The Virtual CMO

Building a Fast Growing, High Profit Business with Steve Preda

August 19, 2021 Eric Dickmann, Steve Preda Season 6 Episode 3
The Virtual CMO
Building a Fast Growing, High Profit Business with Steve Preda
Show Notes Transcript

In episode 84, host Eric Dickmann interviews Steve Preda. Steve is an entrepreneur, speaker, certified EOS implementer, and author of "Buyable: Your Guide to Building a Self-Managing, Fast-Growing, and High-Profit Business." Since the age of ten, Steve (Istvan) Preda dreamt of becoming an entrepreneur, inspired by his great-grandfather, who had built a legendary bakery business in Budapest, Hungary. After working for top consulting firms and banks in London and Budapest, in 2002, he embarked on realizing his dream by starting MB Partners, a consulting firm, helping private companies arrange ownership transitions.

Having overcome many painful mistakes, by 2007, MB Partners achieved market leadership in Hungary, but around its tenth year, the firm hit the ceiling. That was when Preda read Gino Wickman’s Traction, which changed his life and his company forever. A year later a private equity group bought the firm, Steve and his family of six moved to the United States.

Today, Steve Preda's mission is to help entrepreneurial leadership teams succeed, as a Certified EOS Implementer. Since 2016, he has been helping over 35 leadership teams clarify, simplify and achieve their visions, and start living the EOS Life.


For show notes and a  list of resources mentioned in this episode, please visit: https://fiveechelon.com/building-fast-growing-highprofit-business-s6ep3/

A fractional CMO can help build out a comprehensive marketing strategy and execute targeted campaigns designed to increase awareness and generate demand for your business...without the expense of a full-time hire.

The Five Echelon Group - Fractional CMO and strategic marketing advisory services designed for SMBs looking to grow. Learn more at: 

https://fiveechelon.com


Eric Dickmann:

Welcome to The Virtual CMO podcast. I'm your host, Eric Dickmann. In this podcast, we have conversations with marketing professionals who share the strategies, tactics, and mindset you can use to improve the effectiveness of your marketing activities and grow your business. Steve. Welcome to The Virtual CMO podcast I'm so glad you could join us today

Steve Preda:

Hey, Eric, I'm excited to be here. Thank you.

Eric Dickmann:

I'm excited to have you here. I love having authors on the show especially of interesting books and we're going to get a chance to get into your new book- Buyable, today, which is fun for me. You know I think it's such an accomplishment. I do a lot of blog post writing and sometimes I think that that's a chore. You know putting together several hundred pages of written content, that's quite an accomplishment. What made you decide to become an author?

Steve Preda:

Well, I'm totally with you. I mean blogs can be a big task to come up with a good blog post and you always want to do a better one than the last one. So I totally relate to that. Basically it's something that I had at the back of my mind for years. I wanted to do this, and then the pandemic hit and I said, Oh, wow. Okay. so my travels stopped, I drove 50,000 miles in 2019, and the middle of March, everything stopped and said, Wow, this is the time. So how do I put my time to the best use? And I thought, Wow, let's do this. Let's try to do this book. And that's how it came about. So I can thank COVID for the book actually.

Eric Dickmann:

I think that's great. You've done what we have encouraged so many businesses to do. It's take the opportunity of a little bit of this downtime to create really compelling content that has a life of its own. And a book is certainly an example of compelling content that will live on for a long time. I think it would be great as we kick off our conversation today if you would just share a little bit with the audience about your background and you know, how that sort of factored into writing this book.

Steve Preda:

Yeah. So my background is I'm an accountant. I started life with KPMG as an accountant, then I became a banker and then I started my own investment banking firm, where I was helping small to medium size entrepreneurs, turn their good businesses into great businesses, and find investors for them. And then I became a business coach, a leadership team coach, and essentially, I poured my last 20 years into this book as an adviser, as an entrepreneur, as a business coach. And I tried to think about the big picture. What does it look like to make a business buyable and how to go about it and how to drive this process? I've worked with many clients who sold. I have them sell their company and sometimes it's worked out great, sometimes it didn't work out so well. I mean, the sales are not well, but then the entrepreneur essentially found themselves in a vacuum. And I was thinking about how to go about this thing, and this book is basically about the journey and how to think about it and how to manage the emotional side, as well as the technical side of creating a business that people would want to buy.

Eric Dickmann:

I think what's so interesting about it is you really are talking about positioning your business for a potential sale. We've talked a lot on this podcast about the difference between being an owner and an operator of your business, and trying to get to a point where your business can be more self sufficient and you don't have to spend you know, 10, 12 hours a day running your business. But you're really taking it a step further with this idea of constructing a business in such a way that ultimately if you decide to, you've built it in such a way that you could sell it at the end.

Steve Preda:

Yeah. So the whole point is buying the business. People sometimes they fall into it, sometimes they want to make a lot of money, sometimes they think that if they're going to be successful in this business, then people will love them. So whatever the reason that we start businesses, begin with the end in mind. So what is an idea? What does an ideal life look like for you? And it may be the business, but it may not be, or it may be a different, a certain rule in the business, but not doing everything like a lot of entrepreneurs do, right? Not very good at their hats. I know a successful entrepreneur who builds a national law firm, and then the firm was self-managing. He put another CEO, he stepped down from the board, and he went back into the business because he wanted to work on venture capital deals. That was his ideal life to work on these kinds of deals and he let other people manage the business. And it was still successful, still profitable. So whatever it is, whatever is your ideal life, figure it out first, and then let's use the business as a vehicle to get you there. Because the business is a great, great vehicle. It can create the funds for you to fund that ideal life. It can, uh, create, uh, you know, it could be the business yourself that you love to own because you don't have to manage it, or you don't have to work, you know, 50 hours or 80 hours in it. You just work 20 hours, whatever works for you. So that's basically the idea and if you build that kind of business and you love your business, you don't have to sell it at all. You can harvest it. You know it's profitable, you can take whatever money you need from it, and you can still be engaged and you can still enjoy working with the people you love to work with, and doing an exciting thing. You're growing something which is living, staying at the strategic level, which is always exciting.

Eric Dickmann:

I'm sure you see it a lot, but there really seemed to be at least two different mindsets when it comes to business owners and entrepreneurs, you have these people that fall in love with their idea and they have a very hard time letting it go because it's their baby and they want to nurture it and they want to see it grow. But sometimes that idea, honestly, isn't a great idea and the business just ends up going nowhere, and then you sort of see the second class of entrepreneurs, they are excited about bringing new things to market, and when a business reaches a certain level of potential, they sell it to a larger company and it becomes incorporated. And then they turn around and start up something else. And it's just this cycle of one idea. They bring it to a certain point and then they move on and they start something else. They just always have this passion for bringing new ideas to market, as opposed to holding on to one idea forever. Do you see a lot of that as well?

Steve Preda:

Yeah. You know there are more entrepreneurs out there, more visionary entrepreneurs, than there are the operators. It's much harder to find someone who has the discipline and the consistency to operate a business to not get distracted, to stay to the people they choose, to make sure that the T's are crossed and the I's are dotted. It's much, much harder to find the kind of people. To be a visionary entrepreneur who is running after different ideas all the time, it's easy. You know we are like that. That's our natural emo to do that. And yes, the smart entrepreneurs who realize that they don't like to operate businesses, they just incubate the idea. They get it to the point where the baby can, you know, can crawl or maybe walk and then hand it off to a nurse who will make sure that baby grows up and be taken care of. So yeah, we have actually a great entrepreneur, a woman here in Richmond where I live in Richmond, Virginia, Linda Nash, who is doing exactly that. She is on her fifth company. She has groomed and grown and sold several businesses, and she takes them to that stage where they are no longer family tied atmosphere. When you get your gets from this 30 people to a hundred people, she doesn't want to go there. She lets let other people deal with that. And she started a new one.

Eric Dickmann:

It's definitely a mindset and it's fascinating to see people and how they go into business and really what they want out of it. And so again, you know, your book is buildable and I think it's going to be very interesting to sort of follow your thought process as you help give advice to business owners on how they can ultimately build a business that they could sell if they wanted to. So there's a lot of information in your book, but I wanted to just kind of go through four high level points, which you focus on in the book. And the first one you mentioned is designing your future. What do you really mean when you talk about that initial stage of designing your future?

Steve Preda:

So it's exactly this kind of thinking. What is the ideal life for me? What do I want to do? What do I want to engage with? Do I want to run a business? Do you want to create businesses or do I want to engage with charitable activities or do I want to spend my time with my social circles or is there a hobby that I really want to do? Do I want to be an author and a speaker and be on the stage? So what is it that you want to do? That's the first one and that's not so easy to figure out. Um, and the most, the actual software store I talked to, they're kind of taken aback by this whole idea that they have to think about themselves rather than the business. Um, but that's the first one. And when you figure this out, then the question is, Okay, so what does it take for you to get there? Often there is a number attached to it. For example, maybe I want to start the business which has a bigger potential, and I need to have a starting capital accumulated for that, or I want to retire and I need the number, what it's going to take me to have a comfortable retirement or I want to start with this charity, how much money do I need to make it sustainable? So whatever it is, you have to figure out what the number is. There is actually a tool for my readers that they can go on a website and they can calculate their magic echo, the magic number that they do need to reach. That's the first step. And then we can reverse engineer from this magic number the value of your business that it has to reach based on your ownership percentage or taxes, based on the current value. Well, actually it doesn't depend on current rate, so what is the value that you need to harvest from this business? We value your business in the present. There's another calculator for the readers that they can do, that they value their business, in the present, into the future, time horizon. So let's say in 10 years, I want to get my $1 million company to $5 million. What is the growth rate I have to have? And then you basically know what you're aiming. In 10 years, you need to grow this company to this point and you know, what the end demand is. And that's the first step. so that's the first.

Eric Dickmann:

Like in businesses, we often talk about with retirement, right? If you want to retire at age 65, and then you figure you're going to live for another 20 years after that, you need to figure out how much of a nest egg do I have to have to retire at 65, to you know play golf or whatever, travel the world, whatever it is that you want to do. So in some ways, this is a very similar type of calculation.

Steve Preda:

It is very similar. And the idea is that it may be more than just your master, because you also want to start up a business or you want to buy your toys, but it's basically the same idea. So what is going to be your annual retirement burn rate times whatever number is that spiral correlation. And then what are those toys that you want to buy? Do you want a second home or third home? Do you want to fund your kids' colleges or your grandkids colleges? Do you want to give away money? Whatever it is, it's also power calculation. But it's the same idea. Yeah.

Eric Dickmann:

So once you go through, you do those calculations, then your phase two, your next step is really all around orchestrating your business. So what do you mean when you talk about orchestrating your business?

Steve Preda:

So orchestration means that you make your business well run and there are three purposes to that. First is you want to make your business self managing because ultimately as long as you're running a business, you are trapped in it, and you're at the mercy of the challenges of your business. For your business to be really buyable, for other people to be able to take it over and run it and use it as an asset, it needs to be independent of you, so it has to be self managing. The second thing, it has to be growing at a good pace because businesses that are not growing are not able to attract A players because they want to join businesses that go somewhere where they can have a career. They are not going to be able to sustain their position in the market and they're not going to be very profitable. They will be kind of followers, not leaders. So your business has to grow at a reasonable clip and then you want it to be profitable as well because that's the oxygen. So without profit, you're not able to grow. Growth, it takes a lot of money. It sucks money out of the business, essentially. So you need to have a healthy, profitable to be able to fund your growth, to keep the business, to keep owning the business. If that's what you want to do and to keep the business house and give you some room to make some mistakes because along the way, you're going to make some mistakes, you need that buffer of profitability that will save you there. So these are the goals and this can actually be all be achieved by just implementing seven management concepts that have emerged the last 100 years. The first one was 1911, the publication of scientific management by Frederick Winslow Taylor, who figured out that if you processize your work, you can improve your productivity. And there are the concepts, and I'm happy to talk about them. So seven management concepts, if you implement those in your business, then you will have the self-managing, fast-growing, and high profit business. And that's what I call orchestration. This is not rocket science. This is something that you can, you know, you can either do it yourself with the use of management blueprints, or you can hire someone to help you and be your guide on this journey. Now, the management blueprint concept, before you ask it is essentially the idea that these seminars, of course they have been implemented by the fortune companies, have impacted them. You used to work for Oracle, right? So they have implemented this decades ago, these ideas. And you can, however, if you're a small business, there are books out there that give you a cookie cutter way of implementing these concepts into your business. So I call these management blueprints. The first one was the E-Myth 1986 by Michael Gerber and then there's traction, and there is a Great Game of Business and Scaling Up, and others. So you can pick one of those or you can have a guide who will advise you in what combination is the best one for your specific business. But the point is that you can implement this concept and then you have a well managed business. You know, 90% of businesses never survive beyond their owners. And it's a shame because that's a lost opportunity. Imagine it's like 90% of the GDP, so it's like you're losing 90% of the clients. That's the same thing. You have to get new clients all the time. The economy has to generate new businesses all the time, because we are losing these businesses because they are not well managed and you can fix it., We can fix that just by implementing these concepts, this business can be well managed, and that's where it orchestrated. And often just by orchestrating your business, you already can take it to the size that you need. And you can go to phase four or you can, if you're not there yet, you can go to phase three, phase three.

Eric Dickmann:

Hey, it's Eric here and we'll be right back to the podcast. But first, are you ready to grow, scale, and take your marketing to the next level? If so, The Five Echelon Group's Virtual CMO consulting service may be a great fit for you. We can help build a strategic marketing plan for your business and manage its execution, step-by-step. We'll focus on areas like how to attract more leads. How to create compelling messaging that resonates with your ideal customers. How to strategically package and position your products and services. How to increase lead conversion, improve your margins, and scale your business. To find out more about our consulting offerings and schedule a consultation, go to fiveechelon.com and click on Services. Now back to the podcast. What's so interesting about that and we've had conversations on this podcast about it before is that certainly technology has changed, you know how the economy works has changed, sectors have come and gone in terms of their importance. But some of these core business principles remain the same and can be applied, whether you're a high-tech company or you're a steel manufacturer, right? There are still some basic business concepts and frameworks that you need to implement. And one of the things I thought was interesting about what you said was really designing for profit. And I think many businesses out there profit is sort of an afterthought. It's just what's ever left over after they're done with everything else as opposed to specifically designing their business around profit and profit margins.

Steve Preda:

Yeah, So, I mean, that's not the only thing, but it's really important because you know, you can be successful if your strategy is not great, you can be successful, but, but you are profitable. You can be successful if you don't execute flawlessly, but you're profitable. You can be successful if you are not the market leader, but you're profitable. You can be any of those things if you're not profitable, you're going to fail. So profit is really the missing link.

Eric Dickmann:

No, that's good. And so you mentioned step number three now, which is all about growth and value. And obviously if it was as simple as saying, well, I want to grow at 5% this year, you know, everybody would be doing it right? Growth is sometimes hard to achieve. So when you're talking about this and adding value to your company, how do you recommend that companies take a look and think about growth?

Steve Preda:

Yeah so I would say that by even do seven management concepts, which are actually the culture,, the structure, the organization, the vision, the strategy, execution, processes, and alignment. If you implement those, it's highly unlikely you will not grow. But maybe you're not growing fast enough. So the third phase is growth driver is still in growth drivers in the business. So maybe if you want to grow faster than you would normally be able to, then you can, go and bring these growth drivers in. So one of these is the differentiation of your business. So, how are you different from others? How do you differentiate? I mean, that's your area, right?

Eric Dickmann:

Yeah,

Steve Preda:

So do you own some real estate in the mind of your customers? Do you have certain terms that remind them that you are different? I mean, look at Starbucks, Starbucks branded even the size of the cup, they call it venti, right? They branded this as a cup. They branded the server of the coffee, they call them barristers. So they brand everything and therefore Starbucks is like, adored apart from all the other coffee shops, it is Starbucks, Starbucks coffee. So how do you differentiate yourself in the mind of the customer? What is your brand promise and what is your brand guarantee and what is your one phrase strategy? One phrase strategy. So again, Starbucks, they are the third place between the office and the home. And that's what everything is subordinated to this idea, to be the third place, to have the ambience, to have the coffee smell, to have the baristas being nice to you, and you can listen to music. It's all about being the third place. So how do you differentiate yourself ?Now, the second one is this idea of consistent growth. And Jim Collins calls it the 20 mile march. So it goes back to the race to the Antarctic in 1911 when Scott and the Monza and the Brit, and the Norwegian explorers were trying to get there. And Scott would, if there was nice weather, he would have his team march 70 miles, and then the next day it was cloudy and stormy. They would stay in their tent. Now um, I'm wondering what he did was he said 20 mile march every day, begin to March, uh, March 20 miles come rain or shine and it kept up their morale. Uh, they didn't never fell into a funk and they they're very consistent, they get there first, they got back with food to stair Scott's team. I go there second, and then they died on the way back, uh, of starvation. So the 20 mile march. Creating this consistent growth in your business, figuring out what your 20 mile marches and, and instilling it in the business. Uh, the third one is, is building a talent attracting culture. So you really have to have a culture which attracts the right kind of people to you, because ultimately your business is your culture and that's the greatest competitive advantage. If you have a strong culture, then you will not have to pay the top dollar to people and you will be able to keep your people longer, and most businesses rely on the intellectual capital in the people's heads. So, so that's a really critical one. And then maybe a last one. I mean, there are others, but the last one I want to mention is. Is having an internal sales engine. I see some businesses who made this mistake that, Oh, I outsource sales, um, to a business development company at the, or, or I, you know, contracting companies, they go to somewhere like contracts or connections and uh, they will sign up and then they would get leads from someone else that's lethal. That's legal because you don't own the relationship to the customer. You are commoditizing yourself. Um, maybe your sales engine has to be internal. It has to be really, uh, it's part of your strategy, its part of what makes you a viable businesses to have a really good sales engine in house. I, I had a client who was in the marketing, actually work in agency and he started business like 25 years ago and he started with these small companies and they did such a wonderful job that all three companies became hundred million dollar companies. They grew the agency just by keep servicing those clients. And what happened, they never built a sales engine. And then you're 20 years old, one of those guys were taken over by a bigger corporation. And they had their own marketing, so they didn't need the agency. So they were down, they lost like one third of their business and then a second client events to chapter 11 because their business model got disrupted. And then they were down to one client and essentially they had to close the whole firm down because they couldn't carry the overhead and they never figured out how to sell. So no matter how good your services, you have to have a sales engineer in house.

Eric Dickmann:

I couldn't agree with that more, you know? I'm a firm believer that marketing is the engine that drives growth, but you have to have that sales engine and those processes in place to actually close the leads that you are driving from marketing. So I think that that's so important and those are some good ideas that you shared there as we kind of come full circle. You know, you talk at the, end about constructing your ideal life. So at the beginning you have this picture of what you want that life to be. You've gone through these steps, you've set up your blueprint, you've executed, you've got a profitable business. And now you start to get to the end, it's decision time. What do you want to do with this successful business that you've created? So how do you advise people think about this fourth element of constructing their ideal life?

Steve Preda:

So yeah, that's basically game time. You know, you got there, you got the business and now you have options, you can do whatever you really want to do. And a few things to bear in mind. So the first one is whether you should sell your business or not. So the ways that you can harvest this amount that you need from your business, provided you want to go outside of the business. There are different ways of doing that. You can sell the whole company, you can sell my minority, majority stake. You can recapitalize, you can have other people give you money and basically takes some chips off the table and run the business as a fellow owner going on. So these are the options what's important is that, uh, make sure that, you know, uh, if you want to stay in the business, on what terms do you want to stay in the business, and accept that certain situations will have pros and cons and you just have to be able to live with that. So if you want to work in the business that you sell ownership of the business, then you just have to accept that certain decisions you won't be able to influence, to the same degree. If you decide to sell your business, You know, I talk about the various ways to do that. I talk about the whole transaction process, what the patients are the most important is that during that process, you really have to focus on running your business. It's so easy to get distracted by this whole exciting process of talking to the buyers and you're negotiating the deal. And I don't want that stuff, but the press is going to take some time and they are. All the time watching your numbers of your business. And if you're distracted as an entrepreneur, you're gonna stop thinking about growing the business. You're going to lose your vision. And then you know, three to six months in, the business will start to flag a little bit. The numbers we'll start to solve them. And then you get into this situation where you're not able to reverse this so easily. There's a certainly inertia there. And then they can come back and renegotiate things and it's, it can become really messy. Your mind is not in the business anymore, and you know that you will have to rebuild for two years and you get into this very uncomfortable space where you can have an unsatisfying transaction. So that's something to bear in mind. The second thing to bear in mind that when you leave your business, And I only advise you to sell your business if you really have a compelling future, you're not retiring from the business, you're retiring to something better. You have to have that lined up. It's not enough to buy the boat and buy the house and buy the car. You know you may not even like to be on a boat just because it's a cool thing, it may not be for you. You know, I had a client who bought the boat and then for out for lunch, six months later, and he had lunch in his Marine. I show you the boat, I went out there and they couldn't start the boat because it was full of water and the engine was not working obviously.

Eric Dickmann:

Okay.

Steve Preda:

So don't make that mistake. Think about what is going to engage me going forward and what do I really want to do? And what is this life going to look like? It's going to be different. So as a business owner, you've worked with people you love. Hopefully if you run a good business and you are an important part of your community, and there's a lot of status that is the goals of being a business owner, a successful business owner, then you let go of the business. What is that it's going to be gone? So be sure that you have something more exciting and more engaging for you to go to afterwards, and that takes self planning and preparation. One of my clients who did that really well, he was a former professional hockey player, and when he retired from his business, he became the chairman of the Hungarian Hockey Association, and his son was working on national team and he was totally into it. And he actually really bringing his business skills to bear, he helped the association raise a bunch of money, and then they, they managed to get, uh, the, uh, the national team to elevate. They went up for. Uh, four levels in the ma in the third championship against the premier championship over a period of five years, which is an amazing success. So yeah, he did it well. He, he went to something that he loved him better than his business it's regard for him. But for many of my clients, it was more of a anticlimactic experience.

Eric Dickmann:

Well Steve, one of the reasons that I really enjoyed the book is because I think it takes a different view, it takes a long-term view as to really what you want to get out of a business. I think so many businesses sort of stop right in that growth area and focus in on, you know, what you need to do to build your business, to grow your business, but they really don't have anything to say about what you do once you reach a certain pinnacle of success. And so I really liked the framework that you've come up with in the book and and how you you really frame this thinking about what is that life that you want to create and what is it going to take to get there. So I loved it. I really appreciate you being on the podcast to talk about it today. As we wrap up, could you just share with people where they can find more information about you and where they can find more information about the book?

Steve Preda:

Oh well, thank you. So you can find me on LinkedIn, that's where I live. And if you're interested in the book, it's coming out June 1st, it's already available on pre-order before June 1st, but depending on when this broadcast airs. Steve Preda, Buyable, you can't miss it. It's an audio book, Kindle, paperback, hardback, all the versions are there. And then if you are as impatient as I am, and you want to get to it before June 1st, then you're welcome to visit buyablebusiness.com, and you can download the first 40 pages there. If you are curious about how your business stacks up, how buyable your business is, then you can go on buyabilityassessment.com, and you can go through a survey. You answer some questions, 40 questions actually, takes about 10 minutes. And then it's going to give you a report along six factors of buyability, how buyable your business is, and what you need to do as a next step to improve the buyability of your business. So these are the easiest ways to connect with me.

Eric Dickmann:

No, that's great. I'll make sure that we have all of that linked up in the show notes so that people can go to the website, do the assessments, and find your book as well. Steve, this has been a really interesting conversation. Like I said, I love your perspective on this, and I think it's something that a lot of business owners should think about because it's not just about the present, it's about what you're trying to accomplish with your business, in your life. So I appreciate you being on the show today to talk about it.

Steve Preda:

Yeah, it. was fun talking to you. And I'm excited that I had someone to talk about these things who understands marketing and say us, which is really the most critical piece of the puzzle.

Eric Dickmann:

Hey, It's a conversation we love to talk about, especially on this show. So thank you again. We'll talk again soon.

Steve Preda:

Thank you, Eric. Have a great day.

Eric Dickmann:

Thank you for joining us on this episode of The Virtual CMO podcast. For more episodes, go to fiveechelon.com/podcast to subscribe through your podcast player of choice. And if you'd like to develop consistent lead flow and a highly effective marketing strategy, visit fiveechelon.com to learn more about our Virtual CMO consulting services.