In this podcast, Rob Slee, author of "Time Really is Money: How to Work for $5,000 Per Hour," talks about:
- Definition and importance of culture building, niche conglomerate creation and business model transformation;
- Why businesses are resistant to becoming real niche businesses;
- What the mashup concept is and how it can be used in private businesses;
- What are the roles of $50/hour, $500/hour and $5,000/hour business owners; and
- Why owners find it hard to translate strategy into tactics.
About the Guest
Rob Slee is the founder of Midas Nation, a community dedicated to helping business owners dramatically increase the value of their firms. Rob is also the president of Robertson & Foley, one of the top private investment banking firms in the United States that provide sophisticated finance solutions to middle market companies located throughout the world. Rob has authored more than 250 articles on private finance topics in a variety of legal and business journals. Rob's book, "Private Capital Markets," was published in 2004 by John Wiley & Sons and is the first book that surveys the private capital markets - the last major uncharted financial markets.
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Read the Full Transcript Here:
Josh Patrick: Hi. Today’s podcast is going to be with Rob Slee. Rob is an old friend of mine and we have talked for years and years and years about the topic of how you become $5,000, $50,000, or even a $5 million/hour entrepreneur. Let’s talk a little bit about who Rob is before we bring him in. He’s an author, an investment banker, a mentor, and a business owner. He has authored more than 300 articles on private finance and a variety of legal and business journals. Rob has written five books. "Private Capital Markets" is considered the seminal work in financial private companies and if you haven’t read it and you’re trying to do valuation work on private companies, you’re probably not doing it right. I think it’s the best book about how capital works for private businesses.
He has owned equity positions in more than three dozen mid-sized private businesses and has mentored more than 100 companies. He recently completed his first unicorn, which is a business that is so far out of the norm of value that it just happens once in a zillion years. He is a Phi Beta Kappa graduate of Miami University, received a masters degree from the University of Chicago, an MBA from Case Western Reserve which makes him one of the smartest people I know. Rob is still best known as a father of Jen and Jessie, his identical twin daughters. Let’s bring Rob in. Rob, how are you today?
Rob Slee: I’m fine, Josh. Thanks for having me on today.
Josh Patrick: It’s really a pleasure. I’ve been looking forward to this conversation for a long time. I just finished your book over the weekend and it’s one of those books I think is a must read.
Rob Slee: Well, I’m glad you said it because I’ve been telling the world and I might as well say it on tape that there’s only two people in the world that could have written that book – you and me. I just beat you to it.
Josh Patrick: Well, you might have been a little right but you have more legitimacy than I would. I don’t think anyone could have told the difference of the book. I think it will read pretty much the same. Well, thank you. So in there you talked about three of my favorite things. Anyhow, they comprise about $5,000/hour - it’s culture building, niche conglomerate creation, and business model transformation. Can you give us a definition what each are and why they are so important?
Rob Slee: Yeah, culture, it always seems to get the short shrift from business owners in that they just let the market kind of set their culture. I think culture is probably the most important thing. I think culture eats strategy for breakfast. I think culture is just how the air in which you’re going to do business, the environment and the expectations, and how you’re going to treat each other in business. What we learned in the big breakthrough because this book came out of the five-year mentoring exercise was when we started creating cultures of value creation in all of these companies, what I meant by that is the owners can’t be the only people who are thinking about value creation and when we started getting all the employees to start working on their own hourly rates and their own hourly activities that created value, it all happened. That created the culture of value creation.
Josh Patrick: So it covers culture building. How about niche conglomerate creation? I mean first of all, what is a niche and then what is a niche conglomerate?
Rob Slee: I start out most of my talks with “My name is Rob and I’m a niche-aholic.” Everyone says, “Hi, Rob.” I know it’s a little dorky but at the end of the day, I think all new middle market companies are amalgamation of niches. So these are this defensible little places in the market that you find these niches. If you start asking around of what have you tried to buy in the last six months, by the third time somebody says, there are people say the same answer, “Ah, I get this bright idea that I can go form a niche around that,” they tend to be a small revenue size with high profitability and a niche conglomerate is when you string a bunch of these niches together, you might consider it. The metaphor is each niche is a branch off a tree and the tree trunk is the same intellectual capital. So all the branches are leveraging the same know how, that’s a niche conglomerate.
Josh Patrick: Just out of curiosity, would you consider Apple a niche conglomerate?
Rob Slee: Yes, I consider Uber a niche conglomerate because there’s an essential truth about Uber and Apple and then they just hang. Now, obviously these niches can be multibillion dollar niches in the case of Uber and Apple, but yeah, I think almost all successful businesses in this new age, I read about transformation age are niche conglomerates.
Josh Patrick: So that is something that is important for people to realize that a niche, although usually less than $5 million doesn’t necessarily have to be one.
Rob Slee: Right. For us, for our purposes because we’re sort of the little guys in the market, typically, yes, it’s going to be less than $5 million for us, but for Uber and Apple, obviously, it can be different.
Josh Patrick: Yeah and you can build something that has huge margins with these small niche conglomerates.
Rob Slee: Right.
Josh Patrick: So let’s go into business model transformation. What do we mean by that?
Rob Slee: Business models are highly organized to meet your goals and what we found is quite a trial and error process. You know, I’m going to be distribute 2x4s and put them on the truck and take them to the job site. That’s the old traditional sort of model. Now, there’s probably 10 different ways to organize every activity and it takes a while to figure out which ones are the most effective to the customer for most effective delivery plus least cost delivery. I’m talking about product and services here. Business model has always been the toughest thing for me because I don’t ever come out of the shoot, out of the gate, no one what is going to be the most effective business model. Once I discover a niche then I have to discover what’s the best way to organize, to deliver that product or service.
Josh Patrick: So how many business models do you think exists, Rob?
Rob Slee: It’s infinite number especially in this digital age. Another way of saying transformation age is the digital age. What has happened is you can deliver a product or service in any of the million different ways and you might have the same product with a business model which are a different business model in the US versus Canada versus Mexico because the process of delivery are highly organized around that model or tool are different.
Josh Patrick: You said definite. I have a friend and actually you interviewed him, Rob Rothman, who has a niche conglomerate all over the world and every one of his operations is like a completely different thing.
Rob Slee: Yeah, he was the star of another book I wrote, "Midas Marketing." He had his own chapter.
Josh Patrick: Yes.
Rob Slee: That’s how impressed I was with him.
Josh Patrick: Yeah, he’s a pretty impressive guy.
Rob Slee: Yeah but he was in the forefront of building global niche conglomerates on the private side. We’re used to thinking of conglomerates on the public side but Rob, I think, is the forerunner for that.
Josh Patrick: Yeah, his conglomerate is markets it’s not products.
Rob Slee: Right.
Josh Patrick: He sells the same product in about 15 different places in the world with 15 different business processes.
Rob Slee: That’s right.
Josh Patrick: So it’s really an interesting thing. Let’s go talk about niche-aholic. I know that’s how you introduce yourself and I also introduce myself that way. What is it and why do find the businesses are so resistant to becoming real niche businesses?
Rob Slee: Yeah because it’s a trial and error process built on failure. The thing about a niche-aholic is that you don’t wake up in the morning saying, “Aha, I know the niche and I know the model.” It doesn’t work that way. What happens is you get out in the market, you slug it out, and you fail like you and I talk all the time, you fail fast, you fail cheap, finally, you get a little bit of traction, we call it “Somebody’s eating the dog chow.” Well, are there 10 people that always eat the dog chow? Most owners don’t want to be that aggressive towards managing their business because it’s an aggressive form of management, constantly failing and constantly attempting stuff that you know probably will fail, but true niche-aholics don’t let to stand in the way because they know that’s the path to building a niche conglomerate and it’s the only path, this trial and error, as much as I hate to say it.
Josh Patrick: Yeah, I would agree with that. Also, I find that most business owners hate saying no to anybody who will pay them something to do something.
Rob Slee: Yeah that’s right.
Josh Patrick: I don’t know if this is your experience. My experience is getting it’s getting the business owner to say no that keeps him from developing a niche.
Rob Slee: Yeah, I agree with that. It’s tricky. I think it all goes back to why most business owners, mostly 80-90% are in business to begin with. It’s in my opinion to build a lifestyle, a comfortable and rich lifestyle where they can hopefully enrich their family. It never becomes, never was never becomes, “Well, what I think I want to do is build a business, an entity that’s worth $50 million. I’ll do what needs to be done.” It just isn’t the thought process for most owners.
Josh Patrick: No, most owners get in business because they are unhappy with something not because they want to do something positive.
Rob Slee: That’s exactly right and so that just keeps going throughout their whole life and after about 20 years of ownership in that vein, it’s really difficult to change their spots and say, “Well, I think what I’m going to do is go into an aggressive form of failure.” It just isn’t going to happen. I’ve never met the owner who would do that.
Josh Patrick: I want to move on skills you can’t learn in college. It’s another area you and I have lots of conversations about. Why is it to know the skills you can’t learn in college and what do they do about moving to becoming a $5,000 per hour owner?
Rob Slee: I’m real down on the way we teach MBAs. I’ve read two textbooks that are used in hundreds of MBA schools around the world so I’m in a lot of MBA programs speaking and unfortunately, the whole MBA thing is taught for the corporate ladder, success in the corporate ladder and my book is all about success on this ladder you create yourself, the value ladder if you own your own time or business. It’s a value ladder, a totally different proposition than the corporate ladder. I play both and I’m telling you, there are two different ladders, two different sets of skills. Now on the value ladder, It’s a big street fight as you try to climb the ladder and it isn’t about what tie, color of tie you’re wearing and how you present yourself in a meeting. It’s a lot of negotiating and it’s a lot of nitty gritty sort of get in there and fight your way up the ladder. You only go as far as what you’re willing to take yourself. You’re not proving anything to anybody else along the way. You’ve got to make it happen. That just doesn’t lend itself to formal education, those skills apparently because I don’t know of any school that teaches them.
Josh Patrick: I would also submit that the business schools, teachers, students that there’s unlimited resources and if there’s one thing that privately held businesses don’t have is even close to enough resources ever.
Rob Slee: Well, that’s what drives me crazy about corporate finance versus the middle market finance, which is what the new field of study my one textbook product, "Capital Markets," created. In corporate finance, the underlying assumptions are all invalid and when applied to a private business and I showed this chapter after chapter, but if you come out as an MBA and I have an MBA, so I could say. I’m not throwing stones at other people like myself. What happens is you come out as an MBA and you think all that stuff applies in the private side and frankly, it will bankrupt you. It almost bankrupted me 30 years ago. I almost failed to do it. It’s just horrible trying to apply all that stuff I learned in MBA school.
Josh Patrick: Well, that’s what my experience was. I worked with a business owner who has got MBAs and I said, “Well, we have one or two things that we can do. We can either retrain your MBAs or fire them.”
Rob Slee: Yeah. You know, I won’t hire an MBA. I own all these companies and frankly, I can’t remember a single instance where I had an MBA working for me just because it’s a fish out of water sort of thing. They just don’t like the street fight. They are not equipped to deal with the sort of street fight that it is trying to grow a private business.
Josh Patrick: Yeah, I actually don’t blame the people. I blame the education that we see.
Rob Slee: The same here. They never stood a chance on Main Street. I tell them to stay on Wall Streets, stay on the corporate ladder because that’s what their skill sets, their education is meant for.
Josh Patrick: That makes good sense to me. Let’s talk about mash ups because I find that that concept turn off a lot of people is really pretty confusing. First, can you explain what a mash up is and second, can you give us a couple of examples of how it is being used in private businesses?
Rob Slee: A mash up is sort of a new word, I guess, where you take several attributes and mix them together to form a new value proposition, so to speak. It started in the music industry maybe five or eight years ago where musicians started mashing up several different styles of music to create a whole new sound of music basically – not the sound of music but a different sound in music. Then business started using it for various software programs. They started saying, “Well, let’s take a little bit of this" and most of us would know it through GPS software where you’re taking several different databases. In some cases, some of that is like crowd source where people are seeing traffic stops and other things and they are reporting that in. Another is the pretty maps within the software and at the end of the day, the GPS software, and there’s a bunch of them now. Waze, I guess is probably the top one now but at the end of the day as the user, we just see the fine old product. What we don’t see is there are three or four very interesting, quite different programs that were mashed up and brought together. We just see the mashed potatoes. We don’t see all the ingredients behind it and that’s what mash ups are.
Josh Patrick: if you were advising the private business, how would you suggest they go about thinking about mash ups and how they could apply it to their own business?
Rob Slee: I think we all have to do mash ups. I think about mash ups probably everyday and the reason is we’re used to in business linear value proposition. They want a value proposition is answering the question what’s in it for me. All your customers is constantly asking that, “What’s in it for me? Why should I buy your stuff?” If you just have a linear value proposition, if you sell them a 2x4, there’s no way to really differentiate your 2x4 and your service from everybody else, but if you put, three, four, or five different attributes with that 2x4, so you end up selling in this metaphor or framing package or let’s say you take it the whole way and you sell them the complete house. So you’re working with the developer and you’re no longer just an independent 2x4 seller. You say, “You give me the design and I’ll not only supply the 2x4s but I’ll mail them all together and you end up with a full house.” That’s a mash up. If you don’t that, you don’t have any competitive advantage anymore so you have to do mash ups to have a competitive advantage.
Josh Patrick: Cool. Here’s something that I find interesting. In your book, you talk about several different value chain and different roles from the owner and some of them are worth $50/hour, some are $500/hour, some are $5,000/hour. I’m not going to ask you about the $50,000 or $5 million, but what kind of roles would an owner be playing in $50, $500, and $5,000/hour work?
Rob Slee: Yes and this was the big breakthrough in the book. It dawned on me three, four, five years ago that the market prices, every activity in the market, and we’re all sort of used to the under $100/hour pricing because the people who take the garbage get maybe the minimum wage or the people that do bureaucratic work and collect payables or something $20/hour, but it turns out it keeps going, that the market, the value, is probably the better way to say it, all activities – tactical and strategic. So the $50/hour is the beginning of the value ladder and that’s where the owner of their time, not just business but we’re talking about freelancers as well, giggers in this gig economy. The owner of their time is the value proposition. If Rob Slee is a good copy editor, I would put myself out as a copy editor for $30/hour, whatever it is, and people hire me, they hire the owner of the business because they believe that Rob Slee is a good copy editor.
It’s hard to create value at that level, right, because the dollar is going add up and up. It starts to get more interesting at $500/hour where the owner, now we’re pretty much talking businesses now is the creator of all these value propositions, not just the customers but to all the other stakeholders of the firm, employees, vendors. You’ve got to create “what’s in it me for me” solutions for everybody, right, so everyone knows what their role is and can do it successfully, but the owner is the monkey in the middle at $500/hour. This is where most owners are, by the way. they are less than $500/hour and they are in this vein of they create this value propositions and they are the ones that have to deliver all of them. So they never get away from the business. it’s like a tornado circulating around them, the business, and they are right in the middle and it isn’t as calm in the business tornado as it is in middle of an ancient tornado. That’s $500, $5,000 is where real value creation happens, $5,000/hour activities and we talked about that earlier. That’s the triad of culture market and model, bringing those together. That’s really what it is and that’s the value added. Keep going up each of those steps.
Josh Patrick: One thing that I’ve noticed over the years is having owner doesn’t bill to spending most of their time in $5,000/hour activities, they haven’t created a salable business either.
Rob Slee: That’s right and that’s what it says. Once you get to that level, you have all the exit options available to you plus your life is pretty good. One thing I don’t talk that much in the book but the fact of the matter is the higher you go on this value ladder, so by the time you get to $5,000/hour and that may take a number of years. Nobody goes there day one but you may only be working a day or two a week. Because there’s only so many $5,000/hour activities in any one time period, so most of the owners we mentored by the time we got them to $5,000/hour activities, they weren’t working two days a week. That freed them up to think about stuff.
Josh Patrick: And I know that when we’ve done this work with people, they typically start off saying, “I need to sell my business yesterday.”
Rob Slee: Right.
Josh Patrick: And by the time they get to be $5,000/hour, they get amnesia about every wanting to say I've sold their business.
Rob Slee: Yes, they won’t sell and they don’t need to because frankly, that’s when they’ve met - lifestyle meets business value creation. You can have both and most of the popular literature and the people that talk about this stuff seemed to preach that you have one or the other, one choice or the other, and I know you and I preach the same thing on this. You can have both. You just have to institutionalize your know how in the business, you’re not having to do everything.
Josh Patrick: Yeah, I think that that’s absolutely true. When you’re climbing the value ladder, you talk about not being an all at once thing that you sort of have to go through stages.
Rob Slee: Nobody can jump rungs and this is the big mistake younger people make. I'm not going to point at certain ages but a lot of younger people want of sort of be at that $500 or $5,000 activity without having really built the skill sets because what does a $50/hour stuff do? It builds skills sets so then you can make the climb up and at $500/hour, you’re building systems around you. At $5,000, you’re sort of institutionalizing all you know in these systems. You can’t jump rungs. Nobody can. I know it looks like on somebody’s unicorns like Uber and stuff I built that we’re jumping rungs, we are not because if you jump a rung and don’t solidify whatever the system is or the skill sets, you will fall right back down. You may get to $5,000/hour but you’re coming right back down to earth.
Josh Patrick: That fits in perfectly with all the researches I’ve read on structural dynamics within companies which is you have to start at stage one before you can get to stage 2 otherwise, stage 2 never happens.
Rob Slee: That’s right and that’s what we learned too. As we were mentoring people up their own value ladders, what we found is, “Hey, if it takes a year or two to move from one rung to the next, that’s fine. It takes whatever it takes. You’ll get there." Typically, we were getting people up to spending most of their time on $5,000/hour activities in three years. Everyone can do that, by the way. That’s not an economic DNA issue. Everyone has enough economic DNA to get to $5,000/hour, which is good.
Josh Patrick: I think that’s very cool. We have time for one more question and my question is, why is it so hard for owners to translate strategy into tactics? Kind of postulate around this, is it possible that owners don’t understand what they are talking about when they start talking strategies?
Rob Slee: Yeah and this is what we found. What we found is we were earlier on in our mentoring program before we had figured any of this stuff up that’s in the book, we were trying to paint strategic pictures with a broad brush and then hope, you know hope is not an effective strategy I write in the book, hope that the owners could then sort of head in that direction and it turns out that transmission between the strategic picture of a strategic endpoint and what goes on at a daily basis is unknown to owners. They are not educated, they have never been trained in it, and that is what forced us to break all this down by the hour. When you start reading the chapters in the book that are $500 or $5,000/hour, what we would literally do is every week, we would put the four activities, no more than five, there are four or five activities the owners is allowed to work on that week with the number of hours they are allowed to work. That’s how we translated strategy down to tactics for the owner and then they would do the same thing and sort of water fall it down to all their employees. That was the only way we could do it. We couldn’t do it by some intuitive sort of process. it had to really be a blueprint of that to that degree.
Josh Patrick: Hey Rob, thanks so much. I think we’re out of time. So for all those listening, you do, you want to get Rob’s book and the name of it is "Time Really is Money: How to Work for $5,000 Per Hour." Rob, how would someone contact you and how would they find the place to buy your book?
Rob Slee: It’s available everywhere, ebook and paper back on Amazon is where most people buy it. So I suspect that’s where they should go. I hang out and I ran a weekly blog on LinkedIn free for everyone called "The Midas Nation Group." That was the name of the mentoring organization we founded five, six, or seven years ago, Midas Nation Group. You can join that for free and what will happen is there will be some high octane conversations out there about all that we just talked about. That’s how people can get a hold of me.
Josh Patrick: Cool. Rob, thanks so much for your time today. I really appreciate it.
Rob Slee: Nah, thank you, Josh. It’s good talking to you.