Smith Sense

As Matt closes the door on his CEO days with Royalty Exchange and moves into a Chairman position, he speaks with Antony about when is it the right time to step aside and let someone else take the controls. https://smith.substack.com/

Matt chats with Bobby Casey from Global Wealth Protection about digital nomads, working from home and independent thinking https://smith.substack.com/

This week Antony and I discuss a topic that’s too often overlooked by entrepreneurs: distribution. Whether you’re selling beef jerky or digital services, getting your product in front of your customers at the time when they need it most can mean the difference between success and failure. Companies that focus too much on their product and brand (or owning a specific distribution channel) leave themselves open to disruption from newcomers.  Show highlights:   1:25 - Distribution trumps product utility and brand. “Incumbents get beaten by upstarts when the upstarts discover new ways to distribute their product or service.”   3:21 - Distribution defined. “It’s that intersecting moment when your customer is likely to consider you because it fits within the context of what they're doing in their normal day.”   5:12 - The principles of distribution apply the same in a physical or digital world. “The limited attention and time that people have is true in a retail environment, and it’s true in a virtual environment, too. What you are able to see when you’re going through the physical aisle is not unlike  Netflix screen. You can only see so much on it at a time. The catalog is enormous, but your choice set is very limited because human attention is not that broad.”   8:00  - How upstarts succeed with distribution. “Where you see upstarts take market share away from other companies is, as these new methods of distribution emerge, if they are early to adopt them, if they take it advantage with them first, if they are more nimble, then they can find a way to get market share where basically it didn’t exist before.”   12:30 - How an upstart YouTuber beat a true expert who was at it much longer.   13:40 - Playbooks for getting great distribution, “In order to experience business growth, what you should do is focus on where your product could be distributed: How do you shape your business, your product or your marketing in such a way that you can increase the distribution? And by doing that, by changing the distribution, you can double the growth of your business in a way that you wouldn’t be able to do organically by focusing on just trying to dial in better the one distribution strategy you have.”   16:00 - Looking outside your existing channels “Most of the time people are only aware of competitors that exist in the channel they already are in. Looking outside of that channel for new distribution is the key.”   18:00 - Why Apple went into retail. “When Apple decided to open retail stores it was looked at by everybody — from Wall Street analysts to their customer base to retail partners — as a stupid mistake. And yet it turned out that, over a period of time, they were the most profitable per square foot retail in America.”   20:00 - Total control vs. no control. “Any ideology that says ‘I don’t need to have an owner control platform’ is wrong. And any ideology that says ‘I have to have everything on my platform so that I have total control’ is also wrong.”   23:20 - Take vs protect.    28:30 - How a baby bathtub business that Matt invested in grew distribution, and what it did next.   30:00 - Your list is the most important thing.  “In marketing, I always think of it as the list is most important, then the offer is second, and the copy is third. Without the list, none of the other stuff even matters.”

The economic fallout from COVID-19 is highlighting one challenge that entrepreneurs face all time: regulation stifles innovation. Entrenched interests You don’t have to look farther than the recipient list of Paycheck Protection Program (PPP) loan program to see how even well intentioned regulations — in this case, to protect small businesses from collapsing — end up serving entrenched interests far more than the people they purport to help. Among the list are Kanye West, Grover Norquist’s  Americans for Tax Reform Foundation, perhaps most galling, the Ayn Rand Institute. Especially in a crisis, people look to regulations as the solution. But added regulation almost never helps the entrepreneur just starting out who wants to build a better economic future for their family. Instead, it favors the entrenched interests who can afford to lobby government officials. Via negativa Most often the solution is not additive. Rather, it’s what Nassim Taleb calls via negativa — it’s removing something often actually makes things more possible rather than adding another benefit to people.  I couldn’t schedule a dentist appointment for a period of time here in Colorado, but I could go to the pot shop. That’s the result of lobbying power. That regulation is not protecting my health as much as it’s protecting the entrenched interests of the pot industry. CEO bailout We bailed out the airlines, and in exchange they agreed to keep all employees on until the end of September, at which point they’ll lay them off. So we essentially took Americans’ money and set it on fire by filtering the dollars through the airlines.  Theoretically it helps employees, but only a little bit and for a little period of time. In reality it helps the CEOs who’ve made terrible decisions for a decade.   Resources Three Felonies a Day, by Harvey Silverglate

My good friend and mentor Doug Casey joins me on the podcast again to discuss world events, politics, U.S. monetary policy, and why Fedcoin isn’t as far-fetched of an idea as it sounds. We pick up on topics we discussed in our first conversation, “The Money System - An interview with Doug Casey.” Doug is known for outlandish opinions, but the situation we find ourselves in now is something that he’s talked about for a long time. While we’re experiencing this turmoil here in the U.S., he’s watching it unfold from his ranch in Uruguay. Doug: I feel rather smug watching the collapse of the U.S. comfortably on my widescreen as opposed to uncomfortably out my front window. Over the next six months I expect I can turn the audio off and put on Rolling Stones’s “Street Fighting Man.”  1984 meets Brave New World We essentially have two major issues coming together: the decline of Western civilization and its Enlightenment values and the rise of a police state. Doug: It’s not quite Orwell’s 1984 and it’s not quite Huxley’s Brave New World, but it takes some of the worst elements of both of them.  The problem is there’s not much anybody as an individual can do at this point. You can try to leave to avoid suffering the unpleasantness and inconvenience — but where can you go? All the countries in the world are going in the wrong direction.  In my upcoming third novel, Assassin, our hero, Charles Knight, becomes an assassin to eliminate malicious government officials. So that’s one route. It’s a good thing I’m saying this in a novel; otherwise the men in black would be knocking on my door. Stoking racial divides When George Floyd was killed, it was the most unified in opinion I have seen America since 9/11. Everyone thought that cop was a piece of [expletive] who needed to be in handcuffs. Everyone thought he should’ve got the perp walk.  A moment when there’s literal total agreement somehow gets turned into the most divisive issue of my lifetime overnight. How does that happen? Doug: The pot was boiling. This was just the catalyst that made it all blow up. It’s been coming for some time. As bad as things are right now, things are still kind of held together because the stock market and bond markets are basically at all-time highs. When they melt down and the banks are in trouble and there’s another wave of unemployment, who can say what’s going to happen? Too many elites Russian-American scientist and writer Peter Turchin studies how societies grow and evolve over time. He’s getting some renewed attention now because in his 2017 book, The Ages of Discord, he warned that things would get worse by 2020. His underlying thesis is that there’s a overpopulation of elites in the U.S. and trouble happens when they start fighting each other, which is happening now. Doug: My friend Jim Rogers said that at some point in the future, the guys driving the Lamborghini’s are going to be the guys driving trackers in the middle of cornfields, because commodities are going to go up. There’s lots of good arguments for buying farmland. At the same time, there’s lots of good arguments for continuing to stay away from them because the longest bear market in all of history is commodities. Monetary reset The monetary system seems set for a reset, something that’s happened a lot in the past. The U.S. dollar as the global reserve currency carries all kinds of implications. Add the fact that, like most countries, we have a huge amount of debt that is unpayable. Americans tend to believe that if something isn’t working right — whether it be education or healthcare — the problem is we’re not allocating enough capital. In an environment where we have all these factors going on, it’s hard to imagine it’s not set for a monetary reset where things fundamentally change.  The rise of Fedcoin? One idea Doug floated a few years ago was the launching of a Federal Reserve cryptocurrency. It doesn’t sound as out there of an idea any more. Doug: It’s going to happen. Bitcoin is popular. Everybody has a cell phone today, and the government loves the idea of something like Fedcoin. If you deal in Fedcoin, it’s all done electronically through your cell phone, which means they know everything that you buy and sell. There’s no cash anymore. At that point if they don’t like you, they can close your account.

On this week’s episode of the podcast my friend and colleague Antony Bruno joins me to discuss a fascinating academic research paper that concludes the cottage industry around entrepreneurship is failing us. The paper articulates many of the fears I have about mistakes entrepreneurs might be making in their journeys. The rise of the Veblenian entrepreneur The paper, “Towards an Untrepreneurial Economy?,” starts with an intriguing question: “What is driving the declining quality of innovation-driven entrepreneurship?” The authors point to the rise of the “Veblenian entrepreneur” — or “performative entrepreneur” as we call it on the show — as the main culprit. These are want-to-be-entrepreneurs who are in it for the wrong reasons; they pursue it as “conspicuous consumption.” They aren’t innovating as much as pursuing a lifestyle and the status that society bestows on entrepreneurs. The result, according to the papers authors, is essentially where we are today: “an economy which superficially appears innovation-driven and dynamic, but is actually rife with inefficiencies and unable to generate economically meaningful growth through innovation.” The theory of the leisure class The term is named after Thorstein Bunde Veblen, a 19th century American economist and sociologist and outspoken critic of capitalism who coined the concept of conspicuous consumption and conspicuous leisure in his 1899 book The Theory of the Leisure Class. Veblen writes that the businessmen apply themselves in useless activities that contribute neither to the economy nor to the production of useful goods and services required for the functioning of society, while the middle and working classes apply themselves in productive occupations that support society. Cottage industry that’s failing us The rise of the leisure class spurned a cottage industry around selling service to want-to-be entrepreneurs that grew to $13 billion in 2014 and has been growing at a steady clip, 12% a year, for decades.  It’s a cottage industry that I’ve participated in — offering entrepreneurs coaching, courses, and camps to improve their skills — and I’ve seen first-hand how much people buy into it. The research paper’s authors conclude that some innovative entrepreneurs do get value from these services — but the majority of people do not and, in fact, perform worse than if they’d chosen a different path. Ideology of entrepreneurship  The paper’s authors argue — and I agree — there’s an ideology of entrepreneurship that’s conveyed to people from “thought leaders” (who are often failed entrepreneurs themselves) proclaiming things like “live your best life!” and “failure is good.”  In this culture failure is a badge of honor. Everyone’s heard that 90% of ventures fail, and somehow that helps motivate more people to try. But if you stop to think about it, if 90% of entrepreneur ventures end in ruin — a failure that you don’t come back from —  that is not something to celebrate. The problem with Gary V Gary Vaynerchuk is the epitome of this performative culture. Don’t get me wrong. He’s an impressive guy in many ways. However, the impression people walk away with is that they need to be grinding all the time like Gary V and that will somehow make them a successful entrepreneur, or at least give them the appearance of one — which is really the point anyway. This is what we like to call “hustle porn,” and there’s a lot of it out there. People watch how Gary V acts and them mimic that behavior. That’s Veblenian entrepreneurship.  Seeking status Partially because of the entrepreneurial industry’s success selling the dream and partially because of poor job prospects, people choose the entrepreneurship route  to increase their status within their community.  If your job prospects are Starbuck barista or “business owner,” it’s not hard to see which you’d pick if you were primarily motivated to impress your family and friends.  People don’t realize that most entrepreneurs actually make less than they would at an established company, and that being the owner of a business of any notable size gives you much less freedom.  When you’re an employee, you worry about losing your job. When you’re a business owner, you worry about losing 25 people’s jobs (or however many employees you have) and the impact on their families. If it’s status you’re after, you might be better off gaining valuable experience at an established company and then leveraging that to book your book tour (it’s a popular model followed by authors like Kim Scott, who wrote Radical Candor). Opportunity cost When I was in college, I ran a painting franchise with a group of very intelligent and talented students. I remember thinking, “Man, these people are so smart, why are we painting houses? We could be doing something big and exciting where we could make a difference and make a lot of money.” There’s an opportunity cost to pursuing entrepreneurship, especially if you’re 90% likely to fail. What’s the alternative People fail to see how their alternatives can lead to meaningful work — to that big, exciting, rewarding thing that makes lots of money. But you can find them if you look. When I was just getting started in my career, I sought out apprenticeships — though that’s not what I called them — with people I felt I could learn a lot from. I wasn’t concerned with how much I made or what my exact contributions might be. I wanted opportunities to learn from smart people, build skills, and figure out how I can contribute.  That’s the path I recommend to many people who are young and thinking of starting a business. Go get some experience first. Build relationships. Then find a problem you’re passionate about solving and start a business. Identity capital In her book The Defining Decade, Dr. Meg Jay writes about the concept of “identity capital,” the collection of skills, relationships, and professional resources we build up over our lives. When you’re in your 20s, she writes, you should focus on building your identity capital. People need to know you're capable and trustworthy and you have a sense of where you can have the most impact and where you should focus. Then, you leverage the benefit of that capital in your 30s.

My business partner and friend Gary Young joined me on the podcast to discuss “frame,” a term we use to describe someone’s point of view on the world. We discuss how entrepreneurs can hone their frame to influence and sell, and why the best salespeople tend to be introverts. Gary: “Frame is part worldview, part identity, and part posture. It tells people, ‘This is who I am, and this is my posture towards the world.’ We live in a mimetic society, which means most people with weak frames copy the opinions and actions of those with stronger frames. To be successful as an entrepreneur, you want to develop a strong frame and use it as a lever of influence.  Why I hire people with strong frames In last month’s “Hiring & Firing” episode,  I shared that I like to hire people with strong points of view because great ideas come from passionate people disagreeing. I’m essentially looking for people with strong frames. Yet, they tend to be in short supply. Gary: “Most people haven’t really thought about the situation that they’re currently in before they’re in it, which makes it hard to have a frame.” Frame in everyday life When you find yourself falling for somebody, or believing everything someone says, or you change your views based on something you hear — you’re being influenced by people with stronger frames. Gary: “The standard dating advice is ‘just be yourself.” Problem is, most people are mimetic creatures and should not be themselves because they’re boring. If you do interesting things that you care about, then you just tell people what those interesting things are, and that’s like 80% of dating. That’s an example of your frame.” You want to be seen The main idea is that you want to be seen. If you want to influence and not be subject to the whims of others, you have to have a strong point of view. You want to eliminate the things that make it hard for people to see you — it could be simple things like how you dress and introduce yourself — and get them to focus on your ideas and point of view. Gary: In the simplest form, your frame could be standing in front of a mirror telling yourself affirmations — remembering your victories, things you survived, things you know —  so that when you confront someone who disagrees, you can respond with confidence: “That’s interesting, because I had a different lived experience and I’ll tell you about it.”   Confident for a reason Having a strong frame gives you an inner confidence because you know what you stand for. People will notice that confidence and try to mimic it. But that’s missing the point: A strong frame starts with a sound intellectual underpinning that doesn’t rely on others. Gary: “If you tell yourself before you go into a meeting that everybody there loves you and thinks you’re awesome, you’re going to behave totally differently — and vastly more effective — than if you go in thinking, ‘Let’s figure out who likes me and who doesn’t.’ Mimetic theory Philosopher Rene Gerard’s mimetic theory teaches us that most human conflict can be explained by people wanting the same things and copying one another to get them. Ours is a copycat culture in which people form opinions by looking around to see what others think. This might have evolutionary benefits, but it seems like a fundamental flaw in humans that we look so much to others to form our own point of view. Using frame to influence In every moment someone’s frame is getting stronger and someone else’s frame is getting weaker. It’s like an erosion. Entrepreneurs who understand the concept can use it as a vehicle of influence. When faced with a strong frame, people don’t fight it — they adopt it. Gary: “If you don’t have a frame of your own, you will end up adopting someone else’s.” Frame in selling You need to prepare for sales calls like a prosecutor building a case: Do your research and master the facts. Understand the value your product or service delivers and try to understand the worldview of the person you’re selling to. That builds confidence and conviction in what you are saying. Gary: “Almost all of the really good salespeople I’ve ever met are way more disagreeable than most natural extroverts are.” When the potential customer says, “This doesn’t sound like it’s for me,” offer a confident response: “You could be right. This isn’t right for everybody, but it has worked for a lot of people. Do you mind if I ask you a question?” and then ask them something that helps you understand where there might be a misunderstanding. By making it clear to the parties involved that you have the strongest frame, people will naturally move over to your side. Gary: “Someone who doesn’t really know anything about your product will often tell you, ‘Oh, that’s just not for me,’ and often the salesperson will accept it. And that’s weird because they don’t know about what you’re selling yet, and you’ve accepted their frame.” Developing your frame In the simplest form, your frame could be standing in front of a mirror telling yourself affirmations — remembering your victories, things you survived, things you know —  so that when you confront someone who disagrees, you can respond with confidence: “That’s interesting, because I had a different lived experience and I’ll tell you about it.” Gary: “Half the battle is figuring out what price you’re willing to pay and paying it. If your position costs you nothing, your position is not particularly strong.”  Hone your map and strategy When someone doesn’t get what they want out of a situation, it’s typically because one of two things is wrong: They’re either operating with the wrong terrain map or they’re following the wrong strategy. If you have high confidence in those two things — because you have a strong intellectual underpinning — that’s when you develop an indestructible frame. The world needs to break in order for your frame to break.  Resources “10 Rules To Live by for More Success, Happiness, and Freedom,” by Craig Ballantyne. Mimetic Theory, by Rene Girard.

How do ideas that were once unthinkable become accepted policy? In this conversation with Royalty Exchange cofounder Gary Young, we discuss the Overton window — the range of policies politically acceptable to the mainstream population at a given time — and what it means for entrepreneurs. The concept, named after Joseph P. Overton, frames the range of policies that a politician can recommend without appearing too extreme in order to gain (or keep) public office, given the climate of public opinion at that time.  The concept offers a helpful way for entrepreneurs to think about their own individual biases and the ideas that shape their daily reality. Many of these can be self-limiting, so it’s helpful to examine them. I outline four ways Overton windows change over history: 1) Crisis mover (9/11, Covid-19). 2) Gradual persuasion (same-sex marriage, decriminalizing drugs). 3) Charismatic salesman (MLK with civil rights, Ronald Reagan with taxes). 4) Provocateur (Alexandria Ocasio-Cortez, Tucker Max, Malcolm X). Gary adds a fifth way:  5) A shift in media technology that allows people to observe variances in different people’s Overton windows (talk radio, social media). Our advice: Know what boundaries you’re operating within. Test where they are and see if they’re useful.  Don’t be an agent of the Overton window, by shaming and guilting people for their thoughts and actions. Independent thinking will help get you out of an Overton window. Be an anti-agent: Speak the truth (see “The Turkey Problem” episode) and plant seeds in people’s heads. Resources “What You Can’t Say,” by Paul Graham “The Turkey Problem” (previous SmithSense episode)

In his best-selling book The Infinite Game, Simon Sinek writes that there are fundamentally two ways of interacting with the world.  In one view — the one traditionally taught in business school — the world is finite in size. In order to get a bigger piece of a fixed pie, you must take from someone else.  In the other view, the world is infinite and you can’t even imagine how big the pie might get. You focus your energy on expanding the pie so that everyone can win. Competition is for losers Peter Thiel wrote that competition is for losers. If you look at the world as a competition with others, you’re setting yourself up for a finite game, which is a losing game. Make them owe you A lot of times people are hesitant to give too much because they’re worried that the other party is not going to reciprocate. That’s a finite-game thinking. In the infinite game, there is more than enough to go around and the pie is always expanding. Make your customers and anyone else in your life feel like they owe you — that you’re delivering more value to them than they can give to you.  What’s your just cause? To play an infinite game, start by defining your company’s “just cause.” This is the reason your company exists, beyond making profits and employing a large workforce. Your company makes money and employs people for some larger reason, and it’s your job to define it.  Three elements of a just cause The three elements of a just cause are: It’s for something. It’s inclusive. It’s service oriented. SpaceX isn’t just building rockets The just cause at SpaceX isn’t building rockets. Elon Musk believes it’s critical to have cost-effective mechanisms to get humans beyond earth for the long-term survival of humanity. His just cause is saving humanity. Netflix wasn’t just renting DVDs When Netflix first started the technology to achieve its just cause — to bring unlimited entertainment to people’s houses — didn’t even exist yet. So they started with DVDs and kept working on their bigger vision.  Live your just cause At Music Exchange we recently went through a process to define our just cause. At our core, we believe in the power of markets and that transparency provides the information that people need to be able to transact with one another properly. So that guides everything we do — even if it’s uncomfortable to post all of our deals publicly. Communicate your company’s humanity There are two main reasons for defining your just cause. One is effectively communicating your company’s humanity to the world. Especially as businesses get larger and people work to maximize efficiency, the human element can get rung out in the process. Defining your just cause and communicating it to employees can help instill what matters in your company. It’s like planting a flag in the ground: “This is what we stand for.” Millennials workers want meaning Another important reason to state your just cause clearly is that younger workers are searching for meaning in their work. By helping them describe their work in terms that go beyond profits and KPIs, you are putting them in the best possible position for when a friend or family member asks, “So, what are doing these days?” Unearth the passion Take a close look to find where the meaning and passion lies in your company, and then do the work to summarize and communicate it to employees, customers, future employees, partners and others. Resources Finite and Infinite Games, by James Cross The Infinite Game, by Simon Sinek

How to attract talent, pick the right candidates, retain star employees and say goodbye People are a business’s biggest asset and the thing most companies spend the vast majority of their budget on. So the question is: How do you get — and keep — the best people on the boat, when the boat is constantly being rebuilt?  I think of entrepreneurship as an art form. You don’t know what combination of elements you need on the palette until you start creating, and things evolve over time.  The best way to make sure your team evolves to meet your company’s needs over time is to hire committed, talented people who are capable of doing lots of different things based upon their experience, interests and talents. Too often, though, business owners set themselves — and their employees — up for failure with haphazard recruiting, unstructured interviews, and ineffective onboarding. When they pick the wrong candidate, managers often take too long to fire an employee; and when it comes time to part ways, they botch that, too. Here’s some advice on avoiding common pitfalls: To attract a talent pool, let people know what you stand for. Use a highly structured recruiting and interview process to pick the right candidate. To keep employees, allow talented employees to work where their passion lies. Remain on the lookout for opportunistic hiring.  When someone quits, remain empathetic, and ask, “Is this a problem or an opportunity?”  Why I like structure Especially for small organizations that are growing fast, the burden of hiring is substantial. It takes a lot of resources to hire effectively. And it’s extremely costly — not to mention painful and time-consuming — to hire the wrong person. You can reduce the cognitive load if you create a clearly defined structure from recruiting all the way through to onboarding. Decide who you want to hire To hire the right people, you need to know what you’re looking for. That will vary to some extent for every company, though high-performing teams generally share similar characteristics: specialized talents that compliment each other. Whatever characteristics are right for your company, decide on that first. Then set up a structured recruiting and interview process to test for those characteristics. Beware of the culture trap Companies sometimes fall into the culture trap, focusing so much on culture that they end up with a monoculture in which everyone acts and thinks the same. At Music Exchange — just like most entrepreneurial companies — we are constantly innovating and testing new ideas, so we place a premium on a unique point of view and willingness to share it. We look to build an A-Team of people with highly specialized and complimentary skills, rather than a team of generalists who are average at most things and don’t excel in any one. Fly your flag Once you figure out the type of team you want to build, get the word out about your company to attract the right candidates. This is a prerequisite for any advice on hiring and retaining employees. Your company is only as good as your employees, and they are only as good as your talent pool — so focus first on filling that pool with quality candidates. Look for ways to communicate to the public about who you are and what you’re doing.  In “The Secret to Successful PR” I shared tips on effective public relations, recounting my own experience working with the media. I first invested in PR in order to attract talent in the Denver area, where we’re based. Articles in the local business publication helped fill our talent pool with the types of candidates we wanted. Personality tests At Music Exchange we ask job candidates to take a test called Talent Insights, which draws from several of the leading psychological tests to get a read on someone’s disposition. This test has proven effective for determining three key qualities: Detail orientation, Independence, and  How quickly they make decisions. We look to balance these three areas on our team, and the test gives us an idea of how a candidate might fit in and helps us formulate good interview questions.  Interview process The best way to make sure you get the best candidates is through a highly structured interview process. You should be able to explain the process from beginning to end at the first point of contact with a job candidate. Anything short of that and you risk losing some of the best talent off the bat, because top talent expects a professional experience. This is our process: First, a professional recruiter screens the candidate, allowing us to communicate expectations of the role and note any immediate red flags. Then candidates are invited to an initial interview with a small group of employees. This is a thorough examination of their past performance generally lasting 2-3 hours. Candidates that pass the first interview are invited to a second one with a new group of employees that includes at least one interviewer from the first round.  Following the second interview, the candidate goes to lunch with another group of employees to get even more perspectives, giving us a bit of a chance to “try before we buy.” Your one chance to ask During the interview process, try to understand the candidate’s motivation for major decisions in their life. We use Lou Adler’s Performance-based Hiring system, which focuses on an individual’s drive to achievement in prior roles.  Ask about why they attended a certain school or took a certain job; ask about past work projects and decisions they made. If you ask a future-based question, you’ll usually get an answer you like. So avoid those. If you don’t ask these questions during the interview process, the reality is you’ll never get the chance once they join your company. There’s never an opportunity for you to comfortably ask an employee about their entire work history and the core decisions they made over their life. Onboarding Once you make a hire, I recommend a deliberate onboarding process, which can drastically cut the time it takes a new employee to get comfortable and start being productive. At Music Exchange we invest a lot of time getting new employees oriented to our people and processes to ease their path. Dealing with an underperformer Entrepreneurs have an obligation to their employees to create an environment where they can excel. Ultimately, if you really care about your employees, you want them to do the things that they want to do — in life and within the company, too.  Your office should be a sanctuary for the people who work there: They should feel confident they will keep their job even if performance dips due to a personal issue or some other temporary circumstance.  If an employee isn’t performing at a high level but they’re honest, have a good attitude, do reasonable work without major blunders and take feedback well, you owe them the right to try to find a place where they can create more value in the company.  An employee may not be 100% what you were hoping for, but the risk of letting them go in hopes of finding someone else might be greater than making adjustments with the team you have.  When an employee makes a mistake, first ask yourself, “What did I do wrong? Did I not make sure that they understood that this was important? Did I not show them how to do it? Do they not have the natural disposition for this level of detail work? Is there a better fit for this person somewhere else in the company?” When people leave When your business is growing fast, what you need today is different than what you needed last year. When any employee leaves — including one who contributes dramatically to the business — you should ask yourself, “Is that still the right person for the job?” Even if you feel the person leaving was doing a good job in their role, take the opportunity to consider what else you might get out of the role based on your company’s current goals. Then, be prepared to communicate that to new recruits. Opportunistic hiring I recommend that all entrepreneurs keep an eye out for opportunistic hiring at all times. These are talented people you’ll come across who may not fit into any open positions today but who could provide a big boost to your company if you carved out a role for them. It may not even be clear how you’d use them. These types of hires are risky because they are senior level and demand high salaries. You pay them more because of the responsibility they take on, recognizing it could be a lost bet. On the upside, though, the right opportunistic hire can have an outsized positive impact on your organization. Try before you buy In his book Work Rules, Laslo Bock, the former head of people at Google, outlined the two main things that predict success for a Google employee: First, an employee was more likely to work out if they had some prior experience working with Google, either as a contractor or in some other role. In other words, this is the “try before you buy” approach that can be so effective. Second, the higher the IQ, the better odds of success. If you’re able to hire someone as a consultant first — or even hire them on a trial basis — that can greatly increase the comfort level for everybody involved. Retention There’s no trick to keeping people around. You have to create an environment that people want to be in that’s a better environment than other environments they could choose.  Especially for early career employees, money can be a big factor. More experienced employees are more likely to care about their overall job satisfaction: “Am I making a difference? Do I see a future here? Is the business doing the right things?” Managing employees is always a two-way process. You should constantly inquire about what your employees want to be doing and look for ways to expand their roles to play to their strengths. The biggest thing is to have an open dialogue with all of your employees about how their role might evolve. Firing Sometimes, despite your best efforts to find the right roles for everyone, you have to fire people. I believe that when it’s really clear that you have a mis-hire, you should fire right away. I’ve done this rarely as an entrepreneur. The times I have mostly involved employees who demonstrated a consistent pattern of putting their personal interests ahead of the rest of the team. My rule of thumb: If my commitment to your success is greater than your own, there’s nothing I can do for you. When firing an employee, try to part as friends. This is not the time to air your frustrations with the employee. Remember that this is likely a humiliating experience for the employee. When it’s not a red-line issue like stealing or treating a coworker poorly, arrive prepared with a clear explanation for why it’s happening.  Remember to be generous.  

In a previous episode we discussed market friction, which I described as the heart of all entrepreneurial opportunity. This week we’ll discuss operational friction, which is central to profitability. Theory of constraints In the classic personal development book The Goal, Israeli management consultant Eliyahu Goldrapp outlines a “theory of constraints,” which essentially says that to achieve any business goal — such as profitability — you must first identify and resolve the operational friction in your organization.  Friction can mean anything that slows your company down, impedes growth, or stymies innovation. Often, it’s seemingly small things that go overlooked until you start digging. Friction is hindrance to the execution of strategy A century a half before Goldrapp, the Prussian general and military theorist Carl von Clausewitz described a similar type of friction in his posthumously published book On War. He defined friction as the hindrance to the execution of strategy. If your objective is to overtake an enemy, he wrote, the friction might be getting armaments to the frontlines: managing supply transport, keeping the horses fed, etc. Work on the business, not in the business How do you identify the operational friction in your business? First, you need to free up time to think about the big picture — and the minutia. In the classic book E-Myth Revisited, author Michael Gerber wrote that the goal for leaders is to work on the business, not in the business. Have a vision You have to have a vision of how something might be done. Have a dream scenario that you’re trying to achieve. Look for the chokepoints Then scrutinize all of the things that may be causing friction along the way. Ask, “Why aren’t we able to do this today? What’s holding us back” Look everywhere for the bottlenecks — the things holding your organization back from achieving your main objectives. Essentially, you’re asking, “What’s wrong with the way we’re doing things today?”  Understand your objectives The key is understanding your objectives. For example, are you trying to increase the throughput of a specific system within the business or lower the costs of a certain process? Defining your objective helps you hone in on the chokepoints.  The ‘little’ things aren’t always When you do this, you end up paying attention to seemingly little things that are easily overlooked. It could be a policy that requires someone to take an extra step, which adds that much more time or cost to a process, and ultimately hinders your ability to hit your company’s objectives. Often, it’s something put in place by accident. Formula 1 now vs. 1950 There’s a great YouTube video, “Formula 1 Pit Stops,” comparing a pit stop from 1950 to one today. A process that once took 67 seconds now takes less than 2. Pit crews removed friction across the entire chain: They adjusted policies, such as quadrupling the number of people on a pit crew; they invented new tools; and they started training like professional athletes. The result: faster pit changes than anyone thought possible in 1950. Elon Musk’s ‘production hell’ Elon Musk was in what he called “production hell” recently. Tesla built an assembly line to automate the entire process, in order to reduce their operational friction and cost of production. But it didn’t work, and humans had to take everything back over.  During this time, Musk slept on the factory floor working out small engineering problems to improve the efficiency of the line. In order to understand those issues, Musk felt he had to be there 24/7. Get into the details When you roll up your sleeves like Musk to investigate, it’s among that morass of small things that you find the one thing that matters and has an oversized effect on everything else. A lot of times it’s decisions that you made before that people take for granted. Measure the right things To do this well, it’s crucial that you track the right metrics. If a 1950 pit crew measured its performance solely by what their competitors were doing, they’d be setting their sights too low, compared to what’s possible.  Knowing where things are today doesn’t help you understand what’s possible in the future.  Low-hanging fruit When you see a lot of capital — whether time or money — spent in one area of your company, that’s often low-hanging fruit for improvement.  Don’t over-correct Organizations can create their own friction by overanalyzing what went wrong and trying building elaborate mechanisms to ensure it doesn’t happen again. So you have to put things into perspective. The biggest thing The biggest thing is asking questions about why something can’t be so much better than it is — and not incremental better, but transformationally better.  It’s an automated assembly line. It’s instantaneous auction listings on Music Exchange. It’s a pit stop in less than 2 seconds.  These are the types of things that reduce friction within an organization and lead to sustainable profits.   Resources E-Myth Revisited, by Michael Gerber The Goal, by Eliyahu Goldrapp 

Every entrepreneur needs to develop skills managing teams. Your management style will evolve over time, and you’ll find some styles work better than others depending on the environment (the nature of the industry, the makeup of the team, your own level of experience as a manager, etc.). There are two basic approaches: managing by design and managing by intervention. Managing by intervention Managing by intervention is common, especially among larger companies. This style relies on highly structured environments. It’s all about systems and structured feedback. An example is situational leadership, which we discussed  in our “Wartime CEO” episode. It’s a framework to analyze an employee’s development and apply the right leadership style. I’ve also used Goals Setting & Review, a series of highly structured one-on-one meetings for goal setting. Especially for companies with inexperienced employees, these systems can accelerate the education curve and minimize failure. The downside to these systems is twofold: First, these systems are hard to implement. They require time and attention to implement, which gets exhausting over time. Second, they limit your team over time. If you take a systematic approach to hiring and managing, eventually you’ll end up with a homogenized team that’s neither resilient nor very dynamic. Managing by design On the other hand, managing by design allows your team to explore — and capitalize on — the unimagined. This style relies on people and environment, rather than systems and structured feedback. When you manage by design, you allow failure to happen in order to learn and improve. The manager’s job is to create an environment where employees might succeed, and allow things to evolve organically. This approach requires you to focus on: hiring the right people,  creating the right environment, and giving the right feedback. Why managing by design  Managing by design is a better fit for Royalty Exchange because we’re constantly innovating and exploring new ideas. We’re not a widget factory that runs well with a rigid structure. We’re a group of individuals who are constantly learning and adjusting. This approach requires strong, independent thinkers with innate curiosity who are willing to disagree. Great ideas come out of the creative friction that comes from employees with strong points of view disagreeing. If you thoughtfully construct an environment where failure is embraced, the results of your team can surprise you. Things happen that you couldn’t imagine before.  This process also leads to a more resilient company. Giving feedback In either approach you pick, giving valuable feedback is critical to success. With management by intervention, you follow a structured process for providing constant feedback. With management by design, that process is just as important — though it looks different. With the intervention approach, feedback tends to be artificial. It’s often driven by a key performance indicator (KPI) the company decided on, which may be leading them down the wrong path. With the design approach, you provide feedback differently, looking instead for friction among your team. Evolving your style Even if you start with a structured process, that may loosen over time as you and your team gain experience. There’s a natural transition from a very tight to much looser style. At first you give employees explicit instructions of what needs to happen. Then, over time, it evolves to delegation and you become less involved in the day-to-day. You give employees more of a free rein with some structured feedback along the way. Resources: Radical Candor by Kim Scott.

Market friction is at the heart of all entrepreneurial opportunity. When you’re looking for a business idea, consider the things that keep people from doing what they want to do. The current product or service might be too time consuming, too expensive, or too confusing to use. Often, there’s a technology solution. You can find friction in markets with lots of uncertainty and ones that require specific knowledge. Internal deadlines — like an upcoming wedding — can be a strong motivational currents that lead to market friction. Be-do-have To identify market friction, examine consumer motivation. I use the “be, do, have” framework: People are motivated to be something, do something, or have something. Apply this framework to your customers to figure out what motivates them and what keeps them from achieving their goals. Strong vs weak currents The best entrepreneurial opportunities have strong motivational currents. Something that a customer needs — not just wants — by a certain time is the recipe for a strong current.  It could be a customer’s need to get taxes filed by Tax Day, or fit into a dress in time for a wedding. When you identify the internal deadline, you can now focus your marketing on it. Why me? Once you’ve found market friction with a strong motivational current, ask yourself: “Why me?”  Why are you the person to solve this particular problem? Do you have any expertise? Do you understand the complexities of the market? Will it grow your identity capital? Next, consider whether the opportunity will grow your “identity capital,” a concept coined by Dr. Meg Jay in The Defining Decade. This is the accumulation of knowledge and skills you need to be successful over the long-term. Your calculation depends on where you are on your entrepreneurial journey. When you’re early in your career, gaining identity capital matters more than anything else you can do. Under a big mountain of hard work is the only place where you’ll find your passion. Is it worth it? The next question to ask: “Is it worth it?” Is this worth devoting the next decade of your life to? Because that’s how long many businesses take to become successful.  With Royalty Exchange, we saw that, in the U.S. alone, artists were collecting $3 billion a year. If you put a 5x multiple on it, that’s a $15 billion market, large enough to spend many years pursuing. Do you understand the constraints? Just as importantly, you must understand the natural constraints in the market: What are the limiting factors to success? The market opportunity may be gigantic, but if there are major hurdles to being successful — government regulation, for example — then it may not be worth it. Do you have a plan to attack it? Next, do you have a plan to attack the opportunity? When I get most excited about a business opportunity, it’s usually because I can see how I’d attack the market in a new way. Often, it’s a unique approach to distribution. It could be a sales or marketing advantage. What’s the first step? For many people, this next step is the hardest: What’s the first thing you’ll do to drive customers to your door? A lot of entrepreneurs get excited about solving problems — especially when the market is significant — but fail to see their vision through. You have to be able to define your plan of attack. Be specific. Write down the first thing you’ll do. Ideally, start small and grow.

As with any business, a side hustle boils down to creating recognized value for others. When you create obvious value for someone else, you can get paid. The more value you create, the more you can make. When thinking about a new business or side hustle, people make the mistake of focusing on what they want to do, rather than the value they can create for others. You want to flip that: Ask yourself what you can offer that’s valuable to others. Side hustle vs. employee As an employee, you sell your time for a relatively fixed value in exchange for a level of certainty. That’s really no different than driving for Uber. As a driver, you’re offering a service for less than you could get on your own, in exchange for Uber’s distribution to customers who want your service. If I’m a farmer, I know the value of my products can swing wildly depending on supply and demand factors when I bring products to market. I can gain some certainty by selling all or part of my crops in advance for a fixed price. I might end up being worse off than if I’d waited and sold at harvest time. The customer decides your value I usually take issue with the phrase “the customer’s always right” because people look at it like whatever the customer wants, a customer should have. The intended meaning is that it’s the customer that decides the value that you’re creating in a free market system. If customers decide the lettuce you grew is only worth $2, then it’s worth $2. The fact that you spent 30 hours tending to it makes no difference to them. Do things ‘beneath’ you There are a lot of things that people think are beneath them that would actually make good businesses. Depending on the career stage you are in, you should probably focus on these types of things — opportunity exists in the things others don’t want to do. Here’s a small example: Fewer and fewer people mow their own lawns these days. Rather, they hire big lawn companies that charge a premium price for a mediocre job.  Those are the types of opportunities an entrepreneur can exploit. Get as close to the customer as you can With a business or side hustle, you ultimately want to get as close to the customer as possible — because that’s where the real value creation happens. You might use someone else’s platform starting out, in order to start interacting with customers. You’ll make less money, but you’ll get valuable experience. For example, if you want to be a tutor, platforms like Tutorme.com will connect you with customers. The site will pay you less than you could make if you found your own customers. But in return, you’ll learn about your customer and the problems they face; you’ll see how the service is delivered and where the holes are.  Own your list The end goal is to build your own list of prospects. Starting out these, might be people who are interested in what you’re doing and want to follow you. You raise your flag and say, “This is the business I'm in. This is the kind of stuff I like to do. If it’s interesting to you, let me know.” We talked in previous episodes about the beef business I’m pursuing here in Colorado. A local rancher had a product he wanted to get to customers, so he started with farmers markets. Once his list grew to 200 emails, he no longer had to go to the markets because he could build a business around those leads.  He migrated from a very inefficient platform (farmers markets) to owning his own list and getting organic growth. Lead magnet You can offer a lead magnet to draw customers to you — some free tool or valuable piece of information that makes people want to engage with you. For example, if you’re selling communications services, you might offer up a template for messaging matrix in exchange for an email address. Anyone who downloads that template is likely to be a prime target for your consulting business. Courses are another way to attract a customer base. I helped create a management course for Early to Rise University that gets great reviews. I could offer that as a consulting service, but this way I can offer it to more people and focus on the things I really enjoy doing. Content strategy Once you have a list, you then have a responsibility of creating value for your customers on an ongoing basis. Great information markets you better than anything else you could possibly do. Your content strategy gives you an opportunity to organically enter the conversation with potential customers on things they’re already thinking and talking about and the needs they already have. When I run a newsletter, I create editorial pillars — messages that align with what I’m selling — and then look for conversations happening around that topic. For example, one of the pillars for one company was resilience, so we’d look for news stories about people put in situations where they needed to show grit. Charge dramatically more Once you’ve drawn in enough people and convinced them of the value you deliver, you can consider charging dramatically more for your services than is typical.  Instead of charging $2,500, maybe you charge $25,000. You won’t get as many clients from it, but the ones you do get are willing to pay it because of the credibility you developed. Resources The Reluctant Entrepreneur by Mark Ford (who writes with the pen name Michael Masterson), the founder of Early to Rise and a mentor of mine. Ryan Deiss at DigitalMarketer.com offers extremely helpful advice for anyone looking to market themself or their business.

In this conversation with my friend and mentor, Doug Casey, we discuss the money system, it's history, and how it's set up to the detriment of most Americans. We talk about how the prospects for real war have increased dramatically over the last few months. And we talk about what Doug Casey's investing in right now and so much more.

Look closely at just about any successful enterprise and you’ll see gambits they made along the way — small bets on an unclear future that, however unlikely, would produce outsized gains if they paid off. Gambit comes from the Italian gambetto, “tripping up.” It’s a device, action or opening remark, usually with some risk, that’s calculated to gain a future advantage. When you make an opening move, offer something, or start a conversation with something that seems self-sacrificing but is really a ploy for a later advantage — that’s a gambit. In chess it’s when you sacrifice a pawn in your opening move to put yourself in a position for a future move. When a gambit doesn’t work (which is usually the case), you end up losing a pawn and moving on. When a “gambit” results in losing your queen or king — that’s not a gambit. So it’s important to be able to tell what initiatives are gambits and follow rules to ensure you don’t sink the ship in pursuit of them. Fundamental asymmetry In my favorite of Nassim Taleb’s books, Antifragile, he writes about “fundamental asymmetry,” which happens when risks and rewards are out of balance. He offers the example of a dinner party invitation: If you go, the worst-case scenario is that the food and company are lousy and you waste a few hours; and the best-case scenario is that you meet your future wife. When you go to the dinner party to expand the boundaries of what you know to be possible (in this case, in your love life) — that’s a gambit. Bullet, bullet, cannonball In his follow-up to Good to Great, author Jim Collins advises companies to “fire bullets, then cannonballs.” Bullets are like gambits: low-cost, low-risk, low-distraction experiments to figure out what will work. According to Collins, companies gain a line of sight by taking small shots. Once they have a calibrated line of sight (empirical validation of their test), they fire the cannonball: They concentrate resources into one big bet. Collins uses Apple as an example: There was iTunes for Mac, then the iPod, then the iTunes music store. Bullet, bullet, bullet. Then came the cannonball: the iPhone. That’s not quite right, though. I see them all as bullets: Apple achieved an improved position with the iPod and iTunes and fired more bullets in that direction, producing the iPhone. We just happen to remember the bullets that worked — and forget about the other 50+ products Apple launched between the iPod (2001) and iPhone (2007). We forget about Xserve. Infinite game In The Infinite Game, Simon Sinek writes about approaching business like there are no boundaries. Whatever map you’re holding is far too limited, because things are changing and expanding in ways that you don’t understand.  You’ve got to continually explore the boundaries of what’s possible. If you aren’t constantly looking around to see where those edges are, you’ll find yourself stuck in a very small space that you’ve imagined. Meanwhile, people around you will be operating in a different world without the artificial constraints you place on yourself. Gambits, by definition, are unlikely to succeed. But they will improve your map of the territory and help you get oriented. Gambit - Feedback - Iterate  Successful companies take gambits to get a basic map of the territory. Once they have the map, then they iterate. For example, Apple produced 24 versions of the iPod; so far they’ve built 25 versions of the iPhone. The gambit is for invention and understanding. Iteration happens once you figure out how to capture the value of the market. It requires organizational discipline. It’s tinkering, making something better within a roughly known context. At Royalty Exchange, we don’t really know what our product or marketplace will look like in the long term, but we know much more than we did four years ago because of the gambits we’ve taken. We’ve tested ideas knowing they’ll likely fail. Even when they “fail,” we learn something. When they work, they change the trajectory of our business. I think of every one of our hires as a gambit — each time we’re not fully sure where it will go. Growth hacking vs. gambits Gambits and growth hacking can look alike because they are similar in some ways. But they are different. Similarities: Look for new ways to grow. Put out ideas or products, get feedback, and adjust.  Differences: Growth hacking is mostly direct response marketing — it’s about optimization.  Gambits are non-linear bets designed to discover what might be possible. Growth hacking answers: How do we sell this?  A gambit invents the future. Explore — but don’t overreach The key is making gambits work is twofold:  1) Gambits are exploratory. They should expand the overton window, to shed light on what’s possible. When they work, gambits provide a set of keys that might unlock that future. 2) Never overreach. Never bet the farm. You build great companies by taking smart gambits and creating the environment for success. You’re not putting the company on the line with moonshot attempts. Rather, find the smallest step you can take to start exploring some new areas. When calculating the cost of the undertaking, remember it’s the actual dollar cost and the time and energy it takes you. If you can move fast on a low-risk gambit, often it’s worth it.  Create a hypothesis about the future — then test it Create a hypothesis about the way the future might be, and then test it. Ask yourself: “What is the smallest thing I can do to test my hypothesis?” A gambit can be a small advertising campaign to see what customers respond to, or a new hire in an area your company hasn’t explored before. Try something small and then look for a signal. One of the best features of a gambit is that you get feedback very quickly. You put something small out and then you essentially look for any type of positive validation you can find.  If you put out a small advertising campaign, are people talking about your company? If you made a new hire, are they changing the dynamic of your team in any noticeable way? If there’s no signal coming back, then the lack of signal is in itself negative feedback. Either the idea was bad or the execution was bad. In either case, it’s time to readjust and make your next move.

The ancient Greek philosophy of Stoicism has enjoyed a resurgence in recent years, particularly among entrepreneurs, that’s only increased in the wake of a global pandemic. (The Times reports that sales spiked recently for works of two of the great Stoic philosophers, Seneca and Marcus Aurelius.) While “influencers” like my friend Ryan Holiday, who’s written several books on the subject, have helped stoke renewed interest in these ancient teachings, they have stood the test of time because they work. Stoicism is particularly attractive because it’s a practical philosophy created and taught by emperors, former slaves, and others who interacted in the “real” world. The best possible life The primary goal of the philosophy is to live as well as one possible can. Epictetus said the goal of a Stoic education was to create excellent people, not excellent philosophers. Stoicism teaches us that rationality and knowledge are the highest virtues and will lead to a happy life. Modern-day philosopher Nasim Taleb defines a Stoic as someone “who transforms fear into prudence, pain into information, mistakes into initiation, and desire into undertaking.” To do this, we must train ourselves as observers of the world; understand the things that are in and out of our control; and act on the things we can control. Correct use of impressions It starts with understanding what things are in your control. You must constantly monitor your thoughts and responses to understand your own programming and then intentionally program them differently.  The “correct use of impressions” was the cornerstone of Epictetus’s teachings. An impression is anything that pops into your perception, either from an external event or your own internal thinking. (If you’re driving and have to react to someone standing in the road, your perception of that person crossing the road creates an impression in your mind. If you get an email with unwelcomed news, your mind creates an impression and labels this information as “bad.”) Anything outside of your control cannot be “bad,” because it’s part of a natural order of things. Even when a pandemic happens, killing hundreds of thousands of people all around the world, Stoics view it as a natural part of an interconnected world—not something to consider “bad.” Rather than immediately labeling things in your head and reacting, ask yourself: “What if this weren’t bad?” We all do this in retrospect. We see the good in a “bad” situation after the fact and end up thankful it happened. The trick to Stoicism is doing that in the moment Negative visualization For a Stoic, thinking only about the positive things you hope will happen leaves you woefully unprepared to deal with negative things that could happen—and, in fact, are destined to happen (more on this in a moment). The Stoic practice of negative visualization helps you prepare for external events outside of your control. Epictetus suggests that, when kissing your child goodnight, imagine they will die in their sleep. As horrible as this thought process is, this would put you in a better position to respond if it really did happen. You wouldn’t be totally blindsided. And the act of thinking the scenario through will make you more appreciative of the time you have. Imagine the things that you’re afraid of and what you avoid thinking about: What will happen if you lose your job, or if people discover you’re not as smart as they think? Whatever your fears are, imagine them to the furthest extent, in detail. Predestination The Stoics took this thinking a step farther. They believed all events are part of a destiny that’s laid out in advance. You might call it “God’s plan.”  Marcus Eralius would say it’s nature, of which you are an appendage. Seneca taught that the world is connected. The universe is a tree, and we’re all branches on it. We exist for the purpose of the tree, not for ourselves. If you believe in predestination, you believe you were put in whatever role you find yourself in for a reason. So, you must do that role well. This sets up a paradox: Stoics believe in predestination (that you can’t change external events because they are meant to happen) and they feel a radical sense of responsibility to act when they are confronted by things that are in their control. Responsibility to act One of the major misconceptions about Stoics is that they are devoid of emotion or passion. While Stoicism teaches you to create emotional distance between the things you can’t control, it also teaches that you are duty-bound to act on things you can control. You have responsibility to act. If you’re given the ball in a game, the thing that matters is what you do with the ball. That’s what’s in your control. Nothing else matters, not the game itself or the outcome. Stoicism teaches that you have an obligation to strive for excellence, if nothing else. There’s an idea in Stoicism that we’re all bartering for something throughout our lives and that the meaning of life comes from that barter. We’re bartering our life’s energy, trading it for things throughout our lives without even knowing it. For example, I consciously recognize the sacrifice and discomfort that comes with parenting; I intentionally trade my life’s energy so that my child can go do something in the world. Stoics recognize that the point of life is to trade their life for something meaningful.

My views on PR have changed as I’ve learned to use it strategically for my business. Antony Bruno, our director of communications at Royalty Exchange and my co-host on this podcast, taught me a lot about how to do it well. I first invested in PR with the goal of filling our talent pipeline. I wanted people in Colorado, where we’re based, to know what a great place Royalty Exchange is to work. Over time, as we got more and more impactful coverage—in places like CNBC, Forbes, The Wall Street Journal, and The New York Times—I got a more complete picture of the power of PR when it’s done well.  PR can be a good strategy to drive new customers to your platform, product, or service. Positive news coverage can grow your pool of candidates for recruiting and boost your team’s morale. PR also has more leverage than other activities like advertising because of the compounding effect: Press begets more press.  Take a long view PR can pay huge dividends for your company—but it takes time. This is one area of your business where you have to take a long view. You’re not going to hire a PR firm and all of a sudden get rushed onto the set of CNBC. People often label a company an “overnight success,” even though the founder’s been working hard at it for years. It’s like that with PR: You need a focused effort over time to build up the credibility that allows you to get breakthrough stories. If you have a finance company, your first media coverage probably isn’t going to be in the Financial Times. It’s going to be in a trade publication or blog that covers your industry. Those smaller PR wins are important because they signal to bigger outlets that you’re credible. Know what you want to say—then listen First, you need to know what you want to say. Then, you need to listen for opportunities to tell your story. Distill your messages into three to five key messages that you want to communicate. In any opportunity that you have, you’ll look to deliver at least one of those. Then, listen to the outside world and try to connect things you’re hearing to those messages.  It’s important for founders to understand they’re not talking in a vacuum. The more your story connects with the things people already are talking about, the more effective your PR will be. Many companies are understandably focused on what they’re doing in their day-to-day. You need someone who’s listening to the outside world and can figure out where your story fits in. You want to know things like where your customers “live” online and what they read. Read the publications your customers read to get a sense of what’s happening in the zeitgeist (and what your competitors are saying).  For example, I’m considering investing in a business that delivers meat to homes here in Colorado. One of the strengths of the business is that it uses a very simple supply chain because the meat is grown locally. That’s a strong story for the moment because news organizations are devoting a lot of coverage to the food supply chain. Solve a reporter’s problem You have to earn the right to be covered in the press, which means solving a problem for a reporter. The reporter’s problem is that they need a story that’s useful and interesting to their readers. Know what beat a reporter covers and what type of stories interest them. You’re in a much stronger position if you can articulate why you think your story would be of interest to a reporter’s readers, based on your knowledge of their past work. That’s a better approach than blindly sending things out and hoping someone takes interest. Chum the waters. Send updates on what you’re doing on a regular basis. A reporter may take the information you give them and find a reason to include it in a story months later, maybe when they’ve picked up on a broader trend that your story falls into.  Small hits can lead to homeruns Coverage in smaller, more niche outlets can be valuable on its own. At Royalty Exchange we have a catalog up for auction for a popular metal band Slipknot. Mainstream media outlets aren’t interested in this, but niche music sites that Slipknot fans follow have picked it up. We got quite a bit of coverage out of it that led to a spike in new users.. Also, articles in niche publications also get picked up by larger publications, so a PR hit can turn into a homerun. Are PR firms worth it? Like anything else, before you hire a PR firm you want to define your goals. Make it very simple: “I want to accomplish A, B, and C.” When you interview PR firms, share those goals and have them recommend a tactical plan to achieve them.  A lot of PR firms tout the relationships they have with reporters. The important thing is that the firm knows which outlets cover your space and has the channels to reach them. For smaller tech firms, a large all-service firm may not be the right fit. Consider finding a boutique firm that specializes in your industry vertical. An idea of Antony’s that I like: If you have a relationship with a reporter who covers your industry, ask them for a recommendation based on their interactions with different firms. When you hire a firm, your success will depend a lot on the direction you provide to them and how well you manage the firm. Provide an overarching strategy—and then hold them accountable.

As we’re seeing with the Covid-19 crisis, assessing risk and responding when things go wrong are critical skills for entrepreneurs. The problem is, this is very hard for us to do. We’re wired to think tomorrow will be the same as yesterday—until something happens that we didn’t see coming and we’re snapped into a new reality.  Normalcy bias A challenge we all confront is normalcy bias. This is a view that’s hard-wired into us, that tomorrow will look a lot like yesterday did. Thinking like this serves us well 99% of the time. We all operate with a set of basic operating assumptions that create the foundation of our normalcy bias This is the foundation of how we view the world around us; it’s how we decide things like what’s possible and what’s impossible. It guides our day-to-day decisions, which then become automatic. We create a narrative about the world around us and repeat it in our heads. We flip the light switch, and the lights turn on. Before long, we can’t imagine a world where we flip the switch and the light doesn’t turn on. Don’t assume tomorrow will be the same You don't have to identify the 1% of the time when normalcy bias doesn’t serve you. Rather, examine your assumptions about things that fall outside of your control and ask yourself: Are you assuming those things will always be OK?  One thing that’s helped me be successful as an entrepreneur (and survive several of these economic macro-shocks that we’re experiencing) is that I’m really suspicious of my own biases—and especially my normalcy bias. I’m constantly looking for new information or data to disprove the running narrative in my head that tomorrow will be fine because yesterday was. We watched the largest quarantine in human history unfold in the Wuhan Province months ago—yet most of us ignored it because it didn’t fit with our narrative about pandemics. The narrative from previous pandemics is that the world makes a big deal about them and they don’t end up affecting us. The ‘turkey problem’ Author and philosopher Nasim Taleb calls normalcy bias the “turkey problem.” He writes: “A turkey is fed for 1,000 days by a butcher, and every day confirms to the turkey and the turkey’s economics department and the turkey’s risk management department and the turkey’s analytical department that the butcher loves turkeys, and every day brings more confidence to that statement. But on day 1,001, there will be a surprise for the turkey…” The more time goes by, the more anything can feel “normal.”  I have a friend who works at a derivatives desk at a major financial institution. She graduated and started her career in 2008, the first year of the bull market. The market’s been going nonstop ever since. Because she’s never seen a downturn, she assumes things will always be fine. Recognize what’s in your control (and what’s not) Entrepreneurs, especially, need to be able to see the complexity in the world around them that most others take for granted. They need to anticipate where those systems may fail. Like the Stoic philosophers teach, you want to recognize what is in your control and what is not. Try to expand the boundaries of what’s in your control and examine your assumptions about what’s not. Be on lookout for things that contradict the narrative You have to look specifically for things that could prove your narrative wrong. You have to be looking for information that’s not necessarily what you want to hear and doesn't fit the narrative you have in your head. We watched the largest quarantine in human history unfold in the Wuhan Province months ago—yet we ignored it because it didn’t fit with our narrative about pandemics. Our narrative, from previous pandemics, is that they don’t pan out even as the world makes a big deal about them. You can still act When these types of events happen, entrepreneurs can get stymied into inaction. No matter what situation you find yourself in, there’s always some action you can take now—even if it’s merely putting a plan together. A friend of mine had a physical products business in town that got overextended. He borrowed money to buy his partner out. He hit this huge cash crunch and the business was collapsing around him. It was slow motion train wreck. I told him, “You can still do something—but you have to move fast. You have inventory that you can turn into cash. If you wait, your choices narrow.” Links: Influence, by Robert Cialdinihe Full show notes: https://smith.substack.com/the-turkey-problem

One of the most irresponsible things you can do as an entrepreneur is fail to have a substantial cash buffer to withstand changes. That’s exactly the situation small businesses—and households, for that matter—are forced to confront today.  As we discussed in “Wartime CEO,” the average small business has 27 days of cash buffer coming into this crisis. That’s not a lot of runway, even when times are good. In a crisis like today, it’s disastrous (which explains why government loan money is running out so fast). JP Morgan applied the same methodology of bank stress tests to households and found: Half of all families have insufficient cash to withstand either an expenditure spike or dip in income; and 65% of all families have insufficient cash to withstand both at the same time. Short-termism Companies adopted short-termism. They’re trying to squeeze out profits instead of making investments in the future. Private equity is built around this: They buy companies and get rid of redundancies, including employees. You can see the impacts of this in the Covid-19 crisis. It’s shocking to see bodies pile up in Long Island’s mass graves because of the lack of funeral homes. Since 1990, as large companies have taken over, roughly two-thirds of the funeral homes in New York City have closed. It’s one of the wealthiest cities in the world, and they’re burying people in unmarked plots. Companies have traditionally viewed unutilized capacity as a dead asset, sitting idle and not generating profits. This line of thinking suggests that having “too much” cash on hand is a bad thing. Rather than maintain a cash buffer, it’s considered smart to take on debt when an opportunity presents itself. That mentality no longer works. The only way we’ll get out of this crisis—with this huge credit bubble that we continue to kick down the road—is if we start to have an excess of savings. We need excess capacity ‘Antifragile’ Whether you’re an entrepreneur leading a business and the head of household, having extra capacity is really important. For businesses, this can mean cash on hand and extra capacity in your workforce. Extra capacity is not just about mitigating against risk and weathering a storm. It allows you to capitalize on opportunities as they present themselves. Nassim Taleb writes about the concept of being “antifragile”—meaning that when unexpected things occur, when “fat tail” risk happens, you get stronger. Excess capacity can make you robust; it can give you mental clarity to look farther ahead and make better decisions. If your team is so overwhelmed by day-to-day tasks that they don’t have the time, energy, or mental free space to look for opportunities, you are making a gigantic mistake. If there’s no excess capacity, they’ll only do the things you already do. If you optimize to the point you’re operating with only what you need, you’ll kill your opportunity to grow. Google famously allows employees free time to work on projects of their choosing, and that produced some big innovations for them like Gmail. If a private equity firm came in and slashed extra capacity, Gmail would never exist.  Free up mental space By creating enough free space, you expand your choices—you’re no longer forced into making decisions that you don’t want to make. By having some food in your house, you can choose not to go to the grocery store when people are fighting over toilet paper. The same thing applies to businesses. Whether you’re a CEO or a head of a household, having that free space in your head, is critical to keep you from making terrible and irrevocable decisions.  The second way I look at excess capacity is that it’ll be clear to you when to use it. This is generally how I approach big decisions in my life: I sit on something until I’ve given myself enough mental space to be objective about it, and then I act. I think that that mental clarity is the most valuable thing you can have, especially if you’re in any kind of a leadership role. Building capacity is difficult Building capacity is an incredibly easy concept that’s very hard to do, because it requires you to sacrifice. You have to go without something today in order to have something in the future. Keep your expenses lower than your operating costs and hold onto the cash. Change your value proposition If you’re providing something truly valuable to your customers, consider if you could charge more by offering a service that’s of higher value.  In our last episode, we discussed a local cattle rancher here in Colorado who sees opportunity in the wake of this crisis. He’s typically very price conscious, making sure to compete with large organic grocers. I’ve encouraged him to think broader than this and view his business as providing more than just producing high quality beef.  Instead, he can charge more if he expands his value proposition to guaranteeing a steady and secure supply of food.  Let some customers go Sometimes building capacity means disappointing current customers. We’ve done this in our own business. We decided we’re only going to work with a certain subset of clients that we can rely on, and we eliminated other distributors. Some expected the business would suffer, but it’s grown. Every time we’ve limited things, we’ve grown. To avoid getting crushed, entrepreneurs have to create value for their customers that they can charge for above commodity prices of their product. Otherwise, it’s a race to the bottom. Do less Another way to build capacity is going without things. Especially when times are good, companies tend to take on debt. They talk about “good” debt. But, to me, there is no such thing. I view all debt as “bad” debt, because they drive your structural expenses higher—and  “good” debt becomes “bad” debt very quickly in an economic downturn. On a personal side, especially if you are single and early in your career, you should be saving 30% of your income. If you aren’t, you should make substantial changes to get there and take advantage of compound growth while you’re young. Otherwise, you’ll get forced to make decisions when none of the decisions are good.  Links: “The Monthly Stress-Test on Family Finances,” by JP Morgan Institute Antifragile, by Nasim Taleb Black Swan, by Nasim Taleb Full show notes: https://smith.substack.com/  

A lot of entrepreneurs are pondering what the “new normal” will look like when we emerge from the health crisis. They’re wondering where the opportunities may be. Just as important, they should think about the risks ahead. To gain a clearer picture of where we might be headed, I follow trends like these into the future and imagine how they might intersect: Demographic shifts: Baby Boomers are downsizing and no longer saving;  Globalization: Open borders and efficiency have meant low prices;  Consumer trends: The world’s shifted to e-commerce, leaving our stores empty; and Fiscal policy: Three decades of cheap borrowing.   These trends have a natural breaking point—but it takes a long time for them to be realized. By definition, trends last a long time. And then, at some point, they break or bend.   When you look at these global trends through the lens of a Covid-19 era, what types of shifts might we see happen?   Lower consumer confidence Our economy depends on confidence. If you’re not confident that tomorrow will be better than today, you’re going to act differently. You’re going to forego all kinds of things, and you won’t even feel like you’re sacrificing to do it. When people go through something this traumatic, they don’t think, “You know, I really need a new iPhone this year.” And yet, our economy depends on 35 million people a year buying an iPhone when they don’t need one. Even if there’s a Covid-19 cure tomorrow, are you going to book that trip to Jamaica or that cruise? Are you even going to want to travel far from home? These types of events affect people’s psyche and change their consumption patterns for a long time.   Supply shock We’re experiencing the pains of the demand shock now. The supply shock will follow. The crisis is exposing just how fragile our global supply chain is. It’s a highly efficient system that allows companies to produce goods cheaply. But it’s also extremely complex, which makes it vulnerable to breaking down. You can already see examples of where it’s happening (for example: they’re running out of storage space at ports of entry for container ships), and we’ll see much greater impacts over time. The supply shock will mean some businesses—like “fulfilled by Amazon” companies—simply don’t make sense to do anymore. It also means smaller companies throughout the chain will confront new challenges.   Globalization to localization Globalization is one of the biggest areas that will see long-term impacts from this crisis. Globalization has been extended as far as it can be—like a rubber band getting stretched—and Covid-19 is a catalyst causing it to snap back. We’ll see a shift to localization. Businesses will decide it’s not worth the risk to make the same choices they made in the past. They’ll adjust, and consumers will, too. Companies will do away with complex supply chains that have little redundancy and are susceptible to failure and build ones that are simpler and easier for them to control. They’ll still manufacture in China, but it’ll be simpler, more redundant, and closer within their control.   Rising prices?   A lot of people don’t understand the role small businesses serve in a market. They are the players that move quickly and solve complexities at the edges of a market. They’re like nimble “fixers” dispersed among giant players like manufacturers and global consumer goods companies. It’s a complicated web that worked pretty well before Covid-19. Now, it no longer works.   In the future these problems will be more expensive to fix, as we move to a simpler and more localized system. Things will be less efficient, which will cause prices to go up in many areas. There are counter-currents to this, too. For example, housing and rental values will go down.   Opportunities  Entrepreneurs will find opportunities among this crisis. The food industry offers an interesting window for how small businesses might approach it. Food is one of the hardest things to manage in a supply chain because it’s perishable. In talking with a local rancher here in Colorado, I’ve learned that locally grown, organic products like grass-fed beef are much more resilient than what comes out of industrial farming. Industrial farmers depend on a byproduct of soybean oil to feed their cows—which was fine when the U.S. produced 70% of the world’s soybean oil. As supply chains get disrupted, though, those companies may find it very hard to feed their cattle. Whereas, there’s an ample supply of local grass. So, strangely enough, the cheapest forms of food may prove to be very expensive in this new supply chain. I’m interested in this business because I see the opportunity for entrepreneurs to step in and fill a void this crisis will leave. Local producers could pivot to acting more like a service than providing a commodity—provide more food stability for customers.  Most of the entrepreneurial hustle in this country has always centered on services—and I don’t see that changing.    Effectual reasoning Entrepreneurs don’t succeed by using a top down approach.  Instead, they work with the limited resources they have and iterate.  Given the significant changes taking place right now, Entrepreneurs will need to employ this skill to figure out how to survive.  [There’s a great paper called What Makes Entrepreneurs Entrepreneurial where the author goes deep into the key role effectual reasoning plays] You can see examples of this with distilleries that converted to producing hand sanitizer. That’s effectual reasoning in action: They don't know how it will end up, but this is the thing that they can do now and it will lead to other things. You can see it with restaurants, which are leaning on relationships they’ve developed with customers to explore where their opportunities are in this new landscape. Companies that never made the effort to collect customer names and emails when times were good regret it now. Those that did are in a better position. Restaurant operators should think beyond supply the commodity of food and explore how they can serve their customers differently. Can they create experiences for people in their homes? This type of mindset will be required of all entrepreneurs as we emerge out of the immediate health crisis and feel the long-term effects of the economic slowdown. Nobody should expect things to go completely back to the way they were before.   Full show notes: https://smith.substack.com/

If you look at current events, communication is being substituted for leadership. PR professionals have gotten ingrained in organizations and are muddling down messages. When a crisis happens, they try to diffuse it or craft a narrative that paints them in the most favorable light. Coronavirus is an example of this. The effort to use narrative to manipulate the public is clear. You see this cover-your-ass approach within corporate leadership as well. When a CEO needs to lead a group through difficult times, narrative-crafting has become the answer. Boeing recently had the 737 MAX problem and didn’t own it. They tried to hide and minimize it, and it just dragged on. They tried to massage the narrative—instead of owning it and laying out a plan. During a crisis, some leaders have the tendency to push it away and try to buy more time to figure out the right response. But we all admire somebody who will stand up and tell the truth, especially when it sucks to tell it.  The number one thing is you’ve got to know your message—and you’ve got to practice it. If a crisis happens that affects you directly, then step in and own it. Get to it early and take full responsibility. Explain what happened and what you’re going to do next. Once you have people’s attention, don’t patronize them or treat them like children. Don’t give them buzzwords or slogans. If the crisis doesn’t directly impact your business, look for ways to contribute. Attention is the most difficult thing to gain for anyone. When you have it—whether it’s for a “good” reason or “bad” reason—don’t hide from it. You don’t get it often, and you don’t know when it’s going to come again. So, use it properly. https://smith.substack.com/p/crisis-leadership

As the COVID-19 crisis unfolds, a lot of businesses find themselves in a tough spot. Studies and surveys tell us that a significant number of small businesses—as many as half—have less than a month of cash on hand. It’s frightening to think that if things don’t go right for 30 days, most businesses are in serious trouble. People’s instinct is to think: “It’s too late now. There’s nothing I can do.” But there are things you can do now to protect your business and employees (and their families) while supporting your customers. If you’re in a business—especially one in which a lot of people depend on you—recognize your responsibility and act. Don’t assume this is the bottom First, understand that you don’t really know how bad it could get—because it could get much worse. If you haven’t yet built a cash buffer, it’s not too late to start. It may be time to cut costs and preserve cash. Your obligation as a leader is to imagine what the future might look like and to put yourself in a position to act. Look toward the horizon and try to get ahead of it. Adopt a ‘wartime CEO’ mindset A crisis like this requires you to adopt a wartime CEO mindset, as Ben Horowitz writes in “The Hard Thing About Hard Things.” You might have been doing a great job running your business for the past decade during peacetime. But now it’s wartime, and something different is required of you. Different rules apply.  “Peacetime” in business means the company has an advantage over the competition, the market is growing, and the company can focus on expanding the market and reinforcing its strengths.  “Wartime” means a company is fending off an imminent, existential threat—a competitor, a change in technology, a macro-economic change, or a pandemic that demands something different from you. Scenario planning Ask yourself, “What if things get worse?” If you have 30 days of cash left and revenue is cut in half, then you have 60 days left. What can you do now to make it more likely that revenue will return? Alternatively, if revenue isn’t likely to return, what can you do now to put yourself in a better position to survive? You might have to pivot Restaurants were forced to close and dealt with it by pivoting to take-out. Owners of distilleries that converted to producing hand sanitizer look like heroes. When you get in a crisis situation, you’re always better off if you’re nimble enough to do things that support your customers. This is an opportunity to distinguish your company  People will remember how you behaved when things got tough. It can have great long-term implications for your business. Bad behavior is always remembered, so be sensitive to your customers. You could get focused on an acute problem your customers are facing. Talk to your employees like adults A wartime CEO has to be very effective at communicating. When there is an existential threat to the business, your employees will naturally worry. Tell them what’s happening and what it means based on what you know—and be open about the things you don’t know. Let people know you have a plan for how you’re going to handle it. If people believe in you, they will accept hard choices The faith employees have in the organization and you in your leadership role are critical to pulling an organization through a difficult time. If people believe in you, they’ll accept a disruption of their normal work; they’ll volunteer to make sacrifices.  Internal challenges are not your customer’s problem For the most part, internal challenges of an organization are not your customers’ problem. Your customers care about their own problems. So limit what you make public. If you tell your customers and suppliers that you’re facing a cash-flow problem, they don’t know if you’re being totally transparent. If it ends up being a one-off thing, that could forever change their impression of you. Entrepreneurs step up in hard times A crisis like this helps to highlight one of the reasons I love entrepreneurs. They all choose to take responsibility for somebody else’s family. People talk about becoming a founder like it’s this big aspirational thing, but the reality is you’re picking up a really heavy rock and carrying it on your shoulders. You’re either cut out for that or you’re not. Links: “The Hard Thing About Hard Things,” by Ben Horowitz Full show notes: https://smith.substack.com/p/wartime-ceo-d71

The SmithSense Podcast gives listeners insider access into the real-life struggles, ideas, and strategies of successful entrepreneurs and business leaders. Whether you’re building a business, a team, or a way of life... The SmithSense includes you in the real-life conversations that the leadership and self-help books and blogs never address. This is the story of what really works, told from the trenches from actual business leaders struggling with your same challenges every day. https://smith.substack.com/p/welcome-to-the-smith-sense-podcast-3b5