In this week's Rule Breaker Investing podcast, Motley Fool co-founder David Gardner is happy to have in studio an author he has admired for years: Les McKeown, whose first book was Predictable Success. After being involved with dozens of start-ups, McKeown developed a clear picture of what worked and what didn't. More to the point, he started noticing that there were certain patterns emerging in these businesses' life cycles. There are seven universal stages, repeating across nearly every organization that lasts long enough to hit them.
In this segment, he explores the scary third stage of an organization's life -- "whitewater" -- when your earlier triumphs have allowed you to grow to an inflection point. You've reached that spot where everything you did that got you this far just doesn't seem to work anymore. So fasten your seat belts -- it's going to be a bumpy ride.
A full transcript follows the video.
This video was recorded on March 21, 2018.
Les McKeown: At some point, flockballing doesn't work anymore. At some point we actually begin to drop the ball. And at that stage we're moving into the third stage of growth, which we call "whitewater" because...
David Gardner: Whitewater.
McKeown: ... because that's how it feels. You emerge from fun, which is just like "we can do no wrong" and the boat begins to rock. And if you've ever been canoeing, and you hit whitewater, it's scary. And that's what whitewater is like. It's like you are going down this river, commenting on how beautiful this all is, and then suddenly this damn boat is rocking backwards and forwards and you think you're about to get pitched over into the water and down. And what's whitewater.
Gardner: Now, one thing about that analogy -- I guess it's kind of its own metaphor. So, whitewater. Talking about that briefly. Just the naming of that or thinking about whitewater. I'm not sure you intended this with the language, but the implication is that external conditions are changing. Nothing presumably in the boat is changing, although I'm not sure you mean that. You can speak to that.
When I think of being in a boat and being in whitewater, all of a sudden things around me are different. Maybe I still think I'm in the same boat. I'm acting the same way. Is that true or in part is it a self-inflicted wound, here?
McKeown: It's going to become true. At the stage that we're at, at the moment though, the water is part of our internal environment. Think of the boat on the river being our business.
Gardner: All right.
McKeown: What's happened is from the little cocoon or the cockpit of running the business, wherever you are is what I call the most senior executive. It might be a CEO or a president, but from the cocoon of the most senior executive's world, the rest of the business is what's churning up. It's everything else.
What's happened is that we were in a pond. It was quiet. Flat. Now our business, this river that we're in, the internal stuff we're doing has just become too complex for us to manage simply. And fun? A board meeting is a ride up in the elevator. You get in there with one of your colleagues...
Gardner: If you even have a board.
McKeown: If you even have a board, right. So, you get in with a colleague. You pressed the button for the 14th floor. By the time you get out you've decided to open an office in Chicago. Great! And by Tuesday, two weeks later, you're looking at real estate for an office in Chicago.
Things are relatively simple, and what a good friend of mine calls the "the golden gut." Managing viscerally. Just making judgments on the dime based on your experience, knowledge, and intuition is actually not only perfectly good; it's the way you build a business in fun.
What happens in whitewater is that the complexity of the business overrides your ability to make high-quality decisions based solely on your gut, and you increasingly can't do it on your own. You need other people to be around you. That's a mindset change that is very hard.
And whitewater is really a point of inflection. It's a crucial point at which founder/ owners, in particular, need to make a specific decision, which they rarely do, and the specific decision is, "Do I want to press forward through this whitewater?" To get to the capstone, the top of our arc which we call predictable success, is essentially the ability to scale. Not grow, but scale, and we'll talk about that later.
"Do I want to scale my business, or did I really love fun and I just want to go back and stay in fun?"
Gardner: Which is a valid decision.
McKeown: Entirely valid.
Gardner: But you're pointing out that not everybody even frames up the question.
McKeown: Correct. What happens is you just get stuck in whitewater and it feels horrible. You think, "This wonderful business that I've built is dying. Why is this the case when everything we touched turned to gold until six months ago or a year ago. This is horrible!"
And you try to deal with the issue without realizing -- and why would you? -- that you're in a systemic pattern and that dealing with the place you're currently at involves deciding what direction you want to go in. Do you want to just go back and be in fun, in which case just stop growing? Go back to the size you were. Accept that there's going to be a cap. You might put some small percentage growth year-on-year in, but essentially, you're going to polish the apple, squeeze some more profit out, and you're going in niche, boutique, small, maybe family business.
Or, do you want to scale, in which case you have a big, big mindset change ahead, because in the words of our friend Marshall Goldsmith, "what got you here won't get you there." And all of the stuff that we did in fun that was right, and it was the right thing to do, will not get us to predictable success.
Gardner: One of my aims having you on this week for our listeners, our Rule Breaker Investing podcast listeners who are at many different types of organizations, for-profit and not-for-profit, is some of us are retired and can look back on our years. Some of us are in civic duty of some sort.
But all of us who are taking a paycheck from somebody are in organizations. One of my big goals, Les, is for you to help give consciousness to each of us, wherever we are, and ask, what stage of Les McKeown's predictable success framework is my organization in? And that's going to be a big focus of the second part of our interview. Now, Les, before we go to the capstone of the arch; again, we've stacked our blocks. We started with early struggle, and then on top of that we put fun, and then on top of that we got to whitewater and things began listing a little bit to the right. And, as it turns out, we can actually capture it with a capstone and capstone with predictable success. The name of your book. The centrality of your framework.
But before we get there -- creation stories that we tell ourselves when this company first started, which presumably come from the early struggle and the fun -- I'm partly thinking about people in whitewater to recognize, are we in whitewater? So this is my question before we hit predictable success.
I remember one of the things you point out in the book is that we're probably in whitewater if we still think of that job -- I'll just go with "Marjorie's job." So, it might be what we would call "chief marketing officer," but often you have the big personalities. The players who just from the beginning have done marketing, and so that's just not marketing. It's Marjorie. And so, the complexity that starts to come in is when it's less about the big players that have always been there and more about scaling on organizational needs.
McKeown: Absolutely right, and that's one of the underlying issues in making the decision of what you want to do. If you want to be in fun, part of the reason you're likely thinking that is, "I loved it that way. I loved it when it was all about Marjorie. I don't want to think about a chief marketing officer. Marjorie may be what is in essence our chief marketing officer. It's all about the individuals. About the people I want to stick with."
One of the key things that we work with when we're helping clients get out of whitewater into predictable success is a concept that we call "moving from heads to hats." That you've got to move from the heads. That's not to say that we're just throwing people overboard or getting rid of them, but the mindset has got to be "if we want to scale this business, what does the business need from this role?" Not what does this person bring?
Hopefully there's a match, there, but often there isn't, and so we need to help upskill people, coach people. Maybe redirect them. Maybe put them in another area. Sometimes you've got to hire whole new people in.
But this is part of the mindset change -- that if we're going to get out of whitewater and move into scaling, it's all about putting systems and processes in to manage that complexity that was kicking our butts, but to do one specific thing. We're not putting systems and processes in just for the sake of it. Sure, it's going to help us manage complexity, but it's to allow us to do one thing, which is to make high-quality, team-based decisions. Very boring, but that's what it's all about.
The way you run a complex business -- as you know, because you've got one out there -- is that you have people making high-quality, team-based decisions. In fun, it's mostly about unilateral, single people doing a "dive and catch," the heroic decision-making. Asking forgiveness, not permission. "I just decided I was going to do it and we did it." And it was great. And that's fantastic. That's what you do it for.
Gardner: And just like when you make a "dive and catch," people remember your name. It's a lot about the person.
McKeown: They remember your name. That's right.
Gardner: The person who got it done. Not about the team.
McKeown: And in essence what we're doing in fun, is something that is fun at the time, and should be done. We shouldn't try to not do it -- but we've got to realize the limitations of it. We build the "myths and legends" of the business. And so, what happens is when we hit problems, of course what people do is they go back to think about retelling the myths and legends.
What are the myths and legends all about? People. Heroic events. I mean, think of the myths and legends we read in every other part of the world. It's about the Odyssey. It's about Homer. It's about specific people and things they did. Wonderful, but not scalable. That's not scalable. It's not to say that we won't do those things, again. We will.
Gardner: So, it makes for great stories, but we shouldn't be seduced by our stories if we want to scale.
McKeown: Correct. And some people do try to scale by saying, "OK. I've just got to go get 300 superheroes." Well, good luck with that. That's like herding cats. That's why a lot of legal firms, a lot of talent agencies fall apart, because they're essentially driven by celebrity individuals who are perfect for fun, but you can't build scalability on that.