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The 125x Gap · The Enterprisors

• Tim Meadows-Smith: Welcome to the flip. Every successful CEO faces a choice. Keep doing what got you here, but no further. Or flip to building what gets you there. Two 20 million pound businesses make different choices. 10 years later, one is worth 35 million. The other is worth 4.4 billion. That's not luck. That's not marketing. That's the flip. From founder dependent to enterprise, from hero to architect, from 35 million to 4.4 billion, this is the flip. And I'm Jo, and this is Tim, my co-host. Hello Joe, so you're right, there is a big difference. There's a massive difference Tim. Because running a mid-sized business is not done by intuition, it's not done by having common sense, actually it's rare sense, but it doesn't happen by common sense. There are things that you need to do that enable you to manage once something gets too big for you to do everything yourself. So the difference is 125. times difference. So I could sit here at 20 million pounds and think that in 10 years time 35 million pounds is a really good growth. most people do. So is it achievable? mean, can you walk us through the 4 % to 45 % growth? it realistic? Yeah, it's completely achievable. People have difficulty with basic mathematical concepts. Not being rude about people's ability with maths, but compounding is something that really works. If you stick a thousand pounds in the bank when you turn 18 and you don't touch it until you're 65, it's worth a great deal of money because it compounds. You get interest on the interest on the interest. And there are a number of other things that we know to be true and then don't apply it to our own lives. So for example, most people have heard of the 80-20 rule. Yes, we have. And billionaires are really good at making that work for them because they actually find something a bit more extreme than the 80-20 that Pareto described in his thesis. That is the 80-20 rule. But you can get it quite easily to 90-20. 95.5, what 5 % of the things that you do make 95 % of the difference. And then what they do is they don't do any of the 95. They just simply say, there are 20 lots of 5 available to me in my working week, and they get 95 % of the benefit that most people only get once, and they get it 20 times. all of a sudden you've got a massive difference in your earning potential. But it's actually doing little incremental things. all of the time that enables things to compound. It's that 1 % club, isn't it? It's like do 1%, do 1%, do 1%, and we're back to the compounding. I think I understand compounding. What I can't do is I can't work it out. you know, it's like, you see, they go, 1,000, let's say it's 10%, 1,000 plus 100, plus 100, plus 10%, plus 10%, and it gets complicated. But actually nowadays with chat GPT and anything else, Claude, AI, you can actually do your numbers and you can actually work out the difference between what happens if I do this and what happens if I don't do this mathematically. But we're not necessarily here to talk about the math. We're here to talk about the philosophy and the how to and what is the difference between a CEO who is going to earn 4 % over 10 and a CEO who's going to earn 45 % and retire very, very wealthy. If it was just 1 % growth difference, that would make a significant difference, but it's not just 1%. So when you get to of the order of 25, 30, 35 million in sales, Generally speaking, all of the people who are at the same stage of development as you are probably satisfied with about a 5 % growth rate. Yet, when you were doing 10 million a year, you were expecting to get 30, 40, 50 % growth rate every year. So what's different? So what happens? You get to 10 million, you think I've got to make 35 % and then you get to 20 million, you think I've got here? Well, what happens is that the systems and the people you had around you that helped you to get from one million to ten million were absolutely essential on that journey. The difficulty is that you didn't invest in them, they didn't invest in them, and they've now got to the stage where they're... ability, their capability has matched the size of the business. So by investing in them, do you mean in terms of self development? Yeah. OK, so if I am a CEO and I'm ⁓ on my way to 10 million, what does investment look like in my people for us all to be able to get to 20 million and then beyond? I don't want to pick on accountants. pick on accountants. use them as an example. I'm going to focus on accountants. because that's actually the most fundamental help that a founder got from 1 million to 10 million. They would never have got there without their accountant, now finance director, who is trained in recording and compliance and looking back at what you've already done and is a naturally compliant and cautious sort of a person. and what they were doing in the background that enabled you just to get on with selling and hustling and solving problems and trying new things. And all of the things that you have to do as a founder to make a business business to a small business are dependent on. that right-hand person, your confidant, your North Star, the person who just keeps you on track and makes sure that there's cash in the bank and you're able to do all of the things that you don't want to worry about with money. You just want to get on with making stuff happen. So basically you're growing a business from the numbers rather than growing the business from anything else? Yeah, well you're just getting on with doing your passion and the things that come naturally to you and the things that get you excited and the things that caused you to found a business in the first place. and at about 10 million, it all gets too much because you simply don't have enough time in the day to think for the four, five or six people who are helping you. You can no longer micromanage them and tell them precisely what they've got to do, how to do it, push them out the way when there's a small problem and do it for them and then get them back when it's easy again. You just run out of hours in the day. You can't solve enough problems for you to have the capacity to do the new things that were enabling you to grow. All of your bright ideas are now secondary to solving problems. So you also become a blockage. Absolutely. you think you're the only person that can solve the problem. exactly that. You have reached the limit of your capability. There's a philosophy on that. When you reach the level of competence. There's what's called law which says you get promoted to your least level of incompetence which is related but the fact of matter is you haven't invested in yourself you've put all of your investment into growing the business as big as you can and now the big business is bigger than you and bigger than the finance director and so you've now got this slowing of growth and eventually stalling of growth and a ceiling. Now the people who've got to 25 35 and 35 million have broken through that and have worked out that if you get some really capable ⁓ directors to come along and take big bits of things off you that they do better than you can do, then all of a sudden you've freed up a bit of time. So how do you recognise that you're stuck? Because head down, day to day, I'm running it, it all relies on me. There must be key questions to ask yourself. like, actually, Can this business survive without me? So often it's a crisis. So you're very stressed. There aren't enough hours in the day. You go home late for your dinner. You work after dinner until you fall asleep. You get up in the morning and rub your eyes and start again. You don't see your family. You don't see your kids. You stop seeing your friends. You no longer play golf. All of those things you can't do. you feel trapped and so the only way out of it is to start to delegate but you delegate a micro mileage by instinct not the right way to do it but but getting back to our friend the finance director because we didn't invest in them they are still an accountant They are the voice of caution. And when they put up a plan, they look at last year and they say, well, if we add 5 % and you say, look, I think we can do 15, 20%. No, no, no, no, no. What happens if we don't? Let's just manage it at five. And it becomes a self-fulfilling prophecy. So you've got this person who is really a superstar for businesses of one to 10 million is now an active break on your growth at 25 or 30. million and what you needed to have done was to have invested in that person's development, expose them to people who had run bigger businesses, expose them to skills that accountants are not trained in to help them and you. understand the drivers of growth, the drivers of profit for a mid-sized business. They're not trained in it and they don't know. So how do you do that and where do you go to do that? Lots of places. mean if you look at a big business... ⁓ big enterprise business will typically have somebody with a marketing training lead the business planning process. They understand the customers, they design the product, they design the method of production to optimize it for profit. So they understand all of those drivers of generating margin. They have the understanding of how you analyze a business rather than analyze financials. But you can also get people who are specially trained in the numbers part of it. So you can find business analysts, you can find data scientists, and you can find economic analysts. Three different skills that all fall under the umbrella of a high-flying chief financial officer. But of course people think by labelling an accountant a chief financial officer, they're going to find the other three quarters of the skills that they but they don't. You've actually got to go out and find out how that works and how to do it. And so what happens is as you grow you reach different stages of maturity of a business and you need different stages of maturity of the leaders of the business including yourself. And if you want to see people who keep on growing at 50 % a year from very early on all the way through the small, all the way through the mid-size until they get to be a big business, they've been investing in themselves all of the way through, compounding that, deliberately being humble and curious, saying, I need to learn more, I'm not good enough, I need to get better, I need to... understand how it's done at this stage and getting comfortable with not being the smartest person in the room. Interesting you said that because before we started recording we talked about the difference between men and women. Yeah. It's like I'm not afraid and I think also comes with maturity I'm now not afraid to ask questions if I don't understand something in business. Yeah well can I let you into a secret? Quietly. do. Yeah women are... 40 % more successful than men at this. Yes. And with only 16 % of the going to say. So they only get 16 % of the amount of money to spend because investors don't trust women. Interesting, isn't it? But women actually outperform men, and it's because they are humble, curious, and are always asking questions and always thinking they're inadequate and always trying to learn and very comfortable with hiring. people who are smarter than them and if you're the owner of a business sitting in a boardroom and you're paying for five people around them Believe me, it's much better that they're twice as good as you than half as good as you. Yet men want to feel like they can manage those people and answer all of their questions. Women are quite happy not to be able to answer any of the questions. They're comfortable just asking questions. And if you ask questions of really bright people, they tend to perform. Interesting. That's a Henry Ford thing, isn't it? Because he was quite of the opinion. know everything, I just need to know who knows. Exactly. And so in your business, it's much better to not know everything. Therefore, you can have you've got headspace, you've got time with your family, you can take holidays, you've got five people underneath you or working beside you, doesn't even have to be underneath you working beside you who know. So is that why a lot of talented CEOs are on the wrong path? Well, yes, there are two sorts CEOs. There are CEOs in organizations that were already huge when they joined. those people have been regularly appraised, probably four times a year, have been sent on development courses, have been challenged, have been shown what good leadership looks like, have been in competition with other people to achieve leadership, and they then get appointed CEO of a division and eventually they become CEO of a great listed corporation. Founders are self-appointed and they haven't had anybody manage their development all the way through unless they've... bit done it for themselves. They haven't had all of the training. They've never seen what good looks like. And they just simply don't know how it works. And the big thing that founders can do when they're at the mid-size is to meet with other successful mid-size companies, ideally a little bit bigger than they are, and talk to them about the issues that you have. in that environment. The difficulty is that... back to the ego thing? We are, but we're also back to another problem, understanding numbers. ⁓ those who actually actively go out to the Chamber of Commerce or local networking or the Institute of Directors or other things find when they go networking that it's full of people who are between half a million and three million turnover or struggling to break out of being a small business. You're already a medium sized business and you have to go through. I if you have a football stadium full of ⁓ chief executives, you would have to go past 400 of those people before you found another one the same size as you. So you don't meet people who've got the experience that you need in order to be able to have a grown-up conversation about how lonely it is and all of the challenges there are of trying to make this 30 million turnover business continue to grow at 50 % as it used to rather than 5 % as it does now because all of these little people who are now the directors alongside you are not big enough for the country company that you want to be. And so you have to now go out and either actively recruit some people with that experience who are bigger and know what to do, or you have to take a longer view and say, I'm really loyal to these people who helped me get here. I'm going to work with them to develop them. a lot of them don't want to be developed. There is that. They're all being very nicely paid. They have status in their local community, they're very comfortable and the 5 % growth suits them just fine. I'm sure. So you now actually have to be business-like and say look I'm not going to disrespect you, I'm not just going to dump you, but I do need to hire some advice and some management that knows what good looks like in order that I can look after all the other people that are dependent on us and we can grow opportunities and we can become bigger and more successful. Yeah, I mean, because it is really easy to start a business, isn't it? 20 quid or something. You only have to be 18 years holding about 50 quid in your pocket and you've got a limited liability company. you know, the numbers, we found more businesses in the UK than almost anywhere else. But we are equal worst in the world with India getting them from nothing to 10 million. We only get 0.4 from nothing to 10 million. You're kidding. Of all businesses that start, 0.04%. And if you look at the best in the world, which happens to be Singapore... they get 15 % to the same level because they invest in the businesses, they provide them with training and support and they ⁓ measure them as they grow and they get 15 % to the same level. So they are 40 times more successful than we are in Britain. at taking a business from foundation to mid-size. And that's interesting, it? Because for 50 quid you can, at 18, you can have a limited liability company and then the government expects you to do your tax return. that's it. That's all they do. There is, however, and we will be talking in an episode in a couple of weeks time, but there is, however, a remit from the government saying they're going to train absolutely everybody in AI. Did you know that? It was about half an hour of AI training. Kind of, but I wouldn't wait for the government help if it were me. ⁓ The other thing that society leads us to believe is that you're likely to make more money founding your own business than you are going into employment. But that's not true. They also led you believe you get more spare time. They do. I mean, it's supposed to be the ticket to freedom and, you know, being chained to your desk by some corporate faceless conglomerate is supposed to be terrible. But the fact of the is that that big corporation will train you and develop you as fast as you can grow. They'll give you regular paychecks with security, they'll give you regular pay rises, they'll give you all kinds of benefits and pensions and over a lifetime... on average, you'll be 40 % better off from being the corporate slave than being the free entrepreneur. Yeah, I understand that. been an entrepreneur, do. Indeed. Yeah. So we are going to cover in the next episodes how to do that, aren't we? And we are going to talk about... what stages you need, what strategies, what people and what is stopping you. And by doing that... Tim, we're going to hopefully make it more achievable for businesses. There is nothing that isn't within the capability of everybody who has become a mid-sized business to become a big business. Let's be quite clear, people who found a business and get it to be mid-sized are absolute heroes. They are brave. are ⁓ capable. They've taken risk. know, they've worked out how you pay people when there's no money in the bank. They've worked out how you pay the VAT when people pay you late. They've solved problems. They've created wealth. They've created opportunity. And they've done all of that through their own energy and initiative and vitality. And frankly, I'm much more respect for founders who have done that than, you know, big dick chief executives in a big corporation. By the way, I was there. So you were a big dick? I did 15 years. I came out of a big corporation, you know, having held a very big job. and I then thought that I was beautifully qualified, amply qualified to run a small business. nearly felt flat on my face. very, very different proposition. Lots of things that you just assume get done that you now have to do for yourself. cox, isn't it? Yeah, absolutely. And it's a very, very different environment, you know, and I have managed to overcome that, work out which bits that I learnt in big business help you scale a business, but I then got involved with the dot com. paper billionaire for a year or so and then found myself insolvent working out how you pay 200 people when you have no money. And ⁓ in doing that I learnt all about... ⁓ distress business turnaround. And I've spent the last 25 years helping people who have got to that desperate stage where they're about to go bust. And why do you do that? Well, I do that because I can. Yeah. And because people at that stage are really desperate and they need help. And there is almost no help available in this country. And we have we don't have a turnaround culture. We have a liquidation culture. So we have, you know, you're in trouble. Exactly that. you've got companies that have achieved a huge amount, have most of the things in place that they need to be successful. They just need a different strategy, a different way of doing things. Interestingly, they usually don't need more money. They think they need more money, but that's just the drug they've been living on. What you need is a different way of doing things so that things naturally self-generate. in doing that work, I've had the privilege of working alongside people and seeing what doesn't work and therefore more starkly what needs to happen in order to make things work. And you've put together a book. on how to do that. And we're going to unpick parts of that in the forthcoming episodes, aren't we? I hope so. I mean, I really don't have a lot of respect for over bloated claims in books. There are lots of business books out there that purport to tell you that it's easy. I'm here to tell you it's not easy and that there are a number of myths that you need to debunk, understand and debunk and cut through. ⁓ before you can begin to deal with what is a complex problem. Shall we look at those myths in the next episode, I think we should. I think we should. So is there anything else for this episode that we need to cover or should we just leave it here and come back to the myths of business? Well, I think we should finish on a positive note. Okay, yes, good idea. Because the people who are business founders at whatever stage deserve to be celebrated. Yeah, I agree. And they have absolutely everything it takes to be successful. There may be reasons that are not their fault that they're not successful, but that doesn't mean to say they can't be successful with another enterprise. Yeah. But in terms of capability, I don't believe there's anybody who has got over a million in sales, can't reach a hundred million. I really don't. It's within everybody to be able to do that. It doesn't take genius, it just takes self-management and the biggest difference distance between a million and a hundred million is about five and a half inches. That's broadly the distance between your right ear and your left ear. Really? Okay. So we're going to have to... Oh my God. Okay. I like that. So yeah. So what's in your head? Exactly that. What's in It's managing yourself. Okay. Well, I look forward to the next episode, Tim. Thank you very much indeed. Thank you. I you enjoyed this episode of The Flip and we'll be back next week. Thank you.