The leading expert on helping firms scaleup, Verne Harnish joins Greg Leith to discuss some of the high-level concepts he’s learned from the extensive research he has done over his time as both a consultant and entrepreneur. He’s the author of the bestseller Mastering the Rockefeller Habits which is translated into 9 languages; and along with the editors of Fortune, authored The Greatest Business Decisions of All Time for which Jim Collins wrote the foreword. His latest book, Scaling Up (Rockefeller Habits 2.0), has won eight major international book awards including the prestigious International Book Award for Best General Business book.
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Verne Harnish | What It Takes To Scale
We’re here with Verne Harnish in Florida. He’s the Founder of the Entrepreneurs’ Organization or EO, as some of you know, with 14,000 members. He’s the author of the bestselling Mastering the Rockefeller Habits, which is translated into nine languages. More than 48,000 firms around the country have used his concepts and tools to grow their company, some to $1 billion. At MIT for fifteen years, he chaired EO’s CEO program called The Birthing of Giants. He’s a columnist for Fortune Magazine. Verne, thanks for spending time.
You bet. We’ve got the new book out, Scaling Up, which is Rockefeller Habits 2.0. That’s what I’m going to be talking about at Convene. We signed our fifteenth language, which is Bulgarian. It’s doing well. It’s the book that seems to be powering all of our ideas.
That’s exciting. We’ve used your material extensively at Convene, and people are super excited about it. We thought we could do this in a one-day content piece, which is usually a couple of hours. Our Convene groups meet, as you’re aware, every month for a day, and a couple of hours of that day are dedicated to learning. We thought, “We’ll do the Scaling Up piece in one of those learning sessions.” It was so good. It’s 4 sessions over 4 months. People are loving it.
I am very honored. It’s a labor of love.
The Genesis Of Rockefeller Habits: A Deep Dive Into Scaling Up
That’s great. Way back when, you created this book idea, Mastering The Rockefeller Habits. What was the genesis of that? What was going on in your life? How did this come to be?
I launched YEO back in 1987. The threshold was companies that got to at least $1 million a year in revenue. That’s 4% of the companies in the United States. That’s a much lower percentage around the rest of the world. As part of launching that organization, I partnered with MIT and Unique Magazines to launch an executive program.
There’s information about how to start up on almost every street corner. 11,000 startups appear every hour in the world. We’re not hurting for new companies. It’s the scale-ups that are the unsung heroes of economies. They drive all the job growth, as they have in the US since the Great Recession. They drive almost all the innovation, and yet nobody knows about them. More importantly, there wasn’t any curriculum for them.
I have an MBA. I was supposed to teach how to run a big company, but there wasn’t anything in between. I launched this program at MIT from ‘91 to ‘92. I taught in it for 15 years and was in the process of moving about 1,000 of these mid-market leaders who are scaling up. We designed the curriculum, and that became the first book, Mastering the Rockefeller Habits. It’s the curriculum for that executive program.
Why Some Companies Soar And Others Stall: Unpacking Growth Barriers
When you get into the stuff, the incredible material that you put together, you talk about why some companies make it and why some don’t. Speak to the person out there who is spinning their wheels. Things are the same. They’re not growing. What would you say to them?
I wish business were this neat and organized. We bucket it into four areas. It was around people, strategy, execution, and cash. It’s an issue or a constraint in any 1 of those, if not all 4, that tends to be at the heart of why somebody didn’t scale up. There were three barriers. The early chapter in the book that built on the first book, Mastering the Rockefeller Habits, outlined these three. It starts between our ears. It’s a mindset. It’s our own constraints that we’re dealing with in our lives as well as in our business.
Number two, it was trying to put together a scalable infrastructure. You move into the second floor of a building, figuring out the computer systems and all that’s necessary if you’re going from 5 to 50 to 500 employees. Number three was something very specific. It came out of some early research that my senior faculty member at MIT, the famous Dr. Ed Roberts, had done.
Marketing makes or breaks you. Share on XHe had studied these high-tech startups that came out of MIT. He wanted to see why some scale and others didn’t. One of those was very specific. It was a functional weakness, and that was around marketing. Marketing makes or breaks you. You need it not just to attract customers, talent, attention, and investors. The three barriers are leadership development, scalable infrastructure, and effective marketing.
People, Strategy, Execution, Cash: The Four Pillars Of Business Success
Scaling Up focuses on four major decision areas every company must get right. There are some systems out there that we won’t name that don’t talk a lot about people. You’re focused on people, strategy, execution, and cash. Maybe talk about those four areas. Why do they all matter? Why do some systems seem to treat people like a human resource or like a producer of results?
I think it was Henry Ford who said, “How come I only want to hire 2 arms and 2 legs, and I get the whole person?” The Bible is very clear that people matter. In John 17, Jesus, at the end of His life, said to God, “Tomorrow, it’s going to end. You gave me these twelve men. I showed them you, and I’m giving them back to you.” In other words, Jesus was saying, “People that I’ve invested in matter. They’re not a unit of output.” Talk about people, strategy, execution, and cash.
There are a couple of things. One, we rooted in some research that was based on the work that Jim Collins did in Good to Great. He said, “If you want to go from good to three times good, you’ve got to have disciplined people engaged in disciplined thought through disciplined action,” which was people, strategy, and execution.
Since we’re dealing with growth and the first law of entrepreneurial gravity is Growth Sucks Cash, we added the cash component. He then talked about that later on in his last book, Great By Choice. He was adamant. He discovered that it starts with people. It’s interesting stuff. 76% of all companies in the US only have the entrepreneur as the sole employee. We like to kid that many of those are overstaffed.
The only way you can scale is through people, as you would any movement. It starts with getting that first handful of disciples. We talked about how there’s a natural point of 8 to 12, then you’ve got to get on up to 40, and then you’ve got to get on up to 350. We are very adamant that it’s time to get rid of the term HR. We like people experience and customer experience, or PX and CX. We push that hard with all of our clients. That’s a term that was for all the reasons you said. It’s so last century. At a minimum, let’s start with a different term this century.
The only way you can scale is through people, as you would any movement. Share on XThe Chairman of ServiceMaster, Bill Pollard, with whom I had the privilege of working for a long time, has a chapter in one of his books where he says that it’s not just another pair of hands.
We’ve moved from backs to brains. That was the industrial revolution to the information age that we’re in. We’re doing brainwork. It’s impacting everywhere, particularly organizational structure. What’s interesting is form and function. Nature informs us beautifully of God’s creation. In the last few centuries, it was about organizing muscle. We had organized our might, if you would, to go to war.
Even the church brought us this hierarchical structure that mirrors the human body. You’ve got the head, shoulders, arms, feet, fingers, and toes. It’s a beautiful system for organizing muscle. We can do the finest of motor skills and beautiful art, and we can build the most monstrous thing. I’m still amazed as a mechanical engineer that we’re able to create these small beings.
Since we’ve moved from back to brain work, our organizational structures haven’t followed. We may talk about this or not because we don’t have a lot of time. Maybe afterwards with the groups. One of the big revolutions is the revolution that is occurring in organizational structure. If we’re doing brain work, we need to organize like our brain is, not like our skeletal or back system. That’s some of the new stuff that we’re pushing.
Beyond Growth: The Trifecta Of Engaged Teams, Customer Evangelism, And Profitability
That’s good. I love it. You also talk about how this is not just about growth. It’s about creating a company where the team is engaged, the customers are doing your marketing, and everybody’s making money. That sounds like a trifecta. Talk about that a little bit.
A good resource is that Ogilvy, the big ad agency, has put out what they call the four Es instead of the four Ps of marketing. We’ve always known about Product, Price, Place, and Promotion as the four key decisions you need to make around marketing. The reality is, marketing strategy equals strategy. We love this update around the four Es. It brings it to the 21st century.
One of those is that most of us can’t afford to do massive promotions. It needs to be through Evangelism. That is the fourth E. Even Apple had an Evangel program. One of my dear friends, Scott, was one of the early evangelists. That’s what you need in the marketplace. You need your customers and your employees to be so evangelistic about what it is you do. They do the heavy lifting of your message out into the marketplace.
You need your customers and employees to be so evangelistic about what you do that they do the heavy lifting of your message out into the marketplace. Share on XI’m very excited that you’re coming to spend some time with us. It is very gracious of you to come spend some time with us in San Diego, not that it’s tough duty at the Hotel del Coronado. From September 29 to October 3rd, 2019, about 700 Christian business executives and spouses will be there. You’re going to come and share some thoughts. How about a little sneak peek of what you enjoy talking about at times like that, digging into the tools, the tricks, and the tips you’re going to give us? Give somebody a reason to get on the plane and show up at the Hotel del Coronado.
There will be four ideas that we’re going to share. One around people, strategy, execution, and cash. I love this idea that we have the answers. It’s the question we do not know. It’s more important that you get the question right than even the answer. I’m going to share what I consider the number one question around the people space that Bill Gates considered the best question that he had ever been asked. It’s a question that they can use in almost every aspect of not only their business, but also in their life.
Under strategy, we’re going to look at the power of brand. Brand ultimately comes down to a word or two. I’m going to describe how you look at that and how you figure it out. You can own that word or two, as Tom Monaghan did. When you say deliver pizza, and I’ve tried it on all six continents, everyone immediately says Domino’s. Owning that, plus a couple of other ideas that we’re going to talk about, allowed him to generate over $4 billion, which he has given almost all to the Catholic church.
We’re going to talk about the essence of a brand. What is it that brand gives you? Pricing power. We’re going to dig into that whole pricing conversation. Under execution, here’s the challenge. I’ve got 1,000 things that I’m faced with on a regular daily basis. How do I choose which 1 of those 1,000 I need to focus on next? Also, how do I help everyone in my organization focus on the right thing? We’re going to talk about some tools and techniques for how to do that.
Here’s a little side note. It’s something I want to share. I ran across this analogy. If you had a playground for children and it was bordered by a bunch of very busy streets without fences or boundaries, where would you want the children to huddle? It would be right in the center. You wouldn’t want them to venture off. You wouldn’t want the flock to venture off very far.
If you put up fences, what’s interesting is boundaries. They’re free to go right up to the very edge without a lot of concern. That’s the kind of freedom that we want to see among our people and ourselves within our lives. It’s interesting. The commandments provide very important boundaries and fences that give you more freedom, not less freedom. When business owners see that equivalent within their own organization around values and brand promise, then it helps everybody else in the organization make better decisions. We’ll dig into that in the execution.
On the cash side, I’m going to share with you a universal truth about what it takes in order to scale wealth considerably. It is very biblical in nature. It comes from an experience I had myself when I went from $500,000 to $1 million to $2 million to $4 million. I was getting ready to do about $8 million, and I was going to be an Inc. 500 company, but then 9/11 hit.
Our church was getting ready to do the largest fundraising campaign we’d ever done in our history. I was broke, but I had read the importance of giving until it was painful. I committed an amount to the church that was magnitudes greater than anything I’d ever expected to pledge. I’ll tell the rest of the story in San Diego, but it’s crazy how it worked out.
That’s great.
We’re going to look at that powerful question Bill Gates considered. What is the essence of brand? How do you determine what it is you ought to focus on the most next? What is this universal truth of scaling wealth?
Stagnation Or Growth? The Personal And Organizational Imperative To Evolve
That sounds exciting. I’m glad I’m going to be there. To those of you tuning in on whatever airplane, hotel room, or car you’re in, that is from September 29 to October 3rd, 2019, at Hotel Del Coronado. Log on to LeadershipCollab.com, and you’ll find all the details, including Verne’s bio, this show, and a whole lot more. I’d encourage you if you’re out there wondering, “Should I come by myself? Should I bring my spouse? Should I bring my team?” We make it easy for you to bring your team.
Bring your team. Maybe even bring 2, 3, or 4 members of your team and block off a day after the conference is over. Huddle together somewhere in San Diego. Take a cruise, sit by the beach, or sit in a conference room at the hotel and say, “What are we going to do about what Verne and others said?” What would you say to somebody out there who says, “I’ve heard all about growth, but I’m pretty happy where I am.” I know that’s a conundrum question that it’s okay not to grow, but if somebody says, “Growth? I don’t know,” what would you say to a person like that who’s stagnant?
It’s a law of nature. You either grow or die. It’s not about the growth of the top line. It’s our own personal growth in that of our people. McKinsey came out and said, “Game’s over. Cheap labor is not a competitive weapon anymore. It’s smart talent.” If nothing else, we’ve got to grow the knowledge that we have between our ears.
It’s a law of nature. You either grow or die. Share on XTo wrap up, here’s one of the stories we’re going to share. John Ratliff is going to be with me, my partner. He was in the call center business that typically has 200% turnover. He only had 4% turnover of his senior team. The acquisition and retention of talent is the number one issue everywhere on the planet. He was able to take an industry that averages 200% turnover and drive it down to 18%. His internal 10X made everything else that he did in that business considerably easier.
We’re going to share with you in an initiative. At the end of the day, there’s no way that your people can possibly care. You think that love or care are the four-letter words that most matter in business. There’s no way that they can care for your company and your customers if they don’t see that you care for them. It’s a very missional thing that John did. We’re super excited that hundreds of companies around the globe are engaging in this important initiative that begins to create a bond.
To me, it does precisely the thing that we’ve always known you’ve got to do in your life. That KPI is measured very simply. How many people have you helped along the way? That has to start with your employees. We have this unique fiduciary responsibility beyond almost everyone else out there, and that is the people under our care. We need to take that seriously. We’re going to get into that. It’s going to be some amazing stories of lives that John is able to tell as a result of this.
That’s great. It’s good to bust the myth that a lot of people who are Christ followers have, which is, “The only way I can help somebody is to share with them the fact that they need a personal relationship with Jesus Christ.” They do, but guess what? When you love somebody, touch somebody, teach somebody, make something beautiful together, or do something great together, all that glorifies God. Maybe you’ll get to speak into their lives if they know that you love them. That’ll be great to look forward to having you. Thanks for checking in with us, everybody, and catching Verne Harish. We’ll see you in San Diego at the Hotel del Coronado. We’ll hear more from Verne Harnish.
Thank you.
