5X Your Business in 5 Years with 5 Principles
Updated: Aug 15, 2022
Note: transcription provided by Otter.AI, which is a technology company that develops speech-to text transcription and translation applications using artificial intelligence and machine learning.
Christopher H. Loo, MD-PhD: Today, we have Steve Preda, and he's going to talk to us about business, doubling or growing and amplifying your business with principals. And let me share a quick bio. He's a leadership team coach, and his passion is to help emergency privately owned businesses grow and thrive. And he pursues it by simplifying and teaching management and strategy concepts that large companies and consulting firms use. So we're going to talk about all different realms of business. So Steve, welcome.
Steve Preda: Christopher, great to be here. Thank you for having me.
Christopher H. Loo, MD-PhD: Yeah. I'm so glad. Yeah, we were talking backstage. And share with listeners in the audience a little bit about your background, I know you have the pinnacle in the background. And so we can go from there.
Steve Preda: Okay, well, background. So I started life as a corporate employee, as an accountant, actually, probably 30 odd years ago. And then about 20 years ago, I went into business for myself, I built an investment banking firm in Central Eastern Europe, Hungary and Romania. And I built and ran this business for 10 years. And then I sold it to a private equity group, I moved my family to the United States, and started coaching. First, executives, I had a couple of peer groups. And then I went into leadership team coaching. Some of you listeners may be familiar with a management program called EOS, or Entrepreneurial Operating System. So for five years, I used to teach that system.
And then a couple years ago, I transitioned away and developed my own system, I joined another group called Pinnacle. And actually, the founder of Pinnacle myself, we came out with a new book a couple of weeks ago, called Pinnacle: Five Principles That take your business to the top of the mountain. And this is the book that we are promoting, it became an instant bestseller. It's got a bunch of five star reviews on Amazon. So this is where I am, I'm a leadership team coach. And I'm also very passionate about finding ways to simplify those management techniques that the Big Fortune companies use and bring it to what I call emerging growth companies, small to medium sized businesses, privately owned, that want to shortcut their way to success.
Christopher H. Loo, MD-PhD: That's a fantastic interview introduction. And I know, especially in today's age, organizations and businesses have to use a lot of cutting edge management leadership strategy principles. So tell us a little bit about some of your key principles, I know you describe in the book, and for the listeners, we'll put links to the book in the show notes. But tell us a little bit about some of the principles that you espouse, and then we'll go from there.
Steve Preda: So the most important message is that, and I discovered this a couple of years ago, I wrote another book called Buyable, which is about preparing businesses, making them viable, right. And one of the statistics that I stumbled upon, which really shocked me, was that there are 1.7 million small to medium sized businesses with employees of staff to 250, in the US, at 85% of these businesses never make it to year ten. So essentially, that means 185,000 businesses go out of business every year in the US, just because they can't figure out how to stay in business.
And I have a passionate belief that with good leadership and coaching, virtually all of these businesses could figure it out, how to do that, and then they could stay in business indefinitely. That would bump or the US GDP by 20%, would be a one-off pump. And then every year 4% faster growth, just because these businesses don't do our business. So that's kind of my passion. And this new book I made, the key is that you can 5x your business in five years with the help of five principles. So that's basically the premise and it's very simple math. So if you grow the top line of the business, the revenues by 20% each year, and I have done this for my clients, and my co author has done it for his clients, so we know that it is possible.
So if you grow the top line by 20%, and you double the net profit margin in five years, go from 5% to 10%, 10% to 20%, which again, is very, very possible. In fact, likely, most of my clients grow their net profit much faster than that. Then you can 5x the value of your business, 5x or more the value of your business in five years. So the 20% will be two and a half times the revenues of the business, to double the profit margin, that's 5x. In fact, it's gonna be more than five because the multiple is gonna go up as well. And, this is not rocket science. So the five principles that you need to leverage to do that are what we call people, purpose, playbooks, performance and profit. So we talk in the book, my co author, Gregory Cleary, and I talk about how to strengthen each of these five principles, and then get your business to the top of the mountain.
Christopher H. Loo, MD-PhD: Yeah, I love that. Like, I like how you do 5-5-5. And it's very easy for the people to understand. And so what are some management blueprints and how to determine which one fits your business?
Steve Preda: So, that's my other obsession is management blueprints. And what a management blueprint is, is essentially a framework that simplifies complex processes into a simple blueprint that helps you run your business better. That's what a management blueprint is. And I actually have a podcast called the Management Blueprint Podcast. And what I do is, I search for these kinds of frameworks. And I talk to entrepreneurs like you, Christopher. And what I found was there are a bunch of these management blueprints out there in book form, the first one that many of your listeners will have learned about or even read, which is The E-Myth by Michael Gerber. I'm sure you're familiar with it, as well, Christopher. That was the original management blueprint that came out in 1976 and the 1986, the revised version. And basically, Gerber introduced this concept of having to work on your business rather than in your business, becoming your elevate yourself from a doer, a technician, he calls it a technician, into a manager into an entrepreneur, and what are the different skills and techniques that you need to employ, there was the original blueprint. And then the next blueprint was the Great Game of Business by Jack Stack, who was a corporate employee, and he bought out a division of a major Fortune Company, which was about to go bankrupt, and he turned it around, and he wrote this book about how he did it. And then Scaling Up, Mastering the Rockefeller Habits with Verne Harnish. He wrote it in 2002. And then Gino Wickman came around, he wrote Traction, and then Patrick Lencioni wrote The Advantage and then there were other four disciplines.
So there were many of these blueprints. And what Greg and I did we basically said Okay, so why do people have to choose one of these blueprints? Why do they have to choose Traction or Scaling Up? Why can't we put together a system which essentially uses all the best elements of all the systems out there but actually customize it to the client. So we meet every client where they are and customize a program for them and then help them climb to the top of the mountain and that's what these management blueprints do. And this is what clinical, which is kind of the blueprint of blueprints, does.
Christopher H. Loo, MD-PhD: Interesting, I’ll have to take a look. I read the E Myth, that was one of them and working on the business and that really changed how I look at it. One thing was, in today's really rapidly changing economy, how does the manager or leader engineer their business to match, sustain, and even surpass the industry's elite profitability over time?
Steve Preda: So basically, if you apply the principles, people, purpose so you find the right people, put them in the right functions and coach them. And then purpose, you set the vision and the strategy how to reach your vision and you align everyone around the vision. Then you define your playbooks to make sure that you can delegate and elevate yourself and delegate you the activities, the key activities, the best and right way to your people. They can follow the processes of the playbooks, and you perform at a high level, you have an execution system in the business, how you set goals, and how you measure the performance on a monthly and weekly basis. Then you're going to have a great business and you're going to have a very profitable business.
However, there is a way to take this to the next level, which is benchmarking your profitability to the elite competitors and peers in your industry. And there are tools out there that you can use, you can be part of a peer group where people are sharing information and benchmark yourself that way. Or you can use the IRS to publish aggregated information of millions of companies broken down by 94 different industry segments, and you can benchmark yourself to your peers. And you can identify the top 16% of performers, and what is their profitability and compare yours. And you can also compare some expense lines. So you can go really deep with this.
And when you know how you stack up against your peers, then you can set this as a goal, okay, how do I engineer my business so that my business delivers that level of profitability as well? And then the last question is, how do I sustain this in the long term? So how do I create what I call a strategy stack? So a set of interlocking strategies that are going to lock in that high profitability, and will be really difficult for my competitors to copy without copying everything, my whole system, which is not all visible. So how do you build the strategy stack? And then how do you sustain the elite profitability? Potentially indefinitely in your business?
Christopher H. Loo, MD-PhD: Yeah, that's, that's very fascinating. The other thing I wanted to talk about, I'm sure it's in your material in your work, is calling the Strategy Squares framework. Briefly, describe to the listeners what that is, and how the organization can use it to improve their strategic positioning and differentiation.
Steve Preda: Yeah, so the Strategy Squares basically embraces this idea that in order for your business to be highly profitable, you have to differentiate yourself. So you, you cannot afford just to be a commodity. Because if you are, then people will compare you with all the other companies and they basically price shop you. And it's going to be a race to the bottom. So if you want to avoid becoming a quality, you need to position yourself as a differentiated business and you actually differentiate your business. And the Strategy Squares is a simple framework, which explains how you can do that?
And the four squares in the Strategy Squares framework, the first one is the core business. So how do you figure out what your core businesses are that make you really successful? And what Jim Collins calls it, is the business where you have the potential to be the best in your market at. So what is that business? And most companies err on trying to serve to grow the market. And they try to be all things to all people. And I encourage you to figure out what you're really good at. And then you focus on that market segment and on that product. Often, it's fewer than the more. So that's the first thing, what is your core business?
The second question, if you figured out your core business, what are your brand promises? So how does your brand stand out? Some of the brand promises the look at cars, everyone knows that Volvo's brand promise is to be the safe choice, the safe car. Or BMW is the ultimate driving machine. So both of them are cars. They take you from A to Z, A to Z, but one of them is about safety. It was all about the driving experience. So what are your brand promises? And what are your brand promise KPIs? Your kept promise indicators that you can actually demonstrate that you are delivering those brand promises. That's the second square.
The third square is actually my favorite one. It's this idea of the one phrase strategy. So how do you distill down your strategy into a single phrase, which everyone in the company can understand and can operationalize. So again, an example is Ikea. Ikea’s one phrase strategy is flat pack. So if you create the furniture that can be packaged in a no air, cardboard box, and it fits into the boot of the customer's car, and they go home, they can assemble the furniture in a couple of hours. So they can basically have instant gratification. The store, the furniture, they take it home. That's the kind of business IKEA wants to be in. And everyone understands the company. It’s allowed IKEA to absolutely dominate their market segment over the last 40 years, the largest competitor being 1/10 of the size. So that's one phrase strategy.
Another example is MasterCard, their one phrase strategy is kill cash. So they're not going after competitors and trying to, you know, get business from Visa and from American Express. They go after 85% of the market to cash transactions, which no credit card company is processing, and they try to get that piece of the market share cash. And the last square is the mindshare words. So when you have your strategy down, then how do you brand your strategy, so that people will think of you when they hear these words. You go to Starbucks, and you know that they brand everything. They have even the size of the cup, they call it venti. Even the server, they call her or him a barista. They brand everything and you know, the different types of coffee. And as a result, Starbucks is its own universe. In terms of coffee shops, there are coffee shops, and there is Starbucks. It's a category of one in their industry. So that's the Strategy Squares, very simple framework, position and differentiate. And then you're in good shape, and then you can create your strategy stack as a higher level approach to strategy.
Christopher H. Loo, MD-PhD: Wow. The other question I had was, organizations, they depend on people, people are their most important assets. And then you talk about creating a structure of peer accountability that allows organizations to attract and keep A players. A players are what make the team run and, I've noticed that, especially after COVID, a lot of A players have left a lot of corporations. And they went to start their own things, because they know they can do things better. So tell us about peer accountability.
Steve Preda: Yeah, so these are very important concepts. So the A players, I mean, most of your listeners probably know this, but just [so we all have the] same definition. So, we define someone as an A player if they are hitting out of the park, both on culture fit, so they really live your core values and organization, they fit your culture, as well as productivity, so they are highly productive on a consistent basis. If they are both, then they are an A player. If they are almost there; so let's say if they are nine or 10, A player, if they are your six to eight, on both, then they are an A potential. And then you have the B and C players who are either the B players or the C players, they fit the culture but they don't perform highly. And then the C players are the ones that perform highly but they don't care about your culture. So what we argue for is that you can't afford to focus on your B and C players and try to fix them. You have to focus on your A players and your A potentials. Because they are the people that are going to make your business great.
You have to coach your A potentials so that they become A players over time. And you need to grow the business so that you can create opportunities for your A players. So they stick around with your business because the A players are doing really well, and if you can't challenge them, if you can't give them a bigger challenge, a bigger opportunity inside of your company, then they gotta go somewhere else and you can't afford to lose those people. So that's why you have to grow your business.
Now, the peer accountability concept is really the idea that, as a business owner, you will be able to hold people accountable on your own. Because on a bilateral basis, there can always be excuses why something didn't get done. And it's very hard to refute those excuses, because you don't have perfect information, you don't know if that person's grandmother died again, or it was an external circumstance you can't investigate. So what peer accountability does is, it shifts the burden from the leader to the team.
And you basically have such executions to structure that people are holding each other accountable, the peer group holds people accountable. And it basically makes excuses irrelevant, because anyone can come up with an excuse. And basically, all excuses are the same. They just are excuses ultimately, and in a peer group, people, they will not bring up the excuses. And it is going to be a much more powerful process for A player's and A potentials to be accountable. Of course, again, B and C players, they might not play along, or they might not be accountable anyway. But you don't you shouldn't focus on keeping those, you focus on your A potentials.
Christopher H. Loo, MD-PhD: Wow. This has been a really interesting conversation in which you've unpacked a lot of nuggets and a lot of interesting concepts. And for all the listeners, Steve's book will be put in the show notes. And I know a lot of people will be interested in contacting you and possibly working with you looking at your materials. So how can they do that?
Steve Preda: So as you mentioned, the books are Pinnacle: Five Principles that Take Your Business to the Top of the Mountain. It's available on Amazon in all different formats, including audiobooks if you like to listen to books, rather than read them. And visitors could also check out my website where they can download the summary of this book and my previous book. My website is StevePreda.com. And then they can also reach out to me through the website, and also check the Pinnacle Journey Assessment. If you want to check your company, how it's stacking up on these principles, then you can do a quick assessment there. And you've got a picture of how your business is doing.
Christopher H. Loo, MD-PhD: Excellent, excellent. So all of the resources will be included. And Steve, thanks so much. I really really learned a lot from the conversation and I'm sure the guests will as well. So, thanks so much, and we look forward to having you on the show in future episodes.
Steve Preda: Thank you, Christopher. I really enjoyed being your guest.
Christopher H. Loo, MD-PhD: Many thanks again for being here. If you’re new, you can find me online at Christopher H. Loo, MD-PhD, where I have links to other episodes or links to online resources that will support you on your financial literacy journey. I’ll see you there in on next week’s show. While I bring you thoroughly vetted information on this show regarding a variety of financial topics, I cannot promise you a one size fits all solution. This is why I caution you to continue to learn. Educate yourself and seek professional advice unique to your situation. If you want to talk to me, I welcome it. Please reach out via my website or email at Chris@drchrisloomdphd.com. I read and personally respond to all of my emails. Talk soon!
Editor's note: This transcript has been edited for brevity and clarity.