateau.

Because I wasn't willing to go that extra mile. I was just saying, you know what, we'll just do whatever comes in. I'll do a a San Francisco trip once a quarter. And we'll close what we close because I don't want to do that. Well, the beautiful thing was There were young scrappy people

Two to them the idea of flying to San Francisco and taking a client out for a steak dinner Was a dream come true. They've never done that before. And so For me, I was looking at it and going, Okay Running a five person agency versus a fifty person agency.

It's a very different job. And it was a job that I sucked at. You know, I really to this day. love running five person companies. I love running, you know, I can get to about 15 people comfortably, but I I wasn't enjoying it when we're 50 people. And I read every book about management. I did courses. And I just kind of whip myself. Why am I not a great manager? Why can I not be like Peter Drucker reincarnate?

And so I would always just fantasize about selling. And I I kept trying to sell the business and then we'd be like right at the last month. And then the uh the buyer would change the terms. Or something would go wrong in the business.

And so I was kind of starting to lose it. I didn't want to be running my company. I want it out, but I I I couldn't sell it. And so around that time I ended up reading a book about Warren Buffett. And I found out about door three. And here we are. I started hiring CEOs. I made a ton of mistakes, which I'll talk about, but it's it's enabled me to create tiny, which I never would have done before. I'd probably still be either miserably running my business or I would have sold for You know, a much smaller amount of money.

It we'll get into like the actual tactics really quick, though. The green pasture thing you're talking about is it's always grass is always green on the other side. And like you and I joke where you're like uh Well, I I don't want to say what you said, but you'll just like t be teasing about uh running a small company and how that could be way more fun and being the CEO of a small company. uh for a long period of time versus trying to like go big. What's the grass is always Greener

For you. Well, I mean I think I there's a great Bob Seeger quote. Which is I wish I didn't know now what I didn't know then. Right. So for me

I I think think about it like this. I might have given this example before, but Imagine if you love chopping wood, right? You just do it because it's fun. You're in your backyard chopping wood. And then your neighbor pokes his head over the fence and says, Hey, dude, can I get a quart of wood? I'll pay you for it. And you realize, oh my God, this is a business. I've taken my passion

And I've created a business and now I'm selling wood door to door. I'm working with my five best friends. It's a blast, right? I'm suddenly making money. I can afford to go to the bar. Life is good. And then you flash forward twenty years. And you wake up And you're a lumber magnate. You own five sawmills and all you do every day is you sit in a little air conditioned box looking down at the the floor. You have all these robots working for you and all these hundreds of employees. And most of your time is spent doing it doing Excel.

Right. I think that is the sadness. of building a large business and delegating. Your hands are not on the tools anymore. And so For me What's been sad about building the machine is I've built the machine that's freed me to do what I want.

But the irony is I end up doing things I don't want as a result because ultimately I was a designer. I love putting on headphones and being in Photoshop. And designing websites and writing. And so for me it's been searching where do I get the flow state? That I used to get running a five person company.

Let's pr let's role play it here. So I have a company I wanna hire a C I I realize I can do this third door. And I'm like, you know what? That's the right move. I should hire a CEO. Where the heck am I gonna find a CEO? that I could trust that's gonna not only r not ruin it, but actually, you know, hopefully grow the business in some way.

What's the what's step one? So Step one, you have to really assess, is your business big enough, right? Uh is this the right thing? Is this the right time? So ultimately you want to ask. Does your business have product market fit and can it actually afford a CEO? Right. Is this uh is this a corner store?

Like where it's kind of an owner operator kind of business where you just kind of have to run it. And if you leave, all the profit gets eaten up by somebody else. Or is there something that's really scalable? So I generally as a rule of thumb will say you probably shouldn't hire a CEO until your business is doing three hundred thousand dollars or so of profit.

And if it is That means that you can swap yourself out and you can afford to hire someone a reasonable base salary. And then you can incentivize them to grow the business. And so One of the one of the really interesting things that people kind of obsess over is they say, Well

You know, a CEO could cost five hundred thousand. My business is only doing three million dollars and three hundred thousand dollars of profit. And what they kind of miss is that Generally a CEO is paid a base salary, but most of their comp comes from bonuses.

And the bonuses are based on the business growing. And so it's one of those things where it's like If your business is doing 300 K of profit, you can basically take two or three hundred K of that. invest it in the base salary for the CEO. And then all of their additional comp will come from the growth of the business. And so you've aligned them.

With your goals. So first thing, um is my bus business big enough? So you said two two criteria. Product market fit, meaning We we know what the hell we're doing. We're not in the figure it out, figure out the product, figure out the market. uh figure out the what is the offering and changing that every three weeks because it's not working. Like you have a reasonable continuous cycle of

supply and demand for what you're doing. And then you said profit around three hundred thousand as the kind of that's the minimum bar. I would say so in there. I mean, occasionally you can let's say you've got a friend who's super scrappy who wants to sink their teeth into something and you've got a small business that's like a I always call them like an ember. It's not really a fire yet. It's an ember and someone needs to come blow on it. You could do that, but I think there's a lot more risk there. You really want a machine that's operating. You want a car that can drive on the road. before you put someone in. And then the other question is

Can you make someone rich? Right. Because ultimately People who are good, great exceptional CEOs. They're looking for opportunity and upside. And by nature, the fact that they're a hire gun CEO tells me they're not necessarily an entrepreneur.

They don't want to take Total risk. They want a nice salary. They want bonuses. They're not necessarily willing to risk it all. But often they want to know they can get rich. in a in a CEO way. So they can make single digit millions for the first time ever.

uh if everything plays out. Or maybe they can get a big payout if the business sells or gets to a large scale or whatever it is. But ultimately you want to know that you can make someone wealthy with it. And so we'll do the exact comp stuff in a minute, but the second question you have. So first was is the business big enough and do we have product market fit? Then you also said, To me one it's like, are you willing to walk away? I think there's a mental side of it too. Are you uh are you ready to hire a CEO?

Yeah. And that's really hard. I mean, you know, do you I remember I got to the point where I fantasized about giving the keys away to someone else. And when I finally did I was elated. You know, but there's a lot of people who aren't like that. I can think of one of my friends

To him his business is his baby. And when people mess with this baby He gets really angry and he doesn't like it. And so you need to be willing to walk away and effectively look at it this way. As entrepreneurs

We are all we're all birthing these these uh business babies And now you're giving them to a foster parent. Can you tolerate that? You know, can you cope with that? Someone else. parenting your child because that's really what it is.

And not only that, but you have to be disciplined for it to work. You need to either be all in or all out. You have to empower this person. You can't be sitting there looking over their shoulder. So I think those are the two kind of fundamental questions to this, right? Are you Are you is your business big enough and are you willing to walk away? But but when you're accepting the when you're saying, All right, I'm gonna walk away, is it I'm walking away because this person's gonna make everything greater than I could, or are you walking away thinking to yourself

I know it's not going to be as good with me in it. But It could be eighty percent as good and I won't have to worry about it. Well let me put it this way. Th let's say that you're an exceptional product person, you'll know the product won't be quite as good. because generally people who are good at marketing and sales and operations and finance are just not as good at product. So you're gonna sacrifice on the product side a little bit.

But you're gonna know the business itself will be so much healthier and grow at least From a financial measure. I found that going from being a checked out founder operating your business reluctantly to somebody who's highly incentivized for growth, who's excited to do it.

Almost always the business like doubles in the first year. I've been astounded by how much I had been holding back my business. Yeah, that's a uh great question. Great answer. I that seems pretty con uh consistent with what I've heard. Uh a founder the other day was telling after maybe eight, nine years of running his business, he hires a CEO He plans to stick I'm hey, I'm here, I'm available for the next year, transition. He's like

Yeah, they haven't called in a little while. You know, we beat we beat our numbers, which I wasn't able to do the last three years. And uh everything seems to be going really well. Turns out uh Turns out they didn't need me as much. He's like a little hit to the ego, but also wait, isn't this exactly what I wanted? And um, you know, he was he was sort of pleasantly surprised on the upside. I'm there. So

Let's talk about finding the right person. How do you actually find A great CEO. What are you looking for? So generally I like to s I like to find someone who's run a same or similar business that's double the size. So let's say I have an e commerce brand selling candles.

Well, I w I don't necessarily need to go find a CEO who's run a candle business before, but I want to find someone who's sold a similar product online. And I will generally think about who are my comp who are my competitors or what companies do I admire. And then I'll go on LinkedIn and I'll just look for President, COO

Sometimes CEO, but usually I will recruit a number two. And it's that person who's been eagerly awaiting getting, you know, knighted as the CEO and they haven't stepped up yet. Uh I find those are wonderful people to delegate the business to. Uh, and then separately recruiters. And that's a topic we can dig into. People have a lot of opinions. I had a lot of opinions about uh recruiters that I've actually changed over time. But yeah, you gotta I I find like broadening the spectrum with recruiters can be really helpful. We have to get a quick shout out to Ty Burke, my old roommate, and someone I use to recruit, and I know you use them as well. You also use like crazy amounts of uh

Uh reference check is the same thing. Here's what we do. So we buy the business. And as we're buying the business, we start asking the question, as soon as we know we're gonna buy the business or we're gonna delegate, we we hire a recruiter immediately. Now recruiters

really pissed me off before. It was like realtors where I'm going like, man, why am I paying this guy a hundred thousand dollars to open a door for me. I can just go on, you know, like Zillow and find the ki the the house I want to buy. And here's this middleman charging a lot of money. And I kind of felt like

Why would I pay some guy to go on LinkedIn and message a bunch of people for me? I can do that myself. But I realized that I'm distracted. And when I need to hire someone, I will often just go on LinkedIn or whatever for 10 minutes. I'll text a bunch of my friends. I'll try and think of people that I have like in an Apple node that might be a good CEO. I'm not going broad.

And so Basically, I've come around on recruiters. There's some really exceptional recruiters like Ty Burke from Search Partners, who Sam introduced me to. He's one of my favorite. We also really like Matt Hollingsworth from a line. And what I the way I use a recruiter is just to broaden the spectrum. So Even if I'm gonna go on LinkedIn myself and look for someone, I might end up bringing the person to the table who we end up hiring. We now have somebody who's Um

Reaching out to people I never would have spoken to. And then they're also handling a lot of that administrative work of pushing the process along. They're doing the initial interview. And one really fascinating thing I didn't contemplate before is a recruiter saves you an insane amount of time. Let's say that you have 10 candidates for CEO. And every single one of those candidates you're gonna have to do a zoom with. And that'll take

Thirty minutes to an hour. Well, I think we all know we uh you've all had that experience where you interview someone and in the first thirty seconds you know they're a dingus. Right. And then you're just desperately thinking like okay, how can I get off the phone as quickly as possible, not waste time. But not have this person think I'm a total asshole. And so now I have the recruiter do that call. And I get them to record the zoom.

And then I just watched the first couple minutes and if I'm vibing with the person Then I'll move them on to the next stage. So if you think about from that perspective, your time is highly valuable and you've just saved 10 hours of time. What is that worth? I think a lot.

And then in some instances, we've actually hired uh people that we brought in. That's fine. And I just pay the recruiter anyway. But in other instances, they brought people in that we never would have found. So the guy that runs AeroPress, Gerard Meyer. We found him via tie. And he was a guy where

Uh he had run SodaStream US and he just wasn't on my radar whatsoever. And he's one of our best CEOs. So I kind of look at the recruiters as a time saving mechanism. They broaden out the the people you look at. But

ultimately it's just like a tax I pay to have someone else be incentivized to push everything along. And so I'm actually a big fan of recruiters now. But you gotta use the right people. I find there's a lot of terrible recruiting firms, and we've used a lot of really bad ones over the years. And the recruiting firm, uh, what do they run you? So usually it's a percentage of first year salary. I think it's about twenty percent. So you know, when you're hiring a CEO.

And you've got total comp of, you know, three hundred grand, five hundred grand, it can be expensive. But I think it's worth paying for if you can find the right partner on it. Mm-hmm. And you mentioned uh looking for a number two who's run a similar size or similar uh Similar industry company.

Here's what I take that to mean. You tell me what I what I miss. So let's say you're the candle company. You don't need somebody who's run a candle company to exercise, but maybe You want e commerce. You want it maybe where Facebook was their primary Chan sales channel.

Maybe you want uh something like candles, like maybe selling to the similar customer base or a one time one time purchase product, not something that's Yeah, a total different kind of like buying psychology. Is that right? Just f first on that part. Yeah, you want someone who understands roughly how the customer thinks and then also the channels by which that product is sold.

Right. So One one fascinating thing I'll add too is When I'm interviewing them. I always ask myself What is this person's hammer?

Right. So there's that great quote. To a man with a hammer, everything looks like a nail. And what I've seen with with CEOs is Their hammer is either Marketing.

Sales, operations. Or finance, right? They go to one of or or product. They go to one of those things and you know, to the product person. We release the most beautiful product in the world. And if you build it, they will come to the salesperson. It's let's build a 50 person uh enterprise sales team. To the marketing people, it's we're gonna spend a million dollars a month on Facebook ads. So you wanna be listening incredibly carefully to what is the mechanism by which they grow companies because usually that's the one if they did it at their last company, they're probably gonna try and repeat it. Right. And so what you want them to do is when they look at your company, they go, Oh my God, like

This is so easy. I've done this a million times before. I've taken businesses from A million dollars in sales to ten million dollars in sales. And I've done that. You know, between one and five times in a similar business. So at this point are you just constantly collecting people? I mean, is that kinda how you look at your job? I'm just always I mean,'cause if you're having to talk to all these people constantly and you have forty companies, that's like pretty much all your time.

I'm always thinking about that. I mean, my worst fear is we're gonna be recruiting for a CEO role, and I'm gonna forget about that guy I met at that conference. you know, five years ago or whatever. So Chris and I have a Apple notes that we share and we just keep writing down names of people we think are interesting that are executives. Sometimes or even within our companies, it'll be people that are come up and coming in one of our other businesses that we've thought might be a good CEO for another business. But yeah, I'm always trying to scan the horizon for people who are Smart and I can bring in button.

Interestingly, often it is Every process is different. And when we hire a recruiter, only like twenty percent of the time is it someone uh now that we've brought in. Often it is someone that they go source. I love the uh what's their hammer.

question. Uh because It's so true. that the the more experienced somebody gets and the more successful somebody gets, they start to develop this hammer and they're try to They go run around looking for for ways that they can apply that thing they know. To everything, whether it's the right thing or not.

I think this is a good thing and a bad thing. Uh I've seen the the same advice given to the kind of Y C type companies are in the in Silicon Valley where When you hire a CEO, if you hire a CEO that grew their previous company, Fine. Creating a giant sales army.

But you're trying to do product led growth. It's a total mismatch. You might say, Oh wow, they grew that company from ten million to two hundred million. And that sounds good, but if they did it in a way that's totally different than yours, very few people can repeatably grow businesses using new totally new methodologies for sales and marketing. And I'm curious also What's your hammer?

Like uh if it w if you're a man if you're a man with a hammer running around, what what is yours? Well, I would say I'm a man with a lot of different hammers. Um I've gone really broad now because I've seen so many different ways of growing businesses and I think I have a lot of tools in the toolkit. My old hammer Was product. I would always just be like Oh my Actually, you know what? I do have a hammer. Okay, so so my old hammer was product.

So I would always do field of dreams marketing. I would say We're gonna build the best product in the world. I'm a designer, you know, I was really proud of what we were doing. Uh, and that'll solve everything. And I realized that really doesn't work very well.

And now I would say my hammer is finance. So uh or operations. So really what I'm doing is I'm looking at a business and I'm going, if one if we could just change one thing What would that one thing be that would give the business leverage? And often it's something really simple. It's like Oh pricing.

Right. Or they're they're just not selling ads properly. Something really boring. And to to be honest, I feel a little depressed as I say that because you're a sellout, bro. You're a sellout. The designer from twenty years ago would be really sad, and I still love Don't get me wrong, like So when we buy let me give the AeroPress as an example.

I I just unboxed our new AeroPress clear. And I just checked out the designer for a couple unreleased products. And that was the best day of my month.

Right. I love building great products. I love being involved with that and knowing that if we hadn't bought that business, that wouldn't have happened. But when we bought Aeropress The boring assumption I made was I'm just gonna do really good online marketing and e commerce.

It's really simple. They didn't sell online. That was my one insight. That was my hammer on that deal. And now the bonus, the gravy is we get to do amazing products. And I get it. You don't deserve you got you you need to go throw away your Herman Millachair and your Birkenstocks and go put on a vest, you nerd. You're no longer I know. I know, I know, I know. I wanna self flagellate. So I wanna I wanna talk about though

Um Some of the things that we're going to do. you have to accept about hiring a CEO and also when you interview a CEO, what you want to look for. 'Cause I think that's probably one of the most important things. One of the so to go back to this whole

Hammer thing. So When I interview a CEO I'm looking for whether or not I nod along. When I when I

Interviewed Gerard from Aero Press. He told me what he wanted to do with the company. And I already had a lot of those same thoughts and I was nodding along and going, Oh my God, he's putting it better than I ever could. And the reason that's important is because when you hire a CEO

You are a rider on an elephant. Right? So When you're a rider on an elephant, the elephant is gonna go anywhere at once and you're just stuck. You can't tell an elephant where to go. It's way bigger than you. And ultimately it's gonna follow the wherever it wherever it wants to go.

And so It's really important that you agree with their uh strategy. And one of the ways that this has failed for us is I've loved the CEO candidate. And they've said something like, Uh hey

I was looking at the business and I really think we need to go hard into Facebook ads. And I would kind of scratch my head and go. Well, we already kinda tried that. I was kind of thinking more this is like an email marketing, you know, marketing strategy that we should deploy. And they would always just double down, right? Whatever they say the first time is usually what they're actually gonna end up doing. And they're just gonna use their hammer.

So that's incredibly important is having that alignment and the fit with What else are you looking for in that interview? Not along. What's their hammer? What else?

So I mean the most important question is do you get the creepy crawlies after you walk away? Do you feel In any way, any cognitive dissonance, any weirdness, does your stomach feel off? You know, you someone could be incredibly charming. I often get this. You know, psychopaths, for example. They're very charming people. They are wonderful to hang out with.

But you might walk away and be like, There's just something off, like something in their eyes, or Have you had that? Yeah, yeah, and I'll tell some stories. But I think the most important thing is, you know, would you let them babysit your kids? Right. I think like You know, either of you guys, I would let you babysit my kids. Right.

But And that's important. You're gonna hand over your company, your baby to this person. So you have to have profound trust. And so Often Chris and I we look for people who are real.

So they can be I don't like slick people. I like people who their armpits get really sweaty in the interview. I like people who get kind of nervous and scratch their face when you ask them hard questions. I wanna see that someone is a human And when things get tough

They will wanna do the right thing. And so that's that's like really critical, you know. Do you walk away energized, right? You can really like somebody. But if you don't walk away energized, you know, that's that's not great. And then also Are they down to have alignment? Are they down to have skin in the game?

Because ultimately You know, the worst type of CEO would be this. So let's say Sam's hiring someone to run Hampton. And uh they say I want a million dollars a year base salary. And you're like

Okay, well You know Can we do some bonuses, do on equity? How can we create alignment? And they just want like low risk cash guaranteed. That's not someone you want to be working with. You want someone who is willing to have skin in the game and risk with you and work on the long term.

And there's a lot of very shiny fancy executives. that basically want zero risk and they just wanna make a shit ton of money. And you gotta avoid those people like the plague. Have you found any correlation between um age or where they live, like w if they're from a Silicon Valley company, New York company, Middle America, or w wherever the equivalent stereotype is of Canada. Well, I mean th I wouldn't say that there's anything about

uh where they're from or even what they look like or how they dress or anything like that. Although I'll talk about that and the importance of match your cultural DNA with their DNA. But The number one thing is The big company people, right? You

You really don't want the flashy person who's got the the you know, the linked in with Five years at Accenture, followed by IBM, followed by, you know, whatever executive role I find that when you take a big a big company person and you put them in a smaller company. They just don't know how to function. They're not bad. There's nothing wrong with those people.

They just don't know how to function. They're used to having like, you know, an army of people doing everything for them. And it's kind of like I always think about it like restaurants. So let's say that you have you hire let's say you have one restaurant with no systems. And you go and you hire the chain restaurant. Let's say you find a guy who runs like an olive garden and you're like, oh my God, this guy really understands how to run like a tight tight ship and all the systems and stuff, you put them back in, you know, your

restaurant and they're like, Well, I don't know how to build the systems. I didn't do this. I just go to my handbook, my Olive Garden handbook, and they tell me how to do everything. So you kinda get that in big company people. So you gotta avoid the big company folks. One nuance that you didn't say But I'm pulling out is you want somebody who's run a company to exercise Not twenty x the size. You would think twenty x is better, right?

No no no it's not actually better. Two X is kind of the sweet of what you're looking for, is that correct? Totally. Well, there's this funny uh I I think of it as like there's a a variety of different skills. And if you let's use Chipotle. I love for some reason I always go back to Chipotle. But think about this. So There's the guy who invented the burrito. Right. That's that's kinda like

If you think about it, that's like the founder of the founder, right? Then there's Steve Ells, the guy that started Chipotle. He went, Hey Burritos are a great food. Let's Scale this up. Let's turn this into a fast casual concept. Then

There's someone who came in and scaled it to a bunch of stores, right? I think that was still Steve. That's a kind of a different skill set. He went from one store to, say, twenty stores. And then they scaled it to like thousands of stores. And then they managed a public company. These are all different skill sets, right? Each of those levels. are some uh you know a whole different set of skills, right? The guy who invented the burrito is very different than the person who would be great at scaling Chipotle to a thousand stores. And so I think you really just want to be accepting of You're you're almost running a what's it called? Like a you pass the baton. What what is that? A marathon? A relay erase.

Yeah. And so you might say The person that you hire, the CEO you hire to take your business from two to ten million. You know what? At ten million, you're probably gonna bring in some new person to run the company then and they're gonna know their scale.

And then you keep going through this and occasionally you're gonna get people who read a lot and learn a lot and are highly adaptable and can keep going. But usually, you know, a CEO is really effective for between five and ten years. And every once in a while you got these the special cases that can go the distance. And even those exceptions. Even Mark Zuckerberg, who's been running Facebook for twenty plus years. He has Cheryl. And Cheryl does a bunch of stuff so that he can keep inventing the next burrito. He's like, Oh, great, I'm gonna focus on AI, I'm gonna focus on metaverse.

And somebody else will do, you know, add operations at this point,'cause that's not what I wanna be scaling up. Or the Google guys did the same thing with Eric Schmidt. Right. They bring they brought in a s effectively, you know, a CEO to to run that so that they could keep going and creating the next chipotle. Can you talk about

transitioning. I think this is actually the hardest part of all this is transitioning. And like You have always given me advice and whenever and I believe your advice was right and I followed it, but at first Your advice is basically Just bail.

Uh and you and you were like just talk to'em like once a month, and then once a quarter, and then once a year. Um and I was like Well, I was gonna like keep working there and talking to him every single day and like give feedback constantly and be in all these meetings and you're like, No So Sam, is the question like

You've hired the CEO. What are what are those first hundred days supposed to look like? Yeah, and then and then after six and twelve months, what's it look like? Because it's this is the hard part where emotion typically takes over logic. Totally. And it's terrifying to use the baby analogy. You know, you imagine you're You have this beloved baby and then you watch the foster parent and they're playing a little rough with your kid and you don't quite like what they're they're feeding them and well, they don't really know the nap time routine, right? So it's a little bit scary passing off your business baby to somebody else. What I what I think you do have to rip the band aid and

let them jump in the pool. I think it's incredibly important that you assert to your top executives This person is in charge. And uh you can't come to me anymore. Right.

So what I what I like to do, what I would do in the early days is Is I would Make the announcement. explain why I'm making the announcement, why I'm making the change. And then I would

I would literally leave Slack. I would stop responding to texts from the executives. I wouldn't respond to email. And I would say to the CEO, look, you know, you're in charge. Let's do a check in in a month. And then I would just completely check out.

And I'd say, you know, look, if you want If there's any emergencies, you can always call me and get get an opinion. But do you give them like a guide is like are you like compiling everything in notion? Like I don't know. Like handbook is well maybe maybe not, maybe not quite a guide or something, but you're doing a lot of brain dumps, right? You're gonna spend a couple of days with them and go through everything. But Uh, you know, business is funny. Like everything tastes like chicken. Like a competent CEO will be able to jump into most businesses within five, 10 days, be able to kind of get the lay of the land and get moving. So I don't I don't do too much of that transition stuff.

And and then Fur so first you're checking in maybe every two weeks. Then you're checking in every four weeks. Then you're checking in every three months. And then if you want, you can go to six months or a year.

And I really think that The worst thing you can do is have them writing you a whole bunch of reports and constantly text them and engaging them and making them feel they don't have power. And then worse than that, the swoop and poop, right? Like so you Bypass them, you text your old VP of marketing, you say

I noticed you guys stopped A B testing this on the homepage. What's going on with this? And then before you know it, your CEO feels you're undermining them and all the executives go, Well, I see who's still pulling the strings. You know, Sam's still in charge. I'm just gonna go back to Sam. And then the water, the stress finds its way back to you. So I'm a big fan of just being I mean, you gotta do your diligence. If you're gonna give this person your business, baby, you gotta know they're not a uh epic piece of shit, right? That's very important. But if you've done all that and we can talk about all the diligence stuff. So you gotta get comfortable that passing your business to this person is gonna be okay. Well, how many months or quarters or misses do you let them have?

Uh well, it depends. I mean, you know, is it a hard business or an easy business? How stark is it? You know, was it the moment they started within a month the performance went to shit? Is there a good reason for that? I think it's a really hard question. I mean, we've had very, very competent CEOs join hard businesses and the business gets worse under their purview doesn't necessarily mean they're doing a bad job. It could be a macro problem or there could be some other headwind. So I think that's up to you to assess I always l say, you know, you want flesh wounds, not mortal wounds. So would I allow a CEO to

spend five hundred thousand on some R and D boondoggle. Yeah, maybe. I don't want a them to feel that I'm holding them back. But would I allow them to announce to all the employees that they're changing the business model and shutting down some critical revenue line? Uh maybe not. You know, I'd probably watch something like that. And ultimately, I think it's important that you say I I'll never forget when I was reading four hour work week, Tim Ferris had this whole thing about

Anything less than five thousand dollars does not require my opinion. And I think it's important you set that control with the CEO. So you say Anything that uh that you wanna spend more than three hundred thousand dollars on? I want you to come to me. I want you to discuss.

Right. So you can kind of build a bit of a bounding box around that. We gotta take a drink every time you say a cute. uh Canadian phrase. Uh we've got boondoggle, we have dingus, we've got creepy crawly. What else you got for us? Dingus. Dingus isn't even Canadian. It's actually uh it's from Tim and Tim and Eric. Do you guys ever watch Tim and Eric? Yeah. Go ahead, Sean. Let's finish up actually in the hiring and diligencing stuff. So I I am I have one more on the interview. So do you meet in person? Or are you trying to do everything in Zoom? Do you like spend spend time, you know, any extended time with them?

Yeah, I like to meet them in person. I think there's something to looking someone in the eye, seeing how they their body language is. You just can't get that same level of diligence. I have hired people said and scene many times, but for major hires, I always want to meet them in person. So in terms of diligence. It this is the most critical thing, and this is where we've made the most mistakes, right? You can avoid Endless Pain.

If you just diligence people carefully. And this is, you know, anyone who's hired people at a company knows this, you know. Check references, top grading, there's all these different ways of doing it. But There's a couple You know, there's this idea of like trust but verify, right? So I'll trust my gut. That's my first screen.

And then I'll perhaps introduce them to like one or two other people I trust. So like Chris might talk to the CEO as well, someone else from our team. We'll assess okay, do we get Any creepy crawly vibes. If that's not the case, if we don't

Then we'll move into actual diligence. And we've learned the hard way. We've made a couple really bad hires that burned us. And so we actually use these former CIA Guys to do background checks. They're called business intelligence advisors, kind of like CIA, but with a B. And they're incredible. They will interview the so they'll call up the person.

They'll talk to them for an hour or so. And they'll write down every single thing they say. So if they say, Oh, in college I was a athlete. They'll they'll verify that. If they say, Oh, I left that company because XYZ. Well, they'll go and uh look up that company and they'll message five people who might have worked with them. And so you end up getting this dossier on the person.

that gives you a high level thing of what are the what are the positives, what are the negatives. And then also Have they ever been, you know, accused of a crime? Have they ever had like a track record of like not paying bills? uh legal records, all that kind of stuff. So I think that's really important and

We we've made a really bad hire about ten years ago. And the guy basically was like full of shit about a whole bunch of stuff on his resume and it ended up being a nightmare. And so after going through that experience, I think it's well worth paying

between ten and twenty thousand dollars to get this. deep reference check done. And so that I think that's just so critical. That's that's amazing. Do you uh sounds like between the recruiter And the reference check, the the background check people. You might be spending

Anywhere between fifty and a hundred thousand dollars of transaction costs. In recruiting a CEO. I'm assuming you can't do that when it's A three hundred thousand dollar a year profit business. What is the minimum bar

you use when you're gonna when you're gonna pay for both the the the the good recruiter and the the background checks. And what would you do for the if you're the person who It's is more at the three hundred thousand a year profit. Um and maybe can't afford those transaction costs. How would you do it DIY? Well, I would just follow the same process, right? So you know

you're not gonna be able to uh hire the recruiter and afford them. And so you're gonna try and cast your net really broad, you're gonna talk to a lot of different people When it comes to verifying What the person tells you. The number one thing is never call the references they give you. Right. Any snaky person can find three buddies say that they're great or whatever it is.

I always try and scuttle but so I'll say, Okay, my friend invest in that company. And I'll ask them to ask the CEO why that person left or if they recommend. I also have this trick. I don't remember where I got it, but I love this one. You email a whole bunch of people who used to work with them or the former CEO they worked for. And you say, Hey, I'm doing a reference check on this person.

I'd love to talk to you about them. If you don't respond to this email I'll take it as you didn't have a good experience. Oh, ice cold. That is an ice cream. It's such a great trick. It's such a great trick because if they don't respond, people will almost always respond because they don't want to shit on somebody. If you know, if they have anything good to say, but if they have something bad to say, it gives them an out. Cause a lot of people I found are worried about legal liability. They don't want to go and like, you know, say this person's a piece of shit and then that person sues them or something like that.

Dude, I'm gonna use that line for any email I want. Uh I'll just like ask someone anything. Like if you don't if you don't reply, I'll assume you hate yourself and your family. Yeah, exactly. Sales guys do that all the time. That's the worst. Okay, so You found the person. How do you negotiate

And structure the comp package for the CEO. So I always like to make the first offer. 'Cause ultimately you kind of know what you're willing to pay and what makes sense based on who they are. And I think you kinda have to scale up or down based on their experience. So There's times where I've taken a risk where

I've said, you know what, this person was they're a VP marketing. But they really have CEO energy. And I'm gonna take a chance on them. I'm gonna try and, you know, pay less for someone like that. I'm not necessarily gonna put them into like full CEO comp. I'm gonna try and go high variable, low base, but someone who's more established.

You know, I'm gonna give them basically what they what they want. And uh And whatever we think the range is there. And then the most important thing is to use total compensation. So when you make the offer

So let's say let's say I have a business that's doing Three hundred thousand dollars of profit. And I can comfortably afford a CEO based salary. Of a hundred and fifty grand.

Right. So Let's say this person is worth three hundred grand a year, four hundred grand a year. I'm gonna go to them and I'm gonna say I'm gonna pay you three hundred grand a year.

But it's gonna be a hundred and fifty thousand dollar base and it's gonna be a hundred and fifty thousand dollar bonus. And the bonus is if you get me to Six hundred thousand dollars of EBITDA. Right.

And so you're basically using the profits That they've created. to pay them the bonus and you've created alignment between the two of you. But it's important never to just say Well, I'm gonna offer you a hundred and fifty thousand dollars a year plus a bonus. 'Cause in their head they're going like, No, I'm a three hundred thousand dollar a year person.

Right. So I always lead with what's the total compensation. And then what needs to be true to achieve that compensation. I'm also a big fan of uncapped bonuses. So for example Let's say the target is, you know, six hundred thousand dollars of EBITDA.

Well if they do One point two million dollars of you, but uh I want them to get double the bonus, maybe even triple the bonus. And that's worked really well for us. So the idea of saying, look. I'm gonna offer you three hundred thousand dollars a year, but it might be six hundred thousand. It might be a million dollars a year, depending on how you perform. And then the other thing is equity is just hard. I'm not a big fan of stock options. I like to try and find people who are willing to

If they want equity, they're willing to write a check. So If a CEO comes to me and they say, Okay, but I need you know, I need equity, I need skin in the game. I'm gonna say something like, Okay, so you want Forty thousand dollars.

Of equity. Per year? Uh are you willing to lower your compensation by forty thousand dollars? Or Are you willing to write a check? You know, do you have

Do you have a stock portfolio you can sell and you can inject the money into the business, and I'll let you buy in at a really great valuation. And if they don't want to do that, then sometimes I'll even loan them money. I'll say, I will personally loan you the money. And then you're gonna write a check and you're gonna buy it. And I have the right to buy back your sh if you leave, I have the right to buy back your stock. at whatever multiple of the earnings at the time or whatever it is. How how how do people react to that conversation? Because that's very different than where a lot of people are probably coming from. Well I want them to value the equity and they don't value the equity when they get stock options. They just look at it, they don't even

considered as part of Total Comp. So let's say that Like all here's some here's the kind of thing I'd hear. So they say um I want to make four hundred grand a year. And and I want equity. And I'd say, Well, okay, how's the equity gonna work? And they go, Well, I think I should have five percent.

And let's say the business is worth a hundred million dollars. So they've now said, Okay, I want five million dollars. And you're like, Okay, well you're You're worth four to five hundred K a year based on your track record and your experience and all that kind of stuff.

How am I supposed to give you five million dollars of equity. That just doesn't make sense. And so I always try and talk about it in terms of What's the cash value of the equity that they're receiving? And how do we create it? a scenario where we have shared downside and

A lot of people in Silicon Valley are used to stock options. And the way stock options work is let's say, Sam, you join my company and the stock price is$100. And I say here's Uh a hundred thousand dollars of stock options. At a hundred dollar

Share price. If the shares drop to fifty dollars. It's a lotto ticket and it's a zero. It's not worth anything. If it goes up

Then it's worth a shitload. And so you end up with this kind of binary situation where they have this lotto ticket. That pays out big. Or is a zero. And so what that means is

If your value of your business goes down even ten percent. They're basically at a zero. And so they're disincentivized. So I just I don't love stock options. And in general, I only like giving equity to people who are willing to sacrifice something for it. Otherwise, you know, why not why wouldn't I just pay you a really fat bonus? If you get down to it, that's usually what executives want. They want to do an addition to their house. They want to go on crazy vacations. They like cash most of the time. Oh quick

Kind of question as we round up to what the downside of all this is is Like everything you're saying I think sounds When I hear it, I'm like, This is the way. Is a fair argument against this that founder led companic have more innovation or more soul and things like that, and that it's better to have one thing go big versus many things that are

Potentially Okay. Is that a fair argument, do you think, or no? Yeah, but I think Like I said in the beginning, I think it comes down to personality.

Like I think if you're So for me, when I was running Meta Lab I started five other companies. In the first three years,'cause it was irresistible to me. Right.

Now I knew the right thing to do might have been to focus on the business. But my personality is that I want to go do other stuff. So Sam, like you seem super focused, right? And maybe you're better off just having one focus. You wake up every day, you you think about one thing. But

If you start finding yourself getting drawn into other businesses, it would be a huge disservice to continue to run that business, right? So I think ultimately it comes down to being true to yourself. You shouldn't, if you're listening to this, go Oh, I should go do this. You should only go do this if you're drawn to it. It's the same advice I give to entrepreneurs. They say, Well, should I go and work at a company or should I be an entrepreneur? And I kinda go, Well, if you have to ask that question, the answer is probably no.

Right. Because for me, I could never consider working for someone else. I if I whenever I had a job, I just wanted to shove the boss out of the way. And take the wheel of the business. So I think

To me it's just it'll be obvious. If this is something that appeals to you, you'll know. You'll be listening to this, nodding along and going Oh my God, I can f I can do this. I just didn't know I could do it. and not feel b guilty. Well, dude, this is awesome. We love having you come on. What do you think, Sean?

Yeah, this is great. And it's also earned information. So th this is not something that You You might be able to read it in a book, but a lot of the nuance of what you described is from hard lessons that were

You know, things that went right, many mistakes of things that went wrong. And the lessons you've learned. So we all got to benefit from, you know, your twenty years of experience kind of going through this process yourself. And I know for me It was a huge unlock.

to be able to hire a CEO and do that successfully. And I was like, wow, this is cheat codes. Oh my God. I get The business is gonna do well. It's gonna do better than if I was doing it, you know, I get all of the reward without any of that work and it's a total great trade for this person'cause I kinda didn't really appreciate How many people are entrepreneurial?

But maybe not entrepreneurs. There are people who are great CEOs. But they also got two kids. They don't wanna take full on risk. So they they want that kind of medium upside, low downside. And uh Finding that fit has been pretty huge for me. So

I think that's great. A lot of the things that you said that stood out to me, uh the golden nuggets for me was Find the I'm the number two. At a business that's two two X bigger

But similar to to the one you're in right now. Figure out what's their hammer. Because That that's probably it. Everybody's a man with a hammer and and you just have to make sure that that's the right hammer for your your business. And then

pay up on the di on the reference checks and the recruiter to make sure that you you get enough candidates and then you find the right person because that's a it's a necessary tax you have to pay once the business is big enough that you can support this. And then leave them alone. That's the other thing. Most people don't leave them alone. They say, Well, it didn't work, you know, in the first two weeks they did something I didn't agree with. So I had to fire. Well, what's the balance there? Like you leave them alone, but you don't leave them completely alone. I think for you guys they send you what, a fine a finance only update every every month. And then Is there anything else to it, like a strategy planning thing, or do you do anything else?

So what we used to do is we do a report every single month. And they would write like here's what's going on in the business, here's the numbers. And that was just crazy. We couldn't keep up and it also wasted a lot of their time. Now we get just the numbers to head office and we meet the CEOs annually. And then often uh there's certain COs we don't even meet because they're within operating platforms. So we just meet with the CEO of that operating platform.

Uh, usually like monthly or quarterly in check in. By the way, this is The number one thing I got emails on, like literally like every single day I get questions about it on Twitter and on email. And so I actually wrote a PDF. on here like a checklist basically on are you ready to hire a CEO and how to hire a CEO. And if you sign up for my newsletter, it's neverenough.com slash newsletter. Uh I'm gonna post the PDF.

Uh Next week, I think. Awesome. Okay, great. I think that's that's the That's the pot. Everybody should go check it out. Never enough.com.

Slash what? Newsletter? Newsletter, yeah. And we'll link to it in yeah, we'll link to it down here. All right, dude. Thank you. That's the pod. I feel like I can rule the world, I know I could be what I want to I put my law in it like my day's off On the road less travel never looking back

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