How to Build Systems (So Your Business Runs Without You)

Sam Parr

So I've been running businesses for fifteen years, and I've hit this wall multiple times. It's somewhere around $7–10 million in revenue [original transcription unclear: " $7.08 $910,000,000 "], where suddenly your biggest problem is not a lack of ideas — it's an issue with you. You're the bottleneck. I've got this buddy named **Ryan Deiss**. He has this amazing quote: "**The more valuable you are, the less valuable the company is.**" I read that quote in one of his books a while ago, and it kind of changed my game on how I thought about business. So I decided to have Ryan come on and talk about the simple but very effective framework he has for running companies. It's changed my life, and maybe it could change yours. On this podcast he shared everything — his whiteboard, his spreadsheets, his flowcharts with his employees. It's basically like a **30-minute MBA**, which is pretty insane and very valuable. So check it out and let me know what you think in the comments. Alright, let's get into it.

Shaan Puri

You have two things that I like. One is this quote: **"The more valuable you are to your company, the less valuable your company is."** I think this is true for every entrepreneur — especially when you want to sell. It felt really good to be the man: to be the one creating all the value, taking all the shots, having your name everywhere, your face everywhere, and your fingerprints all over the business. It does feel good from an *ego* perspective. It does feel good to have control. But it sucks if you ever want to go on vacation or sell your business, because the more valuable you are to the business, the less valuable the business is. </FormattedResponse>

Ryan Deiss

Yeah, you gotta decide: do you want to be down on the court, hitting the last-minute jump shot to win the game, or do you want to be up in the owner's box? That is the choice you make. So you're either going to be the **most valuable player** or you're going to **own the team**. Most entrepreneurs would much rather be valuable. They prefer doing the things that enabled them to get started rather than doing the things that will actually enable them to achieve what they say they want. Really, they kind of like being important—they kind of like being valuable. You've got to decide what you actually want. The nice thing is it's your business, so you get to decide.

Sam Parr

Yeah, but a lot of times the problem is *impulse control*.</FormattedResponse>

Shaan Puri

He says, as he cuts you off.

Sam Parr

**It's impulse control**, I think. I can say that I want something, and I do truly want it, but twenty years of previous behaviors have to be broken. It's incredibly challenging to actually do that. I also think that evolving as a person — as we actually just did an episode on the other day — is way more challenging than a lot of people think.

Shaan Puri

I like this graphic you had here of the before and after. I think the messy sort of entrepreneur—which is you; I've been guilty of a lot of these things—is working 80 hours a week, in the weeds. If you ask, "Who owns this?" the answer is **"me, me, me"** for each area. The whole team is asking you, "Hey, got a minute to talk about X?" two hundred times a day. You're missing soccer games. You can't sell the business because it's too dependent on you, and the business owns you rather than you owning the business. Then you have the ideal outcome at the end: it's an hour a week for you. The team executes without you, the team optimizes without you, the team decides without you. You can take a 30-day vacation, you break revenue records while you're gone, and you're exit-ready if you want to be. This is for an entrepreneur who wants to exit, who wants to build what is, insultingly, called a "lifestyle business." But I think that's the main type of business I'm interested in—I use business to have a good lifestyle. So that's kind of what I want. So what's the process? How do you do that transformation? How do you go from player to the owner's box, Ryan?

Ryan Deiss

The way that you begin to implement it is you have to **establish defaults**. You have to establish certain default constraints. *I'm going to leave at 5:30 every day.* Like, I'm just—I'm going to do that, and I'm not going to show up until nine. What do you know? Magically, I got my work done in that block of time because I did. So just the prioritization of that is going to help. I mean, I think that's the first thing that is then going to force you to at least **stack-rank your priorities**, because you can't do everything. Yeah, you're right—we've got a million different ideas, but what are the ones that we're going to do first? I like to say our ideas are like **chocolate cake**, not cotton candy. You can only eat so much chocolate cake; it's delicious, but you can only eat so much of it. So what are those things that you're going to do to begin to stack-rank those? It does come down to, again, just getting really good at **constraint identification**. We can do everything—there's all this stuff that we could potentially do as entrepreneurs. We are trained and adept at identifying problems; we see them everywhere. We will never not see them, but we certainly can't fix them all at once. So what's the one we're going to do next? That's the only question I'm ever asking: **"What is my right next thing? What is the thing that I'm going to do next?"** Every problem in business is going to come down to one of two things: is it a **supply constraint** or a **demand constraint**? Demand constraint: *I just need more leads and sales.* Supply constraint: *Please don't get me more leads and sales—I can't fulfill the ones that I got.* Once I've identified that category, now I just need to say, "Okay, how do we get this done?" If it's not going to be me that does it, who do I need to bring in to do it? Ultimately, what it's going to look like is bringing somebody in who is better than me at one aspect of this. I'm not going to find somebody who's better than me at everything, but I can almost certainly find multiple people who are better than me at one aspect of that. That's what assembling a leadership team looks like. What you have to first do is map and visualize what the core value drivers of the business are. Every business does three things: **you make stuff, you sell stuff, and you fulfill stuff**. If you create a visual map of how that happens... We do this with visual process mapping. We literally go to a whiteboard and use sticky notes and say, "Okay, how do we get customers?" Let's sticky-note this out in flowchart form.

Shaan Puri

And you're basically creating **assembly lines** that connect. Is that the right way to think about this? It's literally like a **pipeline**: something comes in at the start, then what happens to it? Then it gets handed off over here, then it gets handed off over here, right? That's kind of what you're doing.

Ryan Deiss

Exactly. This is an example of one that we would do as a sticky-note version — an example of the **growth engine**. So where we would start is: how do we generate **initial awareness**? Let's say for this business they run Facebook and Instagram ads, run Google ads, and create Reels and other content. We start there, then ask, "Okay, cool — then what happens?" For this particular business, they're driving traffic to an **email challenge**. They'll have people sign up on that challenge page, and then all you're doing is asking, "Then what happens?"

Shaan Puri

Mhmm.

Ryan Deiss

Well, do they register? If not, then we're going to retarget. If yes, we're going to deliver it. All you do in this process is just keep saying, *"Okay — then what? Then what? Then what?"* If you will just map the process — and I didn't invent this — this is called **business process mapping**. If you will just say, *where does it start? Where does it end?* you will create a business process map for everything that you do as a company. Specifically, if you do it for how you get customers, what you do with them once you have them, and how [you retain or serve them]. You could also do it for your manufacturing process or your product-creation process. Then what you've done is you've visualized the core value-creation aspect of your business. Have you ever done this, Sean?

Shaan Puri

Yeah, but the question is: *what are you doing it for?* There are a couple of different ways you can look at that. One is you identify *where the constraint is*. The problem is: this part's working well, so what we would do is overlay some numbers on the map. We'd say, "Great — how much are we spending on those Facebook ads? How many clicks are those driving?" I would have little numbers written on the arrows, basically, and then we'd kind of circle the one that looks like the leak in our bucket. This is where we feel weak. We might have a lot of demand, but maybe we're breaking in terms of how many we can fulfill — there's a long waitlist, right? Or customers aren't coming back. Why aren't they coming back? You try to identify the constraints. So, is that why you do the *business process map*? Is that the first thing you do? What are the different things you do once you create the map?

Ryan Deiss

So this is kind of a digital example of the growth engine I just showed you, and this would be like their *fulfillment engine*. What I would do is take this growth engine and one of the first things we would ask is: **Which of these can we really not afford to screw up?** One of the biggest mistakes companies make when they're trying to systemize is they try to document everything. *Don't do that.* Just document the ones that are really, really important. The second thing we do is figure out who we need to hire. We create this thing called a **high-output team canvas**. For every single sticky note — every step or stage on here — we're going to ask, "Okay, this one right here: Facebook and Instagram ads — who is uniquely responsible for this?" Then we create the canvas. I'll go down to the marketing team and say, "Okay, you've got John here. John is going to collaborate with agencies to establish those budgets, but ultimately our agency is going to manage and optimize these." Every single sticky note, every single box, is going to have corresponding — what we would call — **critical accountability bolts**. This is how we begin to assign roles and responsibilities. That's the second thing we do with this. It becomes interesting because as you go through these, instead of going to people and asking, "What does Betty do? What does Lloyd do? What does Carly do?" you start with your value-creation processes and assign tasks to the people. When you're done, you realize who has all the things and who has none of the things. You can see on your team who's overburdened with work that actually matters and who is underburdened with work that actually matters...

Ryan Deiss

That you made — this is how we create our **scorecards**. So, for our scorecards, every single one of the different squares — every single sticky note, if you will — is going to have one or a few corresponding **metrics** on the scorecard. This is how we know that we're actually tracking the *metrics that matter*. When you look at our scorecards, if you work top to bottom, that visualizes what we're seeing as we work across here. </FormattedResponse>

Sam Parr

Alright, check this out. So **Ryan** is giving away his entire operating system. I'm talking about the actual spreadsheet he uses to run his companies—everything from sprint roadmaps and workflows to planning tools. The whole thing. The same system we're talking about in this episode. You can get it right now: **scan the QR code** or click the link in the description. Now let's get back to the show. When I see things like this, it's sort of like reading the book *How to Win Friends and Influence People*, where you're like, "Oh yeah—that's obvious; that makes sense," and then you realize you don't actually do it. I'm like, "I would love to do this. I should do this." What mistakes am I likely to make when I see this stuff? Because, to me—as someone, you know, what do they say, like it's easy to sell water to a guy in hell—this is where I am now. It's like, yeah, I need this. So I see there's like five or ten of these types of frameworks and I'm like, I want all of them, I need all of...

Shaan Puri

So after this, Sam's gonna go run off and do it. Yeah... what's the first place he's gonna stub his toe?

Sam Parr

Yeah — where am I gonna screw this up?

Ryan Deiss

Let's first talk about the hiring component, because that is one of the things I see entrepreneurs screw up as they're scaling. They make one of two really big mistakes. The first is they hire helpers — they try to hire somebody just to do the stuff they don't want to do. The other is they try to hire someone just like them. It's these two opposite ends: either a bunch of helpers, or trying to hire a "quote-unquote integrator." One of the biggest lies ever perpetrated on the entrepreneurial community is this concept that *I*, the *visionary snowflake*, can just hire this one magical integrator who'll do all the crap I don't want to. It makes for a very good book, but it just doesn't work in practice. It's not about you changing. What you need to get really good at is identifying the single biggest constraint right now in your business — what is the thing, today, that is preventing you from growing to the next level? And it's never ideas. As entrepreneurs and business owners, what gets us going in the beginning is an idea. That's the hammer we take to every single nail... [transcription cuts off]

Ryan Deiss

What your business needs is not another new idea. It doesn't need another new thing to implement. What it needs to figure out is: *what is the thing that is holding us back from the level of growth that we need?* The first shift that needs to happen is shifting from "I got an idea" to **constraint identification**. Once you have shifted from idea generation to constraint identification, the answer becomes: what's the best way to solve this constraint? It's almost always system- and people-related. But it's almost never "hire a bunch of helpers." When you hire helpers, what you actually did is give yourself a new job called management, which is even harder. Or you might think, "let me hire somebody just like me," but somebody just like you doesn't want to work for you. What you typically need to realize is that the constraint is solved by a **functional leader**. So what you need to get good at is hiring very, very, very good and talented functional leaders—Head of Sales, Head of Marketing, Head of Product. This is the thing that most entrepreneurs aren't as good at as they scale. They're good at hiring a bunch of little helpers. They think they're good at hiring a "COO," although nobody actually knows what that is. If you can get really good at hiring a functional leader and building a team of those, team leadership becomes a lot easier. When you have three or four truly talented, skilled people working for you, they have massive capacity because they'll build the teams under them to execute all your ideas.

Sam Parr

Sean, two years ago you were like, "I just hired this..." I think you said, "I just hired this VP of Marketing or CMO — I forget exactly; it was a marketing position, I forget the title," and you're like, "What?"

Ryan Deiss

Was that?

Sam Parr

CMO — was it a CMO? And you were like, "Yeah, why didn't I do this sooner?" I remember thinking, "Oh man, you found a winner." That's the highest-leverage thing we can do: find winners. It's so challenging. I remember you talked about finding this — this — this person, and your frame was broken.

Shaan Puri

Yeah, there's a new test for whether this person is a good hire or not. Basically, you switch from thinking "I wish this would happen" or "I hope this would happen" or "I want this to happen" to a kind of fear: *will this person leave?* Because, oh my God, this person is so good and they're so transformative to the business. If they left, I would have to worry about that area of the business again. I think we had John Morgan on last week and he has this phrase: "send and delete people." He's like, there are people at your company that you could just forward an email to and then delete it because you know it's going to get handled. And Brian, this thing you just said is so true. I was actually talking about this last week about helpers. I was talking to someone on my team and asked, "Are you going to be a helper?" So far, being a helper has worked because I needed you as my helper. But now I'm asking you to drive and you still act like a helper — you *want* to be a driver and we need a driver. It's time to be a driver now. Whether that person can make that adjustment or not is always about that person and their own goals, self-improvement, self-development, and self-image. It's very tempting to hire other entrepreneurial people like me. Great — now I got another shiny-object-syndrome idea guy in the room, which doesn't help. Or I got a helper who, as long as I'm directing everything, helps me get stuff done. But that means I always have to keep my eye on that area because I'm the one coming up with the plan and driving the execution, and they're just there to help. I've definitely felt this problem firsthand.

Ryan Deiss

The biggest thing people do when they map their business process maps is map what they *wish* were true instead of mapping what actually *is*. You have to map what is happening today — not, "well, what we should be doing is this." That's generally unhelpful. You need to see all of those as points of future optimization, because you've got to get a picture of what it is today. That's what's going to inform: what are all of the people actually doing, or what should they be doing? What are the metrics that we do need to track? The other thing you want to make sure you're doing is starting from an audit of those value engines. You don't want to just say, "I'm going to build out my scorecard because that looks cool." What are the metrics you're picking? If the metrics you're tracking don't all link back to a step or stage on one of those business process maps, then you could very well be tracking something that doesn't matter. I'll give you an example. When we rolled out our scorecards to our team, we had somebody at our company — this was at DigitalMarketer, one of our companies — say, "We don't currently have any metrics for our email newsletter. Why don't we have that?" I said, "Show me where the newsletter feeds into anything." The answer was: it didn't. The newsletter didn't show up as a sticky note on any of our growth engines.

Ryan Deiss

In the newsletter, did we ever link off to anything that was meaningful? It never showed up; it never wound up as a **sticky note** on anything. That's why it never showed up on one of our **growth engines**, which is why it never showed up on the scorecard. We're not tracking the metrics. I had to say to the person, "Look, if you can show us where this actually has an impact on one of our growth engines, then you'll get some metrics to track. Until then, you won't. And if you don't, we're going to stop doing it completely." There are so many orphaned activities that companies are doing because they're doing things that don't have a **sticky note** represented anywhere. So that's the other kind of mistake I'd say people are making.

Sam Parr

I think I read somewhere that someone said—like, I think it was *Jason Lumpkin*—he was like: > "If you get to $10,000,000 in revenue, your business can **100%** get to $100,000,000 in revenue." Do you think that? What stops people from growing from $10 million to $100 million—this arbitrary milestone? Is it things like better operators, being systemized, and things like this?

Ryan Deiss

Yeah — it's almost always *systems* at the end of the day. I think the real swamp of scale happens around **4–6 million**. That's no-man's land. At that stage you probably need three VP-level roles that you absolutely can't afford yet. If you could get them, they would take you up to **20 million**. You would have the margin and the cash flow to hire the rest of the people needed to scale to the next level. The only way to bridge that gap is through *systems*. You're not going to bridge it through brute force. Brute force — "chewing rocks" — is what's going to get you from **1 million to 2 million**, and maybe for really motivated people up to **7–10 million**. But it will not get you beyond that. To go further you need really talented people, and really talented people are expensive. Also, really talented people want to work for good companies. One of my least favorite pieces of advice is, "Oh, just go hire talented people." That's like telling your sad, lonely, pathetic friend, "Oh, just only date tens." It's not helpful. You have to become the kind of person that a 10 would want to date. It's the same with business: if you want to attract talent, you have to become the kind of company that A-players want to work for. My goal is not to hire rock stars and A-players. My goal is to build a company that doesn't require them, because that's the kind of company rock stars and A-players want to come and work for. That happens through better *systems*. If you can put those in place, great people want to work there — which is why big companies get even bigger.

Sam Parr

"Is the company of selling this—like, licensing the scalability of the company—going to be the best business that you've ever founded? I mean, is it sort of going to be like **EOS**? I heard EOS, which is an operational framework. I heard that company sold for, like, I think **$90,000,000**."

Ryan Deiss

Yeah, it won't be from that perspective because we talked about doing the **licensed practitioner model**, but we don't want to. Our model is: when we work with clients we do everything internally. That limits what we can do, but that's because, for us, this is us getting paid to do due diligence—we want access to the **deal flow**. If we licensed our model to other coaches and consultants like EOS did, it would be a simpler business and arguably more scalable. But we would lose out on all the deal flow. So we talked about it, but we don't do it. On the one hand, Scalable this year is going to do about $10 million in revenue, which is good—and with really healthy margins. But what we generate from the deal flow is way better than that. There is one deal we got from the deal flow that won't happen this year but should happen next year: a $300 million company. We're not going to get 20% of it—well, it'll be a much smaller percentage of that, with a baseline. But if this business winds up going public in a couple of years, let's just say that's a couple EOSes for me.

Sam Parr

Dude, this is why you're fascinating to me. I think—when you... I think Sean uses the phrase "*generative*." I use the phrase "*prolific*." You've been doing stuff for 30 or 20 years now.

Ryan Deiss

Yeah, no. Look, a lot of it's just being around—having been around for, you know, twenty-plus years and being in the game for a long time. That's why I tell people: so much of this is **patience** and just allowing... getting in the stuff and doing it. I mean, again, the first thing I sold online was an ebook on how to make your own baby food for $14. So your first thing does not have to be, "I went out there, I had an idea, I flew out to San Francisco, I was in the YC batch, and next thing you know I'm a billionaire." That's not how it has to be. It's not how it is for most people. It can start pretty humbly.

Sam Parr

When did you first feel rich?

Ryan Deiss

**I still don't feel very rich.** Part of it is because we still live relatively below our means. I have four kids, and I never wanted to live in a place where they weren't around other, I guess, normal kids. I've seen some friends who moved when they "hit it big" — they moved to very ritzy areas, and there were no kids there for their children to play with. My wife and I talked about that, and we just stayed in the same place we were in the whole time. So I haven't really expanded my lifestyle that much.

Sam Parr

"Are you *still* chasing money?"

Ryan Deiss

Yeah, I think the main reason, though, is that I still live in a *perpetual fear* that it's all going to go away.

Shaan Puri

I appreciate the honesty. I feel like most people aren't honest with themselves or others about that. You can just ask, "Are you chasing money?" I think most people would reflexively deny that: "No, I just love what I do," blah blah blah. Then it's like—*everything you do is about making money, and if there was no money you wouldn't do it*. You know what I mean? And so I appreciate the...

Ryan Deiss

**Honesty: coin-operated.** I'm in this for the money. I wish, you know... and I acknowledge the brokenness of it too, by the way. Like, I wish — I don't know that there is some number. It's also one of those things: I don't even know how much I have. I don't look at it because it's not about stacking those kinds of things. It's the same even with the businesses. I can tell you more about the businesses we have that are broken than I can about the ones that are working well. For whatever reason, my focus is always on the things that aren't quite right rather than on the things that are.

Sam Parr

"You're interesting to me because you come off like a fairly conservative person—meaning, like, super well-operated. And yet there's this other side of you that comes off like a *gunslinger*: like, "Screw it, put it all in red, let's do it." Sean's like...

Shaan Puri

A guy who I'll see at church every weekend, but who also has a *bookie* who calls him. It's like, "Whoa — okay, great, I like it." Yeah, that.

Ryan Deiss

This is very close to home, Sean. Thank you.

Sam Parr

Alright, that's it. That's a pod.