[00:00:00] AJ: Hey everybody. Welcome back to the Influential Personal Brand Podcast. [00:00:05] I get the privilege of getting to interview someone today that [00:00:10] I have been learning from behind the scenes for actually a few [00:00:15] years and actually hired the company that he works with. Simple numbers [00:00:20] to. I actually come in and work with Brain Builders Group about seven months ago, and Greg [00:00:25] Crabtree has been notoriously renowned in the Entrepreneurs [00:00:30] Organization community for pretty much like the 10 years I’ve been a part of eo and I [00:00:35] read Simple Numbers. [00:00:35] I’m currently rub reading his second book, simple Numbers 2.0, and [00:00:40] it’s one of, here’s what I would say, and this is a, a great testament to you, Greg, the [00:00:45] title. Is exactly what’s in the book. It’s how do you make very [00:00:50] challenging, difficult numbers, simple. So that as a, a business owner, I can apply those [00:00:55] two of my financial life. [00:00:55] So to get to have you on our podcast today is a privilege [00:01:00] because selfishly I’m gonna get to ask you all these questions that I wanna know. But [00:01:05] also I know that if I want to know the answers to these questions, so does everyone who’s listening. [00:01:10] So I know this is going to be applicable and universally sound for everyone [00:01:15] who’s listening. [00:01:15] So. Without, you know, further ado everyone. Let me give you a [00:01:20] formal introduction to Greg Crabtree. He is a CPA, a speaker, an [00:01:25] author, an entrepreneur himself who has dedicated his career to helping [00:01:30] entrepreneurs build the economic engines for their business. As the founder of Crabtree Roe [00:01:35] and Burger Greg has pioneered revolutionary metrics for measuring. [00:01:39] Two [00:01:40] very important things we’re gonna talk about today, labor efficiency and then also something that [00:01:45] we’ve really adapted in our company culture, which is contribution margin to help financial [00:01:50] reporting for business owners. So Greg, welcome to the show. I’m so excited to have you. [00:01:54] Greg: [00:01:55] Yeah. I appreciate it. Thanks for having me. That that’s a, a very, very nice introduction. I appreciate [00:02:00] it. [00:02:00] AJ: Well, and here’s why I asked for you to be a guest on the show [00:02:05] today is I think it’s very challenging in a world where there is a [00:02:10] thousand different things that we could be looking at and financial D dashboards and [00:02:15] metrics, and you have so many terms and terminology that just. [00:02:20] Don’t necessarily make sense in real world application. [00:02:23] It’s like, yes, okay, I [00:02:25] know what my profitability is and I know what gross margin is, but how do you [00:02:30] actually use those numbers to make decisions in your business as something that I [00:02:35] think you just do so extraordinarily well. And it’s something I’m really excited to talk [00:02:40] about today. But before we do that, I, I mentioned to this before I hit record, I was gonna ask [00:02:45] you this question because you could have done a thousand different things. [00:02:49] And you [00:02:50] chose to be in the world of finance and not just in finance, but [00:02:55] in the world of finance for small business owners, for entrepreneurs. And we can be a [00:03:00] seemingly difficult audience to appeal to. So how’d you get into this and [00:03:05] why have you stayed in this? [00:03:07] Greg: Well, I mean, first and foremost, I chose [00:03:10] accounting because they, they worked in an air conditioned office. I mean, so when you grow up, grow up [00:03:15] on a chicken farm in ho cotton in the afternoons, when you’re not gathering eggs, you know, you [00:03:20] just want to, you know, work in someplace that isn’t, you know, hot, smelly, [00:03:25] unpleasant. you know, once I started in the profession and got outta school, [00:03:30] you realize what they taught you in school is not what you do every day. And [00:03:35] after the shock of that wore off and I had to make a living, like many of us, we gravitate [00:03:40] to the thing that fits our passion. And, [00:03:45] and so I, I, you know, through a series of, of, of changes, I, the [00:03:50] firm I worked for originally, I got hired by a bank client of theirs to be their controller. [00:03:55] That was where I kind of developed my technology skills and love of kind of modeling and [00:04:00] forecasting, you know, with spreadsheets. It was like first generation pc. I mean, I was, I was running outta this [00:04:05] space every time I turned around ’cause I just kept pushing the limits of what it would do. And then left [00:04:10] there and, and went back into practice. [00:04:11] ’cause I, I, I really had a passion for more, you know, working directly, [00:04:15] you know, with multiple clients rather than just working for the bank. But even that [00:04:20] had its moments of, you kinda get drug into, you know, the, the, the [00:04:25] stuff that, you know, you tell somebody you’re a CPA, the first thing you get is a tax question. you know, and, [00:04:30] and it’s like, yeah, I mean, it’s necessary, but it’s not the prime thing. And really for [00:04:35] me, I mean, and I wish this had come along sooner in my career, but you know, in [00:04:40] 2001 I got introduced to the non entrepreneurs organization and that was a, just a [00:04:45] transformative moment because at that moment, you know, I had a couple partners. [00:04:49] We had a [00:04:50] qualifying million dollar CPA firm in Huntsville, Alabama. All of our clients were [00:04:55] local. since then, we became entrepreneur [00:05:00] focused and really more consulting first focused in that, you know, we’ve now [00:05:05] grown that, that practiced about 7 million of revenue and we, our clients are all over the [00:05:10] world. And 98% of what we do is not in Huntsville, [00:05:13] AJ: Mm-hmm. [00:05:14] Greg: [00:05:15] and, but it all came because of that focus of. [00:05:20] Really asking the question that I, I really attribute to my first EO forum [00:05:25] what is our per, you know, when I asked them how many would recommend their current accountant, the answer [00:05:30] was none. So that from a net promoter score basis, that’s a pretty sad [00:05:35] statement of a profession. and, and as a profession, we sell people what we do. We don’t do [00:05:40] what they need. And, and, and there’s, and there’s a, there’s a truth to that. And just about [00:05:45] anything in the world. The idea is, you know, figure out what the market needs [00:05:50] and, and that takes some time and takes some effort. And then once you find that [00:05:55] need, you gotta find a way to solve that need profitably. [00:05:57] And then you start building the [00:06:00] marketing engine to say, let people know that you exist. And even to this day, I mean, we still straight, you know, [00:06:05] people try to put us in a box. Oh, you offer fractional CFO services? not [00:06:10] really. We, we may eliminate the need for fractional CFO services, you know, for what we [00:06:15] do, but we, no, that’s not the box we fit in. You know, and, you know, and, and so [00:06:20] it really comes down to, we really want to help people optimize [00:06:25] profitability, return on invested capital, which is a very poorly [00:06:30] understood, you know, topic of, capital you invest in the business. What is the [00:06:35] return that you should get out of it? You make that business as profitable and [00:06:40] capital efficient as possible, you’ve got the best of both worlds. It’s a very valuable [00:06:45] business should you ever decide to sell it, and it’s a very valuable business should you decide to keep it. [00:06:49] AJ: [00:06:50] Yeah. [00:06:50] Greg: you know, fortunately for me, the, the [00:06:55] study of the data is never ending because it’s like, and, and I don’t [00:07:00] go to the data. to, with a proof text I’m trying to prove, I go to [00:07:05] the data to say, Hmm, what are you saying? You know what, what? Look what, talk to me. [00:07:09] AJ: [00:07:10] Hmm. [00:07:10] Greg: And, and, and so really it was more so an approach that I had to do something that [00:07:15] accountants loathe to do is I go study data without somebody paying me to do it. [00:07:20] To, to develop. I mean, and you know, you’ve worked with us a while now and you [00:07:25] understand we have deeply held beliefs of how things work. Not [00:07:30] rules. No. These are beliefs [00:07:32] AJ: Hmm. [00:07:32] Greg: and for the most part, there is [00:07:35] only a handful of numbers that truly matter. and it’s easy [00:07:40] to, you know, get worried about some other numbers in your day. [00:07:43] And it says, well, you know, I, I get that, [00:07:45] you know, don’t waste money. a call this morning before this call that, you know, a client [00:07:50] that’s in a rapidly growing mode, you know, and they were worried about, you know, hitting their [00:07:55] labor efficiency targets and, and, you know, their operating expenses that increase. [00:07:58] They said, don’t worry about it. It, [00:08:00] it’ll be fine. said, you’re not spending money that’s not crazy. You hit that LER number, [00:08:05] you will have that level of profitability. You, you gotta go crazy with, [00:08:10] with the opex number. You know, for that not to happen. And once you understand the [00:08:15] power of leveraging labor and efficiently deploying capital. You [00:08:20] got something that puts you miles ahead of every other business out there, [00:08:25] you know, in that process. But they don’t teach us that in school. They don’t even teach you that, you know, in, [00:08:30] in the world of business because there’s all of these, know, rules of, [00:08:35] oh, you know, you know, business is valued at 10 times EBITDA or five times ebit, ebitda. [00:08:39] You know, it’s like, [00:08:40] yeah, maybe not really. You know, those are, those are [00:08:45] benchmarks, you know, when people are talking about values. But if you have. I can get 10 [00:08:50] times ebitda selling a business that has a really bad EBITDA number, it didn’t mean I got my [00:08:55] value for it. [00:08:55] AJ: Ah, that’s good. [00:08:56] Greg: you know, and I can get five times EBITDA for a number that I’ve [00:09:00] got a, a, a, a very strongly adjusted EBITDA number that I win when the [00:09:05] argument for, and I get the right number. You know, so, so a lot of those things, there’s a lot of [00:09:10] lore that goes around in business [00:09:11] AJ: Mm-hmm. [00:09:12] Greg: and I, I just try to stick to finding what’s [00:09:15] truthful, [00:09:16] AJ: Hmm. [00:09:16] Greg: truthful. and trust me, in the [00:09:20] world of accounting, audits aren’t truth. Audits are, you know, are, are [00:09:25] things that, you know, it’s just generally accepted accounting principles that have a tendency to just confuse things more than they [00:09:30] help, and, and put a lot of weight on the data. [00:09:33] And, and oh, by the way [00:09:35] anybody listening to this, that if you’ve ever had accountant prepared financials that got sent [00:09:40] to the bank, why is it that the bank calls you back and asks for more information? [00:09:45] If it was actually a sufficiently prepared document, the bank wouldn’t have any more questions. And, [00:09:50] and so once again, it identifies the deficiencies of what existed in the [00:09:55] marketplace, but it can’t be so deep into the weeds [00:10:00] that, you know, you’re, you’re picking lint outta your navel to kind of figure out what’s wrong. I mean, it’s like, [00:10:05] come on people. I mean, there are some long hail principles and to be quite honest, everyone that I [00:10:10] talk about, I learned from a client, I didn’t learn from school. The only thing I [00:10:15] learned from school I, I’m fortunate that we’ve done about 10 years of the program now. [00:10:20] I, I get to, to host the EO at Horton Executive ed program. and I’ve been [00:10:25] the host since the beginning. And, one of the early years of that program, [00:10:30] actually the first year of that program, or lead professor David Wess, was talking about return on Vista Capital. [00:10:35] And, and you know, I’m sitting in the back of the ring going, [00:10:40] Hmm, you know, I, I. Knew about that in school, but we never used it, never, never did [00:10:45] the calculation. [00:10:45] And they got enamored with the idea of it. come to find out, there’s really no [00:10:50] private company data around that topic. And so I [00:10:55] just started studying it because we have access to data and, and so we have hundreds of businesses we can [00:11:00] look at, you know, and, and we started to find this, this very identifiable [00:11:05] correlation of a capital efficient business that’s producing the right amount of profitability relative to [00:11:10] the capital invested. Because in the, in the world of business, you know, there’s [00:11:15] really, you know, you can identify businesses of, do you have accounts [00:11:20] receivable and inventory? Those are tough businesses to get a good return on because I’m carrying two things that [00:11:25] turn over [00:11:25] AJ: Mm-hmm. [00:11:26] Greg: a frequent basis. Do I carry one? One of the two, but not both. [00:11:29] [00:11:30] Okay. That gives me a little higher return potential. I, I can’t, I’m a business [00:11:35] that I don’t have ar or inventory. I get to bill either upfront. as I [00:11:40] perform, perform the service or sell the product. So that’s even better, [00:11:45] And, and do you have, then, do you have a big capital component of equipment? [00:11:48] Well, you know, we’re a [00:11:50] very heavily dominant service-based economy in the us although we do have some capital [00:11:55] intensive businesses. But there’s a way to look at all of those things and equate it back [00:12:00] to setting your profit target then giving somebody something [00:12:05] definitive to aim at. I would say probably my [00:12:10] greatest amount of pride in the work that we’ve done is giving people a [00:12:15] very specific, definitive target that is unique to their business. [00:12:20] and you know, as always say, a man who aims at nothing hits it with amazing accuracy. [00:12:25] Well, it, and when somebody just gives you an opinion about something. [00:12:30] You’re not committed to that thing. It’s like, eh, you know, sounds nice. You know, may maybe we’ll hit it, maybe not, [00:12:35] but when, when you give people definitive things of, Hey, I need to be a two total LER, [00:12:40] I need to have two months of operating expenses in cash with zero drawn on a line of credit. I [00:12:45] need to be a 75% return on invested capital. are definitive things [00:12:50] that gives you trade off decisions of. [00:12:55] you know, I can grow well, but is growth good? Not all growth’s good. I got, I’m here to [00:13:00] tell you, you know, we have seen many times people have grown and made less money. [00:13:04] AJ: [00:13:05] Yeah, I think that happens. I think a lot. And you’ve, you’ve mentioned this term a couple of times. [00:13:10] It’s one of my hot topics for today because, and I love what you said, there’s lots of [00:13:15] numbers you can look at, but there’s only a few that are like really instrumental to [00:13:20] really understand. And up until the last year, I [00:13:25] had never even heard the term of LER Labor efficiency ratio, and [00:13:30] I consider myself. [00:13:31] Fairly savvy in the financial business world [00:13:35] and never had come up, not in school, not in [00:13:40] all the courses and all of the you know, I’ve done like anything from, you know, like [00:13:45] my financial, like MBA course to like, none of that had really like come up to how do you use [00:13:50] that? In business. And so I’d love for you to first of [00:13:55] all explain, because I think even definition wise, if you were just to go Google it, it’s gonna [00:14:00] be slightly different than how I believe you guys use it and practice it. [00:14:04] Greg: Actually, you [00:14:05] probably we, we’ve become known enough as, I mean chat, GPT has read both of my books, and [00:14:10] so it, it, it, it actually will give you an accurate you know, answer. [00:14:14] AJ: so [00:14:15] tell. [00:14:15] Greg: yeah. Yeah. And, and so it really requires a couple [00:14:20] of things to think of. Number one is revenues, the slipperiest number on the p and [00:14:25] l and. Probably to go back in [00:14:30] thought of why I started looking into this is I was frustrated [00:14:35] with the annual requests that I get from clients who wanna be [00:14:40] included in the Inc 500, Inc. 5,000 list. And I’ve long [00:14:45] since believe, I mean, granted, I mean Great Frank Magazine to generate awareness and yes, [00:14:50] it’s a great marketing tool and, and I, I, I get all that piece. From a metric [00:14:55] standpoint of growth of revenue is you are not [00:15:00] rewarding the most deserving companies because there’s a lot of [00:15:05] companies on that list that unfortunately I do know the background of that, that [00:15:10] revenue is about as worthless, you know, as, as, as it gets. And, and so [00:15:15] as they say in Texas, all hat and no cattle, I got revenue, but I ain’t got profit and I ain’t got margin, you[00:15:20] [00:15:20] AJ: Yeah. [00:15:21] Greg: So it really kinda led me down this path. When I was on the [00:15:25] EO Global Board I started working with this thing that I, that I, I kind of [00:15:30] keep in my hip pocket and we’ll, we’ll probably use it here soon, I came up with [00:15:35] basically a business health scoring metric that looked at [00:15:40] not revenue growth, but gross margin growth. [00:15:42] And the way we define gross margin is revenue [00:15:45] minus materials or con subcontracts, not labor. So I wanna [00:15:50] get to a gross margin number. That is the pure value of what’s left over for [00:15:55] your labor and your overhead to do in the business. ’cause everything else is really a pass [00:16:00] through, you know, at that point of materials or cogs. And, and so that gross margin is [00:16:05] the true economic top line of the business. And if you measure things off of it, well then we started [00:16:10] looking at, well, let’s measure things off of it. Well come to find out the more you study the data. [00:16:15] There is a very, very tight correlation of all labor. Doesn’t matter if it’s direct or [00:16:20] management, all gross wages not loaded for payroll taxes either. [00:16:24] Keep it simple, [00:16:25] just wages to gross margin. There’s probably 80 to 90% of the [00:16:30] businesses offer off of one simple metric. need $2, a gross margin for [00:16:35] every dollar of labor to hit my profit target, and [00:16:40] you couldn’t get more simpler than that. And, and then. [00:16:45] We can take it and split it between direct and management for a next [00:16:50] level view. [00:16:50] Now those that, you know, we, we look at total LER as a health diagnostic. [00:16:55] I mean, literally, I can look, I mean five minutes, I can look at a business and tell you [00:17:00] where its problem is [00:17:01] AJ: Hmm. [00:17:01] Greg: that that’s how simple the, the analysis is. [00:17:05] And once you look at it, you go, okay, well what can you do it? Well, let’s split it between direct and management and then let’s [00:17:10] watch it move across time. [00:17:11] If we’ve got some historical data. Compared to now, [00:17:15] and those individual measurements of direct and management is more about your labor [00:17:20] strategy of how you go to market. I, I can win the game a lot of different ways, but direct and [00:17:25] management play off of each other. If I go expensive, direct labor, [00:17:30] I gotta have less expensive management labor. I can go balanced between the two, [00:17:35] or I can go inexpensive direct labor. Then I gotta have a lot more expensive management [00:17:40] labor to cover the deficiencies of the direct labor that I. Get you in trouble. [00:17:44] AJ: Now the direct [00:17:45] labor revenue producing labor, right? [00:17:48] Greg: Revenue really, [00:17:50] essentially. Think of it like this and, and we don’t get too wrapped around the axle about it, so don’t, don’t overthink [00:17:55] it. Somebody that spends 30% or more of their time facing the customer or [00:18:00] doing, making the thing that you do happen, you know, if you’re a product or service business. [00:18:05] So, so really, I don’t care what their title says, we have plenty of people that have the [00:18:10] manager title that we put into direct labor. I. [00:18:12] AJ: Mm-hmm. [00:18:13] Greg: Matter of fact in our office, [00:18:15] I’m direct labor, I still face clients more than 30% of the time, you know, in billable work. [00:18:20] So let’s face it, I don’t want to do management labor. [00:18:24] I [00:18:25] like doing this. And, and so, so from that standpoint, but that’s really [00:18:30] just more, we call it a button, a bucket. Don’t split people. allocate. I’m an [00:18:35] avid anti allocator. I mean, in the world of accounting, accountants love to allocate things. [00:18:40] Allocations are just jobs programs for accountants. It, it just takes up time and, [00:18:45] and just pollutes the quality of the data. You know, at the end of the day, and [00:18:50] not gonna say that there’s no cases where you allocate, but it’s, but you [00:18:55] want to allocate as, as the last possible choice to get [00:19:00] clarity of the information. so at the end of the day, we call it a but in a bucket. Put the whole person in [00:19:05] into direct labor or the whole person in the management labor, watch it move across time. [00:19:10] Is it getting better? Is it getting worse? typically we don’t, like [00:19:15] month, months are highly inaccurate period of time. So we’re looking at rolling three is the shortest [00:19:20] period. We look at enrolling. 12 is your most authoritative period to look [00:19:25] at. then you can look and see at this mix. And, and for the most part, I mean, we. [00:19:30] Klan, I was talking to you earlier this morning. I mean, they, they’ve gone through this transition and they, [00:19:35] they’ve been growing, their total labor efficiency ratio had fallen [00:19:40] to below their minimum acceptable target, and, and it was [00:19:45] all in one place. It was in management labor. They had, you know, their direct, their direct labor efficiency actually [00:19:50] gone up, [00:19:50] AJ: Hmm. [00:19:51] Greg: management, they’ve gotten really heavy and lethargic, and, and this is [00:19:55] growing. [00:19:55] Companies fall into this trap all the time. Oh, we need to add people to this. [00:20:00] You, you might, but for every dollar of management labor you add, [00:20:05] you have an output component. And this is really why I think management LER was even a more [00:20:10] revolutionary component even total LER. [00:20:12] AJ: Hmm. [00:20:13] Greg: Because [00:20:15] you have something that your management labor has to attain to, it has a [00:20:20] definitive measurement that, that, you know, ’cause if I add management labor, okay, now [00:20:25] I’ve reset the target of contribution margin. [00:20:27] I. And then that works its way [00:20:30] up to then, you know, an estimate of revenue that we’ve gotta go get. And, and if we, [00:20:35] anything below that number is unacceptable. That, that’s just a definitive measure of, of, [00:20:40] you know, successful performance. [00:20:42] AJ: What would that be like? Would you say there’s like a [00:20:45] baseline of like what you would say? Anything below this is like. [00:20:48] Greg: now, now management labor, I [00:20:50] mean the individual metrics, there are some guidelines within certain [00:20:55] industries, you know, I mean, we, we have. You know, the one one we have a lot of mastermind [00:21:00] participants in, is it MSPs? And we, we kinda identified the neutral [00:21:05] success for Ms. P is a two total LER, like I said, [00:21:10] you want a 3.5 direct labor and a 3.5 management labor. [00:21:14] Now [00:21:15] those two are me. Those, those, those two individual components have a different numerator. So that’s the [00:21:20] reason why they’re the same number. You know, but, but we’ve got people that are above one and below the [00:21:25] other. [00:21:25] AJ: Mm-hmm. [00:21:25] Greg: But the two balance out to get you to the two, to the key is you gotta get to the two total. [00:21:29] AJ: Yeah.[00:21:30] [00:21:30] Greg: And then once you set them side by side, you start to realize, oh, you’re, [00:21:35] you’re pushing inexpensive labor, but you had to compensate with more management. [00:21:40] Oh, you’re pushing expensive labor and you’ve got a really skinny management. [00:21:44] AJ: [00:21:45] Hmm. [00:21:45] Greg: All of those have. think of it like this. If I have really expensive [00:21:50] direct labor and I have really inexpensive management, problem is I have nowhere to [00:21:55] go [00:21:55] AJ: Hmm. [00:21:56] Greg: and say My expensive labor, last time I checked, still [00:22:00] likes to get raises. Well, they’re already expensive. Can will the market let me [00:22:05] continue to charge more. Now when I go to the other end and I got inexpensive labor and I got [00:22:10] the management. That’s more of what I would call a team development model [00:22:15] of where, okay, I’m gonna grow these people and you know, we’re gonna go from [00:22:20] inexpensive, direct expensive management to balanced. [00:22:23] We’re, we’re actually moving [00:22:25] from that strategy to the balance mode. Once we get the balance, we have to decide, are [00:22:30] we gonna go all the way to expensive direct labor? Eventually, maybe, maybe not. [00:22:35] I, that’s the one where I typically find a lot of people are stuck. [00:22:37] AJ: Mm-hmm. [00:22:38] Greg: And they, they, they get some [00:22:40] terrorist on their, you know, a, a terrorist in labor is a person who doesn’t fit your [00:22:45] culture, but they’re a high producer. [00:22:47] AJ: Mm. [00:22:47] Greg: that, those, those are [00:22:50] people that, that, you know, when we look at it and Yeah, [00:22:53] Yeah. You, you kinda get stuck with those. [00:22:54] AJ: [00:22:55] it was, it’s interesting because I think one of the reasons that I was so drawn to this [00:23:00] concept of LER, labor efficiency Ratio is because me, [00:23:05] like so many other people, doesn’t matter how big your team is, you could have a team of one or a [00:23:10] team of. A thousand. There’s always this never ending [00:23:15] commentary and business of, there’s more work to be done than we have the team to [00:23:20] do the work. [00:23:21] Right. And there’s, there was. [00:23:22] Greg: it’s a, that’s not, and I’ll [00:23:25] give you a good data point for that. So in our most recent Horton class, and then I did the same [00:23:30] question the year before as well. W we get 60 entrepreneurs from around the world. All [00:23:35] different kinds of businesses. of the room. Will I ask a question? What [00:23:40] is your biggest constraint? [00:23:41] Getting revenue or getting access to labor? [00:23:43] AJ: Hmm. [00:23:44] Greg: Half of the [00:23:45] room is revenue. Half of the room is labor and, and what you typically [00:23:50] find the necessary businesses of [00:23:55] the marketplace are labor constrained. The discretionary [00:24:00] businesses in the marketplace are revenue constrained. [00:24:02] AJ: Hmm. [00:24:03] Greg: And, and [00:24:05] that’s become a very interesting learning over the last couple of years, is we, we, we keep a, what we call the [00:24:10] simple numbers a hundred company model. So we have a hundred of our clients that we put in a [00:24:15] model treated as one big conglomerate. ’cause it’s businesses from all over the us, all [00:24:20] different industries, all different geographies, since we’re not geographically centric and it, it’s our read [00:24:25] of the economy. [00:24:25] AJ: Hmm mm. [00:24:26] Greg: And one of the things that has really emerged in the last five [00:24:30] years going through Covid is this separation of the necessaries and the discretionaries [00:24:34] AJ: [00:24:35] Hmm. [00:24:35] Greg: and, and the discretionary businesses are getting their head handed to ’em right now. And [00:24:40] so, so when people, you know, in, you know, write articles or going the news and [00:24:45] start talking about the economy, I mean, they’re, they’re paying with a pretty big brush because I got news [00:24:50] for you. We got people that are crushing it and we got people that are hanging on for dear life. [00:24:53] AJ: Hmm. [00:24:54] Greg: And [00:24:55] everybody in between. Now we tend to like to think that we can move the [00:25:00] needle a little bit, you know, to the better. And we do, you know, but, but [00:25:05] still, I mean, there’s only so many things we can do when, when somebody’s facing a market, selling a product or [00:25:10] service, that there’s just not sufficient demand for, because they’re, the, the [00:25:15] people buying it are the bottom 60% of the wage force no extra money at the [00:25:20] end of the month. [00:25:20] They have to make hard decisions. And that’s, and we’ve been in that [00:25:25] mode for about 24 months now that those discretionary [00:25:30] businesses I mean, they’re hanging on like this, that they’ll have a good month, they’ll [00:25:35] have a bad month, they’ll have a good month and a bad two months, and a good half a month. [00:25:39] And, [00:25:40] it’s, it’s really schizo and, and that that consumer base that they’re relying on is [00:25:45] really struggling. [00:25:46] AJ: Hmm. [00:25:46] Greg: Whereas, you know, the other part of the discretionary market is [00:25:50] what we call the highly desired discretionaries. are the people selling to the top 30, [00:25:55] 40% of the wage earners, but still, you gotta fight for their wallet. [00:25:58] AJ: Mm-hmm. [00:25:59] Greg: mean, [00:26:00] even those people make discerning decisions about what they spend money on and they don’t [00:26:05] spend consistently, you know, that things will get hot and things will get cold. you know, [00:26:10] and, and so, and a good place that you can kind of see it right now is like in the restaurant industry. [00:26:15] The bottom end is hanging on. [00:26:16] Okay. their labor costs are high. [00:26:20] But you, you’ve seen them do everything possible to take labor out of the component. [00:26:24] AJ: Hmm. [00:26:24] Greg: [00:26:25] dining rooms, doing doing online ordering, doing ordering a [00:26:30] kiosk and all of those things. The upper end, they’re fine. They’re, [00:26:35] you know, if you’re good and you deliver, you do, you do good food and deliver good service.[00:26:40] [00:26:40] Your parking lot’s always gonna be full because there’s enough people that have the money, [00:26:43] AJ: Just, [00:26:44] Greg: to deal with you. [00:26:45] that middle tier that’s getting crushed. [00:26:47] AJ: Hmm. [00:26:48] Greg: TGI Fridays went [00:26:50] bankrupt. There’s a couple of other, you know, mid tiers that are teetering on bankruptcy [00:26:55] because their cost of elevated to the point that they just can’t charge [00:27:00] enough to cover those costs because it pushes ’em into that upper tier pricing [00:27:05] somebody will come in and go, well that was good. [00:27:06] It wasn’t that good. [00:27:07] AJ: Yeah. [00:27:08] Greg: And, and there’s a lot of [00:27:10] that. So there’s a lot of, you know, and every industry kinda has, you know, some of the, those same components I. [00:27:15] But if you’re in one of the necessaries, guess what? You can raise your prices to [00:27:20] whatever your cost input is. ’cause if you’re, you know, we, we have a [00:27:25] mastermind group, I’m about to go visit in the HVAC space, you know, they’re doing really [00:27:30] good now, they’re, they’re labor constrained. [00:27:32] ’cause there’s not people that are HVAC techs walking [00:27:35] around looking for jobs, [00:27:35] AJ: Sure. [00:27:37] Greg: But as those people have, as you keep having to pay those [00:27:40] people more. You just charge more [00:27:42] AJ: Mm. [00:27:42] Greg: when you’re cold, you need them. When you’re hot, [00:27:45] you need them, you [00:27:45] AJ: Yeah, I think that’s, that’s, that’s a good, I think that’s a good point of distinction [00:27:50] between, you know, what’s necessary and essential versus discretionary. And I think one of the things I, [00:27:55] I’d love for you to talk about too is like, because I hear this even in our own company, it’s like, Hey, [00:28:00] I feel like it’s time to hire someone. [00:28:02] And what I love about LER is [00:28:05] it tells you more data-driven of. Are you [00:28:10] in need of more staff or is that just a feeling [00:28:15] that’s amongst the team? Can, can you talk about that a little bit? [00:28:17] Greg: yeah, so once you, once you set the [00:28:20] parameter, so like I said, most people listening to this is they’re gonna fit that two profile. [00:28:25] If you’re a restaurant, you need to be a 2.5. If you’re a distributor, you generally need to be a 2.5. [00:28:30] I. you’re a union shop, you need to be a 2.5, but most everybody else is a [00:28:35] two. If you’re a staffing business, you’re kind of off the grid in a totally different mindset. You may be below a [00:28:40] two. So I’ll keep staffing businesses to the side, but almost everybody else kind of fits within those categories. [00:28:44] AJ: [00:28:45] Hmm. [00:28:45] Greg: If we establish, say, listen, you’re gonna, if you’re at a one eight, [00:28:49] AJ: [00:28:50] [00:28:55] [00:29:00] [00:29:05] Mm-hmm. [00:29:08] Greg: I want you to look around and [00:29:10] see, is anybody stressed? Are we running hot? [00:29:15] But if we’re not, let’s see if we can get to 2 0 5, maybe two 10. [00:29:20] find. If you have found a way to be marginally better than your [00:29:25] competition, and there’s a few times that. You’ll have windows of time. This won’t last [00:29:30] forever. got a, the, the click of a team that really gels [00:29:35] Your operating cost are optimized for the range of [00:29:40] revenues that you’re doing. And so this, you’ve got this window of [00:29:45] incremental value that just drops to the bottom line that gives you that extra little juice. [00:29:49] But trust [00:29:50] me if you grow, you’ll kinda lose it and, and it’ll still be okay. But, but. [00:29:55] And, and if you kind of hit that rough patch of the economy and [00:30:00] finally goes soft, it’ll, it’ll drop down as well. But you’re trying to live between that one, eight and, and the two, [00:30:05] and, you know, and when you’re, and, and if you’re not there, let’s say you’re, you’re [00:30:10] operating consistently at a buck 75. Alright, so we go into the three Ps. [00:30:15] Ps. First, I priced effectively? That’s my [00:30:20] first place I always go. Have you? Have you defended the [00:30:25] value of your team? And that is on management. Shoulders don’t be a [00:30:30] wimp. go defend for that value. there’s a lot more room [00:30:35] for pricing than most people believe [00:30:36] AJ: Hmm. [00:30:37] Greg: been our experience over the last, I mean, we’ve seen [00:30:40] more price changes in the last five years than we’ve seen in a lifetime. And so I’m [00:30:45] telling you, most people have not pressed the edge. [00:30:47] AJ: Mm-hmm. [00:30:48] Greg: Once I get to the right price though, and [00:30:50] I, and I can defend it and I’m getting the right value and I’m letting the bad customers go to my [00:30:55] competitors and I’m keeping the good ones and serving them, the next thing is process. [00:31:00] Have I given my team the right tools, [00:31:05] training? Are we getting things, you know, David Wessel’s, one of our lead [00:31:10] professors at Horton, you know, talks about speed and power equation. And, and I love that [00:31:15] power is margin pricing power speed is clock time [00:31:20] from beginning to end. There is undoubtedly any project that [00:31:25] expands in length of time becomes less profitable. And so, you [00:31:30] know, there, there’s a significant lack of a sense of urgency in the productive environment of [00:31:35] most businesses. [00:31:36] AJ: I agree. Mm-hmm. [00:31:37] Greg: I, I, I’ve gotta, I gotta a [00:31:40] culture of everybody’s on, on target. [00:31:42] AJ: Hmm. [00:31:43] Greg: Once I go through those two Ps, there’s [00:31:45] only one P left people. Do I have the right people [00:31:50] And to take a college football and basketball term, the the transfer [00:31:55] portal of business has some talent in it at the moment, don’t think it’s gonna be there [00:32:00] long, but there is some available talent that I would kind of [00:32:05] be paying attention to and you might be able to upgrade your team. You know, [00:32:10] there’s perfectly good players on your existing team that end up going elsewhere because [00:32:15] you had to sit down and have an honest conversation with ’em and going, you know, I like you as a person. You’re a great [00:32:20] person, I don’t think this is the best place for you in the [00:32:24] AJ: [00:32:25] Mm-hmm. [00:32:25] Greg: And you gotta have those honest conversations with people and [00:32:30] know. The, know, how many of us have had in our [00:32:35] working career before we became business owners? Somebody sit down and do that with, with us, [00:32:40] not very many. we had to kind of find it out on our own, you know, but Robert [00:32:45] Glaser is a longtime EO member outta Boston. I mean, Robert came up with this concept that we’ve used quite [00:32:50] successfully, and what I call the mindful transition, where I got a good person. [00:32:55] They’re not going to get to their personal LER. We can actually measure [00:33:00] LER by person, you know, so not everybody can, but with our metric approach to things, we [00:33:05] can, so I can look at somebody and go love you as a person. You’re just not gonna [00:33:10] produce that. I, I can’t, you’re using up a productive slot of the business that [00:33:15] is underoptimized. [00:33:16] AJ: Hmm. [00:33:18] Greg: That means there’s a better place in the world for [00:33:20] you. [00:33:20] AJ: Yeah. [00:33:21] Greg: hey, you know, if you’re not disruptive. [00:33:25] Don’t, you need to be looking, I mean, and there’s a good job market. There’s plenty of jobs available. I mean, [00:33:30] that’s the nice, nice thing about this time of life that’s not existed before is [00:33:35] economy might be kind of, eh, sluggish, but everybody’s got a job that wants a job. [00:33:38] AJ: Mm-hmm. [00:33:39] Greg: [00:33:40] not be the job you want, but sometimes you gotta work at a little bit. But, you know, we can give those [00:33:45] people extended, you know, 60, 90 days to go, go find another job. As long as you’re not [00:33:50] disruptive, you don’t make a, make a scene about anything, we’re fine. You know, we’re not. We’re not grossly [00:33:55] losing money, but we’re not optimized, you know, within that, and I, and I’ll give you a [00:34:00] great example of that to put in everybody’s head. [00:34:02] AJ: Yeah. [00:34:02] Greg: So in the world of car service, [00:34:05] auto, auto, auto service businesses, they actually pay mechanics on a, a book [00:34:10] rate. So if you’re gonna go replace a carburetor in a bus, in a car [00:34:15] book says, takes seven hours. So you’re gonna pay the, the service technician seven [00:34:20] hours, whether it takes ’em three hours or 15 hours. To replace that carburetor. [00:34:25] one of the most unique industries that exist [00:34:30] of paying people for the value of what was done, not the hours that was done. [00:34:34] AJ: [00:34:35] Hmm. [00:34:35] Greg: Now, labor requirements, you can’t pay them less than minimum wage, a pretty good [00:34:40] indicator. You got the wrong guy. unsuccessful people in the car service [00:34:45] industry that, oh, I don’t have to worry about under performers because I’m only paying [00:34:50] them for what they produce. [00:34:51] No, no. In a car service business, it is [00:34:55] the margin that goes through the bay a day, not [00:35:00] what you paid the person. if I have an underperforming [00:35:05] service tech that’s taking twice as long, yeah, I’m not having to pay him, [00:35:10] but I’m missing the opportunity cost of that bay turning over [00:35:15] activity. And I think we, we’ve got to look at our productive team. [00:35:20] Say, just because you’re not costing me money doesn’t mean you’re, you’re [00:35:25] optimized and, and you’re not in a good place, and we’re not in a good place because of that. And so if I [00:35:30] can’t get you up to speed, we gotta make a [00:35:35] change. [00:35:35] AJ: Yeah. [00:35:35] Greg: I know that sounds heartless and cruel, but there’s a, there’s a, like I said, [00:35:40] you know, Robert Robert’s demonstrated and we’ve been successful with that approach of going, listen, let’s just be [00:35:45] honest with each other. [00:35:45] We’ll help you you know, you don’t have to do the. [00:35:50] Friday afternoon, walk of shame with a banker’s box, you know, leaving under the cover of darkness, [00:35:55] and, and, and have people with some dignity. But everybody, I mean, [00:36:00] my energy level, because I get to do what I really like to do every day [00:36:05] at my age. Oh, man, I, I don’t think about retirement. [00:36:08] This is fun. Why would I [00:36:10] quit? [00:36:10] AJ: And I think that’s kind of to the point of what you were just saying too. It’s like if there is a, [00:36:15] you know, unproductive slot on the team, the likelihood they could be [00:36:20] productive elsewhere is a high potential. They’re just not being productive here. [00:36:25] So it’s beneficial to both parties and, and that’s what I love about this financial.[00:36:30] [00:36:30] And, and it’s interesting because this is a very HR written kind of talk around people, [00:36:35] but shows up in the financial statements. And I think it’s a really important connection, [00:36:39] Greg: The [00:36:40] important thing in the. [00:36:40] AJ: right? And it’s like, but that’s, I think a lot of people silos those two things and don’t look at [00:36:45] financial statements to make HR related decisions. [00:36:48] And this is combining those [00:36:50] things for an entrepreneurial company, you know? [00:36:53] Greg: and, and I think [00:36:55] you, [00:36:55] AJ: [00:37:00] [00:37:05] [00:37:10] Mm-hmm. [00:37:13] Greg: there for a reason. [00:37:15] But when, when you dehumanize people and, and think of, [00:37:20] you know, this is, this is a cost that just has magical properties when it [00:37:25] works. Now, one of the things I will say that we’re, we’re noticing, [00:37:30] so, so we’re in a period of the economy that, you know, like I said, I mean, if, if I look [00:37:35] at my model and you, you tell me what do I think GDP really has been? I [00:37:40] think we’ve been somewhere between zero and negative 2% GDP for about 18 months [00:37:45] on the data I’m looking at. And now it’s a really hard number to [00:37:50] measure, especially in a service-based economy. But that, that’s where my feeling is. for [00:37:55] every company that’s up, there’s a company that’s [00:37:56] AJ: Hmm. [00:37:57] Greg: And so, so [00:38:00] in, in that, you know, kind of environment, you know, of, of this flat economy. [00:38:05] What we’re, what we’re seeing is companies with good [00:38:10] cultures are starting to separate first time economically. Now, they were a [00:38:15] better place to to work, but rarely did they actually have better economic performance, [00:38:19] AJ: [00:38:20] Hmm. [00:38:20] Greg: which is sad. It’s sad to say, but people never talked about that. I take, take [00:38:25] away the, the Googles and the Facebooks of the world that make insane money and they can throw, you know, they, [00:38:30] they can buy you food every day and all that. [00:38:31] I mean, I’m talking about ordinary everyday businesses that we, we can’t afford that [00:38:35] kind of stuff, but we gotta have a good culture. We gotta have each other’s back. But there’s those ordinary [00:38:40] businesses that are the dirty job businesses that have great cultures [00:38:45] and, and those are, are separating, which I love it. [00:38:48] I mean, this is. Matter of fact, I [00:38:50] mean, I love this market more than any market I’ve ever worked in because [00:38:55] it’s going to show success for those who are best [00:38:59] AJ: [00:39:00] Hmm. That’s good. [00:39:00] Greg: the last 25 years has been the participation trophy economy. I [00:39:05] mean, the, the economy was growing so fast that you could roll out the ball and pick up a [00:39:10] game and you didn’t have to be good. And, and, and those people sucked up a [00:39:15] lot of the activity of the market. They should have gone to the better businesses. [00:39:20] Now this is, this is a good competitive market and if you wanna grow in this market, [00:39:25] you’ve gotta go take your fist and punch your competitor in the mouth and take their business away from ’em [00:39:30] because the market isn’t growing. [00:39:32] AJ: Yeah. [00:39:33] Greg: we’re in a market share [00:39:35] growth economy, not a growth economy. [00:39:38] AJ: Mm. [00:39:38] Greg: I, I just hope to get [00:39:40] my share of the new growth that comes along and. Be, be better than the others for the new [00:39:45] stuff that comes along and be better positioned for that. [00:39:47] AJ: But that’s a huge opportunity for people [00:39:50] who are the better business to take market share. [00:39:53] Greg: It’s [00:39:55] absolutely, [00:39:55] AJ: So, [00:39:56] Greg: we haven’t had to think about market share [00:40:00] acquisition for 30 years. [00:40:01] AJ: Hmm. [00:40:02] Greg: You know, probably since the nineties. I mean, the [00:40:05] nineties was probably the last time. You know, that, that the economy [00:40:10] probably had, had some vestige of a market share. You know, the, the [00:40:15] GE days of Jack Welch, you know, I mean, he, he, he, he talked about being number one [00:40:20] or number two in every market that they had a subsidiary in. You know, so he thought about that way. [00:40:25] We’re getting back to that kind of a marketplace, but even on a much broader [00:40:30] scale, [00:40:30] AJ: that’s even like for the micro businesses in local markets. And I think, and I, [00:40:35] and I, and I love this concept of LER for those reasons. There’s another concept that you [00:40:40] talk a lot though that I had also never heard about, which I’d love to talk about before we run outta [00:40:45] time, is contribution margin. [00:40:48] And so [00:40:50] similar to LER. Labor efficiency ratio for everyone. I’m gonna keep repeating that. This was [00:40:55] another term that was fairly new to me in this, you know, kind of [00:41:00] business owner world that has now become like the leading indicator of [00:41:05] our company health and had never heard about it a year ago. [00:41:09] Greg: [00:41:10] It, it’s a, it’s a, it’s a closer derivation to, from what we call [00:41:15] contribution margin. Most people would refer to as gross profit. [00:41:18] AJ: Mm-hmm. [00:41:19] Greg: I, [00:41:20] I’ll give Vern Harness credit for this. ’cause when I was writing the chapter for scaling up [00:41:25] back in 2014, and I was having a discussion after I’d written the chapter. [00:41:30] And I’d use the term instead of contribution margin, I’d use the term gross pro. Or actually, I, I used the [00:41:35] term gross profit instead of gross margin, and he recommended [00:41:40] eliminating the use of the word profit unless you’re talking about bottom line. And I thought [00:41:45] that was a very brilliant insight, you know, because he is exactly right. [00:41:50] so, but what already existed, which helped in terminology there, if [00:41:55] you look at QuickBooks. Traditional p and l, you’re gonna see a gross profit number, [00:42:00] or a, a term, which is after cost of good sold, which [00:42:05] includes your direct labor. [00:42:06] AJ: Mm-hmm. [00:42:06] Greg: were very adamant, we said direct labor should never be mixed [00:42:10] with something that’s not labor. Labor’s the only cost that comes to work every day with an attitude. It, [00:42:15] it has, it has a variable output component to it. And so once you [00:42:20] separate the non-labor cost of goods and then your direct labor. [00:42:25] wanted a clean term to call that we didn’t want to use gross profit ’cause that would confuse people with [00:42:30] gross margin. And so we, we, we said, well, it’s a subset, so use the word margin [00:42:35] and attach a modifier word to it. So we came up with contribution margin, was what we named it. [00:42:40] And essentially, you’re exactly right. I, I contend that contribution [00:42:45] margin is the most important number in the business because the [00:42:50] output of your business engine. [00:42:51] It’s the horsepower measurement. So when [00:42:55] you’re talking about buying a car and you want to know how, what, what’s the horsepower of that? [00:43:00] That that’s what contribution margin is. and so, but it’s a clean number with [00:43:05] only out, three inputs on what’s your revenue, your cost of [00:43:10] goods, of materials and subcontractors, and then what’s your direct labor? And, and [00:43:15] that’s direct labor with no add-ons or any of the other loads that are unnecessary. [00:43:20] You know, it, it’s, it’s a clean, clean, clean number. [00:43:23] AJ: Mm-hmm. [00:43:23] Greg: What we found [00:43:25] is one of the, some of our clients who use bonus programs, we [00:43:30] believe that contribution margin is actually the best critical number to base [00:43:35] performance measurement programs for bonuses and those things off of, because [00:43:40] it’s the number that everybody in the business can do something about. can do something [00:43:45] about contribution margin. costs that come below contribution margin [00:43:50] largely rest in the hands of the owners, or a handful of people in corporate [00:43:53] AJ: And what would you say, like [00:43:55] for everyone who’s listening, because I’m trying to, I wanna make sure this is in the show notes. What is the calculation for [00:44:00] contribution margin? [00:44:01] Greg: revenue minus cost of goods [00:44:05] minus direct labor. [00:44:06] AJ: Right. [00:44:07] Greg: three numbers. Now we draw our subtitle. So revenue minus cost of [00:44:10] goods is gross margin. gross margin minus direct labor is contribution margin. Now. [00:44:15] Contribution margin becomes the numerator that we [00:44:20] hold management labor to. this was, this was a huge, huge [00:44:25] thing. [00:44:25] So we, when we identified that, that started striking fear in the hearts of [00:44:30] management teams that we’d work with. we actually had a way to hold their wages [00:44:35] accountable to output. So they want, they wanna go on the top number. Well, [00:44:40] that, that’s the slippery snake. Not every dollar revenue is the same value. [00:44:45] That contribution margin is you had to sell it, you had to manage the [00:44:50] direct costs, and you had to manage direct labor. Those are the three primary functions of [00:44:55] management. I gotta be good at all three. I can’t just focus on one to the detriment of the other two. [00:44:59] AJ: [00:45:00] That’s good. [00:45:01] Greg: Yeah. And that’s, that’s why it, it, it is the supreme [00:45:05] number that really tells you the directional health of the business. [00:45:08] AJ: Yeah. And ever [00:45:10] since we started working with your team, it’s like we, we did, like we [00:45:15] reevaluated our entire bonus structure the, the financial dashboards that we look at [00:45:20] it every single week to make sure that contribution margin was the leading indicator of [00:45:25] what our management team is looking at to go, are we doing the thing that we’re supposed to be doing? [00:45:29] Greg: [00:45:30] Okay. Yeah, because, and, and think of it from the businesses that have a choice of either doing [00:45:35] something internally or contracting it out. Well the bene, the net [00:45:40] benefit of both of those activities fall into contribution margin. So I can [00:45:45] subcontract it, all of it, subcontract a piece of [00:45:47] AJ: Mm-hmm. [00:45:48] Greg: do perform, self, perform, all of it. [00:45:50] the same net number has to come out to justify the existing of [00:45:55] management that is down below that number and that ratio of output, a contribution [00:46:00] margin to a management labor dollar is really your north star of, of [00:46:05] management labor effectiveness. [00:46:06] AJ: Yeah. [00:46:07] Greg: we see this all the time as businesses go through growth [00:46:10] phases. We, I look at that management LER number and you’re growing, but your management [00:46:15] LER number’s going down or even staying flat, which is telling me you [00:46:20] continue to give away your gain to the management team in, [00:46:25] in labor costs, and you’re getting no leverage. [00:46:27] AJ: Mm-hmm. [00:46:28] Greg: should, that number should [00:46:30] get better as I get bigger, not flat to declining. [00:46:35] Same thing. Now we can take management labor, which generally also includes your sales labor. [00:46:40] companies. When we will take that number and separate it into two pieces of looking at sales labor [00:46:45] separately from management labor, we’ve identified many of flawed sales [00:46:50] compensation plans sales LER, which is based on its numerator’s [00:46:55] contribution margin as well, that sales LER is flat to declining, [00:47:00] which tells you I get no leverage from somebody selling more. [00:47:03] AJ: Mm-hmm. [00:47:04] Greg: mean, the, the [00:47:05] company has got to get a better end of that deal [00:47:07] AJ: Yeah. [00:47:08] Greg: you, you’re just, you, you’re [00:47:10] just running that, that wheel faster and faster and getting less and less out. [00:47:13] AJ: Yeah. It’s one of those, the [00:47:15] biggest lessons that I learned as a, a young entrepreneur is like, the number one reason most [00:47:20] companies don’t last is they simply run outta money. And that’s not revenue is that there’s [00:47:25] no money left over. Right. And at some point that’s, you know, it’s, it’s [00:47:30] mismanaged. [00:47:30] Financials isn’t the right word, but it’s a true lack of awareness of the different [00:47:35] levers that run a business. And that’s why I just, for everyone who’s listening, [00:47:40] I know that we’re talking about. Seemingly complex [00:47:45] concepts, but y’all, the book, simple Numbers and Simple Numbers [00:47:50] 2.0. Highly recommend the simplicity of taking these seemingly complex terms and [00:47:55] making ‘ em exactly what we just said. [00:47:56] They’re simple numbers that will help you guide your [00:48:00] business. And if you wanna learn more about what they do on a consulting and a, a [00:48:05] business aspect just go to simple numbers. CR i.com [00:48:10] and you can learn about all that. The thing that they do for companies, like they do for ours at Brain Builders [00:48:15] Group. [00:48:15] And if you wanna learn just more about Greg, you can go to greg crabtree.net. He [00:48:20] does speaking engagements. You can learn more about his books there. But these are [00:48:25] financial terms that help businesses and help personal brands ensure that [00:48:30] you have the runway to do the thing that you started out to do, which I think is. [00:48:34] Greg: Well, [00:48:35] well, I think, I think much in the way that, you know, you tell a story with somebody. Brand, [00:48:40] we, we essentially are storytellers with data because like when we did our planning session with [00:48:45] you, didn’t just look at the current snapshot of your financials. [00:48:50] just look at it compared to a single point in time. [00:48:52] In the past, we looked at it [00:48:55] across time in a flow state, and what we found is [00:49:00] when I can tell you a story about this is what the data’s telling you here, and [00:49:05] you think back to what was happening then. Here’s what the data’s telling you here and how [00:49:10] that’s reacting. You’re exactly right. I mean, the entrepreneurs [00:49:15] struggle with time, context of what they feel about [00:49:20] what’s happening versus what the data’s telling them, and what our goal is to get [00:49:25] those from a out of time sink into time sink. [00:49:27] AJ: Mm-hmm. [00:49:28] Greg: I want your feelings and the [00:49:30] data to be aligned, you know, at, at the time. And I think it, it is just a handful of [00:49:35] numbers that help you do that. [00:49:36] AJ: Yeah. And I would tell you every single time that I get on a call [00:49:40] with our simple numbers representative my feelings of [00:49:45] we’re not hitting our numbers, we’re not doing well, he very quickly is like, [00:49:50] what numbers are you looking at? Because when we look at the historical trailing 12 [00:49:55] months. You’re doing great. [00:49:57] And I’m like, we are, we are. And [00:50:00] it’s, again, back to it’s, the feelings don’t often match the facts, but you [00:50:05] gotta have the data in front of you to line those up at the same time. Okay, Greg, so I, I know [00:50:10] we have just two minutes left and I have two very quick questions for you. This is for. [00:50:15] The early on entrepreneur, and then also for the more advanced established [00:50:20] entrepreneur. [00:50:20] If they were listening to this episode, what would you say is the number [00:50:25] one action item that each one of those categories, the early on just getting started [00:50:30] and the advanced person should do leaving hearing this [00:50:35] conversation? [00:50:35] Greg: Well, in essence, a little bit of both, but especially the early on entrepreneur, [00:50:40] you’re trying to get the financial truth. And so we talk about this in the first book. Really, the first four [00:50:45] chapters of the first book is just primary reading material for that early, that million [00:50:50] dollar or below entrepreneur, because you gotta get your salary set to a market wage. You [00:50:55] gotta eliminate distortions in your data so that you’re being honest with yourself about the [00:51:00] economic truth so that you can set pricing process people, you know, to get [00:51:05] those things aligned. But you’re gonna get to that, your, your signature LER number [00:51:10] is going to come very, very, very early in your business, probably somewhere in the [00:51:15] 500 to $750,000 range once you’re a larger business. [00:51:20] It’s reminding them of what the things they did that got ’em there. [00:51:23] AJ: Hmm. [00:51:24] Greg: Because they [00:51:25] tend to start to think, oh, we’re a bigger business and we should act differently. So no, [00:51:30] no. I mean, you need to hold on to that profitability back there. [00:51:35] and I think for the bigger business in a market like we’re in, you’ve also [00:51:40] got to understand that if we’re not in an expanding marketplace like we have been [00:51:45] in, where do you settle out? [00:51:47] Are, you know, I mean, you can’t just sit still. I mean, you’re [00:51:50] always gonna grow, prune, grow, prune, even if you stay at the same revenue number. You’ve got to really [00:51:55] have a strategic decision of looking at your market and saying, how do we gain market [00:52:00] share? And when do we get to where the next percentage of market share isn’t worth it? And [00:52:05] there’s a point that we always get to. And then, what is your strategy from there? And I’ll just [00:52:10] plant the seed and we’ll talk about this on a later podcast. The emerging trend [00:52:15] that I love, and we got multiple clients now that do, this is what I call the emergence of the [00:52:20] portfolio entrepreneur. [00:52:20] AJ: Hmm. [00:52:21] Greg: You’re going to optimize the primary business you’re in [00:52:25] and then start another business that may be in a totally different industry [00:52:30] and, and we’re seeing people stack, you know, 5, 10, 15 business [00:52:35] units together with one. I mean, business is business at the end of the day. [00:52:40] You know, leadership is leadership. HR is hr. You know, marketing is marketing. Yes, you use [00:52:45] different techniques, but the concepts are essentially transferrable across many business [00:52:50] platforms. So this idea of, you know, running, you know, a, a multiple [00:52:55] business optimized entity with a very thin, not a heavy corporate structure, [00:53:00] but just the right amount of leadership and skillset that can be more effectively [00:53:05] utilized across multiple businesses instead of one. That, that’s an emerging trend [00:53:10] that I think you’re gonna see a lot more of. [00:53:11] AJ: Hmm. Yeah. And I, I have seen that [00:53:15] in our entrepreneur community not just here in Nashville, but across the country. [00:53:20] All right, Greg, last question. In the financial worlds that [00:53:25] you live in, but also in the entrepreneurial community that you live in, what does [00:53:30] influential mean to you? [00:53:34] Greg: [00:53:35] That’s a, a question I’ve never been asked. I mean, I, I think [00:53:40] influential is someone that is, is a go-to [00:53:45] person. I. So not so much trying to be influential, [00:53:50] but it’s someone that is sought out [00:53:55] you know, is the, the word that comes to mind is kind of an anchor. You know, [00:54:00] Hey, I want to anchor myself in good wisdom, founded [00:54:05] principles, and, and, and, and somebody that, you know, [00:54:10] kind of sets helps you set the cornerstones of the playing field. In that [00:54:15] and, and I think, you know, influence is not necessarily always something that’s pedaled. [00:54:20] It’s more so of, of something that’s maintained. [00:54:22] AJ: [00:54:25] I love that. This has been so good. Y’all, again, I [00:54:30] can’t iterate this enough. And reiterate, it’s like the book is a wealth of [00:54:35] value. It’s like you’re gonna get an entire financial degree for roughly $25. [00:54:40] So, get the book check them out simple number c i.com. [00:54:45] Also, feel free to learn about [email protected]. [00:54:48] Greg, thank you so much for [00:54:50] being on the sh