Podcast: Real Economic Value in Driving Corporate Culture
If you could purposely - not accidentally, but purposely - create the culture that had the highest probability of causing your people to perform at the highest levels, wouldn’t it make total sense to do that?
In this podcast, David Friedman, author of "Fundamentally Different," talks about:
- How culture can be a real driver of company success;
- The difference between culture and values;
- The real economic benefit of corporate culture that becomes apparent when a company is sold for a premium; and
- Basic cultural fundamentals that are applicable to all businesses, regardless of industry.
About the GuestDavid Friedman is a writer, speaker and consultant to CEOs on how to intentionally build high performing organizational cultures. David has also authored the book, "Fundamentally Different," which is a collection of principles that he says can be applied in every organization across America and can also serve as a guidebook for life.
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Read the Full Transcript Here:Noah Rosenfarb: Hello everyone and welcome. It’s Noah Rosenfarb, the author of Exit: Healthy, Wealthy and Wise and from Freedom Business Advisors. Today’s guest is David Friedman.
David has led a company called RSI, an insurance agency, and built a tremendous culture there and sold it to a large multinational called Gallagher Benefit Services, and since then has been going around the country teaching other organizations how culture influences performance and the value of business and the performance of that organization. David, thanks for joining us today.
David Friedman: My pleasure, Noah. Great to be with you.
Noah Rosenfarb: Tell me a little bit about the background of RSI and how you stumbled upon culture as really a driver of your business.
David Friedman: What’s happened, Noah, is that RSI was an employee benefits consultant company. I got into that business - my father had been in that business - and I had gotten into it right out of college. In the early years of their business, it was mostly my family members. At one point, we had 15 or 20 employees and about 15 of them were my family. When we began to expand well beyond my family, it occurred to me that the people that were in my family grew up together and so we all shared a certain kind of value system but when we began to hire lots of people who were not part of my family it occurred to me that I can’t just assume that they have the same value system that we do and I better be clear about communicating what’s important to us and teaching that over and over again to make that be a part of how we do business.
Over time, we were very intentional about that and ended up growing that company with over a hundred people and over $18 million in annual revenue, and the cornerstone of everything that made us different was the culture that we had created. It was at least 50% of why companies bought from us and stayed with us, and it was certainly more than 90% of why employees came to work with us and why they stayed with us. It was really - everything about our differentiation was our culture - but it really began with, it wasn’t so much this brilliant business strategy that I had as much as it was a simple recognition that when we expanded well beyond my family, I can’t assume that everybody knows the same thing that I know, or values the same things that I value. I have to teach.
Noah Rosenfarb: Maybe you could either distinguish or correlate values and culture.
David Friedman: The way that I describe culture, and I think one of the challenges for most companies and one of the reasons it’s so hard for most companies and most CEOs to do anything about their culture, is that they define culture in such as esoteric kind of way. So often, companies define culture as the style and the attitude and the feeling and the environment and the way that things are and all these kinds of nebulous abstract terms. When you define culture in that way, it’s hard to figure out, "Well, what the heck do you do about any of that?"
I define culture very much in behavioral terms. I think of culture as the way things get done in a company. It’s the behaviors that people do everyday. It’s the way that people relate to each other. It’s specifically the things people do. The reason that’s so important is that when we define culture in behavioral terms, then it’s really simple or uncomplicated to figure out what to do about it. I just have to be clear about the behaviors that I want people to do and articulate them with great clarity and then teach them over and over and over again. It really becomes just a behavioral change issue.
I think values - I make a big distinction between values and behaviors. Values to me are abstract concepts. They’re not actions. Examples of values are things like quality, integrity, teamwork, respect or innovation. These are ideas and they’re good ideas and they’re important. Behaviors are actions. They’re things I can literally see you doing. For example, some of the behaviors that we taught in my company were things like practice blameless problem solving, or check the ego at the door, or listen generously, or create a feeling of friendliness and warmth in every client interaction. These are things you can do, and the reason that’s so important is that when we talk about values, which is what most companies do, values because they’re so abstract, they could mean so many different things to too many different people.
When we say, for example, that one of our values in our company is respect. Everybody’s got a different definition of what does it really mean to be respectful. Because it’s so variable, it’s really not very useful to us. It sounds like a good idea but it’s not very practical. If I teach people the behaviors that I want them to do, that’s really practical. That’s actionable, that I can make happen.
I think one of the problems is that so often when companies try to work on their culture, they spend their time worrying about visions and missions and values, which are all a bunch of abstract things that sound great, and they look nice on a poster, but at the end of the day for most companies they’re really not very relevant to what people do everyday. I try to couch everything in terms of behaviors. What do you want people to do? If we can be clear about what we want people to do in this company, how we want them to be, well then we can teach that, and we’ve got structured ways of teaching that over and over and over again until those behaviors become embedded into people’s DNA such that it’s just the way they are. Now you really have something you can do.
Noah Rosenfarb: In terms of someone’s value system that they walk in to the interview with, if they differ innately from the behaviors that the company is looking - let’s say, you said have a warm interaction with all of your clients, and there’s certainly a way that you could teach people to have that but maybe someone that walks in the door doesn’t have that. As their own personal value system, that’s just not something that they’re attentive to. Perhaps they’re a little gruff or uncaring in some way. Are you saying that behavior can be taught and so even if it’s not ingrained maybe we shouldn’t benchmark them on the way in? Is it based on that or is their current value system important as well?
David Friedman: It’s very important. That’s a great question you’re asking. What I do - the first thing I would say about that is I teach people that most people show up to the workplace with their value system already pretty much done, so they are who they are. Their value system came from their upbringing, their family, their previous experiences so it’s mostly a completed picture by the time they show up your front door for an interview. You’re not going to do much to change who they are. I can teach them skills and abilities but who their basic personality and basic value system, I’m not going to do much to change that. The implication of that is I have to be good about hiring people who are already a good fit with what we’re trying to create because we’re not going to change them and make them a good fit if they aren’t.
More specifically to your question, when I help companies to figure out how do they get good at selecting the right people, I take the behaviors - I have a word for behaviors. I call them fundamentals. In my company, we had a series of behaviors we taught that were called our fundamentals. When I use the word fundamental, I’m using that word interchangeably with the word behaviors. It’s the title I give to behavior. What I do with companies is I say, "Take the fundamentals that we’ve created, whatever number there may be, and if you look at them you’ll see that they could be divided into two different groupings." Some of those are what I would call intrinsic, or what you described as innate. Others are more learned behaviors.
For example, a trait like, let’s take customer service that you were referring to. I think that there are some people who really get customer service that at their core they just know how to help people, how to care about people - it’s just part of their makeup - and there are other people who just don’t get it. Someone who really doesn’t understand customer service, you could give them all the training and tell them all the rules and all the procedures you want, but at their core if they’re not somebody who really cares about helping other people, you’re not going to teach them how to care about helping people. It’s just not part of who they are. That’s an innate trait.
A learned behavior would be something that we could teach people. For example, one of mine I mentioned was called practice blameless problem solving. I don’t think that’s innate. I think that some people just get taught - they just grew up in an area where they blame people a lot - and I could teach them that in our environment we don’t waste our time blaming people. We just worry about fixing problems and learning from them. I think that’s a learned behavior.
What I suggest that companies do is you take your fundamentals that you’ve created and you divide them and you say, "This list of fundamentals tend to be innate in people - they either have it or they don’t - this list of fundamentals I can teach people to be better at, then let’s take the innate ones and those are the ones we have to recruit around, because by definition if they’re innate, either you have them or you don’t, they’re intrinsic, well then I have to find people who have it, because I’m not going to somehow make them have it. The learned ones I can teach them."
I think we do want to develop interview questions and select for people who have the intrinsic qualities that we’re looking for, because by definition we’re not going to be able to change who they are.
Noah Rosenfarb: If we go back to your experience at RSI, talking about 15 family members that were there, when you defined this and made it really clear about what the behaviors are that you’re looking are and perhaps you had a list of what was innate and what could be trained, was there any reason to take a harder look at some of the family members that were working there and determined that they weren’t a right fit for the company going forward?
David Friedman: That did end up happening, in a way. It wasn’t as intentional as that because what I created over time was very incremental or iterative. At different stages of my career, most of what I did in almost my entire career running my company was very instinctive that I did things because it just felt right to me. Later, I reflected upon what I did to ask myself, "Wow, that really worked well. I wonder why that worked so well. What does that tell me about leadership, about organizational behavior, about organizational dynamics, about how people operate?" I started to then articulate some of that in a more formal way and teach that to my own people as well as other people.
It wasn’t all upfront I had these recognitions, even the recognition that some of these behaviors are innate and some of them are intrinsic. It’s only afterwards that I thought about, "This is interesting. Some of these seem to be innate, some seem to be intrinsic." Again, most of everything that I have learned and everything that I teach people came out of just doing things that seemed instinctively right to me but then reflecting upon those and discovering or discerning underlying principles that were at play, even though when I was doing them I wasn’t aware of the underlying principles.
Back to your question, in my own company I really start to articulate, "These are things that we need to do," and we just continue to teach that, teach that more and more and make that happen. What happens when you do that is that the clearer you are about the culture you’re creating the more obvious it becomes when some people don’t fit, whether those people are family people or those people are non-family people. When you’re not very clear about what you’re looking for or what you’re trying to create, all you know is, "I’m always frustrated with that guy or that woman," or, "It just doesn’t seem to be working," but you can’t quite put your finger on why because you’re not very clear in your own mind about what you want.
The clearer you become about articulating exactly what is the culture we want to build here and what does that culture look like and what are the behaviors that are indicative of that culture, that are the cornerstones of that culture, the clearer we become about that, the more obvious it becomes to you and to others when somebody doesn’t fit. I see this with my clients all the time that. When we first start to develop a set of fundamentals and roll them out and start practicing them, very quickly it’s the opposite of the cream rises to the top. Those who don’t fit in just stick out very quickly and it becomes apparent that, "Uh, these people aren’t going to fit here or aren’t going to make it." In my own family, yes, I did have one of those over time, which was a painful incident, but it had to be dealt with.
Noah Rosenfarb: I was just talking with a friend the other day who implemented his fundamentals in his company. As they sat around the conference room table discussing them and formalizing them and finalizing them, everybody knew that one of the team members wasn’t a fit to these fundamentals that they were agreeing upon, and they quit the next day. He said he wouldn’t have fired them because they were a high performer but he knew they weren’t a cultural fit.
In your book Fundamentally Different, I think you talk a little bit about Jack Welch and the kind of system he used to look at performance and culture. You could have high performance but if you’re a poor cultural fit, it requires termination. What are your thoughts on that? When people start and - there’s this tug of war for most owners when they have a high performance individual - and typically I’ve seen it most frequently in sales. They’ve got a sales guy that’s performing really well, bringing in a lot of business but they create a ton of havoc in their wake, they’re not a good cultural fit and they don’t want to eliminate them because they’re worried. Maybe you could share some experience around that.
David Friedman: Sure, and every company deals with that. I talk about that when I work with companies. I refer to it in terms of how you create accountability for your culture. I’ll be with a group of CEOs and I’ll ask them this question: What’s the single biggest thing you can do to demonstrate seriousness or accountability about your culture? People will say, "Well, you have to do it yourself and you have to teach it or reward it." I say, "No, it’s not it." I finally get somebody usually in an audience to raise their hand and say, "You fire somebody," and I say, "You’re exactly right."
Almost every company I’ve ever worked with or even seen has at least one person and usually more who needs to be fired, and exactly as you said, Noah, there’s somebody who has a high performer in some regards but in every other way is a pain in the butt and is the opposite of everything you said was important in your company. About 80% of the time they’re a salesperson, exactly as you said, so about 80%, about 10% finance and about 10% technical. What they all have in common is they have something that you’re afraid to lose. In the case of sales, they’re one of our highest sales performers or they have lots of important client relationships and I’m fearful that if I got rid of them, would I lose all that production or would I lose those relationships. If it’s a finance person it’s the same thing. They’ve been here for 27 years and they know our finances inside out, how could we ever replace Joe, and yet Joe is a pain in the butt and everything’s the opposite of what we said.
We say to people that when you allow that person to stick around, you’re basically sending a very clear message to your organization. You’re saying to your organization that our culture is really important around here, unless you produce enough business. That’s what you’re saying. That’s for sale. If you produce enough business it all becomes unimportant for the culture.
I once heard somebody make this comment. I think there’s a lot of truth to this. They said that the best way for me to know your culture is to look at the behavior that you tolerate, because what you allow to go on in your company that’s your real culture. I don’t care about the beautiful signs and posters you put on your walls. It’s what you allow to go on, what you tolerate that’s your real culture. When you finally get around to working up the courage as the CEO to make that decision to fire that sales person or that whoever that is such a pain in the neck and so opposite of what you said your culture was about, it’s fascinating that there are three things that happen every single time.
The first thing that happens is, everybody else in the organization says, "What took you so long? It’s about time. We’ve been wondering when you were going to do something about this person." Everybody sees that. The second thing that happens is the CEO usually says to him or herself, "Wow, why did I wait so long?" All of a sudden, they realize that the world is so much better without this pain in the neck in their company. The third thing that happens all the time is almost never do they lose all the things they were afraid of losing. Production gets replaced by somebody else, those important relationships get re-secured by somebody else, the finance person gets replaced, and they often find that the next person is even better than the person they had before. Those things, that fear that we had that kept us from doing what we knew in our gut was the right thing to do ends up not even being a fear that materializes or at least it doesn’t materialize in reality. Ultimately, we are compromising everything we said we stood for when we allow that person to be in our company.
Noah Rosenfarb: So the Evernote CEO has a particular framework that I think is really awesome. He says there’s a distinction between uncomfortable decisions and difficult decisions in that in the uncomfortable decision we know what we should do. We just don’t want to do it. In the difficult decision, we’re challenged by the right answer and that when we evaluate decisions in that framework we realize that most decisions are uncomfortable and not difficult.
David Friedman: I haven’t heard that. It’s an interesting way of thinking of it. The way that I think of a similar framework is that I say to people that we always want to separate what the right decision is from how to do it, which is a somewhat similar thing to what you’re saying. Often, it is pretty clear to us what the right decision is. This person needs to be fired or we need to make this move, we need to do that. We know what to do but we don’t know how to do it. We don’t know how to fire that person or how to make the decision.
Let me give a good example that’s even more challenging but just as clear. Let’s say you have somebody who’s not a high performer but they’re a really good person who’s been with you for a long time and you feel a sense of loyalty to them, but yet they’re not getting the job done. They don’t have the ability or whatever to perform at the level that you need, and yet it just feels cold and heartless to get rid of them. Yet I say to people that the first thing you have to do is understand and make what the best business decision is. The second thing you can do, and you have to do, is think about how we do go about doing this. We can get rid of that person but we can do it in a way that honors our culture and our values.
Let’s say, in the example that I was just giving, it’s somebody who hasn’t been performing and doesn’t have the ability to perform but they’re a long time loyal person and you feel some sense of indebtedness to them. That doesn’t keep us from making the right decision. The right decision is they can’t be part of the company anymore. We can take care of that by giving them lots of severance pay. We could give them career counseling. We could do all kinds of things to treat them in a way with compassion and respect and honoring them and honoring their contributions. We can handle it in a way that honors their culture but that doesn’t mean that we have to let them stick around here if they can’t perform. It is the separation to me of what’s the right decision with how do we do it. Often, "I don’t know how to get rid of that person," so we just keep them on because we collapse those two into one, similar to what you’re saying.
Noah Rosenfarb: Yeah. I read your book Fundamentally Different, which I think is such a great piece of work. Everybody that I’ve spoken to that has read it and also has read other books on culture and values, everyone has essentially unanimous agreement that it’s the book out there so thank you for putting it together and for sharing it.
The challenge for me when I read the examples, whether it’s your company or other companies, is that it’s hard to argue against any of the things that people write down. They seem intuitively like, yes, of course, that’s the way people would want to do business. How did these fundamentals differ between companies? What are the main drivers?
David Friedman: It’s interesting. When I work with companies to help them develop a set of fundamentals for them - because I have a certain set for me but mine are different than what some other companies might be - what you end up finding is that about 85% of them are essentially all the same. That’s really not surprising when you stop and think about it, because what it takes to put a group of human beings together and get them to perform at a high level and on a collaborative way really isn’t very different and it really doesn’t matter much what your industry is, whether you’re a steel welding and fabricating company or you’re a computer software company or whether you’re a law firm or whether you’re a construction firm or manufacturing. You’re still the group of human beings that you’re trying to get to perform at high levels and perform in a way that everybody works well together, and so 85% of it ends up to be largely the same. The words may be slightly different but the concepts are all the same.
About 10% to 15% will vary company to company for two reasons. One is that there could be a couple of things that are unique about a particular industry. For example, if you’re in some construction or manufacturing industry, you probably have some fundamental about safety, whereas if you’re in an office environment that’s just not a big deal. It doesn’t really come up much, but it’s a really big deal in those other environments. You could have a difference there. I have a client that’s a food manufacturer and they have a fundamental that’s called, "Never compromise on food safety. I’m not going to have that in an insurance agency. There could be one or two things - that’s not a lot - that vary because of your industry.
The second thing that varies is that the fundamentals are really a reflection of the CEO and what his or her vision is of what he wants to create. One CEO is going to have a different personality than another and there maybe something that to you as the CEO, if there’s a pet peeve of yours that’s just really important and it just makes a big deal to you, but me as a CEO, it doesn’t bug me so much or it’s not as big a deal to me. I’m don’t say that in any kind of negative way. It’s your company and what’s important to you. Those two little factors will vary a little bit but 85% of it, even 90% of it, is all the same from company to company, that what it takes to get a group of human beings to work really well together is mostly the same from company to company. They’re still human beings.
I would say to companies, "If your company is made up of human beings this stuff will work." It’s just about getting humans to behave on a certain way. It’s just not complicated. Your comment that you look at this stuff and it all seems obvious, I say that all the time to people that people make this too complicated I think. We make a lot of things too complicated but I think that, when I look at what I’ve discovered about how to intentionally drive culture and what I teach other companies to do, I always want people - it’s so unbelievably obvious that it’s staggering. So often I think - and I think this is such a shame our society has built this - that we’re looking for secrets and shortcuts. You go to a bookstore and you look at the titles of books and so often they will say things like, "The three secrets to this and the seven secrets to that," as if there’s some magic secret that you don’t know and that’s why you don’t have the success that you want, and if I were willing to share the secret with you then you’d be on the inner circle like me and magically the world would become easier.
It doesn’t work like that. I know this for me and I suspect that’s true for you, but virtually anything I’ve ever learned in my life that I felt that’s really important, it’s like I hit myself in the head afterwards and think, "How did I get to be this age and not have seen that before," because it is so straightforward and so obvious. I think what happens is that sometimes you read a book or you hear a speaker who’s able to put together thoughts in a way that isn’t complicated but just never occurred to you before, that your response to it is, "You know, that makes total sense to me. I just never thought of it from that perspective before." That’s really all that I do. My stuff is just so straightforward and so obvious and so non-confusing that everybody, after they read it or learn about it, they always say, "God, that makes sense to me. Sure, that would work. I just never thought of it that way before." It is really straightforward.
Noah Rosenfarb: Funny, I was with a client the other day and he had told me he finished reading my books. I said, '’What did you think?" He said, "It was great. I didn’t learn a thing, other than there’s a whole bunch of stuff I’m supposed to be doing that I know I’m supposed to be doing and you just pointed it out to me again." I said, "That’s perfect. That’s exactly what I want."
David Friedman: Yeah, that’s true. There really isn’t anything new. I think that the key is that there are some people - and these to me are the better speakers, writers, authors, teachers - there are some people who have a better ability than others to synthesize ideas or put them together in a way that’s easier to digest. It’s not that the concepts are anything new but just if it’s explained to you in one way versus another way, it causes the reader or the listener or the student to say, "Yeah. Sure, that makes total sense to me. I never thought of it like that before." That’s really a skill that the best ones have, is to be able to take ideas and combine them and explain them in ways that make them more available to most people than they’ve seen it before.
Noah Rosenfarb: I want to move to talk about your transaction, where you sold RSI. Walk me through a little bit of the decision matrix that you went through when you decided it was time to have your ownership transferred to another owner. What was that process like and what was the decision like for you?
David Friedman: A quick story of what happened was that I wasn’t actually looking to sell at that time. We were doing well, making a lot of money, having fun, building a great company, and I had heard through somebody I met that there was a reason that at that time valuations in our industry were at an old time high. I thought, "Well, maybe I should just investigate. If that’s true, let’s find out a little bit more about that." I hired a consultant who worked exclusively in the insurance who did deals all the time. I called them first just to say, "Tell me about that. Is that true? Why is that true?" He explained to me some of the reasons that that was going on, and so I decided to hire him to just do a valuation study, to look at what do you think - doing enough deals in this industry as you do - what do you think we could command.
We hired him to do that, but in the meantime, while he was busy working on that, I built myself an Excel spreadsheet model. The model that I built myself was to answer a very simple question for myself from an economic perspective. The question I wanted to answer is: For any deal that we might consider doing, how many times - in terms of the money that I would get - how many times my current income is that equal to on a pre-tax present value basis? In other words, here I am sitting here at that point and I’m making a lot of money and I’m successful and life is good, and so why would I want to stop that? I figured if somebody was willing to give me five times of that in exchange for having my company, I’d probably say, "You know what, I’ll just keep my company and I’ll keep making a lot of money." If somebody wants to offer me ten times what I’m making, that might be worth thinking about. If somebody wants to offer me 15 or 20 times what I’m making right now, you could have my company. Here it is. It’s yours. I’ll take that, if I could take all my chips off the table and someone wants to give me that kind of money.
I wanted to build this model that would translate any number, any deal terms, it would spit out of the model a number that says this is equal to 16 times your current earnings or nine times your current earnings or whatever on an after-tax present value basis. I built that model and it ended up that we were offered a deal that was 15 or 20 times what I was earning and became a total no-brainer for me to do.
The other thing that was really important in that process - and I suspect you deal with this with your clients all the time - is that as I started the process of thinking about it for the first time, seriously, should we sell this company, I had this recognition which sounds so simple but it was important. It was the recognition that what I had built was an asset. It wasn’t just what I do everyday. It was an asset.
As soon as I had this obvious recognition that, "Gee, this is an asset that I own here," what that meant to me, the reason that was so important, is that if it’s an asset then it becomes clear that someday I’m going to sell that asset and exchange that asset for a different asset called cash. Once I accept that, now it’s just a question of, "Okay, when will I sell it, to whom will I sell it, under what terms will I sell it, how will that whole transaction work," but this is an asset that’s going to be sold someday. It’s funny. I think many business owners, particularly ones who started their own companies, as silly as it sounds, we don’t always think of it as an asset. We just, you know, "It’s my company. It’s just what I do everyday." It doesn’t occur to us that it’s just an economic asset, for better or worse. I think once you accept it’s an asset, now it’s just a question of, "Okay, what are the conditions under which that it would make sense for me to sell this asset or exchange this asset for a different asset?"
Noah Rosenfarb: Through the course of the transaction, was there anything that you learned that was a big surprise in terms of negotiating with the eventual buyer?
David Friedman: I would say there were a couple of things. I don’t know if they’re big surprises but they were interesting to me. The first thing I would say is that as it relates specifically to culture that - you wonder about, is there real economic value in driving culture. What I found was - and I didn’t do any of it for this reason - but we know that of course inversely every industry there are standard industry multiples of how many times your EBITDA or your earnings do most companies sell for in that particular industry, and of course it varies from industry to industry.
If I look at what the delta was between what standard industry multiples were at that time in my industry, and the offer that I was given, it was a pretty significant difference. That delta was worth to me about $10 million and so to a great extent I can attribute that $10 million delta to what we have built, that we built something that had more value than simply the underlying economic earnings. That was one clear thing that jumped out to me, that there was real economic value in what we had created above and beyond simply the earning stream. It was meaningful.
The second thing was that in the process of doing our deal, I followed - this is a common theme in my business experience - I followed my instincts a lot more than I followed conventional wisdom. What I mean by that is two things specifically. One is that everybody had warned me about all the companies that will lie and cheat and steal and tell you all kinds of things in the courting process but then after the deal’s done the whole world will change, and you just can’t trust people - it’s just how it is - and it’s just not the way I approach business and the way I approach the world.
My experience was that everybody that we negotiated with and certainly the people we ultimately sold to were honorable good people who wanted to create a win-win situation. I did have the chance to speak to many others that they had acquired in years previous, and everybody that I spoke to said these are great people, that at every point in the deal they did everything that they said they would do, and if there was ever a question about how to interpret a certain specific deal term they interpret it to the advantage of the seller. I found that to be true. We sold to good quality human beings who wanted to create a win-win. It wasn’t some cutthroat you-can’t-trust-anybody kind of thing. I’m not discounting that that may happen in the world but I think you’d find a lot of what you’re looking for. I tended to deal from a basis of trust and I found that to be reciprocated.
The third thing that I think was significant - and it was another example of me following my instincts versus conventional wisdom - is that everybody always told us that when you’re negotiating a deal it’s really important that you don’t tell anybody, that you keep this as closely guarded a secret as you can, because the more people who know the more it’s going to leak. If it leaks out then you’ve got all kinds of other problems and so you can’t tell anybody. You just have to keep this just to you. That just didn’t feel right to me that I had a senior leadership team that has nine or ten people who were my core team, and I couldn’t imagine one day just announcing to my leadership team, my core people who I trusted and ran the company with, I couldn’t imagine one day announcing, "By the way, I’ve sold the company yesterday." That just felt so counter to all the trust that I built up.
I decided from the very beginning that I was going to include my leadership team at every stage of the discussion - from my initial thinking about this being a possibility to who I was negotiating with to what the terms were looking like, to what was going to happen, and I think it honored our relationship. It also had them, by the time we did the deal, they were excited about it and thought it was a great thing, that this was wonderful. Wher it made a big impact besides just the trust that we had built was when we announced it to all of our employees, which I’ll mention one thing about that as well, but when we announced it to all of our employees, when they would go to their managers to say, "Oh my God, what do you think about this," the managers knew about this for months and were excited about it and were able to convey that excitement to the employee. Had the managers just heard about it on the same day as the employees, I can’t imagine how that would have gone when the employee goes to their managers and says, "What does this mean?" The manager says, "I don’t know. I just heard about it today too." That’s just going to create panic in the organization. Following my instincts and including my senior leadership team from the very beginning, which is non-conventional, just made a lot of sense to me.
The same thing was true as it related to the communication for my entire staff. This was really fascinating. When we decided it was time to tell the whole company that we were going to do this, that was a big deal that all these people who had bought into our vision for all these years and bought into me to a great extent and now I’m going to announce to them that I sold the company, that’s a pretty big deal.
One of the decisions I made there as well was that I told our entire staff a few days before the deal was absolutely signed. The company we sold it to, their board of directors had to approve it so we had signed off on the terms but it had to be officially, officially,officially approved. A few days before that official day, I announced to my employees what was going on. It was really fascinating that it was only a matter of a few days but qualitatively there’s a very big difference in perception between saying to my employees, "I want to explain to you what’s going to be happening next week and why we’re doing this," etcetera, and saying to my employees, "I want to tell you what I did yesterday." It just feels more respectful to them to tell them what’s going to be happening versus what I already did. It’s only a few days - it doesn’t make a big difference - but it feels different and it’s more honoring of the relationships that I have built. There are some things like that I learned along the way that were somewhat unconventional but were more consistent with the way I wanted to leave.
Noah Rosenfarb: That’s great. How about after the transaction took place and you were working for the buyer? What were some of the surprises you had there, the things that you learned that you’ve taken with you and onto future companies that you’re working with?
David Friedman: After the deal was done, I worked for a little over two years running my old division, my old company, as a division of this much larger company. What I would say is that absolutely the company that acquired us did everything they said they were going to do, so there were no bait and switches, no they said this during the courtship and did something different later. I really didn’t have any surprises there. Ultimately, I decided that after a couple of years it just didn’t surprise me at all but I was never - to be totally honest - I was never that interested in employee benefits industry, the insurance industry. I was interested in leadership and organizational behavior. That’s what interests me, not so much insurance, so I never really saw myself staying in the insurance business. Further, I never saw myself - and again it didn’t surprise me - that it wasn’t that satisfying for me to not be in total control.
That wasn’t because again, it wasn’t like, "I thought that would be fine and it was different." I didn’t think it would be okay, and it wasn’t because they did something different than they said. It’s just a matter of fact that it’s not - what I want to do is lead. When I don’t have 100% control over the decisions it’s just not the same. I expected that that’s what would happen and that is what would happen, but I have nothing but positive things to say about the company we sold to. Again, my leaving was not because, "Boy, they weren’t what they said they were." No. It was just a recognition that it wasn’t a game I was interested in playing anymore, and so I had the opportunity to leave, and really, it was an opportunity for me to - in a broader way - leverage all the things that I had learned and now spend my time as I do today teaching and working with other companies to help them learn and implement the things that I have learned over my career.
In many respects, I look at all those years up until then as the training ground for me to be doing what I’m doing now, which is much more - I was about to say much more rewarding for me, but I wouldn’t say more. I’ll just say it is very rewarding. While I was running my company, that was rewarding in a different kind of way.
Noah Rosenfarb: Yeah. Since you retired from there and you wrote Fundamentally Different, maybe describe the passion that you have that’s ignited you to write this book and go out and teach, and then now work with companies to try and create high performance cultures for them.
David Friedman: It’s a funny path that happened as, I guess, so often happens in life, that things work out the way I suppose they’re supposed to even if it wasn’t how I planned it.
What happened when I wrote Fundamentally Different is that I always knew I would write this book, that so often when I had presented some of this type of material to customers and others when I was running my old company, people would often come up to me afterwards and they’d say, "When does the book come out? Because it just sounded like you’ve lent itself to a book." So I knew someday I would do that.
I retired in 2010 and I spent some time just trying to think about what I want to do next and still hadn’t quite figured it out, but my son was bugging me saying, "Dad, when are you going to write that book that you’re always talking about?" I knew that I tend to be very forward thinking and not backward thinking, so once I move on to whatever’s next in my career, whenever I figure that out, if I haven’t yet written this book I’ll never write it because it’ll just be my old career and I’ll move on to something else. I thought, "You know what, I better write this book now because otherwise it may never get written." I sat down to write that book and I didn’t write it to launch a new career. I wrote to close my old career, to wrap up my old career in a nice bow and say, "Okay, I can now put that aside, I’m now 100% complete with the old career, let me move on to something different."
I really wrote it for that purpose and I wrote it honestly for myself as much as anything, so that I could look at what I had created over all those years and tangibly, concretely see this is the product of all of those years of learning and as long as I was proud of it, it really didn’t matter to me, honestly, whether people read it or not. It was just a good book that I felt good about, so I wrote for that purpose.
What happened is, it was a really good book and people started to read it and lots of people were getting a lot of value from it. I had a former client of my old company who read my book and he was in what’s known as a Vistage group, a peer group of CEOs. He called me one day and he said, "You know, you should come and speak to our Vistage group about this stuff that you wrote in this book." I said, "Sure. I’m not doing anything else. That would be fun to do. I’m glad to do that." I went in and I spoke to their group, and that led to other Vistage groups around the country starting to hear about me and writing to me and saying, "Hey, will you come to our group in this city on this date and talk to our group?" I wasn’t doing anything else so I thought, "Yeah, sure. That’s fun for me. I always like talking about this. I have some passion for it."
I started talking to these other groups, and then some of those members of those groups - CEOs of those groups - started to call me and said, "You know, I heard you talk about that stuff. Could I hire you to help me in my own company do what you were just talking about?" I said, "Well, sure. I’m not doing anything else. I could do that. This would be fun." The next thing I knew, here I am. It’s been about two and a half years since I did that first talk. In the last two and a half years, I think I’ve looked the other day I’ve done something like 130 talks in the last two and a half years. I’ve worked with probably individually with 25 or 30 companies in all different industries all over the country, helping them to implement this stuff that I teach.
It really wasn’t my intention that this is all supposed to lead to a career doing what I’m doing, but it has and so I find myself no longer retired and traveling around the country speaking about teaching CEOs how to intentionally build a high performing culture, and then consulting and working with companies one on one, helping them to implement really high performing cultures. It’s been fascinating to watch and amazing to watch the kind of impact that has on every single company. I’ve never yet not had one that goes fabulously well. Every single one of them is just rocking and rolling, so it’s been very exciting but accidental.
Noah Rosenfarb: That’s great. Maybe you could just share two or three of your most fun and rewarding stories about the experiences you’ve had with these other companies.
David Friedman: What I would say is that first of all the range of companies that I work with are in every industry you can imagine. I have a client in Chicago that does $30 million a year of snow removal. I have a company in Texas that’s a food manufacturer. I have a beer distributor in South Jersey. I have a home health care company in Florida. I have a company that’s a steel welding and fabricating company in Kansas City, a law firm in Arizona, a financing firm in New York City, a company that builds foundations for skyscrapers in Miami.
They’re all over the board in every industry you can possibly imagine. It’s been fascinating to see the incredible diversity of companies and the fact that this stuff works in every one of them. A couple of just simple stories. I have a company, this company that I mentioned in Fort Worth, Texas that’s a food manufacturer. I was talking to the CEO. Actually, he left me a voice mail, to be more accurate, a couple of weeks ago and he said - the company is called Five Star Custom Foods and they have these fundamentals and they’re known as the Five Star Way they’ve been practicing for a year or so. He’s loving seeing what’s happening but he told me he was on the phone, or he was meeting with a new potential customer recently and this customer would be the second largest customer they have in their whole company.
As they were meeting with this customer, they were sharing with them some of the Five Star Way and their fundamentals and what they do and how they practice them, and this potential customer was just blown away and said to the CEO, "I’ve only worked with one other company I’ve ever seen do something like this and we love it. The CEO reported to me that he was almost certain that they were going to get the job." Clearly, the bigger reason they were getting the job is because they had whatever products and services the company needed. It wasn’t simply their culture, but their culture was a significant impact, that because they practice the kinds of things that they do, it caused the prospect to feel comfortable that, "This is the kind of quality I want to work with." It was exciting to see the CEO see in tangible ways the impact it was having not just on his employees but on the sales, on acquiring a really large client. That was pretty cool.
Another thing that was exciting to see recently is one of my - I mentioned I have a client in Miami that create pilings and foundations for skyscrapers and tall buildings. Often, it’s the case that the CEOs of companies that might have more blue collar workers wonder at first, "This is great stuff you’re talking about, David, but what about my blue-collar guys? The heavy construction guys? Are they going to give two bits about this stuff or are they going to roll their eyes and think this is all stupid?" I see over and over and over again that employees at every level really take this on and get excited about it.
In this particular company, they practice their fundamentals every week, as most of my clients do. One of the things they’ve done is every other week they ask their employees to contribute their own thoughts. Here’s this week’s fundamental and employees contribute their own thoughts via text, video, email, whatever method they want, about this week’s fundamental. They pick whoever has the best one and they give him a little gift certificate. They sent me an example of what they were doing and what they showed me was - it was just a fascinating video. It’s about a 45-second video and it was a video that three construction workers made on a construction site about one of the fundamentals which we call speaking straight, which is all about having direct, honest, clear conversations with each other.
To watch three heavy duty construction workers making a video about speaking straight was just - it’s a simple video, it wasn’t the most amazing thing - but it’s just so cool to see how engaged those kinds of guys are, that guys at that level who you might think are going to roll their eyes and think, "This is all stupid stuff," really take it on and really get engaged and really seeing the benefit of what it means to speak straight. To see that level of engagement at every level through the organization is just fascinating and I see that everywhere I go. It’s amazing to see the impact.
Noah Rosenfarb: That’s great. What else would you like to share with our audience before we wrap up?
David Friedman: What I would say is that - it’s really where I started - that if you stop and think that almost all of us would recognize that the culture of any organization has a direct impact on how people perform. We all know that but you can just think of companies you have worked for. If you’ve worked in one company where the culture is nobody seems to care and doing quality work doesn’t matter, and you’ve worked in a different company where everybody seems to be really driven to do the best they can, it affects how people perform. You don’t need to read a science book or a textbook to know that. Our own experience tells us that the environment we’re in has a direct bearing on how we perform.
If we accept that as true, then as I said earlier, it just seems so darn logical that if you could purposely - not accidentally but purposely - create the environment or create the culture that had the highest probability of causing your people to perform at the highest levels, wouldn’t it make total sense to you that of course then you would be more successful? It is that straightforward that culture is such a driver of success that it’s a crime not to be intentional about it, to allow it to just morph into whatever it becomes as opposed to being intentional. I think the key is intentionality, purposely creating the culture that you want to do. It’s not that complicated to do.
Noah Rosenfarb: Great. For any of our listeners that haven’t read Fundamentally Different, you can find it on Amazon. You will have a link to it on our transcript, on our website Divestopedia.com. I’d certainly encourage you to read it. David, if people want to reach out to you, what’s the best way?
David Friedman: Best way is my email. I’ll give you my email and phone number. My email is [email protected]. My website is www.djfriedman.com. My cellphone is 609 472 3960. As you said, my book is available on Amazon and it’s in every format you might want. It’s on hard cover paperback, ebook, so for those that prefer to download books like I do, you’d get the ebook first on Amazon. It’s also on audio book format so you can download it from Audible, and I do the audio myself. Any form you want, it exists.
Noah Rosenfarb: Thank you so much for joining us today. Thanks to all our listeners. Please don’t forget to rate us on iTunes and share your feedback with me, [email protected]. We hope to have you listen again to our future interviews.