Podcast: 6 Key Components of the Entrepreneurial Operating System
In this podcast, Mike Paton explains the 6 key components that make up the Entrepreneurial Operating System and how to implement EOS in your business.
In this session, you will learn about:
- The 6 key components that make up the Entrepreneurial Operating System (EOS);
- Simple tools that will help entrepreneurs get what they want out of their businesses;
- How the 20-80 approach can significantly cut down your time spent on getting 100% compliance in routine processes;
- A different way at looking at data; and
- The role of the visionary and integrator in an entrepreneurial organization.
About the Guest
Mike Paton has spent a lifetime learning from and sharing with entrepreneurs. The product of an entrepreneurial household, Paton cut his teeth in banking before running (or helping run) four small, growing companies. Currently, he helps entrepreneurs clarify, simplify and achieve their vision by mastering the Entrepreneurial Operating System (EOS).
Paton discovered EOS while trying to run a $7 million company in Minneapolis. Drawn to its simplicity and usefulness, he quickly became a passionate advocate of the system and leader of a vibrant and growing community of professional EOS Implementers, clients and fans. In 2015, Paton transitioned into the roll of Visionary for EOS Worldwide.
An award-winning speaker and best-selling author ("Get A Grip: An Entrepreneurial Fable" - with EOS creator Gino Wickman), Paton has conducted more than 1,000 full-day EOS sessions with leadership teams of more than 100 companies. He's also helped thousands more business leaders at dynamic, value packed keynote talks and in-depth interactive workshops.
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Read the Full Transcript Here:
Josh: Hey Mike, how are you today? Glad to have you on our show.
Mike: Thanks you, Josh. I'm great. I hope you're doing well as well.
Josh: I am, thanks. So let's start off and talk about what the EOS system is and why somebody might care about that.
Mike: The EOS stands for Entrepreneurial Operating System and it's just a simple way of operating a fast moving, growth-oriented organization and people might care about it because the vast majority of entrepreneurs and their leadership teams aren't getting everything they want from their businesses and we feel very strongly that EOS has a set of holistic concepts and practical tools that will help most entrepreneurs get what they want from their businesses.
Josh: So there are six pieces to the EOS system. What are they?
Mike: Well, we believe that all businesses have six areas, or we call them key components, where when they are strong in that component, all the pieces tend to fall into place and when there's weakness in that component, things become a little more difficult, challenging, organizations, and people get stuck, etc. Those six components are the vision component, the people component, the data component, the issues component, the process component, and the traction component, and I know we're going to go into a little more depth in each of those areas over the course of the next 20 minutes or so.
Josh: Yes we are. So let's start with vision. Why is vision so important?
Mike: Well there has never been an entrepreneurial company on the planet without any vision. In most organizations, there's too much vision. Once there's more than one person in the company, we find that even slight differences in people's views about where we're going, how we plan to get there, what's most important this quarter, what we're going to save until next quarter, what our core values are, key questions like that, everybody in the organization needs to be 100% on the same page with where we're going, who we are at the core, how we plan to get to where we're going, and so that's why the vision component is so important.
Josh: So if somebody is not on the same page with the vision of where the company is going, what should the CEO or owner of the company do about that?
Mike: Engage in dialogue is the simple answer. Make sure that every member of your leadership team understands your vision. I'm a visionary entrepreneur myself and I’m guilty at many points in my career of believing that since the picture of where we're going and how I plan to get there is crystal clear in my head, everybody else in my organization must know and must agree, and so the very simple answer is get everybody in the room who is a stakeholder, make your vision crystal clear. Get your team to align around one vision, working together with that leadership team and those who can't align may not be a great fit for your company.
Josh: So would you recommend that those who don't align is probably best for them to leave the company?
Mike: Yes, in most cases, there is some turnover on the leadership team of an entrepreneurial company that begins implementing EOS. A little more than 70% of the time, we find one or more significant changes are made, but it doesn't happen immediately and it's not something to take lightly. You know the first step is engaging everybody in a healthy dialogue that is sometimes filled with conflict and by discussing and debating the vision, the core values, the core focus, we can go into more detail about the specific elements of our strategic planning tool. By having those discussions and debates, it's not unusual at all for the visionary's path of achieving his or her vision to be influenced by the rest of the leadership team. So often, the team working together does better work in terms of its ability to execute on the vision than just by having somebody pass that vision on down from high.
Josh: That makes a lot of sense. You just talked about something. You mentioned a word which is one of the things I really liked about the EOS system and that's the word ‘tools’. Could you talk about how having tools in a general sense and then more specifically about your system why tools are so important as part of getting everybody on the same page and going in the same direction and doing the same stuff?
Mike: Yes. It's absolutely central to what a company running on EOS needs and gets, and that is simply this - the abstract concepts, the management fads, the silver bullets, the great business thought leadership that's out there in the world is only as good as the leadership team's ability to implement and master those concepts. without a set of simple practical tools - a roadmap, a hammer, a screwdriver, a wrench - without those tools that help a leader and a leadership team transition in the way they have innately learned to run their own organization to the way they can work together with others to run the next generation of that organization is almost impossible. When Gino Wickman, my co-author, my business partner, my mentor created this system, it was that desire to give simple practical tools to the average entrepreneurs, the average managers and leaders and supervisors out there that really drove his thinking and is central to our work.
Josh: So you just mentioned something again which I think is just crucially important is sort of the anti-MBA principle which is simplicity. So what's your experience with people putting in tools that are too complicated versus your very simple tools which work really nicely?
Mike: Yeah and I would say right out of the gate, there are lots of very complicated systems and tools that work beautifully. It's important that your listeners understand our target market and our audience for EOS, and that is entrepreneurial leaders and their leadership team. When we're talking about entrepreneurial companies, we're talking about companies that have 10-250 employees, $2 million to $50 million in revenue. They are not necessarily funded by venture capital firms or private equity firms. They are funded out of somebody's wallet. They are often started in somebody's basement or garage. That's our target market and for those people, simple and clear and the shortest distance between two points is a straight line kind of thing tends to work best and be adapted comfortably, not just by the smartest and most well educated and most experienced people in the organization, but then a rapidly growing company and need your whole team to get their arms around what you're trying to do, and so we find for that purpose in that target market that simple and practical is better.
Josh: Well, that's great because your target market is our listener pool.
Mike: Perfect. That's great.
Josh: So we’re in the same place then. Let's talk about process a bit because again, this is one of those areas where people often get way more complicated than they need to be. How do you go about processing? You know, one of the things I always tell people, "If you want to have a sustainable business, it has to be systematized,” and as soon as I say that word, people start cringing and going for the corners. How do you get past that?
Mike: Well, I think the first thing is to make sure the leadership team understands that we're not necessarily talking about a 500-page SOP manual with every step and every process in the organization documented and etched in stone and compliance systems put in place to catch when people mistakenly excuse themselves from a meeting, they go to the restroom. So we're talking about what we call a 20-80 approach, which is to say we'd rather document the major steps in the truly core processes of your business, those things that make you uniquely you. The things that get done every day and are vital to creating the kind of customer and employee experiences that make your organization unique and valuable. We focus on those core processes and we document only the major steps in each of those handful of core processes. When we say 20-80, what we're saying is if you can document the 20% of the major steps in the process and get 80% compliance, that takes about 10% of the time that a 500-page SOP manual would take. That's 100% of the steps and 100% of the processes to get 100% compliance. You don't just get very much ROI on that extra work because those manuals are too hard for people to understand and to follow. The simple answer to your question is our approach is just keeping it at a high level, making sure the steps that can be systemized that must be replicated over and over and over again get written down and made as simple as possible and the nuance, the one off and the ad hoc experiences, we leave that up to the entrepreneur or the senior leaders of the organization to figure out how to handle those things.
Josh: That makes tons of sense to me and my experience is if I had a 50-page manual and no one is going to look at the darn thing anyhow, so I might as well not have it in the first place.
Mike: Right. You're exactly right and you know, the funny part is it's impossible to even get your leadership team on the same page with what that 50-page document says because none of them have the time to even look at it and give you that approval that you need to go train all of your people to follow it. It just gets stuck somewhere in the process until all of this work happens and nothing happens in the organization. We want to avoid that whenever possible.
Josh: Cool. Let's move on to data and again, this is one of those areas where people tend to look at data that is historical and not predictive. I think you guys have a different way of looking at data, don't you?
Mike: Yes. A company that is strong in the data component is running the business on facts and figures, on objective information rather than exclusively the subjective feelings, egos and emotions that so often drive decision making in an entrepreneurial company. In many entrepreneurial organizations, not all, the leaders and sometimes leadership team are already looking at lots of historical data. So, income statements and balance sheets from the prior month or quarter, customer satisfaction surveys, for example, and what we try to do in an entrepreneurial organization running on EOS is we're trying to help the leaders add to that rear-facing view some leading indicators, some predictors of what the financial results or the satisfaction results might be next month or next quarter and to review that data on a weekly basis rather than monthly or quarterly to help the leadership team make stronger, faster, better decisions in advance of results occurring that are too late to do anything about.
Josh: That makes tons of sense to me. Are there any tricks or suggestions you have for our listeners about what they might want to be doing with their data or what sort of predictive things they might want to look at?
Mike: It's funny that you asked that because I have been around long enough to remember when the data problem for most organizations was there wasn't any. In the early days, most entrepreneurs were running their business almost exclusively by gut and, today, the first trick I’ll give you is to quit burying yourself in data that doesn't lead to clearer, better, faster decisions. Less is more. Find a handful of leading indicators that will give you, at a high level, an absolute pulse on your business week-to-week, and then look at those numbers weekly. When they are on track, move on and when they are off track, then dig in more deeply to the detailed data to find what the root cause might be of that number being off track and react to that rather than swimming in data that doesn't really create any clear pictures for you.
Josh: I also know that you recommend that you keep this data on a 13-week rolling basis. Why would you do that?
Mike: We find that the ability to see patterns and trends in the data leads to more complete and faster decisions than when you look at just one week of data as a snapshot or you look at too much data over too long a period of time, you're not getting the whole story fast enough. So, our leadership teams, when they can see 13 weeks of data at a glance number-by-number down their scorecard, they are able to see whether they are on track or off track this week, how they have been trending the last few weeks, what the quarter story is telling them and they just seem to get to the right answer a little bit faster.
Josh: So, I think we have about enough time to go over one more of your areas and I’d like to delve into issues because we're going to do a couple more podcasts with you and we'll be talking about people that you're meeting and the pulse in other episodes, but I think this issue is an important tool. You have some really cool tools around that, don't you?
Mike: We do and, in fact, one of the points I should make in this call, Josh, is that all six of these key components are interdependent. It’s almost impossible to strengthen, for example, the process component without strengthening the data component and when you strengthen those two components, you create issues. So what your listeners I hope are taking away is please work on strengthening all six of these key components because they work together to make your organization better. With that lead in, I’ll just say, for us, issues are problems, challenges, obstacles or road blocks or sorts of things that are slowing you down, taking you off and holding you back, but they also are new ideas, new opportunities, key strategic partnerships, cool things you want to go do when you can't find the time or the energy to do them, and so that's an issue in an EOS company and what we do with issues is we help compartmentalize them. We help make sure they are stored in the right place and then when they are real priorities for the leadership team or some other team in the organization, we teach a tool or a discipline called IDS, which stands for identify, discuss, and solve, which really helps entrepreneurs and their leadership teams resolve issues for the long-term greater good rather than either mistakenly tackling symptoms and never really solving the root cause or what I was so good at in my entrepreneurial career, kind of wrapping duct tape and twine around everything and shoving it to the corner of my office, hoping it would go away on its own.
Josh: Yeah, the screaming monkey syndrome.
Mike: Yes. Please don't blow up before we make payroll next week, right?
Josh: Yeah, I've seen that more than once in my life.
Mike: That's right.
Josh: So, you guys have written a bunch of books that you do and you have consultants that help people implement this system. There's actually one more thing I want to talk about before we end today because I think this is really key; it's is the role of the visionary and the role of the implementer and the difference between the two, and the natural conflict that exists. Can you first define what each is and then why is there conflict that exists?
Mike: Yes. It is visionary and integrator.
Josh: Oh, I'm sorry.
Mike: Most entrepreneurial - a good number of entrepreneurial companies are founded by a visionary entrepreneur, somebody with an idea, a passion and an enthusiasm for client or a particular kind of work. Most successful entrepreneurial organizations are grown to a point by that visionary entrepreneur, and then they get stuck. When they get stuck, often one of the root causes is that in order to lead an organization with 10 or 25 or 50 or 100 people in it, the tools and tricks one must use are different than the tools and tricks you need to grow a company from zero to 10 or 20 or 25 people. So, integrator is somebody who runs the day-to-day in a fast moving entrepreneurial organization with same number of people who need clarity and simplicity and accountability and occasionally require tough conversations. Those are visionaries and integrators. Generally, they couldn’t be more different and so what we see in an entrepreneurial company where those two roles haven't been clearly defined, separated, and filled with people who are put on the planet to excel on those unique and distinct roles, is two kinds of problems.
The first is a visionary stuck in the integrator seat and those companies where the visionary is frustrated and the leadership team is exhausted because the visionary keeps coming to meetings with 90 ideas and we haven't even implemented one of the ideas from last week's meeting and so on. It could be chaotic in those organizations and visionaries spend a lot of time in those companies doing stuff they don't love. The other kind of organizational problem created by the lack of visionary and integrator is sometimes a company is started by two people, one of whom is a natural integrator, one of whom is a natural visionary and, because they don’t clarify and separate those roles, you get this dynamic of co-running the company. When two people are in charge of a company without clarity around who makes the final decision, whose job is what, etc., nobody is really clear about who is ultimately in charge and that situation of chaos and getting stuck can ensue as well. That’s what visionary integrator helps resolve.
Josh: Mike, we have just started to scratch the surface and unfortunately we're out of time. So if any of our listeners want to learn more, where would they go?
Mike: I’d send them to our website, EOSworldwide.com. That's where we warehoused all of our intellectual property, our tools, links to the books, everything you can learn to help implement EOS in your business. That’s a great place to get started.
Josh: Cool. Thanks so much for your time, Mike, and we'll be talking very soon.
Mike: Thank you, Josh. Thanks.