In this 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, and the more he looked into it, the more he realized: Certain stages are universal, repeating across nearly every organization that lasts long enough to hit them. They discuss those seven stages, what smart managers should do to make the most of them, the best ways to climb through them, and the various ways to pull your organization back to the capstone of that arc -- "predictable success" -- after it inevitably drifts away from it and into trouble.
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A full transcript follows the video.
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This video was recorded on March 21, 2018.
David Gardner: Welcome back to Rule Breaker Investing. What a delight it is for me to have a special guest this week. A friend of The Motley Fool largely just because I and my brother Tom read Les McKeown's book. His first book that we read was Predictable Success some years ago, and so as is natural for us here at The Motley Fool, we're like, "Well, let's invite him in. Let's get to meet this person who's written this book."
And, as it turns out, not only is Les McKeown a brilliant thinker about business and a wonderful author, but he brings a North Irish accent and some charm. We're going to ask Les, this week, if you could amp up the accent a little bit. I'm sure you've Americanized somewhat in your few decades, here, but anyway, what a delight it is to have you.
Les McKeown: It's a pleasure to be, here, David, as it always is to come to Motley Fool. I love you so much, here, that I got up out of my sickbed, so my wonderful Irish accent is masked a little bit with some phlegm and hacking. I'm sure we'll get through it just fine.
Gardner: Les, I want to start. I did, by the way, already recommend this reading last week, so no doubt some Rule Breakers listeners have already read Predictable Success, but we'll conduct this interview as if somebody is hearing all this for the first time.
When I first read your introduction -- I'm not looking at the book right now and this is from my own recall about 10 years ago -- I remember just thinking about your phrase "predictable success." I'd like to start there, Les. What you say in the introduction, as I remember it, is success is actually a lot easier than most people think. In fact, it's somewhat predictable, so don't think of success as this elusive thing that's very hard for us. Maybe one day we can finally struggle to achieve it, but rather it can be predictable. And that came from your background, Les, and that's where I want you to start.
Assessing, participating, looking at dozens, maybe hundreds of start-ups over the course of time. Developing pattern recognition about what worked and what didn't. Where was Les McKeown born? How'd it all start?
McKeown: Well, I was born in Belfast, which is the messy bit of Ireland. Belfast is the part of Ireland that you come from, which I did 20 years ago to the U.S. You go to Dublin if you've got any sense. So, Belfast is in the north. It's an industrial city. We have this harsh accent. We don't have the lilting Gaelic accent.
I grew up to working-class, blue-collar workers. Mum and Dad both just did whatever jobs they could get their hands on. Nobody in my family had ever gone to college. It was just hardscrabble living in projects, essentially, they would be called over here. But two good people who paid the dues.
And one of the things that that upbringing did for me -- I now understand looking back on it -- was really build a desire for some degree of autonomy and freedom in my own decision-making. I saw they were really caught to just every day eke out a living for us, and I wanted to try to break out of that in some way. And for whatever reason for me as a weird kid I was fascinated by business. And when my dad had got an office job -- he had all sorts of jobs. He was a taxi driver, and everything else. But in the times when he had office jobs, I would ask to go into the office with him at the weekends when he would go in. And things like paper clips and telex machines -- as there were back then -- just the whole paraphernalia business, for whatever reason, fascinated me.
So, I began to look at, in my teens, just the businesses around me, which were essentially stores and shops. Retail things. I began to wonder, "Why does this store never do well? Ever? Even though it's been through like 32 different versions of whatever it's been, it's always failed. And this store, just two blocks away, is a raging success and has been there forever." I never worked out the answer, but it got me interested in the concept of underlying patterns.
I got a great piece of advice from my very first mentor. He said, "Look, if you're interested in business, either go be an attorney or go be an accountant. Either way you'll get a good understanding of some fundamentals, and if it all goes belly up, you can put your shingle out and charge people money for your services."
Gardner: And I'm pretty sure you're not an attorney, Les.
McKeown: I am not an attorney.
Gardner: Were you an accountant?
McKeown: I became a CPA or the British equivalent, a chartered accountant. A very nice, polished phrase. But like I say, I only did that because I wanted to learn about business. And I did it by night school. I never went to college. I was the last year of being able to do a five-year night school and become the equivalent of a CPA and I chose that. And I remember I got articled, which means I paid the partner I worked for £100 a year for the privilege of working for him for the first two years before I got a salary.
Anyway, I did five years. Qualified. Qualified quite well. Set up my own practice immediately -- even though that, in retrospect, was a ridiculously bold thing to do -- with the sole aim of trying to help people build their businesses, because that's what fascinated me.
Long story short, people began to come to me to ask them to help write business plans, take them to the bank, negotiate loans, find premises, and just all of the bits and pieces involved in start-ups and I loved it. Folks would start to ask me. "Are you interested in joining me? Would you like to be an interim CEO or be part of the launch team?" And essentially over a 10-year period I got to cherry-pick new start-ups. I was part of the start-up team in 42 businesses before I was 35.
Even a dumb Irishman begins to see repetitive patterns when you do things that often, and I, being inherently lazy, started to scribble these repeating patterns into what were then called lab books. These were thin, blue, foolscap books that people kept lab notes in way before laptop days. I still have the stack of lab books where I was just doodling and doodling these patterns that I saw over and over again.
And by the time I was in my early thirties, I pretty much felt that I'd got the underlying, repetitive, predictable pattern of what we would not call a successful start-up, but I'd got the end of a piece of thread that fascinated me, and what I believe was this model [the repeating patterns that I saw] almost certainly went beyond just the start-up phase, so I started to work with growing businesses. Helping them get to second-stage growth. Third-stage growth. And yes, the patterns that I began to be able to try to predict were proving themselves out.
So, I scouted at this and scouted at this. I wasn't making anything up. I was just uncovering the real patterns that were there. Giving names, words, titles to this stuff. And the final bit came into place -- I'm terrible with dates -- toward the end of 1998-1999. I'm 162 years old, as you know.
Gardner: You look younger than that. You look very vital.
McKeown: Only just. I, by that stage, had been going backwards and forwards to the U.S. quite a lot, and I moved out here permanently. I went to the West Coast because I had the opportunity to work with very large companies: Microsoft, T-Mobile, the U.S. Army, American Express, Harvard University.
And what I wanted to do was to prove out what I believed the rest of this model looked like. To be honest, what did the decline stage look like? I had worked with organizations in the growth stage. I had that bit sorted out. I wanted to look at very large organizations and see if I could get predictive about what would cause them to begin to decline.
And lo and behold, it turns out this is a holistic pattern. Like I say, I didn't make any of it up. I just uncovered it, and it's essentially an arc of growth and decline. Seven stages that every organization goes through. It doesn't just apply to businesses. As I discovered over time, it applies to any group of two or more people who are pursuing common goals. It applies to not-for-profits, for-profits. It applies to government agencies. It applies to your kid's soccer league. Any group of two or more people trying to achieve common goals go through these seven stages, and that's what predictable success is.
Gardner: And that's what is going to be the next stage of this interview because, Les, I've always loved your framework. It is seven stages. And the visual is that of an arch, if you will, so starting in the lower left, for those of us who are jogging right now, or driving as we listen to Rule Breaker Investing, our favorite podcast ever...
McKeown: Of course!
Gardner: ... you want to be picturing from the bottom left and then up to a keystone and arch, and then you're going to keep going down the other side, and that's going to be the decline portion of it. We're going to start. There are seven stages. I want you to talk us maybe two minutes through each one or so. So, in the very bottom left, what is the first stage of an enterprise?
McKeown: Well, it's probably the most intuitable. We call it" early struggle." It's essentially what would be called a start-up phase these days, but I call it early struggle. One of the key reasons I do that is that one of the disservices that many of us here, or commentators in the business, seem to have done over the last number of years is to glorify the start-up mentality as if it's something that is wonderful and to be maintained at all times. I think that's a sin before God to do that.
There's only one valid strategy for a start-up and that's to stop being one, because if you don't, eventually you'll die. You either stop being a start-up and become a valid business or ultimately the money's going to run out and you'll die. I call it early struggle to emphasize the need to get out of it.
Early struggle is essentially just that. It's the struggle to find a profitable, sustainable market. It's as simple as that. You've got to find a profitable, sustainable market...
Gardner: Something that will pay you, anybody you've hired, and have maybe something left over.
McKeown: Well, it has to have something left over. And there are so many pitfalls that will get in your way in early struggle, it's probably the most existential stage in the development of any organization. It's pretty binary. The drop-off with the mortality rate is about 80% of all new ventures fail in the first three years, as you're aware.
And there are two key reasons for that. One is the absence of what we call a visionary, which we'll talk about a little later. Someone who really owns the vision for the business. But the second reason is the one that is most frequent, which is just the lack of a ruthless focus on a profitable, sustainable market. Particularly if you're in tech and you get overfunded, you can go out and buy a bunch of conference chairs and get a beautiful new logo and things are going really well, but you're not one inch closer to that profitable, sustainable market.
So early struggle is all about finding that profitable, sustainable market. That's the only thing that matters. If you don't find it, like I said, 80% of businesses will fail. If you find it you emerge, and it is a sense of emergence. Coming out of early struggle rarely feels like an event. It's more something you recognize in the rearview mirror has happened. You're into the second of the growth stages, so we're midway up the left side of the arch. And that's the stage which I give the most technical term to. We call that fun.
Gardner: And before we get to that, I want to ask you briefly. I hear you on the glorification of start-ups and that mentality. I'm wondering if you watch the show Silicon Valley. If you've seen that on HBO.
McKeown: I do. I adore that show. I really do.
Gardner: Because in a way it actually contributes to the glorification in some ways...
McKeown: It does!
Gardner: ... but it's lampooning it and having a great bit of fun.
McKeown: I'm having good fun with it. But that constant need to pivot, and pivot, and pivot, and pivot is all about not actually wanting to get out of early struggle. In fact, we could get into this stage and never get out of it.
There are people who need viscerally to be in early struggle. It's the place they need to be. And they'll actually self-harm their business in order to stay there and you don't want to be associated with those people.
Gardner: I hear you. So, we are stepping up the arch. We've just laid a block. We've laid the foundation stone. It's called early struggle. We're going to stack a block on top of it as we construct an arch together, and the second block you've just labeled fun.
Now, I remember from the book that fun is fun because you figured out how to actually make money in a sustainable way and what a tremendous release that must be.
McKeown: It's fun because it's not early struggle anymore. Early struggle is a little like waking up every morning and finding a sharp edge and banging your head against it. It's just tough. You've got to find payroll, you've got to meet expenses, and you don't know where the money's coming from. So, now we've found this profitable, sustainable market. We're in fun. And if early struggle was all about finding it, fun is all about mining it.
We've got this market. It doesn't matter what it is. Maybe it's for lime green Post-it Notes. Maybe it's for flavored coffee. But we find a market and typically we move into fun and we've got tiny little market share. It's like nothing. It's close to zero. So, there's tons of low-hanging fruit, and we love it. We've found this market.
It's the most evangelical stage of the organization's growth. Everybody's highly aligned. There's very few job titles. There's the boss and everybody else, and we just get on with it. It's a wonderful time. We are saying yes to anything. We take on any job. No client gets turned [away]. We agree to ridiculous deadlines and yet, somehow, we haul it over the line at the last minute.
I like to say to folks that fun is when we're having beer busts every Friday night for two reasons. One is there's no HR department, yet, to tell us not to, but the second one is that we're reaching the weekend with a feeling of righteous exhaustion. We are beat, but boy does it feel good. How did we do that? How did we say yes to that stuff and deliver on it?
And so, it feels really good.
And the inherent issue that's going to crop up and cause us a problem, pretty soon, is the way that we're doing it. The way we're doing it is absolutely right for that stage in fun. In fact, it's the only way to deliver in fun. And it's something I call "flockball." Now, if you've ever watched six-year-olds play soccer, you'll know what flockball is.
McKeown: All 22 players are in the middle of the field with the ball somewhere underneath. There's a dust cloud, and wherever the ball goes they go, and this includes the goalkeepers from both teams.
That's the way we deliver in fun. We just flockball to success. We just put massive effort behind whatever needs to be done. We pivot to whatever the biggest issue is that we've got to deliver on today, and then we do the next one, and then we do the next one. Do the next indicated thing. And that's fantastic. So, we grow. We say yes to everything and we overinvest in making our clients happy. Our clients love what we do. We grow, and we get bigger, and we grow, and we get bigger.
And what's happening, every single day, is without us typically knowing it, the business is just becoming a little more complex. A little more complex. A little more complex. More product lines. Some service lines. Additional people. Maybe a new location. We decide to go into another geographical region. Just hiring people.
And 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...
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 [whether they are] 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.
Gardner: I'm going to be tempted to want to go too deep right now in predictable success and then on the following stage, as we start going down the other side of the arch, but I want you to help keep me in line, here. Let's move still fairly quickly through the framework.
Again, the second part of our conversation, I want to go back to these two areas that are on either side of predictable success where a lot of us might see our organization; either in whitewater, as you've already talked about, or just past predictable success [spoiler alert!] is the treadmill. We're going to concentrate the latter part of our conversation on how to get back up to predictable success if we're in either of those situations.
Les, really briefly, what is "predictable success?" What does it feel like?
McKeown: I'm sure we'll come back into it, so let's do that really quickly. Essentially, what we're doing is we're bringing systems and processes to bear to manage the complexity that started to threaten us in whitewater. But we're doing it to just the right extent. We're bringing in enough systems and processes to allow that to happen and to coexist with creativity, entrepreneurial spirit, risk-taking; all of the things that helped us grow.
Gardner: Made us what we were.
McKeown: Correct. But, there is a co-equality. We're building the innovation on top of systemic enterprise structure, as opposed to just mavericking ourselves from one extreme to the other. And so, predictable success is that balance of systems and processes on the one hand, and creativity and innovation on the other.
And what happens is -- and essentially we do organizationallywide -- if something was good systems and processes, we brought them in. It was complicated, difficult, painful, but we did it and it did a great thing. It allowed us to scale. Look at this, now. We're a big company. We've done really well. So, if systems and processes are good, let's have some more.
And what happens is we begin, usually, to overemphasize the need for systems and processes. That's what pushes us into the first of the decline stage. So, we're going up the arc, we've hit the capstone, and now we begin to edge into the first decline stage. As you signaled, it's called "treadmill," and I call it that because that's what it feels like. It doesn't feel like a death rattle. It doesn't feel like everything dying. It's just got a little rinse and repeat, rinse and repeat.
Gardner: I have to keep filling out more forms for some reason.
McKeown: More forms. It's all about compliance.
Gardner: What, exactly, is your job title? What group are you part of?
McKeown: It's very limiting. Measure six times to cut once. It's just we're overemphasizing systems and processes, and we're losing sight of what the checklist is there to deliver. Our focus typically begins to drift away from pleasing the customer or client externally to pleasing the system's guru internally.
We begin to worry more about whether we're using the precise Pantone color for our logo than whether our marketing materials are world-class. We're investing more in making sure our website is HTML5 compliant [if that's still a thing] than making sure it's a wonderful experience. A potential new customer has to fill in 13 fields in an online form when all we need is their phone number and their email address.
That's treadmill, and it's recoverable. You can recover from that. And if there is, in the business, what we call a "strong visionary style," the visionaries in the business, which we might get to talk about a little later, they'll put their hand up and they'll stay, "This is crazy. We need to reverse this. Let's just ease up on these systems and processes," and we can spring back or steer back into predictable success.
However, if we stay in treadmill for too long, what happens is we begin to become numb to this overcompliance.
Gardner: And we're about to fall down another block. We've gone from predictable success and unfortunately, we've dropped down to treadmill. We'd like to get back, and we can, and that's always an optimistic, important point. But we didn't make the right decisions. We didn't know the framework. We made some mistakes and now we've dropped from treadmill into what?
McKeown: Into something that we call "the big rut." Now, what triggers that, technically, is if we stay in treadmill for too long. Remember those visionaries we talked about a few times? Ultimately, they're going to leave. Visionaries can't abide working in treadmill. It drives them crazy, because there's no sandbox for them to actually use their visionary skills. They're being asked to comply all the time.
And as that visionary style leaves the organization, it becomes a self-amplifying treadmill and it just becomes more and more like that. Decision-making becomes grindingly slow, and we fall into the stage called the big rut. And the difference between the big rut and treadmill -- there is only one difference. In the big rut we have lost the ability to self-diagnose. In treadmill, we were over-processed, but somebody was kicking against the pricks.
In the big rut, we're over-processed and we like it like this. This is pretty much the way we want it to be. Customers are a pain in the neck. Everything is scheduled within an inch of its life. I mean, just go down to the DMV and watch the DMV in action. And I don't mean to insult our fine public servants, but most DMVs are a great example of the big rut. It's just take a number, sit there for an hour and a half. I'll call you up, and if your forms aren't filled in perfectly, we send you back to the end of the queue.
Gardner: And hey, that's the way things have always been done around here.
McKeown: Correct, and that's the way it's going to continue to be done. Now, because of the inability to self-diagnose [this is the important thing], we're not yet in the final stage. We're in the penultimate stage, but if you fall from treadmill to the big rut, you are going to go to the final stage. You cannot recover from the big rut. It's impossible.
Gardner: Now again, there's a lot of optimism in this message. We're going to get back to that, but this is now the dark times.
McKeown: It is.
Gardner: For the Star Wars: The Original Trilogy, it's now The Empire Strikes Back really hard as we talk about the inevitability of dropping from the big rut to what is the final, seventh stage?
McKeown: "Death rattle." And I call it death rattle because there are some artificial signs of life. Something is going on. Think of Kodak a couple of years ago. It's been through all of these cycles. And there was a little period of time when something was happening with Kodak, but what was it that was happening? It was being sold off for patent value. That's essentially what was happening. That is its death rattle time. It was gone.
In death rattle, the business might get piecemealed out. It might get bought for its asset value and be bought for its client book. Maybe just for its brand names. But whatever happens, it's over. The business is not going to ever be what it was before.
The key takeaway is the two stages in which you want to make very specific decisions about what direction you want to go in is whitewater [when either direction is entirely valid] or treadmill, where let's be honest. Do you really only want to go one direction...
Gardner: You want to get back.
McKeown: ... which is to recover back...
McKeown: ... to predictable success.
Gardner: And that triggers where we're headed for the rest of our time together, Les. We're going to go over, first, organizations in whitewater. What are some of Les McKeown's bits of advice to senior people because that's going to be critical, I think. We need to make sure that the people at the top believe this and recognize this. What are some of the things they need to emphasize to break through from whitewater into predictable success?
And then we're going to go to organizations that are in treadmill and what do they need to do. What are a few prescriptive things they can do to bring themselves back to predictable success?
Gardner: Now back with Les McKeown, author of Predictable Success. Les, we were talking about whitewater. Let's say I'm listening to this interview. I'm engaged, I hear you, and I feel like I'm living whitewater. I might be my own entrepreneur. Small or large business. I might be working with an entrepreneur. I might be in an organization where I don't get to talk to the entrepreneur.
But Les, I know in your professional life you are a consultant. As you mentioned earlier, you've worked with some wonderful organizations. What is some of the advice that you would give us who are in whitewater? How can we get through?
McKeown: A great question. I think one of the things that I want to bring back into the picture is something you referred to earlier on, is that for our listeners not just to be thinking about this in terms of your overall organization that you work in, because it will certainly apply to that organization. But if you recall, these stages work with any group of two or more people who are trying to achieve common goals, so it's good to think about it in terms of not just your organization, but what about your division. Your department. Your project. Your team that you work with.
After any sort of reasonable period of growth, certainly once you've got past having 15 or 20 employees, actually where the organization is on the life cycle is the weighted average of where the underlying divisions, departments, projects, groups, and teams are. So, you can have one project that's down in early struggle. We just got started. We're just trying to make our way out of here.
Gardner: Internal start-up.
McKeown: Yeah. You can have another group that's deep in treadmill, and often with old organizations that's precisely the situation. Most of the business is in treadmill, and there are some satellite parts that are elsewhere. So, that's the first thing. Distinguish where you are from the organization as a whole.
Secondly in whitewater and with treadmill, in the book Predictable Success I do detail a series of very mechanical things that you have to do. You've got to look at your org chart. Build some skills that I call "lateral management" and so forth. Those are pretty mechanical. But the key thing I think you've got to look at is what's happening in the four inches between the ears of the key people who are running your department, project, group, team, or organization, and I want to be specific about that.
If you've hit whitewater, there are typically two types of people who are pushing the agenda, the growth of the business. Those are first of all the "visionary" that we've talked about before. That's somebody who may well have been the original founder. Has the idea for the business. Has the vision for the business. Works at 30,000 feet. Thinks in big terms. Always wants to move the needle in big ways.
Gardner: Steve Jobs.
McKeown: Classic visionary. And the other one is what we call the "operator." That's somebody that the visionary seeks out -- subliminally, often, and sometimes explicitly -- to actually do the hard work of making stuff happen, because visionaries like to start things, but they get sort of irritated that they have to needle out all of the details. So, they'll go find somebody who actually goes through brick walls to make it happen. Steve Wozniak. A good example with Steve Jobs. Bill Gates and Steve Ballmer is another good example of that.
An operator is a pretty ruthless finisher, so we've got our visionary starter who comes up with the idea and then a ruthless operator who would sell both grandparents multiple times a day just to get done whatever needs to be done, and it's not going to be pretty. It's going to get done, but don't watch. You won't like it. That's how you get out of early struggle and that's how you build fun -- and working with those people is great fun.
Here's the main issue in getting out of whitewater and into predictable success.
Gardner: To scale, because that's what we're trying to do here. If we want to go there, and if we want to get to predictable success, we're creating a scaled organization that can scale from there.
McKeown: Correct. And if you do want to scale -- if you choose not to go back to fun... If you want to back to fun, that combination is perfect. Just keep it that way. Don't mess with that.
If you want to scale, there are two inherent not just barriers, but things that will fundamentally block your ability to scale that come with each of those styles. The first one is with the visionary. It's this sense of total ownership. The business is mine. I'm the business. The business is me and I am the business. I own this business.
Therefore, what? Therefore, I can come in on Monday morning and we can do whatever the heck I decide. I was at a conference. They told me that websites colored orange make more people buy. We're changing our website. It's going to be orange. That's what the visionary mindset is. If I decide it, we are going to do it.
And that becomes fun that's very necessary. That golden gut, that visceral thing that's necessary to grow the business. Now, that we're complex it's probably just wrong. That's point one.
Point two is it produces a whiplash effect when you're trying to scale that distracts everybody from the focus that's necessary, so we end up flockballing on the orange website and then, you know, the visionary founder meets somebody, and has a great dinner with them, and comes back and says, "We have to have casual Friday. We've just got to have it, so let's have it." It sounds like a silly, little thing but suddenly you've lost three weeks of momentum because we had to work at the policy and blah, blah, blah.
So, that's sense of ownership. And I tell people if they want to get to predictable success [this might sound really silly], I tell them you've got to stop using the word "founder." Just stop using it. Get rid of it. It's a barrier. Because when you talk about yourself as the founder, you're basically saying, "End of discussion." You're basically saying, "I am God." It's like bringing God in. You might as well say, "God told me to do it."
Gardner: Sometimes I refer to myself as the co-founder of The Motley Fool, but no longer. It's going to change from here on. I'm also chief rule breaker, but that's all I am, now.
McKeown: That's a good thing.
Gardner: I'm no longer a co-founder. I love it.
McKeown: That's going to help with treadmill a lot. And the second thing is that with the operator, the barrier to growth, there, is that any operator worth their salt built their sense of self-identity on being the person that does the dive and catch. They build their concept of value on being the person who made it happen.
Gardner: They're the athlete out there on the field.
Gardner: And that can be a problem, I guess, to scale.
McKeown: Of course it's a problem to scale, because what happens is when they have to start working in much more of a team-based environment, that becomes problematic. Operators are terrible delegators. They don't want to delegate, because they know they can do it faster, cheaper, better themselves. They just want to go through that brick wall. They don't want to bring an architect in who's going to show them how to take the wall down and build a better one. They're just going to charge right through the damn wall.
Well, that's not scalable. It's just not scalable. You end up with walls with a lot of holes in them, and that's not what we're looking to do.
And so, shifting that operator mindset away from thinking, "I'm it." Remember the heads-to-hats thing? We have big-dog operators who have built a lot of autonomy and freedom during the fun stage. Don't get me wrong. I'm not down on these people. They worked their... Am I allowed to say, "asses off?"
Gardner: Yes, on this podcast. This is the Rule Breaker Investing podcast. Now I will say that on Apple iTunes we're given "clean lyrics." There's actually a badge.
McKeown: I won't go into that, then.
Gardner: All right. Their "tails off."
McKeown: But what is the case for most big-dog operators is a very simple fact. They need to be and should be always working for organizations in fun. That's where they get satisfaction. And I've never, ever seen a business get through whitewater into predictable success without sitting down with some of the big-dog operators and saying, "Look. I love you. We've built this thing together. If you want to go where we're going, I'm going to help you find somewhere else." That's a horrible thing to have to say, but it's just true.
So, those two mental shifts in the visionary [away from, "Hey, it's mine. I get to do anything I want, and I've got a great idea for next week]" to becoming a steward. Becoming somebody who says, "The business has at least a veto over me at the very least." And the operator moving away, which is much harder to do than the visionary. The visionary can make that shift much easier than the operator can. The operator moving away from needing to be the person. The head, not the hat. The person who does the dive and catch every time. Those are the two most difficult things in getting out of whitewater.
Gardner: So, if you, having just heard Les McKeown, feel like you might be in whitewater, there's some really good advice. And Les, we don't have time for this, but in the book you do outline actually six concepts, features, or strategies, and I'll list them really quickly. We're not going to talk about them.
Do you have an org chart? That could be helpful. What about lateral management? Something you talk about in the book. Alignment. That sounds awfully good if you want to scale. No. 4 was cross-functional teams. No. 5, a sense of empowerment. And finally, six, ownership and self-accountability. That will be my final question when we talk about this later. But those are six prescriptions from you.
Now, we're going to shift. We've just left predictable success. The other direction -- we're on a treadmill. Les McKeown -- consultant, author, fellow Fool -- if we're on treadmill, what do we need to do?
McKeown: We need to reverse the echo chamber that's causing the treadmill impact, and I want to go back to our styles for this, because it's a very important element. Going through the growth stages, we've got our visionaries and our operators. We've talked about those. Those are not only all you need. Those are not only what you have during growth stage. They're all you need. Those are the key building blocks of good growth.
To get into scalability, we've already identified we need to, in order to get into predictable success, put systems and processes in place. That means that for the first time in the organization, we start to bring in, at a senior level, a third style, simply called the "processor." That's somebody who will put those systems and processes in place.
What does that look like? It might be somebody in HR. It might be somebody in IT.
McKeown: Legal. Just checking the darn documents that we're signing off on and getting ourselves into all sorts of trouble about. It could be just quality control. Warehouse management. Wherever we were dropping the ball in whitewater, we need to bring processors in who will bring process to bear and will make sure that we can conquer the chaos that was being caused by complexity. So, now we've got three styles. We've got the visionary, the operator, the processor.
What happens is that those three styles [which are all-natural styles], all of us show up typically with one primary style and usually a secondary style. I'm primarily a visionary and secondarily a processor. That's a common consultant profile. What has happened whenever we get into predictable success and find ourselves moving toward treadmill is that the visionary, operator, and processor styles naturally left to their own devices will get into conflict, and the conflict is a binary one. It's actually visionary vs. processor. That's where the conflict is.
Gardner: The operator is just figuring out what he or she needs to do in getting that done, but he or she can't figure out who they should listen to.
McKeown: Correct, and any operator worth their salt doesn't want to be in darn meetings. Doesn't want to sit and have the debate. The operator is just saying, "Hey, bye. I have a job to do. Call me when you're finished and tell me what you want." So, it becomes a battle. And it may be personified. It may just be, in essence, the management team battling between the visionary style [move the needle, big stuff, high risk, do it fast] and the processor [hold on, more analysis, more data, take our time, slow this down, less risk].
And what happens when we're moving into treadmill is the processor role is actually winning the argument more and more and more. And in treadmill -- you mentioned the six little items that we talked about in whitewater -- there are six of them in treadmill, as well, and the very first one is "hiring."
And when I'm working with my clients, if they're in treadmill, the reason I work with them in their hiring function first is because in treadmill, what happens is hiring becomes an amplifier. We hire processors. For almost every job, we bring people in who are tech savvy, process savvy, system savvy so they can plug and play, and fit with our systems.
We don't look enough for entrepreneurship. For innovation. For all the visionary side of things.
We've got to work with the processor role, not to squelch it. To get it co-equal. What we need is a co-equality visionary, operator, processor co-equal. The high-quality team-based decisions that we're talking about come from having an equal voice of the visionary, the operator, and the processor and not one dominating the other. To get out of treadmill, we need to equalize the processor role. We need to take its voice down so that it's co-equal with...
Gardner: Are you implying, by the way, Les, that processors will tend to hire more processors?
McKeown: They breed like rabbits.
Gardner: I see.
McKeown: You put two processors in a room and leave them for nine months. You come back and there's seven of them, there. I'm a processor. I'm allowed to say that stuff.
And the reason is a logical one and an understandable one. What are those two processors doing? They're building systems and processes, and when they build one, and they want to go on and build another one, who do they hire to manage the one that they just built? Another processor. They're not going to put a visionary or an operator in charge. They're going to hire another processor.
So, yes, they do become rampant if you're not careful, and that's a good sign that an organization is in treadmill, is when you realize, "Hey, we just keep hiring these people who are highly compliant," so we want to fix that.
Here's the problem. Just doing that doesn't fix the problem in the medium or long term, because left on their own, the visionary, operator, and processor will always end up in corners arguing their piece, because their worldviews are fundamentally different.
Here was the magic, final part of the puzzle that took me 25 years to discover. I moved over here from Ireland just about 20 years ago, and the reason I did it [there were personal reasons], but the business reason I did it was because I knew from my understanding of the predictable success model that there were many organizations who got into predictable success and stayed there in the medium and long term, but I hadn't seen any of those in action. I'd only seen businesses that ticked into predictable success and then fell out again and why they're into whitewater or treadmill.
And so, I'd go help a business in treadmill. Get it back into predictable success. Bring the processor voice back to co-equality. And six months later they'd be back in the same place, again.
When I went and looked at some of the great organizations that I got to observe who back then were in predictable success and had been for quite some time [organizations like Microsoft, T-Mobile, Harvard University, U.S. Army, Sun Microsystems], I found something that really took me back, which was that there was a fourth style. It's a style that I've come to call "synergist" style.
And it only emerges in in its full flush in predictable success is the first point. The second point is it's a learned style. A synergist is somebody who has learned that they have to get results through working with teams, not doing it all on their own.
And what a synergist is, that learned style, is essentially the glue that holds the visionary, operator, processor together and in balance. It's the voice on the team that says, "No, no, wait a minute. You're not hearing that right. He's not saying delay this for another six months. He's saying, 'Let's actually read this data and see what it says, rather than depending on anecdote.'"
The synergist is the person who says, "Hey, Mr. Visionary, love that you're just back from a two-week vacation and you've got a notepad full of squirrels that we could chase down, but you know what? What we started to do this quarter we have to finish that first. Let's do that." So, the synergist role is the fourth, vital role. It's the role that gets an organization into predictable success permanently. In the medium or the long term, it keeps the balance right. Absent a synergist, you're either going to fall back into whitewater, again, or forward into treadmill.
Gardner: The Synergist, by the way, is a follow-up book from Les McKeown, so if you enjoy Predictable Success, as I did, you might do what I did and read The Synergist as well. Les, these are people who are typically egoless. They often don't have a lot of ideas. They're basically a great team player. They listen very well, and they can coordinate and make stuff happen, but not by being the operator but really by being the conductor.
McKeown: Correct. And for that reason, there's no place for them in any other stage, really, than in predictable success and early treadmill. You hire a synergist when you're in fun and they're going to leave not long after, because there's nothing for them to synergize. There's no internal conflict or very little. The visionary and operator get along so well together.
It's only whenever you move into predictable success that they really have a role at senior level. And yes, they are typically people who you don't notice individually that much. They're typically wallflowers. They're not always, but usually. What happens is when you get into a team environment that's when their utility becomes really obvious. It's not because they're necessarily overbearing or intrusive.
By the way you can have great visionaries and awful visionaries. You can have great operators and awful operators.
Gardner: Right. Just because somebody is something doesn't mean they're actually good.
McKeown: Correct. And you can have good synergists and pretty crappy synergists. But a good synergist is really like a good referee or umpire in a sports event. The better they are, the less you see them. They're just doing the job. They're making the event go, and when they need to put something back on track, they'll put it back on track. When they need to throw a flag, they'll throw a flag. But a good synergist is somebody who really comes into their own in a team environment.
Gardner: Two final questions for you, Les. Thank you, first of all, for all the insights and now I'm thanking you on behalf of thousands of people who've enjoyed your insights and I encourage them, if they feel motivated, to pick up a copy of Predictable Success.
One quote that I wrote down and have used introducing new employees to The Fool when I've had breakfasts or lunches over the years here at The Motley Fool is just this simple quote from you. We've never talked about this before, so you don't know what I'm about to say, but this is it. "The single most powerful characteristic of the Predictable Success organization -- the single most powerful characteristic is the existence of a culture of self-accountability."
I know what I say when I talk to employees, but I don't care what I say right now. Les, how did you conceive of that? Why did that come from you? Why did you say that?
McKeown: Well, like all of the model, that's a question [less of] conceiving it [and] more as a question of recognizing it. Seeing it rather than inventing it and putting a terminology around it. Actually, it came out of my years as a CPA, which was my first job, technically. A chartered accountant, which is the U.K. equivalent.
I spent a lot of time as an auditor, and one of the things that happens as an auditor is you go to an organization, a company. A client of mine for years was Michelin. I was with Price Waterhouse, latterly PricewaterhouseCoopers and Michelin was a client of mine.
You'd go there. You'd be there for three months auditing the books and then you'd move on to another company and you'd spend two or three months there. It was fascinating getting to see everything.
One thing happened every time. You'd go there. You'd be introduced to typically somebody in the management team who would be managing -- either the CEO or the CFO -- and they'd want to take you on a little tour of the business. They're proud of the business. They want to show you around.
And one of the things that I noticed they would do is they would take you to wherever there was a sense of accountability and ownership. You might want to put pride in there. People who really owned their jobs. And that was great. I'd be taken into a room -- whether it was the parking department or the legal department -- just somewhere where everyone was gung-ho and a strong sense of ownership.
But, I was going to be there for three months and my job as an auditor meant I had to trample around all of the organizations, and I began to work out very quickly that this sense of ownership and accountability could be very thin. Maybe that was it? And yet in other organizations -- almost anywhere I went -- they had the same mindset. There was this deep, deep sense of accountability and ownership, and there was just this massive correlation that was 100%.
The organizations with really deep accountability and ownership were successful and the ones that had this wafer thin sometimes had nowhere to take me because there was no sense of ownership. They were either only successful in past history and were going to fall off a cliff, eventually and would, or had already reached the peak and were in treadmill or the big rut.
And so, it was a simple correlation. As I drew the model up and began to connect things -- there's a great scene in A Beautiful Mind, that great movie about the Nobel Prize winner, where he's looking, staring at a wall, and there's just all sorts of bits of paper, and doodles, and bits of string. The camera takes over the point of view of his eyes, and his eyes begin to dart, and then you see him linking something, linking something, linking something.
I'm not taking Nobel Prize abilities onto myself. But at the point -- maybe the two year period of 2006 to 2008 -- when the Predictable Success model really began to come together, the very final thing was to see that at the kernel of it is this sense of accountability and ownership. And also, that it's the one part of all of it that you cannot manufacture. You can't make it happen. It arises as a result of doing all of the other things.
Gardner: It's always been paired, for me, with the line. I'm not sure if I'm quoting, but we can all look it up later. "Character is what you do when no one else is looking."
Les, before you and I started our conversation off the air, you just mentioned a transition in your own life last year where having had a business with fellow consultants, rather than try to punch through to Predictable Success, you modeled some of the behavior you've talked about in your books. What was the move that you made, very briefly?
McKeown: Well, I tell people all the time, as I've mentioned today, that if you find yourself in whitewater, the first thing you've got to do is decide which direction you want to go in, and I found myself very much in whitewater last year for the 43rd time. I've had 42 businesses before this. This is the 43rd.
And I made a conscious decision that I don't want to build a McKinsey. I don't want to build a Bain & Company consulting firm. I've actually done that before. I sold a multi-hundred people consulting firm many years ago. I want to be in fun, because that frees me up to help other people build their businesses.
Gardner: You want to be in fun.
McKeown: So, I reconstructed my business. It's back to what I was for 15 years, which is I'm a sole consultant. I consult and coach executives. I have one employee who is my executive assistant and that's it and that's how I like it to be.
Gardner: And that's what you love, because you get to work directly with businesses and not have to manage your own.
Gardner: And I can totally relate to that. Les, let me ask you. If I'm somebody who's really enjoyed our conversation, how might I reach out to you?
McKeown: Just go to PredictableSuccess.com -- all one word -- PredictableSuccess.com. If you hit the Contact button there, there's all the usual ways to get in touch with me. And the nice thing is because I'm a small business and fun, it all comes right through to me.
Gardner: Isn't that nice? There aren't a bunch of teammates or forms that we all have to fill out or any kind of barrier. Well, Les, thank you very much for your time! Let's have you back sometime. Maybe some months or a year hence if things have changed. Let's pick up the conversation, especially when I hear some real positive props at this week's mailbag.
And if you find yourself moved by anything Les said, to share a story of yours. Maybe something that totally accords with what Les said, or some aspect that challenges something that you heard, we'd love to hear from you.
And speaking of mailbag, that's where we're headed next week, so remember. RBI@Fool.com is how to reach out to us. You can also drop us a line on Twitter @RBIPodcast. I will mention that we're taping next week a day early, so your deadline would be, let's say, Sunday night. If you want to try to get on our next mailbag, make sure you correspond with us by then.
In the meantime, thank you, Les!
McKeown: Thank you. It's been an absolute delight!
Gardner: And Fool on!
As always, people on this program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Learn more about Rule Breaker Investing at RBI.Fool.com.
Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. David Gardner owns shares of AAPL. The Motley Fool owns shares of and recommends AAPL. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool recommends AXP and TMUS. The Motley Fool has a disclosure policy.